TKR Timken Co

Timken Third Quarter Sales Up 17% From Prior Year CANTON, Ohio, Oct. 25 /PRNewswire-FirstCall/ -- The Timken Company today announced sales of $1.1 billion for the third quarter of 2004, up 17 percent compared with the prior year. Earnings in the third quarter were $0.19 per diluted share, compared with a loss of $0.01 a year ago. Excluding special items, adjusted earnings per diluted share were $0.27, compared to $0.04 last year. This was consistent with prior company estimates of $0.25 to $0.30 per diluted share, excluding special items. These special items, which related primarily to the Torrington integration, included $11 million of pretax expense in the third quarter of 2004, compared to $8 million of pretax expense a year ago. (Logo: http://www.newscom.com/cgi-bin/prnh/19991012/TKRLOGO ) "The continuing strength of this economic upturn was evident in the third quarter," said James W. Griffith, president and chief executive officer. "We are benefiting from operational improvements made over the past year and synergies of the Torrington acquisition. We have been challenged by the speed of the upturn in market demand and unprecedented high raw material costs, but are actively addressing these issues to improve customer service and leverage the increased volume." For the first nine months, sales were $3.3 billion, an increase of 20 percent from the prior year. Timken completed its $840 million acquisition of The Torrington Company on February 18, 2003. Adjusted on a pro forma basis including Torrington for the full nine months of 2003, sales were up 14 percent. Earnings per diluted share for the first nine months were $0.79 in 2004, compared with $0.17 in 2003. Excluding special items, earnings per diluted share in the first nine months of 2004 were $0.91, versus $0.40 in 2003. Special items in 2004 included $25.8 million of pretax expense, primarily related to the Torrington integration. This was partially offset by $7.7 million of pretax income received under the Continued Dumping and Subsidy Offset Act. For the first nine months of 2004, the company achieved pretax integration savings of $56 million through purchasing synergies, workforce consolidation and other integration actions. Based on the annualized savings of $75 million, the company remains on track to achieve its $80 million target in 2005. Total debt at September 30, 2004 was $914 million. After deducting cash and cash equivalents, net debt was $861 million, or 42.9 percent of capital. Net debt was higher than the June 30, 2004 level of $784 million due to cash contributions to pension plans and working capital requirements. The company expects the ratio of net debt to capital at year-end to be lower than last year's level of 39.3 percent. Automotive Group Results For the third quarter, Automotive Group sales were $371 million, up 7 percent from $347 million in the third quarter of last year. Sales in light vehicle applications were up from last year due to new product launches, despite a 7 percent reduction in North American light vehicle production and a flat European market. Medium and heavy truck demand continued to be strong, driven by a 25 percent increase in North American vehicle production. The Automotive Group had a third-quarter loss before interest and taxes of $7.1 million, compared with a loss of $8.5 million the prior year. Despite higher sales and continued productivity improvements, results were negatively affected by rising raw material costs. The group recovered a portion of raw material cost increases through surcharges and pricing programs and is aggressively pursuing further recovery. For the first nine months of 2004, Automotive Group sales were up 17 percent from the first nine months of last year. Including pro forma results for Torrington, sales were up 7 percent. EBIT for the first nine months was $17.8 million - or 1.5 percent of sales - compared with 0.7 percent a year ago. Industrial Group Results For the third quarter, Industrial Group sales were $414 million, up 7 percent from $387 million last year. The Industrial Group recorded strong sales increases across most market sectors, with the strongest growth in construction, agriculture and rail. EBIT was $45.2 million, compared to $35.1 million last year, while the EBIT margin improved to 10.9 percent from 9.1 percent a year ago. Increased volumes, lower operating costs and improved pricing all contributed to the EBIT increase. The group continues to focus on adding capacity and improving sales mix to meet strong demand for industrial products. For the first nine months of 2004, Industrial Group sales were up 17 percent from a year ago. Including pro forma results for Torrington, sales were up 10 percent. EBIT for the first nine months of 2004 was $130.3 million - or 10.3 percent of - sales compared to 7.7 percent in the first nine months of 2003. Steel Group Results For the third quarter, Steel Group sales were a record $355 million, up 50 percent from $237 million last year. Approximately $50 million of the sales increase resulted from increased demand, with the balance due to price increases and surcharges to recover continuing high costs for scrap, alloys and energy. The strongest market sectors for the group were aerospace, oil production and industrial. EBIT was $16.8 million, compared to a loss of $5.6 million last year, while EBIT margin improved to 4.7 percent from a negative 2.4 percent a year ago. Productivity and volume increases contributed positively to results. Continued price increases are expected to improve earnings in 2005. For the first nine months, Steel Group sales were up 29 percent over the first nine months of last year. EBIT for the first nine months was $22.5 million - or 2.3 percent of sales - compared to a negative 0.2 percent of sales last year. Third Quarter and Nine Month Net Sales As Reported and Pro Forma The following table summarizes the company's sales for the third quarter and year to date on a reported and pro forma basis for Torrington. Pro forma (Dollars in Third Third Nine Nine Millions) Quarter Quarter % Months Months % 2004 2003 Change 2004 2003 (1) Change Automotive Group $371 $347 7% $1,191 $1,109 7% Industrial Group 414 387 7% 1,262 1,145 10% Steel Group 355 237 50% 995 769 29% Less: Intersegment sales (43) (33) (122) (105) Consolidated $1,097 $938 17% $3,326 $2,918 14% (1) Pro forma net sales for the nine months 2003 include Torrington net sales for all of 2003, including sales prior to the acquisition of Torrington on February 18, 2003. The net sales by business group for the period prior to the acquisition are $88 million for the Automotive Group and $63 million for the Industrial Group. Timken net sales to Torrington prior to the acquisition have been excluded. Management believes this comparison is helpful for investors to evaluate nine months 2004 net sales compared to nine months 2003 net sales, as if Timken had acquired Torrington on January 1, 2003. Outlook The company expects demand to remain strong in all of its business groups and to continue benefiting from operating improvements. The company's earnings estimate for the full year, excluding special items, is $1.20 to $1.25 per diluted share, compared to the previous estimate of $1.15 to $1.25. Conference Call Information The company will host a conference call for investors and analysts today to discuss financial results. Conference Call: Monday, October 25, 2004 11 a.m. Eastern Time All Callers: Live Dial-In (706) 634-0975 (Call in 10 minutes prior to be included.) Replay Dial-In Through October 31, 2004: (706) 645-9291 Replay Passcode: 1031989 Live Webcast: http://www.timken.com/ The Timken Company (NYSE:TKR) ( http://www.timken.com/ ) is a leading global manufacturer of highly engineered bearings and alloy steels and a provider of related products and services with operations in 27 countries. A Fortune 500 company, Timken recorded 2003 sales of $3.8 billion and employed approximately 26,000 at year-end. Certain statements in this news release (including statements regarding the Company's forecasts, beliefs and expectations) that are not historical in nature are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, the statements contained in the paragraph under the heading "Outlook" are forward-looking. 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: uncertainties in both timing and amount, if any, of actual benefits realized through the integration of Torrington with Timken's operations and the timing and amount of the resources required to achieve those results; the Company's ability to mitigate the impact of higher material costs through surcharges and/or price increases and the possible loss of business that could result; and the impact on operations of general economic conditions, higher raw material and energy costs, the cyclicality of the Company's business, fluctuations in customer demand and the Company's ability to achieve the benefits of its ongoing programs, including the implementation of its manufacturing transformation and rationalization activities. These and additional factors are described in greater detail in the Company's Prospectus Supplements dated February 11, 2003 and October 15, 2003 relating to the offerings of the Company's common stock, in the Company's Annual Report on Form 10-K for the year ended December 31, 2003, in the Company's 2003 Annual Report, page 58, and in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2004. The Company undertakes no obligation to update or revise any forward-looking statement. Media Contact: Denise L. Bowler, Manager - Associate & Financial Communications, (330) 471-3485, http://www.timken.com/media Investor Contact: Kevin R. Beck, Manager - Investor Relations, (330) 471-7181 CONSOLIDATED STATEMENT OF INCOME (Thousands of U.S. dollars, except share data) AS REPORTED Nine Months Nine Months 3Q 04 3Q 03 04 03 Net sales $1,096,724 $938,012 $3,325,796 $2,766,272 Cost of products sold (2) 911,681 790,161 2,730,267 2,312,291 Integration/Reorganization expenses - cost of products sold 998 241 3,374 10,540 Gross Profit $184,045 $147,610 $592,155 $443,441 Selling, administrative & general expenses (SG&A) (2) 128,507 123,601 408,355 358,033 Integration/Reorganization expenses - SG&A 6,499 4,853 16,745 18,385 Impairment and restructuring 2,939 1,883 3,998 2,736 Operating Income $46,100 $17,273 $163,057 $64,287 Other expense (4,892) (6,485) (19,000) (8,380) Special items - other (expense) income (719) (974) 6,076 2,197 Earnings Before Interest and Taxes (EBIT) (3) $40,489 $9,814 $150,133 $58,104 Interest expense, net (12,323) (11,939) (35,175) (34,796) Income (Loss) Before Income Taxes $28,166 ($2,125) $114,958 $23,308 Provision for income taxes 10,703 (850) 43,684 9,323 Net Income (Loss) $17,463 ($1,275) $71,274 $13,985 Earnings Per Share $0.19 ($0.01) $0.79 $0.17 Earnings Per Share- assuming dilution $0.19 ($0.01) $0.79 $0.17 Average Shares Outstanding 90,166,612 85,568,394 89,706,620 81,109,433 Average Shares Outstanding-assuming dilution 91,058,739 85,568,394 90,579,359 81,285,394 (1) "Adjusted" statements exclude the impact of impairment and restructuring, integration/reorganization and special charges and credits for all periods shown. (2) The nine months of 2003 results include a reclassification of $7,496 from cost of products sold to selling, administrative and general expenses for Torrington engineering and research and development expenses to be consistent with Timken's cost classification methodology. CONSOLIDATED STATEMENT OF INCOME (Thousands of U.S. dollars, except share data) ADJUSTED (1) Nine Months Nine Months 3Q 04 3Q 03 04 03 Net sales $1,096,724 $938,012 $3,325,796 $2,766,272 Cost of products sold (2) 911,681 790,161 2,730,267 2,312,291 Integration/Reorganization expenses - cost of products sold - - - - Gross Profit $185,043 $147,851 $595,529 $453,981 Selling, administrative & general expenses (SG&A) (2) 128,507 123,601 408,355 358,033 Integration/Reorganization expenses - SG&A - - - - Impairment and restructuring - - - - Operating Income $56,536 $24,250 $187,174 $95,948 Other expense (4,892) (6,485) (19,000) (8,380) Special items - other (expense) income - - - - Earnings Before Interest and Taxes (EBIT) (3) $51,644 $17,765 $168,174 $87,568 Interest expense, net (12,323) (11,939) (35,175) (34,796) Income (Loss) Before Income Taxes $39,321 $5,826 $132,999 $52,772 Provision for income taxes 14,942 2,214 50,540 20,053 Net Income (Loss) $24,379 $3,612 $82,459 $32,719 Earnings Per Share $0.27 $0.04 $0.92 $0.40 Earnings Per Share- assuming dilution $0.27 $0.04 $0.91 $0.40 Average Shares Outstanding 90,166,612 85,568,394 89,706,620 81,109,433 Average Shares Outstanding-assuming dilution 91,058,739 85,568,394 90,579,359 81,285,394 (1) "Adjusted" statements exclude the impact of impairment and restructuring, integration/reorganization and special charges and credits for all periods shown. (2) The nine months of 2003 results include a reclassification of $7,496 from cost of products sold to selling, administrative and general expenses for Torrington engineering and research and development expenses to be consistent with Timken's cost classification methodology. BUSINESS SEGMENTS Nine Months Nine Months (Thousands of U.S. dollars) 3Q 04 3Q 03 04 03 Automotive Group Net sales to external customers $370,876 $346,804 $1,190,641 $1,021,458 Impairment and restructuring - - - - Integration/Reorganization expenses - - - - Adjusted earnings before interest and taxes (EBIT) * (3) ($7,148) ($8,459) $17,782 $7,398 Adjusted EBIT Margin (3) -1.9% -2.4% 1.5% 0.7% Industrial Group Net sales to external customers $413,589 $386,407 $1,261,274 $1,080,951 Intersegment sales 416 136 983 481 Total net sales $414,005 $386,543 $1,262,257 $1,081,432 Impairment and restructuring - - - - Integration/Reorganization expenses - - - - Adjusted earnings before interest and taxes (EBIT) * (3) $45,200 $35,100 $130,277 $83,489 Adjusted EBIT Margin (3) 10.9% 9.1% 10.3% 7.7% Steel Group Net sales to external customers $312,259 $204,801 $873,881 $663,863 Intersegment sales 43,044 31,815 121,147 105,371 Total net sales $355,303 $236,616 $995,028 $769,234 Impairment and restructuring - - - - Integration/Special expenses - - - - Adjusted earnings before interest and taxes (EBIT) * (3) $16,760 ($5,609) $22,510 ($1,826) Adjusted EBIT Margin (3) 4.7% -2.4% 2.3% -0.2% * Automotive Group, Industrial Group and Steel Group EBIT do not equal Consolidated EBIT due to intersegment adjustments which are eliminated upon consolidation. (3) 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) Sep 30, Jun 30, Dec 31, 2004 2004 2003 Short-term debt $261,547 $237,933 $121,194 Long-term debt 652,800 613,628 613,446 Total Debt 914,347 851,561 734,640 Less: cash and cash equivalents (52,871) (67,469) (28,626) Net Debt $861,476 $784,092 $706,014 Net debt $861,476 $706,014 Shareholders' equity 1,145,526 1,089,627 Net debt + shareholders' equity (Capital) $2,007,002 $1,795,641 Ratio of Net Debt to Capital 42.9% 39.3% This reconciliation is provided as additional relevant information about Timken's financial position. Management believes Net Debt is more representative of Timken's financial position, due to a temporary increase in 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 integration/reorganization costs, one-time gains/losses on sales of assets, Continued Dumping and Subsidy Offset Act (CDSOA) receipts and payments. (Thousands of U.S. dollars, except share data) 3Q 04 3Q 03 $ EPS $ EPS Net income $17,463 $0.19 ($1,275) ($0.01) Pre-tax special items: Integration expense - cost of products sold 998 0.01 241 0.00 Integration expenses - SG&A 6,499 0.07 4,853 0.06 Impairment and restructuring 2,939 0.03 1,883 0.02 Special items - other (income) expense: CDSOA repayment - - - - CDSOA receipts, net of expenses - - - - Adoption of FIN 46 for investment in PEL - - - - Loss (Gain) on sale of assets - - - - Acquisition-related unrealized currency exchange gains - - - - Prior restructuring accrual reversal - - 974 0.01 Other 719 0.01 - - Tax effect of special items (4,239) (0.04) (3,064) (0.04) Adjusted net income $24,379 $0.27 $3,612 $0.04 (4) In the first quarter of 2004, Timken adopted Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51" (FIN 46). Timken concluded that its investment in a joint venture, PEL, was subject to the provisions of FIN 46 and that Timken was the primary beneficiary of PEL. Accordingly, Timken consolidated PEL, effective March 31, 2004, which resulted in a charge to earnings related to the cumulative effect of change in accounting principle. (Thousands of U.S. dollars, except share data) Nine Months 04 03 $ EPS $ EPS Net income $71,274 $0.79 $13,985 $0.17 Pre-tax special items: Integration expense - cost of products sold 3,374 0.04 10,540 0.13 Integration expenses - SG&A 16,745 0.18 18,385 0.23 Impairment and restructuring 3,998 0.04 2,736 0.03 Special items - other (income) expense: - CDSOA repayment - - 2,808 0.03 CDSOA receipts, net of expenses (7,743) (0.09) - - Adoption of FIN 46 for investment in PEL 948 (4) 0.01 - - Loss (Gain) on sale of assets - - (3,107) (0.04) Acquisition-related unrealized currency exchange gains - - (1,930) (0.02) Prior restructuring accrual reversal - - 32 0.00 Other 719 0.01 - - Tax effect of special items (6,856) (0.07) (10,730) (0.13) Adjusted net income $82,459 $0.91 $32,719 $0.40 (4) In the first quarter of 2004, Timken adopted Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51" (FIN 46). Timken concluded that its investment in a joint venture, PEL, was subject to the provisions of FIN 46 and that Timken was the primary beneficiary of PEL. Accordingly, Timken consolidated PEL, effective March 31, 2004, which resulted in a charge to earnings related to the cumulative effect of change in accounting principle. Calculation of Timken Company Nine Months 2003 Pro forma Net Sales (Thousands of U.S. Dollars) Nine Months 04 Nine Months 03 Timken Timken Impact of Timken Company, Company, Torrington Company, As Reported As Reported Acquisition (5) Pro forma Automotive Group Net sales to external customers $1,190,641 $1,021,458 $87,721 $1,109,179 Industrial Group Net sales to external customers $1,261,274 $1,080,951 $63,522 $1,144,473 Intersegment sales 983 481 - 481 Total net sales $1,262,257 $1,081,432 $63,522 $1,144,954 Steel Group Net sales to external customers $873,881 $663,863 - $663,863 Intersegment sales 121,147 105,371 - 105,371 Total net sales $995,028 $769,234 - $769,234 Consolidated Net sales to external customers $3,325,796 $2,766,272 $151,243 $2,917,515 (5) Impact of Torrington Acquisition represents Torrington sales for 2003 prior to the acquisition. Timken sales to Torrington prior to the acquisition have been excluded. This is consistent with the methodology used to calculate pro forma financial results in 2003. Allocation of net sales within the business groups was calculated using the ratio of first quarter 2003 net sales subsequent to the acquisition. Management believes this comparison is helpful for investors to evaluate nine months 2004 sales compared to nine months 2003 sales, as if Timken had acquired Torrington on January 1, 2003. Reconciliation of Outlook Information - Expected earnings per diluted share for the full year exclude special items. Examples of such special items include impairment and restructuring, integration/reorganization expenses 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 2004 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 Sep 30 Dec 31 (Thousands of U.S. dollars) 2004 2003 ASSETS Cash & cash equivalents $52,871 $28,626 Accounts receivable 710,218 602,262 Deferred income taxes 48,421 50,271 Inventories 798,316 695,946 Total Current Assets $1,609,826 $1,377,105 Property, plant & equipment 1,560,567 1,608,594 Goodwill 207,195 173,099 Other assets 542,105 530,991 Total Assets $3,919,693 $3,689,789 LIABILITIES Accounts payable & other liabilities $523,816 $425,157 Short-term debt 261,547 121,194 Accrued expenses 394,730 508,205 Total Current Liabilities $1,180,093 $1,054,556 Long-term debt 652,800 613,446 Accrued pension cost 420,376 424,414 Accrued postretirement benefits cost 490,486 476,966 Other non-current liabilities 30,412 30,780 Total Liabilities $2,774,167 $2,600,162 SHAREHOLDERS' EQUITY 1,145,526 1,089,627 Total Liabilities and Shareholders' Equity $3,919,693 $3,689,789 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the three For the nine months ended months ended Sep 30 Sep 30 Sep 30 Sep 30 (Thousands of U.S. dollars) 2004 2003 2004 2003 Cash Provided (Used) OPERATING ACTIVITIES Net Income $17,463 ($1,275) $71,274 $13,985 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 51,579 57,060 156,916 146,012 Other 398 69 6,153 4,287 Changes in operating assets and liabilities: Accounts receivable (17,659) (18,360) (121,331) (57,524) Inventories (71,857) 5,713 (91,705) (13,036) Other assets 14,298 (1,905) 15,269 (6,068) Accounts payable and accrued expenses (15,317) (77,797) (50,048) (76,383) Foreign currency translation (gain) loss (1,567) (2,070) 1,742 (11,793) Net Cash Used by Operating Activities ($22,662) ($38,565) ($11,730) ($520) INVESTING ACTIVITIES Capital expenditures ($39,533) ($29,095) ($95,229) ($80,802) Other (386) 1,676 (297) 12,700 Proceeds from disposals of equity investments - 146,335 - 146,335 Acquisitions (2,409) (4,953) (10,233) (723,905) Net Cash (Used) Provided by Investing Activities ($42,328) $113,963 ($105,759) ($645,672) FINANCING ACTIVITIES Cash dividends paid to shareholders ($11,725) ($11,124) ($35,014) ($30,500) Issuance of common stock for acquisition - - - 180,010 Net borrowings (payments) on credit facilities 60,453 (79,278) 172,641 449,997 Net Cash Provided (Used) by Financing Activities $48,728 ($90,402) $137,627 $599,507 Effect of exchange rate changes on cash $1,664 $602 $4,107 $2,678 (Decrease) Increase in Cash and Cash Equivalents (14,598) (14,402) 24,245 (44,007) Cash and Cash Equivalents at Beginning of Period $67,469 $52,445 $28,626 $82,050 Cash and Cash Equivalents at End of Period $52,871 $38,043 $52,871 $38,043 http://www.newscom.com/cgi-bin/prnh/19991012/TKRLOGO http://photoarchive.ap.org/ DATASOURCE: The Timken Company CONTACT: Media, Denise L. Bowler, Manager - Associate & Financial Communications, +1-330-471-3485, or Investor, Kevin R. Beck, Manager - Investor Relations, +1-330-471-7181, both of The Timken Company Web site: http://www.timken.com/ http://www.timken.com/media

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