SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 22, 2003
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THE TIMKEN COMPANY
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(Exact Name of Registrant as Specified in its Charter)
Ohio 1-1169 34-0577130
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(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
1835 Dueber Avenue, S.W., Canton, Ohio 44706-2798
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(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) (330) 438-3000
ITEM 5. OTHER EVENTS.
PRESS RELEASES
On January 22, 2003, The Timken Company issued the following press
release:
The Timken Company Reports
Improved Fourth Quarter and 2002 Results
CANTON, OH, January 22, 2003 - Improved fourth quarter performance
versus 2001 capped a strong year for The Timken Company, which today reported
increased sales and earnings for both the quarter and the full year.
Net income for the 2002 fourth quarter was $36.5 million or $0.57 per
diluted share versus $1.2 million or $0.02 per diluted share in the fourth
quarter a year ago, when the economy was particularly weak. Sales were $644.9
million, 12 percent above the $573.6 million recorded a year ago, despite a 2002
fourth quarter decline in U.S. industrial production and a still sluggish U.S.
and global economy. However, strong automotive markets in North America, the
impact of our manufacturing strategy initiative and the benefits of the higher
Continued Dumping and Subsidy Offset Act (CDSOA) payment improved results in the
fourth quarter.
Excluding CDSOA income, restructuring and reorganization costs and
adjustments for goodwill amortization, the company reported fourth quarter
earnings of $12 million or $0.19 per diluted share versus a loss of $11.4
million or $0.19 per diluted share a year ago.
"While improved volumes related to a strong automotive industry helped
sales growth, the transformation in all three of our company's business segments
also contributed significantly to the bottom line," said James W. Griffith,
president and CEO. "A continued emphasis on reducing costs, creating a network
of focused factories and successfully introducing new products and services
resulted in strengthened profitability despite a struggling economy."
For the year 2002, Timken reported sales of $2.6 billion, a 4 percent
increase from 2001. The company had income before the cumulative effect of an
accounting change of $51.4 million or $0.83 per diluted share in 2002 versus a
loss of $41.7 million or $0.69 per diluted share in 2001. Including a goodwill
impairment write-off of $12.7 million after taxes in the third quarter
reflecting the cumulative effect of an accounting change, the company had net
income of $38.7 million or $0.62 per diluted share in 2002.
Excluding CDSOA income, restructuring and reorganization costs,
adjustments for goodwill amortization and the cumulative effect of the
accounting change, the company reported net income of $53.3 million or $0.87 per
diluted share versus $0.7 million or $0.01 per diluted share a year ago.
In 2002 and 2001, the company received payments resulting from the
CDSOA, which requires that tariffs collected on dumped imports be directed to
the industries harmed. This
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special payment (net of expenses) was $50.2 million in 2002 versus $29.6 million
in 2001. Despite World Trade Organization objections to the CDSOA payments, the
company continues to believe the U.S. law is appropriate and justified. Payments
under CDSOA are made to eligible domestic producers only when dumping continues
after an anti-dumping order is issued.
Timken's manufacturing strategy and salaried workforce reduction
initiatives announced in 2001 have met the $80 million annual rate of savings
projection targeted for 2002. The company expects to reach the $120 million of
annual savings projected for the end of 2004 from these initiatives.
Restructuring and reorganization costs associated with these initiatives were
completed in 2002. The cumulative program costs of $107.4 million were within
the range announced in the second quarter of 2001.
Net debt at the end of 2002 was $379.2 million, down $84.4 million from
$463.6 million at the end of 2001. This reduction resulted from improved
profitability, prudent capital spending and the CDSOA payment.
As part of the company's long-term pension funding strategy, in 2002
Timken contributed $106.4 million to its domestic pension plans, $54.5 million
of which was company common stock. As a result of a negative 6 percent return on
the company's domestic pension investments and a reduction in its discount rate
from 7.5 to 6.6 percent, Timken recorded a $401.6 million minimum pension
liability increase. This reduced shareholders' equity by $254.3 million and
increased deferred tax assets by $147.3 million. As a result of declines in the
financial markets, the company is changing its assumption for expected rate of
return on plan assets from 9.5 to 8.75 percent for 2003. This change, along with
the lower discount rate, will result in an increase in 2003 pretax pension
expense of approximately $25 million.
The company's announced plan to acquire Torrington is proceeding as
expected. Timken received U.S. antitrust approval for the acquisition under the
Hart-Scott-Rodino Act in December. The transaction is expected to close during
the first quarter of 2003, pending additional regulatory clearances outside the
United States, successful completion of debt and equity financings and customary
closing conditions. A dedicated team is in place, planning for the Torrington
integration. In connection with the Torrington acquisition, the company believes
it can achieve pretax savings of approximately $80 million by the end of 2005
before implementation costs. This includes pretax savings of approximately $20
million by the end of the first year following the acquisition. Timken also
expects to utilize cash resources of approximately $130 million for integration
and implementation activities over the next four years.
The following segment results exclude CDSOA income, restructuring and
reorganization costs and goodwill amortization.
Automotive Bearings' Results
Automotive fourth quarter EBIT was $11.6 million on sales of $210.8
million, compared to a loss of $2.0 million on sales of $185.3 million a year
ago. Cost control, improved volumes, new product sales and a year-end LIFO
adjustment contributed to Automotive's performance. Partially offsetting these
positive items were increased costs due to manufacturing inefficiencies,
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including those associated with servicing high product demand levels during the
Duston, England, plant closing. For the year sales were $840.8 million versus
$751.0 million last year. EBIT was $32.6 million versus a loss of $11.4 million
in 2001. This resulted from strong markets, particularly in North America,
coupled with sales on seven new vehicle platforms and the positive impact of the
manufacturing strategy initiatives. Closing the Duston plant will contribute to
improvements in the cost structure and asset utilization of the Automotive
Business.
Industrial Bearings' Results
Fourth quarter Industrial EBIT was $13.8 million on sales of $225.3
million compared to EBIT of $5.7 million on sales of $204.2 million for the same
period in 2001. Soft markets and reduced demand created challenges for the
Industrial Business throughout 2002. However, the manufacturing transformation
positively impacted the business by reducing costs and improving productivity,
offsetting weak markets. In 2002, Industrial won new business and introduced a
broader line of products and services to meet distributor needs. For the year,
sales were $883.5 million with EBIT of $51.5 million versus $882.3 million in
sales and $43.4 million in EBIT last year.
Steel Business Results
The Steel Business reported fourth quarter EBIT of $0.2 million on
sales of $240.7 million, which includes intersegment sales of $31.8 million.
This compares with a loss of $6.3 million on fourth quarter sales of $216.1
million in 2001. Continued strong sales to the automotive industry and modest
increases to industrial customers were tempered by weaknesses in the aerospace
specialty steel business. EBIT was hurt by raw material costs and holiday
shutdowns and a year-end LIFO adjustment. For the year Steel's sales, including
intersegment sales, increased 2 percent to $981.3 million compared to $960.4
million in 2001. EBIT in 2002 was $32.5 million, up from $13.4 million in 2001.
Despite the modest increase in sales in 2002, the Steel Business more than
doubled EBIT with tight cost control and improved productivity.
Outlook
The Timken Company continues to be concerned about the health of the
economy, but is positioned to continue improving financial performance in 2003.
We believe that output in the global automotive industry will be softer in 2003,
while industrial markets should see some modest recovery over the course of the
year. The company expects to continue to benefit from initiatives to reduce
costs and from new product and service offerings that will improve
profitability. We also expect that the Torrington acquisition, when completed,
will provide additional opportunities to leverage financial performance.
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. 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 European Commission
antitrust clearance, financing and other closing risks associated with the
consummation of the acquisition of Torrington; the uncertainties in both timing
and amount, if
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any, of actual benefits realized through economies of scale, elimination of
duplicative costs, operating efficiencies and enhanced productivity through the
integration of Torrington with Timken's operations; risks associated with
diversion of management's attention from routine operations during the
integration process; risks associated with the greater level of debt associated
with the combined companies; and the impact on operations of general economic
conditions, the cyclicality of the company's business, customer demand and the
company's ability to achieve the benefits of its ongoing restructuring and
cost-reduction programs. These and additional factors are described in greater
detail in the company's 2001 Annual Report, page 39, the Annual Report on Form
10-K for the year ended December 31, 2001 and the quarterly reports on Form 10-Q
for the periods ended March 31, June 30 and September 30, 2002. The company
undertakes no obligation to update or revise any forward-looking statement.
The Timken Company (NYSE: TKR) (http://www.timken.com/) is a leading
international manufacturer of highly engineered bearings, alloy and specialty
steels and components, as well as a provider of related products and services.
With operations in 24 countries, the company employs about 18,000 people
worldwide. The company will conduct a teleconference on January 22 at 10 a.m.
Eastern Daylight Time on its fourth quarter and year-end results. Dial
706-634-0975 (reference Timken) or link to www.timken.com for the Web cast.
Replay will be available by calling 706-645-9291, beginning at 1 p.m. EDT,
January 22 through 11:59 p.m. on January 31. Access Code is 7490552.
#####
CONSOLIDATED STATEMENT OF OPERATIONS AS REPORTED
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(THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA) 4Q 02 4Q 01 YEAR 2002 Year 2001
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Net sales $644,898 $573,575 $2,550,075 $2,447,178
Cost of products sold 528,123 488,646 2,071,956 2,032,685
Goodwill amortization - 1,447 - 6,060
Reorganization expenses - cost of products sold 1,403 2,810 8,542 7,713
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GROSS PROFIT $115,372 $80,672 $469,577 $400,720
Selling, administrative & general expenses (SG&A) 89,751 84,802 348,963 358,778
Reorganization expenses - SG&A 2,736 2,226 9,903 4,905
Impairment and restructuring 7,157 5,284 32,143 54,689
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OPERATING INCOME (LOSS) $15,728 ($11,640) $78,568 ($17,652)
Receipt of Continued Dumping & Subsidy Offset Act (CDSOA)
payment (2) 50,202 $29,555 50,202 $29,555
Other expense (898) (2,123) (13,388) (7,494)
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EARNINGS BEFORE INTEREST AND TAXES (EBIT) $65,032 $15,792 $115,382 $4,409
Interest expense (7,544) (7,588) (31,540) (33,401)
Interest income 685 439 1,676 2,109
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INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $58,173 $8,643 $85,518 ($26,883)
Provision for income taxes 21,707 7,425 34,067 14,783
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INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE $36,466 $1,218 $51,451 ($41,666)
Cumulative effect of change in accounting principle (net of
income tax benefit of $7,786) - - (12,702) -
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NET INCOME (LOSS) $36,466 $1,218 $38,749 ($41,666)
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EARNINGS PER SHARE:
INCOME (LOSS) BEFORE ACCOUNTING CHANGE $0.58 $0.02 $0.84 ($0.69)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - - ($0.21) -
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EARNINGS PER SHARE $0.58 $0.02 $0.63 ($0.69)
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EARNINGS PER SHARE-ASSUMING DILUTION:
INCOME (LOSS) BEFORE ACCOUNTING CHANGE $0.57 $0.02 $0.83 ($0.69)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - - ($0.21) -
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EARNINGS PER SHARE-ASSUMING DILUTION $0.57 $0.02 $0.62 ($0.69)
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Average Shares Outstanding 63,346,740 59,841,185 61,128,005 59,947,568
Average Shares Outstanding-assuming dilution 63,758,276 59,954,790 61,635,339 59,947,568
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CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTED (1)
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(THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA) 4Q 02 4Q 01 YEAR 2002 Year 2001
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Net sales $644,898 $573,575 $2,550,075 $2,447,178
Cost of products sold 528,123 488,646 2,071,956 2,032,685
Goodwill amortization - - - -
Reorganization expenses - cost of products sold - - - -
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GROSS PROFIT $116,775 $84,929 $478,119 $414,493
Selling, administrative & general expenses (SG&A) 89,751 84,802 348,963 358,778
Reorganization expenses - SG&A - - - -
Impairment and restructuring - - - -
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OPERATING INCOME (LOSS) $27,024 $127 $129,156 $55,715
Receipt of Continued Dumping & Subsidy Offset Act (CDSOA)
payment (2) - - - -
Other expense (898) (2,123) (13,388) (7,494)
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EARNINGS BEFORE INTEREST AND TAXES (EBIT) $26,126 ($1,996) $115,768 $48,221
Interest expense (7,544) (7,588) (31,540) (33,401)
Interest income 685 439 1,676 2,109
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INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE $19,267 ($9,145) $85,904 $16,929
Provision for income taxes 7,220 2,225 32,558 16,243
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INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE $12,047 ($11,370) $53,346 $686
Cumulative effect of change in accounting principle (net of
income tax benefit of $7,786) - - - -
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NET INCOME (LOSS) $12,047 ($11,370) $53,346 $686
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EARNINGS PER SHARE:
INCOME (LOSS) BEFORE ACCOUNTING CHANGE $0.19 ($0.19) $0.87 $0.01
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - - - -
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EARNINGS PER SHARE $0.19 ($0.19) $0.87 $0.01
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EARNINGS PER SHARE-ASSUMING DILUTION:
INCOME (LOSS) BEFORE ACCOUNTING CHANGE $0.19 ($0.19) $0.87 $0.01
CUMULATIVE EFFECT OF ACCOUNTING CHANGE - - - -
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EARNINGS PER SHARE-ASSUMING DILUTION $0.19 ($0.19) $0.87 $0.01
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Average Shares Outstanding 63,346,740 59,841,185 61,128,005 59,947,568
Average Shares Outstanding-assuming dilution 63,758,276 59,954,790 61,635,339 59,947,568
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BUSINESS SEGMENTS
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(THOUSANDS OF U.S. DOLLARS) 4Q 02 4Q 01 YEAR 2002 Year 2001
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AUTOMOTIVE BEARINGS
Net sales to external customers $210,754 $185,268 $840,763 $751,029
Impairment and restructuring 1,981 3,412 18,992 27,270
Reorganization expenses 2,052 2,467 9,730 3,747
Goodwill amortization - (31) - 37
Receipt of Continued Dumping & Subsidy Offset Act (CDSOA)
payment (2) 10,829 2,501 10,829 2,501
Earnings before interest and taxes (EBIT) * $18,359 ($5,382) $14,715 ($39,939)
EBIT Margin 8.7% -2.9% 1.8% -5.3%
INDUSTRIAL BEARINGS
Net sales to external customers $225,304 $204,238 $883,534 $882,279
Impairment and restructuring 2,087 1,328 9,313 25,671
Reorganization expenses 2,087 2,569 8,715 7,848
Goodwill amortization - 1,168 - 4,781
Receipt of Continued Dumping & Subsidy Offset Act (CDSOA)
payment (2) 39,373 27,054 39,373 27,054
Earnings before interest and taxes (EBIT) * $49,015 $27,722 $72,872 $32,144
EBIT Margin 21.8% 13.6% 8.2% 3.6%
STEEL
Net sales to external customers $208,840 $184,069 $825,778 $813,870
Intersegment sales 31,845 32,008 155,500 146,492
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Total net sales $240,685 $216,077 $981,278 $960,362
Impairment and restructuring 3,089 544 3,838 1,748
Reorganization expenses - - - 1,023
Goodwill amortization - 310 - 1,242
Earnings before interest and taxes (EBIT) * ($2,848) ($7,177) $28,682 $9,345
EBIT Margin -1.2% -3.3% 2.9% 1.0%
BUSINESS SEGMENTS
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(THOUSANDS OF U.S. DOLLARS) 4Q 02 4Q 0 1 YEAR 2002 Year 2001
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AUTOMOTIVE BEARINGS
Net sales to external customers $210,754 $185,268 $840,763 $751,029
Impairment and restructuring - - - -
Reorganization expenses - - - -
Goodwill amortization - - - -
Receipt of Continued Dumping & Subsidy Offset Act (CDSOA)
payment (2)
Earnings before interest and taxes (EBIT) * $11,563 ($2,035) $32,608 ($11,386)
EBIT Margin 5.5% -1.1% 3.9% -1.5%
INDUSTRIAL BEARINGS
Net sales to external customers $225,304 $204,238 $883,534 $882,279
Impairment and restructuring - - - -
Reorganization expenses - - - -
Goodwill amortization - - - -
Receipt of Continued Dumping & Subsidy Offset Act (CDSOA)
payment (2)
Earnings before interest and taxes (EBIT) * $13,816 $5,733 $51,527 $43,390
EBIT Margin 6.1% 2.8% 5.8% 4.9%
STEEL
Net sales to external customers $208,840 $184,069 $825,778 $813,870
Intersegment sales 31,845 32,008 155,500 146,492
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Total net sales $240,685 $216,077 $981,278 $960,362
Impairment and restructuring - - - -
Reorganization expenses - - - -
Goodwill amortization - - - -
Earnings before interest and taxes (EBIT) * $241 ($6,323) $32,520 $13,358
EBIT Margin 0.1% -2.9% 3.3% 1.4%
*Automotive Bearings, Industrial Bearings and Steel EBIT do not equal
Consolidated EBIT due to intersegment adjustments which are eliminated upon
consolidation.
(1) "Adjusted" statements exclude the impact of restructuring and
reorganization charges for all quarters shown, elimination of goodwill
amortization in 2001, cumulative effect of change in accounting principle
recognized in 2002 and receipt of CDSOA payment.
(2) The receipt of the CDSOA payment is net of expenses.
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CONSOLIDATED STATEMENT OF CASH FLOWS For the three months ended For the twelve months ended
DEC 31 Dec 31 DEC 31 Dec 31
(THOUSANDS OF U.S. DOLLARS) 2002 2001 2002 2001
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Cash Provided (Used)
OPERATING ACTIVITIES
Net Income (Loss) $36,466 $1,218 $38,749 ($41,666)
Adjustments to reconcile net income to net cash provided
by operating activities:
Cumulative effect of accounting change - - 12,702 -
Depreciation and amortization 35,579 38,452 146,535 152,467
(Credit) provision for deferred income taxes (6,307) 30,209 17,250 23,013
Stock issued in lieu of cash to employee benefit plans 589 122 5,217 1,441
Non-cash impact of impairment and restructuring charges (196) 1,488 (13,564) 41,832
Changes in operating assets and liabilities:
Accounts receivable 20,575 65,612 (43,679) 44,803
Inventories (15,389) 29,244 (50,611) 51,247
Other assets 3,568 9,400 (3,198) (16,897)
Accounts payable and accrued expenses 34,667 (22,710) 80,761 (72,483)
Foreign currency translation 1,591 (8,687) 10,037 (3,886)
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Net Cash Provided by Operating Activities $111,143 $144,348 $200,199 $179,871
INVESTING ACTIVITIES
Purchases of property, plant and equipment, net ($32,908) ($24,545) ($66,757) ($86,377)
Acquisitions - (11,787) (6,751) (12,957)
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Net Cash Used by Investing Activities ($32,908) ($36,332) ($73,508) ($99,334)
FINANCING ACTIVITIES
Cash dividends paid to shareholders ($8,232) ($7,778) ($31,713) ($40,166)
Purchase of treasury shares - (136) - (2,931)
Payments on long-term debt (424) (689) (37,296) (2,176)
Proceeds from issuance of long-term debt - 4,656 - 80,766
Short-term debt activity - net (25,960) (95,808) (11,498) (90,980)
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Net Cash Used by Financing Activities ($34,616) ($99,755) ($80,507) ($55,487)
Effect of exchange rate changes on cash 1,619 (784) 2,474 (2,585)
Increase in Cash and Cash Equivalents $45,238 $7,477 $48,658 $22,465
Cash and Cash Equivalents at Beginning of Period 36,812 25,915 33,392 10,927
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Cash and Cash Equivalents at End of Period $82,050 $33,392 $82,050 $33,392
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CONSOLIDATED BALANCE SHEET DEC 31 Dec 31
(THOUSANDS OF U.S. DOLLARS) 2002 2001
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ASSETS
Cash & cash equivalents $82,050 $33,392
Accounts receivable 361,316 307,759
Refundable income taxes - 15,103
Deferred income taxes 36,003 42,895
Inventories 488,923 429,231
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Total Current Assets $968,292 $828,380
Property, plant & equipment 1,226,244 1,305,345
Other assets 553,820 399,359
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Total Assets $2,748,356 $2,533,084
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LIABILITIES
Accounts payable & other liabilities $296,543 $258,001
Short-term debt & commercial paper 111,134 128,864
Accrued expenses 226,393 254,291
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Total Current Liabilities $634,070 $641,156
Long-term debt 350,085 368,151
Accrued pension cost 723,188 317,297
Accrued postretirement benefits 411,304 406,568
Other non-current liabilities 20,623 18,177
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Total Liabilities $2,139,270 $1,751,349
SHAREHOLDERS' EQUITY 609,086 781,735
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Total Liabilities and Shareholders' Equity $2,748,356 $2,533,084
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THE TIMKEN COMPANY
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 hereunto duly authorized.
By: /s/ William R. Burkhart
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William R. Burkhart
Senior Vice President and General Counsel
Date: January 22, 2003