1.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended June 30, 2000.
Commission File No. 1-1169
THE TIMKEN COMPANY
Exact name of registrant as specified in its charter
Ohio 34-0577130
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
1835 Dueber Avenue, S.W., Canton, Ohio 44706-2798
Address of principal executive offices Zip Code
(330) 438-3000
Registrant's telephone number, including area code
Not Applicable
Former name, former address and former fiscal year if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months,
and (2) has been subject to such filing requirements for the past
90 days.
YES X NO
___ ___
Common shares outstanding at June 30, 2000, 60,586,153.
PART I. FINANCIAL INFORMATION 2.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
June 30 Dec. 31
2000 1999
ASSETS ---------- ----------
Current Assets (Thousands of dollars)
Cash and cash equivalents........................... $ 6,450 $ 7,906
Accounts receivable, less allowances,
(2000-$10,199; 1999-$9,497)......................... 406,157 339,326
Deferred income taxes............................... 38,929 39,706
Inventories (Note 2) ............................... 484,376 446,588
---------- ----------
Total Current Assets...................... 935,912 833,526
Property, Plant and Equipment....................... 2,907,983 2,912,733
Less allowances for depreciation................... 1,563,492 1,531,259
---------- ----------
1,344,491 1,381,474
Costs in excess of net assets of acquired business,
less amortization, (2000-$38,102; 1999-$34,879)..... 154,081 153,847
Other assets........................................ 75,488 72,471
---------- ----------
Total Assets.................................. $2,509,972 $2,441,318
========== ==========
LIABILITIES
Current Liabilities
Accounts payable and other liabilities.............. $248,285 $236,602
Short-term debt and commercial paper................ 181,620 122,547
Accrued expenses.................................... 176,514 198,512
---------- ----------
Total Current Liabilities................. 606,419 557,661
Noncurrent Liabilities
Long-term debt (Note 3) ............................ 305,908 327,343
Accrued pension cost................................ 115,087 76,005
Accrued postretirement benefits cost................ 396,705 394,084
Deferred income taxes............................... 19,279 6,147
Other noncurrent liabilities........................ 31,343 34,097
---------- ----------
Total Noncurrent Liabilities.............. 868,322 837,676
Shareholders' Equity (Note 4)
Common stock........................................ 262,282 273,199
Earnings invested in the business................... 852,239 836,916
Accumulated other comprehensive income.............. (79,290) (64,134)
---------- ----------
Total Shareholders' Equity................ 1,035,231 1,045,981
Total Liabilities and Shareholders' Equity.... $2,509,972 $2,441,318
========== ==========
<TABLE>
PART I. FINANCIAL INFORMATION Continued 3.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended Three Months Ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
---------- ---------- -------- --------
(Thousands of dollars, except per share data)
<C> <C> <C> <C> <C>
Net sales................................................... $1,379,054 $1,261,469 $693,263 $636,099
Cost of products sold....................................... 1,091,613 1,015,309 550,787 516,498
---------- ---------- -------- --------
Gross Profit............................................. 287,441 246,160 142,476 119,601
Selling, administrative and general expenses................ 185,260 177,111 91,115 87,781
Impairment and restructuring................................ 18,081 - 3,322 -
---------- ---------- -------- --------
Operating Income......................................... 84,100 69,049 48,039 31,820
Interest expense............................................ (14,693) (13,525) (7,471) (6,869)
Interest income............................................. 1,109 1,148 560 721
Other income (expense)...................................... (6,240) (6,163) (3,585) (2,748)
---------- ---------- -------- --------
Income Before Income Taxes............................... 64,276 50,509 37,543 22,924
Provision for income taxes (Note 6)......................... 26,996 21,666 16,303 10,660
---------- ---------- -------- --------
Net Income............................................... $37,280 $28,843 $21,240 $12,264
========== ========== ======== ========
Earnings Per Share * .................................... $0.61 $0.47 $0.35 $0.20
Earnings Per Share - assuming dilution **............... $0.61 $0.46 $0.35 $0.20
Dividends Per Share...................................... $0.36 $0.36 $0.18 $0.18
========== ========== ======== ========
* Average shares outstanding............................... 60,969,469 61,884,046 60,837,740 61,906,626
** Average shares outstanding - assuming dilution........... 61,171,114 62,122,559 61,103,848 62,224,795
</TABLE>
PART I. FINANCIAL INFORMATION Continued 4.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
Cash Provided (Used) June 30 June 30
2000 1999
------- -------
OPERATING ACTIVITIES (Thousands of dollars)
Net Income............................................. $37,280 $28,843
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 75,894 73,652
Provision (credit) for deferred income taxes.......... 15,312 (10,904)
Stock issued in lieu of cash to employee benefit plans 60 3,394
Non-cash portion of impairment and restructuring
charges.............................................. 16,445 -
Changes in operating assets and liabilities:
Accounts receivable.................................. (71,932) (6,300)
Inventories.......................................... (45,032) 36,541
Other assets......................................... (10,549) (3,309)
Accounts payable and accrued expenses................ 30,064 23,660
Foreign currency translation......................... (738) 2,823
------- -------
Net Cash Provided by Operating Activities........... 46,804 148,400
INVESTING ACTIVITIES
Purchases of property, plant and equipment - net...... (57,055) (88,065)
Acquisitions.......................................... - (27,939)
------- -------
Net Cash Used by Investing Activities............... (57,055) (116,004)
FINANCING ACTIVITIES
Cash dividends paid to shareholders................... (21,957) (22,284)
Purchase of treasury shares........................... (10,977) (339)
Payments on long-term debt............................ (1,453) (279)
Proceeds from issuance of long-term debt.............. 2,061 2,723
Short-term debt activity - net........................ 41,585 7,570
------- -------
Net Cash Provided (Used) by Financing Activities.... 9,259 (12,609)
Effect of exchange rate changes on cash................ (464) (530)
(Decrease) increase in Cash and Cash Equivalents....... (1,456) 19,257
Cash and Cash Equivalents at Beginning of Period....... 7,906 320
------- -------
Cash and Cash Equivalents at End of Period............. $ 6,450 $19,577
======= =======
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 5.
Note 1 -- Basis of Presentation
The accompanying consolidated condensed financial statements (unaudited) for
the Timken Company (the "company") have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) and disclosures considered necessary
for a fair presentation have been included. For further information, refer to
the consolidated financial statements and footnotes included in the company's
annual report on Form 10-K for the year ended December 31, 1999.
6/30/00 12/31/99
Note 2 -- Inventories -------- ---------
(Thousands of dollars)
Finished products $179,114 $172,682
Work-in-process and raw materials 267,382 235,251
Manufacturing supplies 37,880 38,655
-------- --------
$484,376 $446,588
======== ========
Note 3 -- Long-term Debt 6/30/00 12/31/99
-------- ---------
(Thousands of dollars)
State of Ohio Pollution Control Revenue Refunding Bonds,
maturing on July 1, 2003. The variable interest
rate is tied to the bank's tax exempt weekly interest
rate. The rate at June 30, 2000 is 4.75%. $17,000 $17,000
State of Ohio Water Development Revenue Refunding
Bond, maturing on May 1, 2007. The variable interest
rate is tied to the bank's tax exempt weekly interest
rate. The rate at June 30, 2000 is 4.80%. 8,000 8,000
State of Ohio Air Quality and Water Development Revenue
Refunding Bonds, maturing on June 1, 2001. The
variable interest rate is tied to the bank's tax
exempt weekly interest rate. The rate at
June 30, 2000 is 4.80%. 21,700 21,700
State of Ohio Water Development Authority Solid Waste
Revenue Bonds, maturing on July 2, 2032. The
variable interest rate is tied to the bank's tax
exempt weekly interest rate. The rate at
June 30, 2000 is 4.85%. 24,000 24,000
Fixed Rate Medium-Term Notes, Series A, due at various
dates through May, 2028 with interest rates ranging
from 6.20% to 7.76%. 252,000 252,000
Other 10,419 9,957
-------- --------
333,119 332,657
Less: Current Maturities 27,211 5,314
-------- --------
$305,908 $327,343
======== ========
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited)
Continued 6.
Note 4 -- Shareholders' Equity 6/30/00 12/31/99
-------- --------
Class I and Class II serial preferred stock (Thousands of dollars)
without par value:
Authorized -- 10,000,000 shares each class
Issued - none $ - $ -
Common Stock without par value:
Authorized -- 200,000,000 shares
Issued (including shares in treasury)
2000 - 63,082,626 shares
1999 - 63,082,626 shares
Stated Capital 53,064 53,064
Other paid-in capital 258,347 258,287
Less cost of Common Stock in treasury
2000 - 2,496,472 shares
1999 - 1,886,537 shares 49,129 38,152
-------- --------
$262,282 $273,199
======== ========
<TABLE>
An analysis of the change in capital and earnings invested in the business is as follows:
Common Stock Earnings Accumulated
Other Invested Other
Stated Paid-In in the Comprehensive Treasury
Capital Capital Business Income Stock Total
------- -------- -------- ---------- -------- ----------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1999 $53,064 $258,287 $836,916 ($64,134) ($38,152) $1,045,981
Net Income 37,280 37,280
Foreign currency translation adjustment (15,156) (15,156)
----------
Total comprehensive income 22,124
Dividends - $.36 per share (21,957) (21,957)
Stock Options, employee benefit and dividend
reinvestment plans: 60 (10,977) (10,917)
Treasury - acquired 641,200 shares, net
------- -------- -------- ---------- -------- ----------
Balance June 30, 2000 $53,064 $258,347 $852,239 ($79,290) ($49,129) $1,035,231
======= ======== ======== ========== ======== ==========
The total comprehensive income for the three months ended June 30, 2000 and 1999 was $10,927,000 and
$8,150,000, respectively. Total comprehensive income for the six months ended June 30, 1999 was $11,180,000.
</TABLE>
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 7.
Continued
Note 5 -- Impairment and Restructuring Charges
In March 2000, the company announced an acceleration of its global
restucturing to position itself for profitable growth, streamline
operations, reduce costs and improve European profitability. This
restructuring is expected to save the company approximately $35 million
annually before taxes by the end of 2001. Employee severance, exit costs,
non-cash impairment and reorganization charges of an estimated $55 million
before taxes are expected to be recorded over the next one to two years.
Of this amount, approximately $35 million is anticipated as impairment
and restructuring charges, and the remaining $20 million will be
classified as either cost of products sold or selling, administrative
and general expense.
Of the $21.6 million recorded through June 2000, $18.1 million were
restructuring and impairment charges related to the global restucturing
acceleration. In addition, reorganization expenses of $3.5 million were
recorded with $2.9 million related to bearing operations and $0.6 million
related to steel operations.
Impairment charges of $13.5 million reflected costs associated with the
consolidation of operations as well as abandoned acquisition, affiliation
and divestiture efforts. The restructuring charges of $4.6 million primarily
relate to the severance costs associated with the future termination of 120
positions in Europe and the U.S. Of the 120 positions to be terminated, 31
have exited as of June 30, 2000. The remaining positions are expected to exit
by the end of the first quarter of 2001. Payments charged against the
restructuring liability through the end of the second quarter were $1.6 million,
resulting in an accrual balance of $3 million.
Key elements of the restructuring and impairment charges by industry through
June are as follows (in thousands of dollars):
Bearing Steel Total
Restructuring: -------- --------- ---------
Separation costs - operations $ 2,220 $ - $ 2,220
Separation costs - administration 1,898 419 2,317
Exit costs 38 - 38
-------- --------- ---------
$ 4,156 $ 419 $ 4,575
Impaired assets:
Property, plant and equipment 764 8,526 9,290
Abandoned acquisitions 214 4,002 4,216
-------- --------- ---------
$ 978 $ 12,528 $ 13,506
-------- --------- ---------
$ 5,134 $ 12,947 $ 18,081
======== ========= =========
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 8.
Continued
Note 6 -- Income Tax Provision Six Months Ended Three Months Ended
June 30 June 30 June 30 June 30
2000 1999 2000 1999
-------- -------- -------- --------
U.S. (Thousands of dollars)
Federal $18,841 $17,455 $11,910 $8,349
State & Local 965 1,421 460 386
Foreign 7,190 2,790 3,933 1,925
------- ------- ------- -------
$26,996 $21,666 $16,303 $10,660
======= ======= ======= =======
Taxes provided exceed the U.S. statutory rate primarily due to state and
local taxes and losses without current tax benefits. The restructuring charges
are increasing the company's annualized income tax rate above 1999 levels due
to the inability to tax effect certain current foreign losses.
Note 7 -- Segment Information
(Thousands of Dollars) Six Months Ended Three Months Ended
June 30 June 30 June 30 June 30
Bearings 2000 1999 2000 1999
-------- -------- -------- --------
Net sales to external customers $936,408 $890,155 $466,034 $451,438
Depreciation and amortization 42,093 41,003 20,806 20,517
Earnings before interest and taxes 58,769 43,319 26,636 20,070
Interest expense (12,069) (10,503) (6,536) (5,423)
Interest income 1,211 1,203 599 755
Steel
Net sales to external customers 442,646 371,314 227,229 184,661
Intersegment sales 106,914 103,643 51,332 48,265
Depreciation and amortization 33,801 32,649 16,867 16,538
Earnings before interest and taxes 19,526 18,279 16,735 7,250
Interest expense (5,579) (4,568) (2,917) (2,252)
Interest income 2,854 1,492 1,943 773
Profit Before Taxes
Total EBIT for reportable segments 78,295 61,598 43,371 27,320
Interest expense (14,693) (13,525) (7,471) (6,869)
Interest income 1,109 1,148 560 721
Intersegment adjustments (435) 1,288 1,083 1,752
Income before income taxes 64,276 50,509 37,543 22,924
<PAGE>
9.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
---------------------
The Timken Company reported net sales of $693.3 million for the second
quarter of 2000, an increase of 9% from $636.1 million in 1999's second
quarter. Net income increased by 72% to $21.2 million compared to
$12.3 million in the second quarter of 1999. In the second quarter
of 2000, the company incurred total pretax charges of $4.8 million
related to the company's restructuring and reorganization. These
charges included $3.3 million related to restructuring and impairment
charges and $1.5 million related to reorganization expenses, which were
reflected in the company's cost of products sold and selling,
administrative and general expenses for the quarter.
The increase in sales volume resulted from continued improvement in North
American industrial markets as well as strengthening demand in
international markets such as Latin America and Asia. The North American
automotive industry remained strong through the quarter although the
heavy truck sector showed signs of weakening.
Gross profit was $142.5 million (20.6% of net sales) in the second quarter
of 2000, compared to $119.6 million (18.8% of net sales) in 1999's second
quarter. The effect of higher sales volumes combined with a more
favorable product mix in industrial and aftermarket products contributed
to the increase.
Selling, administrative and general expenses were $91.1 million (13.1% of
net sales) in the second quarter of 2000, compared to $87.8 million
(13.8% of net sales) recorded in 1999's second quarter. This increase
in total expenses resulted primarily from increased expenses for Timken
India Limited, in which the company acquired a majority interest in
March 1999, and reorganization expense related to the company's realignment
of businesses into global units.
Pursuant to the acceleration of the company's global restructuring
announced in March 2000, $21.6 million of the estimated $55 million pretax
charge was recorded in the first half of 2000. The pretax charge
included $18.1 million in restructuring and impairment charges,
$12.5 million of which related to the impairment of domestic steel assets,
with the balance primarily being bearing severance expense. Also included
was $3.5 million in reorganization expense, primarily selling, administrative
and general expenses related to the realignment of the bearing business
into global units. The remainder of the impairment and restructuring
charges are anticipated to be recorded over the next three quarters,
with full impact of savings from these programs realized by the end of 2001.
<PAGE>
10.
Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont.)
The restructuring is utilizing initiatives to improve competitiveness,
promote profitable worldwide growth and transform the company into
global business units. These initiatives include rationalization of
plants and businesses to reduce asset intensity as well as streamlining
the management structure. Of the 600 positions to be eliminated
worldwide, 120 have been identified, primarily in Europe and the U.S.,
with 31 actual terminations to date. Payments charged against the
$4.6 million restructuring liability through the end of the second
quarter of 2000 were $1.6 million, resulting in an accrual balance
of $3 million.
Other income (expense) reflected higher expense in the second quarter
of 2000 due primarily to higher transactional foreign currency
exchange losses recorded in the second quarter of 2000 related to the
strength of the U.S. dollar and British pound against other weakened
currencies.
Bearings
Bearings' net sales were $466 million in the second quarter of 2000,
up 3.2% compared to $451.4 million recorded in the year-earlier period.
Sales increased as a result of the continued recovery of North American
industrial demand and strengthening in international markets such as
Asia and Latin America, which offset the softening of sales in the
North American rail and aerospace industries.
North American automotive sales were relatively flat compared to the
second quarter of 1999. Although North American passenger car and
light truck markets remained strong through the second quarter, the
heavy truck industry showed signs of weakening. Sales in the North
American industrial sector, which includes original equipment and
aftermarket, increased 13% from the year-ago period. This continued
the upward trend begun in the first quarter of 2000, following weakened
industrial bearing sales during 1999. Sales in Latin America were
higher by 24% and sales in Asia Pacific increased by 16%. However,
aerospace and super-precision bearing sales in the second quarter of
2000 decreased 3% compared to the same period a year ago. In addition,
North American railroad sales declined by 13%.
Excluding Bearings' portion of the impairment and restructuring charge
as well as reorganization expense, Bearings' EBIT was $31.2 million,
up 55.2% from 1999's second quarter. Including these charges,
Bearings' earnings before interest and income taxes (EBIT) for the
second quarter was $26.6 million, compared to $20.1 million in the
second quarter of 1999. One of the major factors contributing to this
<PAGE>
11.
Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont.)
increase was the increased sales volume in the second quarter of 2000
compared to the same period a year-ago. Additionally, there has been
a shift in the product mix attributable to the increased sales in the
industrial sector, which is related to increased production to cover
depleted dealer stock in construction and farm equipment as well as
the increase in aftermarket business fueled by the recovery in Latin
and North America.
Bearings' selling and administrative expenses in the second quarter of
2000 were higher than the year-ago quarter due primarily to the
increased expenses for Timken India Limited, in which the company
acquired a majority interest in March 1999, and reorganization expense.
Steel
Steel's net sales, including intersegment sales were $278.6 million in
the second quarter of 2000, an increase of 19.6% from the $232.9 million
recorded a year earlier. Sales in the second quarter of 2000 were the
strongest since the second quarter of 1998. The second quarter of 2000
reflected the continued strength in the automotive and bearings industries
and stronger sales in the industrial, aerospace, oil and service center
markets. Sales to oil country customers increased three times from a low
base in the second quarter of 1999 while service center sales increased
by more than 137%. Sales to oil country and service center customers
were favorably impacted in the current quarter because of the increase
in oil prices, which has caused an increase in active oil rigs. As a
result, the replenishment of distributor inventory has caused this
increase in sales. In the second quarter of 1999, these customers
reduced excess inventories and sales were markedly depressed. Sales to
external bearing customers were up by approximately 30%. Industrial
sales increased almost 34%. For automotive customers, second quarter
2000 sales of precision steel components were higher by about 10%
whereas alloy steel automotive sales decreased slightly by about 5%
from the second quarter of 1999.
Excluding Steel's portion of the impairment and restructuring charge and
reorganization expense, Steel's EBIT was $16.9 million, more than double
the EBIT in the second quarter of 1999. Steel's EBIT was $16.7 million in
the second quarter of 2000 compared to $7.3 million in 1999's second quarter.
Second quarter 2000 included impairment and restructuring charges related
primarily to administrative severance costs. Higher sales volume as well as
controlling of business costs in the second quarter more than offset the
effect of higher scrap prices and other manufacturing costs.
<PAGE>
12.
Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont.)
Financial Condition
-------------------
Total assets as shown on the Consolidated Condensed Balance Sheets
increased by approximately $69 million from December 31, 1999. Inventory
balances at the end of the second quarter were higher compared to year-
end 1999 levels. The number of days' supply in inventory increased by
three days to 111 days at June 30, 2000, compared to 108 days at
December 31, 1999. Bearings' and Steel's inventories both increased
approximately three days.
As shown on the Consolidated Condensed Statement of Cash Flows, the
increase in inventories required $45 million of cash during the first six
months of 2000. Accounts receivable increased by $71.9 million since
December 31, 1999, reflecting the higher level of sales in the first half
of 2000. The number of days' sales in receivables as of June 30, 2000,
increased approximately 1 day compared to December 31, 1999. Cash was
provided as a result of a $30.1 million increase in accounts payable and
accrued expenses due primarily to higher accruals for pension liabilities
related to the labor union agreement ratified in the first quarter of 2000
and an increase in amounts payable to suppliers. Purchases of property,
plant and equipment used $57.1 million of cash in the first six months of
2000, below the $88.1 million spent during the same period in 1999. The
company expects the level of spending to increase this year to support
industry leadership strategies and improvement in core businesses
incorporating growth and profitability.
The 32% debt-to-total-capital ratio at June 30, 2000, was higher than the
30.1% at year-end 1999. Debt increased by $37.6 million during the first
six months of 2000 to $487.5 million at June 30, 2000. In addition to
capital expenditures, cash was used to fund working capital, pay dividends
to shareholders, and buy back shares of common stock as authorized under
the company's 1998 common stock purchase plan. Short-term borrowing and
issuance of medium-term notes should meet future cash needs that exceed cash
generated from operations. Total shareholders' equity decreased by approx-
imately $10.8 million since December 31, 1999. The $37.3 million increase
in equity from net income was offset by the $15.1 million foreign currency
translation adjustment as well as the payment of approximately $22 million
in dividends and the $11 million net effect of transactions involving
the company's treasury shares of common stock. The increase in the foreign
currency translation adjustment was mainly a result of the fluctuation in
exchange rates for currencies such as the British pound, Euro and Australian
and Canadian dollars.
<PAGE>
13.
Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont.)
Other Information
-----------------
The industry's antidumping duty orders covering imports of tapered roller
bearings from Japan, China, Hungary and Romania were reviewed by U.S.
government agencies to determine whether dumping and injury to the
domestic industry are likely to continue or recur if orders were to be
revoked. These reviews commenced in April 1999, and the company has actively
participated in the proceedings. In early June 2000, the U.S. International
Trade Commission (ITC) voted to revoke the antidumping orders on imports
of tapered roller bearings from Japan, Romania and Hungary. The ITC
determined that revocation of the antidumping duty orders on tapered roller
bearings from those countries was not likely to lead to continuation or
recurrence of material injury to the domestic industry within a reasonably
foreseeable time. The ITC upheld the antidumping duty order against China.
The company has filed an appeal of the ITC's decision regarding Japan. If
following the revocation of the orders and contrary to the ITC's finding,
injurious dumping from these countries continues or recurs, the improved
conditions of trade of tapered roller bearings in the U.S., which resulted
from the existing orders, would deteriorate. If injurious dumping does occur,
such dumping could have a material adverse effect on the company's business,
financial condition or results of operations. The company would explore
alternatives to remedy this material adverse effect as the law provides for
expedited investigations in cases where an order was revoked as a result
of this review.
The ITC separately extended the antidumping duty orders on ball bearings
from Germany, France, Japan and several other countries. These extended
orders should continue to provide the company's aerospace business with
fair competition for these products in the U.S.
Assets and liabilities of subsidiaries, other than Timken Romania which
is considered to operate in a highly inflationary economy, are translated
at the rate of exchange in effect on the balance sheet date; income and
expenses are translated at the average rates of exchange prevailing
during the quarter. Related translation adjustments are reflected as a
separate component of accumulated other comprehensive income. Foreign
currency gains and losses resulting from transactions and the translation
of financial statements are included in the results of operations.
Foreign currency exchange losses included in the company's operating
results for the first six months of 2000 totaled $0.6 million compared
to $7.1 million in the year-ago period. The January 1999 devaluation
of the Brazilian Real contributed to 1999's foreign currency losses;
however, the company's operations in France and the United Kingdom
<PAGE>
14.
Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont.)
recorded the most significant translation losses. Also, in the first
half of 2000, the company recorded a foreign currency translation
adjustment of $15.1 million that reduced shareholders' equity compared
to a foreign currency translation adjustment of $17.7 million in the
first half of 1999. Continued weakening currencies in many of the
countries in which the company operates caused the adjustments in the
first half of 2000.
During the second quarter of 2000, the company purchased 403,900 shares
of its common stock to be held in treasury as authorized under the
company's 1998 common stock purchase plan. To date, 3.3 million shares
of the 4 million shares authorized have been purchased pursuant to the
plan. The authorization to purchase shares under the 1998 plan expires
December 31, 2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletion (SAB) No. 101, "Revenue Recognition." SAB No. 101
provides guidance on numerous revenue recognition issues and is required
to be adopted by the company in the fourth quarter of 2000. The company
has not yet determined its effects, if any, on its operations or
financial position.
The statements set forth in this document that are not historical in
nature are forward-looking statements. The company cautions readers that
actual results may differ materially from those projected or implied in
forward-looking statements made by or on behalf of the company due to a
variety of important factors, such as:
a) changes in world economic conditions. This includes, but is not
limited to, the potential instability of governments and legal
systems in countries in which the company conducts business and
significant changes in currency valuations.
b) the effects of changes in customer demand on sales, product mix, and
prices. This includes the effects of customer strikes, the impact
of changes in industrial business cycles and whether conditions of
fair trade continue in the U.S. market, in light of the ITC voting
in June 2000 to revoke the antidumping orders on imports of tapered
roller bearings from Japan, Romania and Hungary.
c) competitive factors, including changes in market penetration, the
introduction of new products by existing and new competitors, and
new technology that may impact the way the company's products are
sold or distributed.
<PAGE>
15.
Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont.)
d) changes in operating costs. This includes the effect of changes in
the company's manufacturing processes; changes in costs associated
with varying levels of operations; changes resulting from inventory
management and cost reduction initiatives and different levels of
customer demands; the effects of unplanned work stoppages; changes
in the cost of labor and benefits; and the cost and availability of
raw materials and energy.
e) the success of the company's operating plans, including its ability
to achieve the benefits from its ongoing continuous improvement and
rationalization programs; its ability to integrate acquisitions into
company operations; the ability of recently acquired companies to
achieve satisfactory operating results; its ability to maintain
appropriate relations with unions that represent company associates
in certain locations in order to avoid disruptions of business and its
ability to successfully implement its new organizational structure.
e) unanticipated litigation, claims or assessments. This includes, but
is not limited to, claims or problems related to product warranty
and environmental issues.
f) changes in worldwide financial markets to the extent they affect the
company's ability or costs to raise capital, have an impact on the
overall performance of the company's pension fund investments and/or
cause changes in the economy which affect customer demand.
<PAGE>
16.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
10 Consulting agreement entered into with Robert L.
Leibensperger
10.1 Consulting agreement entered into with John Schubach
11 Computation of Per Share Earnings
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
The company did not file any reports on Form 8-K during the three
months ended June 30, 2000.
<PAGE>
17.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
The Timken Company
_______________________________
Date August 11, 2000 BY /s/ W. R. Timken, Jr.
________________________ _______________________________
W. R. Timken, Jr.,
Director and Chairman;
Chief Executive Officer
Date August 11, 2000 BY /s/ G. E. Little
________________________ _______________________________
G. E. Little
Senior Vice President - Finance
