TKR Timken Co

CANTON, Ohio, April 27 /PRNewswire-FirstCall/ -- The Timken Company (NYSE:TKR) today reported record first quarter sales of $1.35 billion, up 3 percent from the same period a year ago. First quarter net income increased 13 percent to $65.9 million, or $0.70 per diluted share, from $58.2 million, or $0.63 per diluted share, in the first quarter a year ago. (Logo: http://www.newscom.com/cgi-bin/prnh/19991012/TKRLOGO) Excluding special items, earnings per diluted share increased 11 percent to $0.71 from $0.64 in last year's first quarter. Special items in the first quarter included manufacturing restructuring and rationalization charges that totaled $4.8 million of pretax expense, compared to $1.1 million in the same period a year ago. "Our strong first quarter results reflect the ongoing strength of industrial markets and the performance of our steel business," said James W. Griffith, president and chief executive officer. "We are focused on accelerating profitable growth in industrial markets while repositioning our automotive portfolio to improve its earnings power." During the quarter, the company: - Set production and shipment records in the Steel Group; - Continued major capacity expansions for industrial products at several plant locations around the world; and - Made further progress relating to Automotive Group restructuring actions and manufacturing performance improvement. Total debt at March 31, 2006 was $768.5 million, or 32.8 percent of capital. Debt was higher than the 2005 year-end level of $721.0 million due to seasonal working capital requirements. Net debt at March 31, 2006 was $737.2 million, or 31.9 percent of capital. The company expects to end the year with lower net debt and leverage than last year. Industrial Group Results The Industrial Group had first quarter sales of $503.9 million, up 7 percent from $468.8 million for the same period last year. Industrial end markets showed broad strength, with the highest growth in the aerospace, distribution and heavy industry sectors. The Industrial Group's earnings before interest and taxes (EBIT) of $45.9 million were down 2 percent from $47.0 million in the first quarter of 2005. EBIT performance was negatively affected by higher manufacturing costs due to the ramp up of capacity additions and higher raw material and energy costs. While operating margins in the first quarter were lower than the same period a year ago, the company expects Industrial Group margins for the full year to improve over last year's levels. Automotive Group Results The Automotive Group's first quarter sales of $421.0 million were flat compared to the same period a year ago. Improved pricing was offset by lower volume due to decreased North American light truck production. The Automotive Group recorded a first quarter loss of $3.1 million compared to a loss of $5.1 million for the same period a year ago. The first quarter of 2006 was negatively impacted by a $3.5 million increase in the company's accounts receivable reserve for automotive industry credit exposure. The Automotive Group's results benefited from improved pricing and manufacturing performance. The company expects improved Automotive Group performance throughout the rest of the year. Steel Group Results Steel Group sales of $468.2 million were up slightly from record sales in the first quarter a year ago. Increased pricing and higher demand in aerospace, service center and energy markets were mostly offset by lower automotive sales. First quarter EBIT was a record $71.1 million, up 12 percent from $63.7 million for the same period last year. Price increases, improved sales mix and increased manufacturing productivity accounted for the strong performance. The company expects the Steel Group profitability for the year to approach last year's record performance. Outlook The company, which recently increased 2006 earnings estimates, expects continued strength in industrial markets, particularly in aerospace, energy, mining and rail. Margin improvement is expected in the Automotive and Industrial Groups, and Steel Group margin performance should approach last year's record levels. Earnings per diluted share, excluding special items, are estimated to be $0.75 to $0.80 for the second quarter. The company recently increased its 2006 earnings estimate to $2.80 to $2.95 per diluted share, excluding special items. Conference Call Information The company will host a conference call for investors and analysts today to discuss financial results. Conference Call: Thursday, April 27, 2006 11 a.m. Eastern Daylight Time Live Dial-In: 706-634-0975 (Call in 10 minutes prior to be included) Replay Dial-In through May 4, 2006: 706-645-9291 Conference ID: #5676501 Live Web cast: http://www.timken.com/investors About The Timken Company The Timken Company (NYSE:TKR) (http://www.timken.com/) keeps the world turning with innovative ways to make customers' products run smoother, faster and more efficiently. Timken's highly engineered bearings, alloy steels and related products and services turn up everywhere. With operations in 27 countries, sales of $5.2 billion in 2005 and 27,000 employees, Timken is Where You Turn(TM) for better performance. Certain statements in this news release (including statements regarding the Company's estimates and expectations) that are not historical in nature are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company cautions that actual results may differ materially from those projected or implied in forward-looking statements due to a variety of important factors, including: fluctuations in raw material and energy costs and the operation of the Company's surcharge mechanisms; the Company's ability to respond to the changes in its end markets; changes in the financial health of the Company's customers; and the impact on operations of general economic conditions, higher raw material and energy costs, fluctuations in customer demand and the Company's ability to achieve the benefits of its future and ongoing programs and initiatives, including the implementation of its Automotive Group restructuring, the rationalization of the Company's Canton bearing operations, manufacturing transformation and rationalization activities. These and additional factors are described in greater detail in the Company's Annual Report on Form 10-K for the year ended December 31, 2005, page 65. The Company undertakes no obligation to update or revise any forward-looking statement. Media Contact: Denise Bowler, Manager - Global Corporate & Financial Communications, Telephone: (330) 471-3485, Facsimile: (330) 471-4118, Investor Contact: Steve Tschiegg, Manager - Investor Relations, Telephone: (330) 471-7446, Facsimile: (330) 471-2797, CONSOLIDATED STATEMENT OF INCOME AS REPORTED ADJUSTED (1) (Thousands of U.S. dollars, except share data) (Unaudited) 1Q 06 1Q 05 1Q 06 1Q 05 Net sales $1,347,080 $1,304,540 $1,347,080 $1,304,540 Cost of products sold 1,056,658 1,031,566 1,056,658 1,031,566 Manufacturing rationalization/Reorgani- zation expenses - cost of products sold 3,036 1,124 - - Gross Profit $287,386 $271,850 $290,422 $272,974 Selling, administrative & general expenses (SG&A) 173,875 163,630 173,875 163,630 Manufacturing rationalization/Reorgani- zation expenses - SG&A 377 409 - - Impairment and restructuring 1,040 - - - Operating Income $112,094 $107,811 $116,547 $109,344 Other expense (4,771) (5,146) (4,771) (5,146) Special items - other (expense) income (308) 386 - - Earnings Before Interest and Taxes (EBIT)(2) $107,015 $103,051 $111,776 $104,198 Interest expense, net (11,602) (12,102) (11,602) (12,102) Income Before Income Taxes $95,413 $90,949 $100,174 $92,096 Provision for income taxes 29,473 32,714 33,158 33,155 Net Income $65,940 $58,235 $67,016 $58,941 Earnings Per Share $0.71 $0.64 $0.72 $0.65 Earnings Per Share- assuming dilution $0.70 $0.63 $0.71 $0.64 Average Shares Outstanding 92,942,082 90,804,936 92,942,082 90,804,936 Average Shares Outstanding-assuming dilution 94,010,483 91,871,363 94,010,483 91,871,363 (1) "Adjusted" statements exclude the impact of impairment and restructuring, manufacturing rationalization/reorganization and special charges and credits for all periods shown. BUSINESS SEGMENTS (Thousands of U.S. dollars) (Unaudited) 1Q 06 1Q 05 Industrial Group Net sales to external customers $503,444 $468,449 Intersegment sales 435 398 Total net sales $503,879 $468,847 Adjusted earnings before interest and taxes (EBIT) * (2) $45,885 $46,999 Adjusted EBIT Margin (2) 9.1% 10.0% Automotive Group Net sales to external customers $420,984 $420,265 Adjusted (loss) earnings before interest and taxes (EBIT) * (2) ($3,141) ($5,100) Adjusted EBIT (Loss) Margin (2) -0.7% -1.2% Steel Group Net sales to external customers $422,652 $415,826 Intersegment sales 45,530 51,605 Total net sales $468,182 $467,431 Adjusted earnings before interest and taxes (EBIT) * (2) $71,136 $63,725 Adjusted EBIT Margin (2) 15.2% 13.6% *Industrial Group, Automotive Group and Steel Group EBIT do not equal Consolidated EBIT due to intersegment adjustments which are eliminated upon consolidation. (2) EBIT is defined as operating income plus other income (expense). EBIT Margin is EBIT as a percentage of net sales. EBIT and EBIT margin on a segment basis exclude certain special items set forth above. EBIT and EBIT Margin are important financial measures used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. Management believes that reporting EBIT and EBIT Margin best reflect the performance of our business segments and EBIT disclosures are responsive to investors. Reconciliation of Total Debt to Net Debt and the Ratio of Net Debt to Capital: (Thousands of U.S. Dollars) (Unaudited) Mar 31, 2006 Dec 31, 2005 Short-term debt $208,237 $159,279 Long-term debt 560,286 561,747 Total Debt 768,523 721,026 Less: cash and cash equivalents (31,285) (65,417) Net Debt $737,238 $655,609 Shareholders' equity 1,572,222 1,497,067 Ratio of Total Debt to Capital 32.8% 32.5% Ratio of Net Debt to Capital (Leverage) 31.9% 30.5% This reconciliation is provided as additional relevant information about Timken's financial position. Capital is defined as debt plus shareholder's equity. Management believes Net Debt is more representative of Timken's indicative financial position, due to the amount of cash and cash equivalents. Reconciliation of GAAP net income and EPS - Basic and Diluted as previously disclosed. This reconciliation is provided as additional relevant information about the company's performance. Management believes adjusted net income and adjusted earnings per share are more representative of the company's performance and therefore useful to investors. Management also believes that it is appropriate to compare GAAP net income to adjusted net income in light of special items related to impairment and restructuring and manufacturing rationalization/reorganization costs, Continued Dumping and Subsidy Offset Act (CDSOA) receipts, and gain on the sale of non-strategic assets. First Quarter First Quarter 06 05 (Thousands of U.S. dollars, except share data) (Unaudited) $ EPS $ EPS assuming assuming dilution dilution Net income $65,940 $0.70 $58,235 $0.63 Pre-tax special items: Manufacturing rationalization/reorganization expenses - cost of products sold 3,036 0.03 1,124 0.01 Manufacturing rationalization/reorganization expenses - SG&A 377 - 409 - Impairment and restructuring 1,040 0.01 - - Special items - other expense (income): 308 - (386) - Provision for income taxes (3,685) ($0.03) (441) $0.00 Adjusted net income $67,016 $0.71 $58,941 $0.64 Reconciliation of Outlook Information - Expected earnings per diluted share for the second quarter and the full year exclude special items. Examples of such special items include impairment and restructuring, manufacturing rationalization/ reorganization expenses, gain on the sale of non-strategic assets, and payments under the CDSOA. It is not possible at this time to identify the potential amount or significance of these special items. We cannot predict whether we will receive any additional payments under the CDSOA in 2006 and if so, in what amount. If we do receive any additional CDSOA payments, they will most likely be received in the fourth quarter. CONSOLIDATED BALANCE SHEET Mar 31 Dec 31 (Thousands of U.S. dollars) (Unaudited) 2006 2005 ASSETS Cash & cash equivalents $31,285 $65,417 Accounts receivable 784,920 711,783 Inventories 1,045,580 998,368 Deferred income taxes 108,649 104,978 Other current assets 113,317 102,763 Total Current Assets $2,083,751 $1,983,309 Property, plant & equipment 1,535,583 1,547,044 Goodwill 204,892 204,129 Other assets 259,585 259,252 Total Assets $4,083,811 $3,993,734 LIABILITIES Accounts payable & other liabilities $524,228 $500,939 Short-term debt 208,237 159,279 Income Taxes 52,063 38,993 Accrued expenses 313,373 375,264 Total Current Liabilities $1,097,901 $1,074,475 Long-term debt 560,286 561,747 Accrued pension cost 236,481 246,692 Accrued postretirement benefits cost 518,047 513,771 Other non-current liabilities 98,874 99,982 Total Liabilities $2,511,589 $2,496,667 SHAREHOLDERS' EQUITY 1,572,222 1,497,067 Total Liabilities and Shareholders' Equity $4,083,811 $3,993,734 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the three months ended Mar 31 Mar 31 (Thousands of U.S. dollars) (Unaudited) 2006 2005 Cash Provided (Used) OPERATING ACTIVITIES Net Income $65,940 $58,235 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 51,601 $54,100 Other 3,632 ($273) Changes in operating assets and liabilities: Accounts receivable (70,316) ($82,242) Inventories (37,855) ($75,771) Other assets 314 ($11,870) Accounts payable and accrued expenses (43,891) $34,898 Foreign currency translation (gain) loss (6,101) 3,204 Net Cash Provided (Used) by Operating Activities ($36,676) ($19,719) INVESTING ACTIVITIES Capital expenditures ($41,073) ($32,363) Other 1,188 $288 Acquisitions - (6,556) Net Cash Used by Investing Activities ($39,885) ($38,631) FINANCING ACTIVITIES Cash dividends paid to shareholders ($14,026) ($13,686) Net proceeds from common share activity 6,132 $10,075 Net (payments) borrowings on credit facilities 49,175 65,462 Net Cash (Used) Provided by Financing Activities $41,281 $61,851 Effect of exchange rate changes on cash $1,148 ($2,700) Increase (Decrease) in Cash and Cash Equivalents (34,132) 801 Cash and Cash Equivalents at Beginning of Period $65,417 $50,967 Cash and Cash Equivalents at End of Period $31,285 $51,768 http://www.newscom.com/cgi-bin/prnh/19991012/TKRLOGO http://photoarchive.ap.org/ DATASOURCE: The Timken Company CONTACT: Denise Bowler, Manager - Global Corporate & Financial Communications, +1-330-471-3485, or Fax, +1-330-471-4118, or , or Steve Tschiegg, Manager - Investor Relations, +1-330-471-7446, or Fax, +1-330-471-2797, or , both of The Timken Company Web site: http://www.timken.com/

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