CANTON, Ohio, Oct. 26 /PRNewswire-FirstCall/ -- The Timken Company
today reported record third quarter sales of $1.3 billion, up 15
percent from $1.1 billion last year. Net income of $39.8 million or
$0.43 per diluted share, was more than double last year's third
quarter net income of $17.5 million or $0.19 per diluted share.
Excluding special items, earnings per diluted share of $0.58 were
more than double the $0.27 per diluted share reported a year ago.
Special items in the third quarter of 2005 totaled $28.3 million of
pretax expense, which was primarily for restructuring automotive
operations as well as for industrial manufacturing rationalization.
(Logo: http://www.newscom.com/cgi-bin/prnh/19991012/TKRLOGO ) "We
delivered strong performance this quarter as we continued to
capitalize on the ongoing strength of global industrial markets,"
said James W. Griffith, president and CEO. "While we had record
third quarter results in the Industrial and Steel Groups, our
Automotive Group performance continued to be challenged." "We are
focusing our growth initiatives to take advantage of the strong
industrial demand. We have continued to add industrial bearing
capacity around the world and invest in acquisitions in key markets
to complement organic growth," Mr. Griffith said. "The record
performance in our steel business reflects leveraging strong demand
in industries such as aerospace and energy. In our automotive
operations, we began our restructuring program to reduce fixed
costs and improve performance as we deal with the difficult
environment in the North American automotive industry." For the
first nine months of 2005, sales were $3.9 billion, an increase of
17 percent from the prior year. Earnings per diluted share for the
first nine months were $1.79 in 2005 versus $0.79 in 2004.
Excluding special items, earnings per diluted share in the first
nine months of 2005 were $1.99 versus $0.91 in 2004. Special items
in the first nine months of 2005 totaled $33.1 million of pretax
expense, compared to $18.0 million a year ago. The company's
effective tax rate for the first nine months was 31.4 percent, down
from 34.8 percent in the first half due primarily to benefits
related to export tax incentives as well as improved earnings in
certain foreign jurisdictions. Excluding special items, the
effective tax rate for the first nine months was 33.1 percent. The
company expects to maintain this rate going forward. Total debt on
September 30, 2005 was $802.6 million, or 36.4 percent of capital.
Total debt was reduced $39.5 million from the end of the second
quarter. The company expects to continue to reduce its debt levels
and leverage during the fourth quarter. Industrial Group Results
For the third quarter, Industrial Group sales were $468.2 million,
up 13 percent from $414.0 million last year. Sales grew in all
industrial segments, with the largest increases in distribution and
rail. Earnings before interest and taxes (EBIT) increased to $47.4
million from last year's $45.2 million, reflecting higher volume
and pricing. EBIT margin was 10.1 percent, compared to 10.9 percent
a year ago, reflecting higher costs to support the company's growth
initiatives, the impact of currency and higher incentive
compensation. The company expects EBIT margin to improve in the
fourth quarter to levels above last year. During the quarter, the
Industrial Group expanded operations in Wuxi, China to serve
industrial customers with spherical bearings. In October, the
company continued to expand its aftermarket services business with
the acquisition of Bearing Inspection, Inc., which provides bearing
inspection and overhaul services to the aerospace industry. During
the quarter, the company also reached a new four-year agreement
with the United Steelworkers union, covering employees in its
Canton-area bearing and steel plants. As a result of the contract
settlement, the company has refined its plans to rationalize the
Canton bearing operations. This initiative is expected to deliver
annual pretax savings of approximately $25 million through
streamlining operations and workforce reductions, with costs of
approximately $35 to $40 million over the next four years. For the
first nine months of 2005, Industrial Group sales were $1.4
billion, up 14 percent from a year ago, while EBIT for the first
nine months of 2005 increased to $158.1 million - or 11.0 percent
of sales - compared to 10.3 percent in the first nine months of
2004. Automotive Group Results Automotive Group sales were $408.0
million, up 10 percent from $370.9 million in the third quarter of
last year. The increase in sales was due to improved pricing and
growth in heavy truck volumes. The Automotive Group reported a loss
before interest and taxes of $6.0 million, compared to a loss of
$7.1 million the prior year. EBIT margin in the third quarter
improved 40 basis points to a negative 1.5 percent from the same
period a year ago. The Automotive Group has made progress with
improved pricing offsetting high raw material costs. However, the
Group was negatively affected by currency and the impact of
Delphi's Chapter 11 filing. The company expects the Automotive
Group to return to profitability in the fourth quarter. During the
third quarter, the Automotive Group announced restructuring plans,
including closing of facilities, workforce reductions and combining
and relocating engineering resources. Additional announcements are
expected in coming months. The restructuring initiative is targeted
to deliver annual pretax savings of approximately $40 million, with
costs of approximately $80 to $90 million over two years. For the
first nine months of 2005, Automotive Group sales were $1.3
billion, up 5 percent from the first nine months of last year. The
Group recorded a loss of $12.4 million for the first nine months,
compared to EBIT of $17.8 million in the first nine months of 2004.
Steel Group Results The Steel Group had record third quarter sales
of $427.9 million, up 20 percent from $355.3 million last year. The
increase was due to strong demand in industrial, aerospace and
energy segments as well as price increases and surcharges to
recover high raw material costs. The Steel Group reported record
third quarter EBIT of $49.7 million, compared to $16.8 million last
year. EBIT margin was 11.6 percent, compared to 4.7 percent a year
ago. Price increases, surcharges for scrap steels and alloys,
increased volume and high labor productivity drove the strong EBIT
performance. While scrap costs fell below last year's extremely
high levels, alloy costs increased from a year ago. The company
continues to expect lower profitability in the fourth quarter due
to seasonal factors. For the first nine months, Steel Group sales
were $1.3 billion, up 35 percent over the same period last year.
EBIT for the first nine months was $170.2 million - or 12.7 percent
of sales - compared to 2.3 percent of sales in the first nine
months of 2004. Outlook The company is increasing its full-year
earnings estimate, excluding special items, to $2.55 to $2.65 per
diluted share from the prior estimate of $2.40 to $2.55. Strong
industrial markets should continue to benefit Industrial and Steel
Group performance in the fourth quarter. The company also expects
to see continued improvement in its Automotive Group, despite the
challenging environment in the North American automotive industry.
In commenting on the financial outlook, Mr. Griffith said: "We
expect to continue benefiting from our participation in diverse
industrial markets. In particular, increased activity in mining,
oil and gas and other energy-related markets should result in
additional demand for our products." Conference Call Information
The company will host a conference call for investors and analysts
today to discuss financial results. Conference Call: Wednesday,
October 26, 2005 11:00 a.m. Eastern Daylight Time All Callers: Live
Dial-In: 706-634-0975 (Call in 10 minutes prior to be included)
Replay Dial-In through November 2, 2005: 706-645-9291 Conference
ID: 3420213 Live Web cast: http://www.timken.com/ 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 - on land, on the seas and in space. With operations in
27 countries, sales of $4.5 billion in 2004 and 26,000 employees,
Timken is Where You Turn(TM) for better performance. Certain
statements in this news release (including statements regarding the
Company's forecasts, 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. In
particular, the statements related to expected savings and costs of
the Company's initiatives and expectations concerning the Company's
financial performance, as well as 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 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 the industrial markets; changes in the financial health
of the Company's customers; changes in the Company's effective tax
rate; 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, 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, 2004, in the Company's 2004
Annual Report, page 64 and in the Company's Form 10-Q for the
quarter ended June 30, 2005. The Company undertakes no obligation
to update or revise any forward-looking statement. For more
information, media, Denise Bowler, Manager - Associate &
Financial Communications, 330-471-3485, or fax, 330-471-4118, or ,
or investors, Steve Tschiegg, Manager - Investor Relations,
330-471-7446, or fax, 330-471-2797, or , both of The Timken
Company; for additional information: http://www.timken.com/media or
http://www.timken.com/investors CONSOLIDATED STATEMENT OF INCOME
(Thousands of U.S. dollars, AS REPORTED except share data) Nine
Months Nine Months 3Q 05 3Q 04 05 04 Net sales $1,258,133
$1,096,724 $3,887,351 $3,325,796 Cost of products sold 1,002,705
911,681 3,076,089 2,730,267 Manufacturing
rationalization/Integration/ Reorganization expenses - cost of
products sold 3,017 998 10,189 3,374 Gross Profit $252,411 $184,045
$801,073 $592,155 Selling, administrative & general expenses
(SG&A) 162,231 128,507 487,325 408,355 Manufacturing
rationalization/Integration/ Reorganization expenses - SG&A 790
6,499 1,477 16,745 Impairment and restructuring 24,451 2,939 24,407
3,998 Operating Income $64,939 $46,100 $287,864 $163,057 Other
expense (4,265) (4,892) (12,433) (19,000) Special items - other
(expense) income (8) (719) 2,987 6,076 Earnings Before Interest and
Taxes (EBIT) (2) $60,666 $40,489 $278,418 $150,133 Interest
expense, net (11,968) (12,323) (37,157) (35,175) Income Before
Income Taxes $48,698 $28,166 $241,261 $114,958 Provision for income
taxes 8,867 10,703 75,861 43,684 Net Income $39,831 $17,463
$165,400 $71,274 Earnings Per Share $0.43 $0.19 $1.81 $0.79
Earnings Per Share- assuming dilution $0.43 $0.19 $1.79 $0.79
Average Shares Outstanding 91,688,231 90,166,612 91,238,444
89,706,620 Average Shares Outstanding-assuming dilution 92,821,344
91,058,739 92,181,013 90,579,359 CONSOLIDATED STATEMENT OF INCOME
(Thousands of U.S. dollars, ADJUSTED (1) except share data) Nine
Months Nine Months 3Q 05 3Q 04 05 04 Net sales $1,258,133
$1,096,724 $3,887,351 $3,325,796 Cost of products sold 1,002,705
911,681 3,076,089 2,730,267 Manufacturing
rationalization/Integration/ Reorganization expenses - cost of
products sold - - - - Gross Profit $255,428 $185,043 $811,262
$595,529 Selling, administrative & general expenses (SG&A)
162,231 128,507 487,325 408,355 Manufacturing
rationalization/Integration/ Reorganization expenses - SG&A - -
- - Impairment and restructuring - - - - Operating Income $93,197
$56,536 $323,937 $187,174 Other expense (4,265) (4,892) (12,433)
(19,000) Special items - other (expense) income - - - - Earnings
Before Interest and Taxes (EBIT) (2) $88,932 $51,644 $311,504
$168,174 Interest expense, net (11,968) (12,323) (37,157) (35,175)
Income Before Income Taxes $76,964 $39,321 $274,347 $132,999
Provision for income taxes 23,501 14,942 90,809 50,540 Net Income
$53,463 $24,379 $183,538 $82,459 Earnings Per Share $0.58 $0.27
$2.01 $0.92 Earnings Per Share- assuming dilution $0.58 $0.27 $1.99
$0.91 Average Shares Outstanding 91,688,231 90,166,612 91,238,444
89,706,620 Average Shares Outstanding-assuming dilution 92,821,344
91,058,739 92,181,013 90,579,359 (1) "Adjusted" statements exclude
the impact of impairment and restructuring, manufacturing
rationalization/integration/reorganization expenses and special
charges and credits for all periods shown. BUSINESS SEGMENTS
(Thousands of U.S. 3Q 05 3Q 04 Nine Months Nine Months dollars) 05
04 Industrial Group Net sales to external customers $467,774
$413,589 $1,433,746 $1,261,274 Intersegment sales 435 416 1,461 983
Total net sales $468,209 $414,005 $1,435,207 $1,262,257 Adjusted
earnings before interest and taxes (EBIT) * (2) $47,444 $45,200
$158,072 $130,277 Adjusted EBIT Margin (2) 10.1% 10.9% 11.0% 10.3%
Automotive Group Net sales to external customers $407,959 $370,876
$1,254,173 $1,190,641 Adjusted (loss) earnings before interest and
taxes (EBIT) * (2) ($6,040) ($7,148) ($12,357) $17,782 Adjusted
EBIT (Loss) Margin (2) -1.5% -1.9% -1.0% 1.5% Steel Group Net sales
to external customers $382,400 $312,259 $1,199,432 $873,881
Intersegment sales 45,512 43,044 141,248 121,147 Total net sales
$427,912 $355,303 $1,340,680 $995,028 Adjusted earnings before
interest and taxes (EBIT) * (2) $49,698 $16,760 $170,171 $22,510
Adjusted EBIT Margin (2) 11.6% 4.7% 12.7% 2.3% * 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 Total Debt and Net Debt to
Capital: (Thousands of U.S. Dollars) Sep 30, June 30, Dec 31, 2005
2005 2004 Short-term debt $269,441 $232,487 $158,690 Long-term debt
533,169 609,627 620,634 Total Debt 802,610 842,114 779,324 Less:
cash and cash equivalents (63,105) (66,980) (50,967) Net Debt
$739,505 $775,134 $728,357 Shareholders' equity 1,403,930 1,342,163
1,269,848 Ratio of Total Debt to Capital 36.4% 38.6% 38.0% Ratio of
Net Debt to Capital (Leverage) 34.5% 36.6% 36.5% This
reconciliation is provided as additional relevant information about
Timken's financial position. Capital is defined as debt plus
shareholders' equity. Management believes Net Debt is more
representative of Timken's indicative 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 manufacturing
rationalization/integration/reorganization costs, Continued Dumping
and Subsidy Offset Act (CDSOA) receipts, and loss (gain) on the
sale of non- strategic assets. (Thousands of U.S. dollars, except
3Q 05 3Q 04 share data) $ EPS $ EPS Net income $39,831 $0.43
$17,463 $0.19 Pre-tax special items: Manufacturing
rationalization/integration/ reorganization expenses - cost of
products sold 3,017 0.03 998 0.01 Manufacturing
rationalization/integration/ reorganization expenses - SG&A 790
0.01 6,499 0.07 Impairment and restructuring 24,451 0.26 2,939 0.03
Special items - other (income) expense: Loss (Gain) on sale of non-
strategic assets 35 - - - CDSOA receipts, net of expenses - - - -
Adoption of FIN 46 for investment in PEL - - - - Other (27) - 719
0.01 Tax effect of special items (14,634) (0.15) (4,239) (0.04)
Adjusted net income $53,463 $0.58 $24,379 $0.27 Nine Months
(Thousands of U.S. dollars, 05 04 except share data) $ EPS $ EPS
Net income $165,400 $1.79 $71,274 $0.79 Pre-tax special items:
Manufacturing rationalization/integration/ reorganization expenses
- cost of products sold 10,189 0.11 3,374 0.04 Manufacturing
rationalization/integration/ reorganization expenses - SG&A
1,477 0.02 16,745 0.18 Impairment and restructuring 24,407 0.26
3,998 0.04 Special items - other (income) expense: Loss (Gain) on
sale of non- strategic assets (2,535) (0.03) - - CDSOA receipts,
net of expenses - - (7,743) (0.09) Adoption of FIN 46 for
investment in PEL - - 948 (3) 0.01 Other (452) - 719 0.01 Tax
effect of special items (14,948) (0.16) (6,856) (0.07) Adjusted net
income $183,538 $1.99 $82,459 $0.91 (3) 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. 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, manufacturing
rationalization/integration/reorganization expenses, loss (gain) on
the sale of non-strategic assets, and receipts 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 2005 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) 2005 2004 ASSETS Cash & cash equivalents $63,105
$50,967 Accounts receivable 791,729 717,425 Deferred income taxes
94,821 90,066 Inventories 1,004,939 874,833 Total Current Assets
$1,954,594 $1,733,291 Property, plant & equipment 1,516,325
1,583,425 Goodwill 190,200 189,299 Other assets 446,703 408,056
Total Assets $4,107,822 $3,914,071 LIABILITIES Accounts payable
& other liabilities $514,255 $504,585 Short-term debt 269,441
158,690 Accrued expenses 503,247 353,623 Total Current Liabilities
$1,286,943 $1,016,898 Long-term debt 533,169 620,634 Accrued
pension cost 324,954 468,644 Accrued postretirement benefits cost
504,425 490,366 Other non-current liabilities 54,401 47,681 Total
Liabilities $2,703,892 $2,644,223 SHAREHOLDERS' EQUITY 1,403,930
1,269,848 Total Liabilities and Shareholders' Equity $4,107,822
$3,914,071 CONDENSED CONSOLIDATED STATEMENT OF For the three For
the nine CASH FLOWS months ended months ended Sep 30 Sep 30 Sep 30
Sep 30 (Thousands of 2005 2004 2005 2004 U.S. dollars) Cash
Provided (Used) OPERATING ACTIVITIES Net Income $39,831 $17,463
$165,400 $71,274 Adjustments to reconcile net income to net cash
provided (used) by operating activities: Depreciation and
amortization 53,066 51,579 160,765 156,916 Other 207 398 (4,203)
6,153 Changes in operating assets and liabilities: Accounts
receivable 13,460 (17,659) (110,262) (121,331) Inventories (37,512)
(71,857) (162,106) (91,705) Other assets 146 12,885 (28,473) 851
Accounts payable and accrued expenses 2,176 (15,317) 78,992
(50,048) Foreign currency translation (gain) loss (1,854) (1,567)
5,581 1,742 Net Cash Provided (Used) by Operating Activities
$69,520 ($24,075) $105,694 ($26,148) INVESTING ACTIVITIES Capital
expenditures ($45,379) ($39,533) ($128,605) ($95,229) Other 2,937
(386) 6,847 (297) Proceeds from disposals of non- strategic assets
848 - 11,729 - Acquisitions (73) (2,409) (6,629) (10,233) Net Cash
Used by Investing Activities ($41,667) ($42,328) ($116,658)
($105,759) FINANCING ACTIVITIES Cash dividends paid to shareholders
($13,824) ($11,725) ($41,238) ($35,014) Proceeds from exercise of
stock options 18,160 3,542 30,740 13,744 Net (payments) borrowings
on credit facilities (37,533) 58,324 38,399 173,315 Net Cash (Used)
Provided by Financing Activities ($33,197) $50,141 $27,901 $152,045
Effect of exchange rate changes on cash $1,469 $1,664 ($4,799)
$4,107 (Decrease) Increase in Cash and Cash Equivalents (3,875)
(14,598) 12,138 24,245 Cash and Cash Equivalents at Beginning of
Period $66,980 $67,469 $50,967 $28,626 Cash and Cash Equivalents at
End of Period $63,105 $52,871 $63,105 $52,871
http://www.newscom.com/cgi-bin/prnh/19991012/TKRLOGO
http://photoarchive.ap.org/ DATASOURCE: The Timken Company CONTACT:
News media contact: Denise Bowler, Manager - Associate &
Financial Communications, 330-471-3485, or fax, 330-471-4118, or ,
investors, Steve Tschiegg, Manager - Investor Relations,
330-471-7446, or fax, 330-471-2797, or Web site:
http://www.timken.com/
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