Timken Company Announces Record Second Quarter Results; Raises
Outlook CANTON, Ohio, July 28 /PRNewswire-FirstCall/ -- The Timken
Company today reported a 17 percent increase in sales and more than
doubling of earnings per share for the second quarter of 2005,
compared to a year ago. "We are pleased to report both record sales
and second-quarter earnings per share. As these results
demonstrate, we have leveraged the strength of the industrial
markets we serve, while improving competitiveness," said James W.
Griffith, president and CEO. Timken reported second-quarter sales
of $1.3 billion, compared to $1.1 billion last year, and net income
of $67.3 million or $0.73 per diluted share, up from $25.3 million
or $0.28 per diluted share a year ago. Excluding special items,
earnings per diluted share were $0.77, compared to $0.33 per
diluted share last year. Special items in the second quarter of
2005 totaled $3.7 million of pretax expense, including expenses for
manufacturing rationalization, integration and reorganization,
partially offset by a gain on the sale of a non-strategic business.
"While we are seeing strong industrial markets, automotive markets
continue to be challenging. We have benefited from actions to
improve our position, including price increases to recoup high raw
material costs. However, these efforts have not been enough to
offset significant changes occurring in the automotive industry. As
a result, we are taking more aggressive actions. Over the next
quarter, we will announce detailed plans to globally restructure
our Automotive Group to reduce fixed costs, with targeted annual
savings of approximately $40 million," Mr. Griffith said. For the
first half of 2005, sales were $2.6 billion, an increase of 18
percent from the prior year. Earnings per diluted share for the
first six months were $1.37 in 2005, versus $0.60 in 2004.
Excluding special items, earnings per diluted share in the first
half of 2005 were $1.42, versus $0.64 in 2004. Special items in the
first half of 2005 totaled $4.8 million of pretax expense, compared
to $6.9 million a year ago. Excluding special items, the company's
effective tax rate for the first half of 2005 was 34.1 percent,
down from 36.0 percent in the first quarter, due to higher earnings
in low tax-rate jurisdictions. The company expects to maintain its
rate from the first half. Total debt at June 30, 2005 was $842.1
million, or 38.6 percent of capital. Debt was higher than the 2004
year-end level of $779.3 million due to seasonality and higher
working capital requirements to support growth. The company expects
its leverage to be lower at the end of this year compared to last
year. Industrial Group Results For the second quarter, Industrial
Group sales were $498.2 million, up 14 percent from $437.7 million
last year. Sales growth was strongest in distribution, rail, mining
and agriculture. In addition to strong market demand, results
reflect the benefit of the company's focus on profitable growth
through new products and market expansion. During the quarter, the
Industrial Group introduced a new line of Timken(R) industrial oil
seals and expanded its maintenance tool line into the U.S. and
Canada. Earnings before interest and taxes (EBIT) increased to
$63.6 million, up 29 percent from last year's $49.3 million. EBIT
margin improved to 12.8 percent from 11.3 percent a year ago.
Driving margin improvement was increased volume, favorable mix that
reflected higher distribution sales and improved pricing. For the
first half of 2005, Industrial Group sales were $967.0 million, up
14 percent from a year ago, while EBIT for the first half of 2005
increased to $110.6 million - or 11.4 percent of sales - compared
to 10.0 percent in the first half of 2004. Automotive Group Results
Automotive Group sales were $425.9 million, up 5 percent from
$404.2 million in the second quarter of last year. Increased sales
into medium and heavy truck markets were partially offset by
decreases in light vehicle markets. The Automotive Group reported a
loss before interest and taxes of $1.2 million, compared with EBIT
of $6.6 million the prior year. Despite improved pricing, the
decline in earnings was due principally to reduced unit volume from
light vehicle customers and the impact of high raw material costs.
Over the next quarter, the Automotive Group will announce detailed
plans to restructure operations, which will reduce fixed costs.
Restructuring actions are expected to require approximately two
years to complete. These actions are targeted to deliver annual
savings of approximately $40 million, with expected net workforce
reductions of 400 to 500 positions and restructuring costs of $80
to $90 million. For the first half of 2005, Automotive Group sales
were $846.2 million, up 3 percent from the first half of last year.
The Group recorded a loss of $6.3 million for the first half,
compared to EBIT of $24.9 million in the first half of 2004. Steel
Group Results For the second quarter, Steel Group sales were $445.3
million, up 35 percent from $330.4 million last year. The sales
growth in the alloy and specialty steel businesses reflected strong
demand from industrial customers as well as price increases and
surcharges to recover high raw material and energy costs. EBIT was
$56.7 million compared to $3.0 million last year. Increased volume,
price increases, surcharges and continued high labor productivity
drove the strong EBIT performance. During the quarter, the company
also benefited from its investment in the new continuous rolling
mill at its specialty steel operation in Latrobe, Pennsylvania.
Last year's second quarter EBIT was reduced by nearly $8 million
due to an unplanned shutdown of the Faircrest steel plant. For the
first half, Steel Group sales were $912.8 million, up 43 percent
over the first half of last year. EBIT for the first half was a
record $120.5 million - or 13.2 percent of sales - compared to 0.9
percent of sales in the first half of 2004. Steel Group's second
half results are expected to be lower than the record first half
due to seasonality and lower raw material surcharges. Outlook As a
result of the company's strong second-quarter performance and
improved outlook for the year, the company is estimating
third-quarter earnings per diluted share, excluding special items,
of $0.50 to $0.55 and increasing its full-year estimates to $2.40
to $2.55 from $2.05 to $2.20. The improved outlook reflects
continued strong industrial markets, benefiting the Industrial and
Steel Groups, which should more than offset continued challenges
within automotive markets. Conference Call Information The company
will host a conference call for investors and analysts today to
discuss financial results. Conference Call: Thursday, July 28, 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 August 4, 2005: 706-645-9291 Conference ID: 3420202
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 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: the results of the Company's discussions with the union
that represents Company associates at the Canton area manufacturing
facilities and possible loss of future business due to uncertainty
concerning the Company's labor situation; fluctuations in raw
material costs and the operation of the Company's surcharge
mechanisms; the Company's ability to respond to the rapid
improvement in the industrial markets; 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,
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 March 31, 2005. The
Company undertakes no obligation to update or revise any
forward-looking statement. CONSOLIDATED STATEMENT OF INCOME AS
REPORTED (Thousands of U.S. dollars, except share Six Months Six
Months data) 2Q 05 2Q 04 05 04 Net sales $1,324,678 $1,130,287
$2,629,218 $2,229,072 Cost of products sold 1,041,818 923,700
2,073,384 1,818,586 Manufacturing rationalization/
Integration/Reorganization expenses - cost of products sold 6,048
1,000 7,172 2,376 Gross Profit $276,812 $205,587 $548,662 $408,110
Selling, administrative & general expenses (SG&A) 161,464
141,133 325,094 279,848 Manufacturing rationalization/ Integration/
Reorganization expenses - SG&A 278 6,258 687 10,246 Impairment
and restructuring (44) 329 (44) 1,059 Operating Income $115,114
$57,867 $222,925 $116,957 Other expense (3,022) (5,288) (8,168)
(14,107) Special items - other income 2,609 - 2,995 6,794 Earnings
Before Interest and Taxes (EBIT) (2) $114,701 $52,579 $217,752
$109,644 Interest expense, net (13,087) (11,707) (25,189) (22,852)
Income Before Income Taxes $101,614 $40,872 $192,563 $86,792
Provision for income taxes 34,280 15,531 66,994 32,981 Net Income
$67,334 $25,341 $125,569 $53,811 Earnings Per Share $0.74 $0.28
$1.38 $0.60 Earnings Per Share- assuming dilution $0.73 $0.28 $1.37
$0.60 Average Shares Outstanding 91,189,208 89,698,030 90,981,208
89,492,987 Average Shares Outstanding-assuming dilution 91,817,375
90,552,362 91,828,505 90,356,032 CONSOLIDATED STATEMENT OF INCOME
ADJUSTED (1) (Thousands of U.S. dollars, except share Six Months
Six Months data) 2Q 05 2Q 04 05 04 Net sales $1,324,678 $1,130,287
$2,629,218 $2,229,072 Cost of products sold 1,041,818 923,700
2,073,384 1,818,586 Manufacturing rationalization/ Integration/
Reorganization expenses - cost of products sold - - - - Gross
Profit $282,860 $206,587 $555,834 $410,486 Selling, administrative
& general expenses (SG&A) 161,464 141,133 325,094 279,848
Manufacturing rationalization/ Integration/ Reorganization expenses
- SG&A - - - - Impairment and restructuring - - - - Operating
Income $121,396 $65,454 $230,740 $130,638 Other expense (3,022)
(5,288) (8,168) (14,107) Special items - other income - - - -
Earnings Before Interest and Taxes (EBIT) (2) $118,374 $60,166
$222,572 $116,531 Interest expense, net (13,087) (11,707) (25,189)
(22,852) Income Before Income Taxes $105,287 $48,459 $197,383
$93,679 Provision for income taxes 34,153 18,414 67,308 35,598 Net
Income $71,134 $30,045 $130,075 $58,081 Earnings Per Share $0.78
$0.33 $1.43 $0.65 Earnings Per Share- assuming dilution $0.77 $0.33
$1.42 $0.64 Average Shares Outstanding 91,189,208 89,698,030
90,981,208 89,492,987 Average Shares Outstanding-assuming dilution
91,817,375 90,552,362 91,828,505 90,356,032 (1) "Adjusted"
statements exclude the impact of impairment and restructuring,
manufacturing rationalization/integration/reorganization and
special charges and credits for all periods shown BUSINESS SEGMENTS
Six Months Six Months (Thousands of U.S. dollars) 2Q 05 2Q 04 05 04
Industrial Group Net sales to external customers $497,523 $437,416
$965,972 $847,685 Intersegment sales 628 278 1,026 567 Total net
sales $498,151 $437,694 $966,998 $848,252 Adjusted earnings before
interest and taxes (EBIT) * (2) $63,629 $49,311 $110,628 $85,077
Adjusted EBIT Margin (2) 12.8% 11.3% 11.4% 10.0% Automotive Group
Net sales to external customers $425,949 $404,163 $846,214 $819,765
Adjusted (loss) earnings before interest and taxes (EBIT) * (2)
($1,217) $6,607 ($6,317) $24,930 Adjusted EBIT (Loss) Margin (2)
-0.3% 1.6% -0.7% 3.0% Steel Group Net sales to external customers
$401,206 $288,708 $817,032 $561,622 Intersegment sales 44,131
41,686 95,736 78,103 Total net sales $445,337 $330,394 $912,768
$639,725 Adjusted earnings before interest and taxes (EBIT) * (2)
$56,748 $3,026 $120,473 $5,750 Adjusted EBIT Margin (2) 12.7% 0.9%
13.2% 0.9% *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) June 30, 2005 Dec 31, 2004
Short-term debt $232,487 $158,690 Long-term debt 609,627 620,634
Total Debt 842,114 779,324 Less: cash and cash equivalents (66,980)
(50,967) Net Debt $775,134 $728,357 Net debt $775,134 $728,357
Shareholders' equity 1,342,163 1,269,848 Net debt + shareholders'
equity (Capital) $2,117,297 $1,998,205 Ratio of Net Debt to Capital
36.6% 36.5% This reconciliation is provided as additional relevant
information about Timken's financial position. 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 gain
on the sale of non-strategic assets. (Thousands of U.S. dollars,
except 2Q 05 2Q 04 share data) $ EPS $ EPS Net income $67,334 $0.73
$25,341 $0.28 Pre-tax special items: Manufacturing
rationalization/integration/ reorganization expenses - cost of
products sold 6,048 0.07 1,000 0.01 Manufacturing
rationalization/integration/ reorganization expenses - SG&A 278
0.00 6,258 0.07 Impairment and restructuring (44) (0.00) 329 0.00
Special items - other (income) expense: Gain on sale of
non-strategic assets (2,570) (0.03) - - CDSOA receipts, net of
expenses - - - - Adoption of FIN 46 for investment in PEL - - - -
Other (39) (0.00) - - Tax effect of special items 127 0.00 (2,883)
(0.03) Adjusted net income $71,134 $0.77 $30,045 $0.33 (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 and third quarter exclude special items. Examples of
such special items include impairment and restructuring,
manufacturing rationalization/integration/ 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
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. Six Months 05 04 (Thousands of U.S. dollars, except share
data) $ EPS $ EPS Net income $125,569 $1.37 $53,811 $0.60 Pre-tax
special items: Manufacturing rationalization/integration/reorgani
zation expenses - cost of products sold 7,172 0.07 2,376 0.03
Manufacturing rationalization/integration/reorgani zation expenses
- SG&A 687 0.01 10,246 0.11 Impairment and restructuring (44)
(0.00) 1,059 0.01 Special items - other (income) expense: Gain on
sale of non-strategic assets (2,570) (0.03) - - CDSOA receipts, net
of expenses - - (7,743) (0.09) Adoption of FIN 46 for investment in
PEL - - 949 (3) 0.01 Other (425) (0.00) - - Tax effect of special
items (314) (0.00) (2,617) (0.03) Adjusted net income $130,075
$1.42 $58,081 $0.64 (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 and third quarter
exclude special items. Examples of such special items include
impairment and restructuring, manufacturing
rationalization/integration/ 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 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 June 30 Dec 31 (Thousands of U.S.
dollars) 2005 2004 ASSETS Cash & cash equivalents $66,980
$50,967 Accounts receivable 808,276 717,425 Deferred income taxes
91,022 90,066 Inventories 963,862 874,833 Total Current Assets
$1,930,140 $1,733,291 Property, plant & equipment 1,522,606
1,583,425 Goodwill 188,005 189,299 Other assets 445,192 408,056
Total Assets $4,085,943 $3,914,071 LIABILITIES Accounts payable
& other liabilities $518,388 $504,585 Short-term debt 232,487
158,690 Accrued expenses 437,659 353,623 Total Current Liabilities
$1,188,534 $1,016,898 Long-term debt 609,627 620,634 Accrued
pension cost 404,881 468,644 Accrued postretirement benefits cost
494,978 490,366 Other non-current liabilities 45,760 47,681 Total
Liabilities $2,743,780 $2,644,223 SHAREHOLDERS' EQUITY 1,342,163
1,269,848 Total Liabilities and Shareholders' Equity $4,085,943
$3,914,071 CONDENSED CONSOLIDATED STATEMENT For the three months
For the six months OF CASH FLOWS ended ended June 30 June 30 June
30 June 30 (Thousands of U.S. dollars) 2005 2004 2005 2004 Cash
Provided (Used) OPERATING ACTIVITIES Net Income $67,334 $25,341
$125,569 $53,811 Adjustments to reconcile net income to net cash
used by operating activities: Depreciation and amortization 53,599
51,409 107,699 105,337 Other (4,137) 8,995 (4,410) 12,225 Changes
in operating assets and liabilities: Accounts receivable (41,480)
(16,344) (123,722) (103,672) Inventories (48,117) (4,081) (124,594)
(19,848) Other assets (16,272) (10,696) (28,619) (18,504) Accounts
payable and accrued expenses 41,203 (31,448) 76,816 (34,731)
Foreign currency translation loss 4,231 1,833 7,435 3,309 Net Cash
Provided (Used) by Operating Activities $56,361 $25,009 $36,174
($2,073) INVESTING ACTIVITIES Capital expenditures ($51,331)
($31,247) ($83,226) ($55,696) Other 3,622 2,188 3,910 89 Proceeds
from disposals of non- strategic assets 10,881 - 10,881 -
Acquisitions - (6,275) (6,556) (7,824) Net Cash Used by Investing
Activities ($36,828) ($35,334) ($74,991) ($63,431) FINANCING
ACTIVITIES Cash dividends paid to shareholders ($13,728) ($11,675)
($27,414) ($23,289) Proceeds from exercise of stock options 2,505
5,930 12,580 10,202 Net borrowings on credit facilities 10,470
48,110 75,932 114,991 Net Cash (Used) Provided by Financing
Activities ($753) $42,365 $61,098 $101,904 Effect of exchange rate
changes on cash ($3,568) $414 ($6,268) $2,443 Increase in Cash and
Cash Equivalents 15,212 32,454 16,013 38,843 Cash and Cash
Equivalents at Beginning of Period $51,768 $35,015 $50,967 $28,626
Cash and Cash Equivalents at End of Period $66,980 $67,469 $66,980
$67,469 NEWS MEDIA CONTACT: Denise Bowler Manager - Associate &
Financial Communications Mail Code: GNW-37 1835 Dueber Avenue, S.W.
P.O. Box 6932 Canton, OH 44706-0932 U.S.A. Telephone: (330)
471-3485 Facsimile: (330) 471-4118 INVESTOR CONTACT: Steve Tschiegg
Manager - Investor Relations Mail Code: GNE-26 1835 Dueber Avenue,
S.W. P.O. Box 6928 Canton, OH 44706-0928 U.S.A. Telephone: (330)
471-7446 Facsimile: (330) 471-2797 DATASOURCE: The Timken Company
CONTACT: News Media: Denise Bowler, Manager - Associate &
Financial Communications, +1-330-471-3485, fax +1-330-471-4118, ;
Investor: Steve Tschiegg, Manager - Investor Relations,
+1-330-471-7446, fax, +1-330-471-2797, Web site:
http://www.timken.com/
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