A changed world economic climate affected The Timken Company's (NYSE:TKR) third-quarter results. Sales rose and earnings per diluted share, excluding charges for the company's previously announced restructuring and reorganization, were close to a year ago.

For the first nine months of 2000, sales and earnings per diluted share, excluding restructuring and reorganization charges, increased from a year ago. This reflects a strong performance in the first half.

For the third quarter ended September 30, net sales were $632.2 million versus $601.7 million in the 1999 third quarter. Third-quarter net income, excluding pretax charges of $6.0 million related to the company's previously announced restructuring and reorganization, was $12.1 million, or $0.20 per diluted share. This compares to net income of $12.4 million, or $0.20 per diluted share, a year ago. The pretax charges included $3.5 million, primarily for severance and asset impairment costs, and $2.5 million in expenses related to the reorganization. After adjustments, net income for the third quarter of 2000 was $7.7 million, or $0.13 per diluted share. Federal income tax settlements lowered the tax rate in the third quarter, bringing the rate for nine months slightly below one year ago.

"Several economic factors impacted performance," said W.R. Timken, Jr., chairman and chief executive officer. "One was continued weakness in the Euro and other currencies versus the U.S. dollar and the British pound. The Euro's devaluation has substantially eroded margins on products manufactured in the United States and Great Britain and sold throughout the rest of Europe. It also increased pricing pressures in North American steel markets, with European producers exporting into these markets at significantly lower prices. Another factor is the growing trade imbalance between the U.S. and the rest of the world, which has affected the performance of some of our major U.S.-based bearing and steel customers. A third factor was declining demand in key market segments, including North American rail and heavy truck, and inventory balancing in the North American light truck and sport utility vehicle market."

For the first nine months of 2000, net sales increased to $2.0 billion from $1.9 billion a year ago. Earnings per diluted share for the first nine months, excluding pretax restructuring and reorganization charges of $27.6 million, were $1.03. Including these charges, net income was $45.0 million or $0.74 per diluted share, compared with $41.3 million or $0.66 per diluted share for the first nine months of 1999.

"The company is on track with its transformation to align our businesses more closely with key global industries and speed innovation of new products and services to our customers," said Mr. Timken. "At the same time, we're continuing initiatives to reduce costs, including those related to employment, and increase manufacturing at lower-cost bearing plants in Central Europe."

Bearings' Results

Bearings' third-quarter net sales were $414.5 million, down from $423.7 million in the third quarter of 1999. For the first nine months, net sales were $1.4 billion, up slightly from 1999's total for the same period.

The third quarter reflected weaker shipments to North American light and heavy truck markets. Rail markets also were weaker. While North American industrial markets were stronger than in 1999, the recovery in these markets has stalled during recent months. Latin America continued to show strong demand.

Excluding $5.5 million in restructuring and reorganization charges in the third quarter of 2000, earnings before interest and taxes (EBIT) were $12.8 million, compared to $24.8 million in the same period in 1999. Adjusted for the charges, EBIT was $7.3 million. The decline in EBIT was due to lower North American automotive sales and the negative effect of the weak Euro on margins. Another factor was operating problems, including compensating for large numbers of retirements at the Canton bearing plant and problems associated with the start-up of the company's bearing distribution center in Europe.

Excluding $13.5 million in restructuring and reorganization charges in the first nine months of 2000, Bearings' EBIT would have been $79.6 million, compared with $68.1 million in the same period in 1999. Adjusted for these charges, Bearings' EBIT for the first nine months of 2000 was $66.1 million.

During the quarter, the company announced a joint venture with Tranergy Corporation to bring advanced technology to the rail industry with an intelligent, top-of-rail lubrication system designed to lower fuel and maintenance costs, while increasing productivity. The company also increased online sales to bearing distributors in Mexico through its Timken (R) Direct internet site.

Steel's Results

Steel's third-quarter net sales, including intersegment sales, increased to $268.4 million from $232.2 million in the third quarter of 1999. For the first nine months of 2000, Steel's net sales increased to $817.9 million from $707.1 million in the corresponding period in 1999.

Continued strength in oil markets and increased penetration in automotive markets by the precision steel components business boosted sales in the third quarter. Steel EBIT was higher than a year ago, but increased imports of low- priced products into North America negatively affected margins. Excluding restructuring and reorganization charges of $0.5 million in the third quarter of 2000, EBIT would have increased to $8.5 million from $2.8 million in the third quarter of 1999. Adjusted for the charges, Steel's EBIT was $8.0 million.

EBIT for the first nine months of 2000, excluding $14.0 million in restructuring and reorganization charges, would have been $41.5 million, up sharply from $21.0 million in 1999. Adjusted for these charges, EBIT was $27.5 million for the first nine months of 2000.

During the third quarter, the company announced price increases on heat- treated steel tubing.

The company will conduct a teleconference at 712-257-0400 (access code: timken) and webcast at www.timken.com today at 1 p.m. Replay is available at (402) 998-0730, from Oct. 17 at 3 p.m. through Oct. 23 at 5 p.m.

A teleconference and webcast on fourth-quarter and year-end results are scheduled for 10 a.m., Jan. 18, 2001, at 877-601-3546 and at www.timken.com.

The Timken Company is a leading international manufacturer of highly engineered bearings, alloy and specialty steels with operations in 24 countries. The company employs about 21,000 people worldwide and reported 1999 sales of U.S. $2.5 billion.

CONSOLIDATED STATEMENT OF INCOME
(Thousands of U.S. dollars, except share data)
3Q 00 3Q 99 2Q 00 1Q 00 4Q 99
Net sales $632,243 $601,703 $693,263 $685,791 $631,862
Cost of
products
sold 522,698 485,362 550,787 540,826 501,695
Gross
Profit $109,545 $116,341 $142,476 $144,965 $130,167
Selling,
administrative
& general
expenses 88,920 89,160 91,115 94,145 93,639
Impairment and
restructuring 3,453 0 3,322 14,759 0
Operating
Income $17,172 $27,181 $48,039 $36,061 $36,528
Other income
(expense) (1,388) (2,306) (3,585) (2,655) (1,169)
Earnings Before
Interest and
Taxes
(EBIT) $15,784 $24,875 $44,454 $33,406 $35,359
Interest
expense (8,081) (6,853) (7,471) (7,222) (6,847)
Interest income 1,735 604 560 549 1,344
Income Before
Income
Taxes $9,438 $18,626 $37,543 $26,733 $29,856
Provision for
income taxes 1,753 6,184 16,303 10,693 8,517
Net Income $7,685 $12,442 $21,240 $16,040 $21,339
Earnings Per
Share $0.13 $0.20 $0.35 $0.26 $0.35
Earnings Per
Share-
assuming
dilution $0.13 $0.20 $0.35 $0.26 $0.35
Average Shares
Outstanding 60,283,189 61,929,197 60,837,740 61,099,962 61,572,124
Average Shares
Outstanding-
assuming
dilution 60,422,761 62,122,909 61,103,848 61,237,143 61,823,990
BUSINESS SEGMENTS
(Thousands of U.S. dollars)
3Q 00 3Q 99 2Q 00 1Q 00 4Q 99
Bearings
Net sales to
external
customers $414,495 $423,680 $466,034 $470,374 $446,036
Impairment and
restructuring 3,150 0 3,225 1,909 0
Earnings before
interest
and taxes
(EBIT)* $7,304 $24,782 $26,636 $32,133 $12,447
EBIT Margin 1.8% 5.8% 5.7% 6.8% 2.8%
Steel
Net sales to
external
customers $217,748 $178,023 $227,229 $215,417 $185,826
Intersegment
sales 50,617 54,141 51,332 55,582 54,086
Total net
sales $268,365 $232,164 $278,561 $270,999 $239,912
Impairment and
restructuring 303 0 97 12,850 0
Earnings before
interest
and taxes
(EBIT)* $8,002 $2,766 $16,735 $2,791 $22,994
EBIT Margin 3.0% 1.2% 6.0% 1.0% 9.6%
Bearings and Steel EBIT do not equal Consolidated EBIT due to
intersegment adjustments which are eliminated upon consolidation.
CONSOLIDATED STATEMENT OF INCOME
(Thousands of U.S. dollars, except share data)
Nine Months 00 Nine Months 99
Net sales $2,011,297 $1,863,172
Cost of products sold 1,614,311 1,500,671
Gross Profit $396,986 $362,501
Selling, administrative & general expenses 274,180 266,271
Impairment and restructuring 21,534 0
Operating Income $101,272 $96,230
Other income (expense) (7,628) (8,469)
Earnings Before Interest and Taxes (EBIT) $93,644 $87,761
Interest expense (22,774) (20,378)
Interest income 2,844 1,752
Income Before Income Taxes $73,714 $69,135
Provision for income taxes 28,749 27,850
Net Income $44,965 $41,285
Earnings Per Share $0.74 $0.67
Earnings Per Share-assuming dilution $0.74 $0.66
Average Shares Outstanding 60,733,288 61,897,876
Average Shares Outstanding-assuming dilution 60,914,242 62,121,455
BUSINESS SEGMENTS
(Thousands of U.S. dollars) Nine Months 00 Nine Months 99
Bearings
Net sales to external customers $1,350,903 $1,313,835
Impairment and restructuring 8,284 0
Earnings before interest and taxes (EBIT)* $66,073 $68,101
EBIT Margin 4.9% 5.2%
Steel
Net sales to external customers $660,394 $549,337
Intersegment sales 157,531 157,784
Total net sales $817,925 707,121
Impairment and restructuring 13,250 0
Earnings before interest and taxes (EBIT)* $27,528 $21,045
EBIT Margin 3.4% 3.0%
Bearings and Steel EBIT do not equal Consolidated EBIT due to
intersegment adjustments which are eliminated upon consolidation.
CONSOLIDATED BALANCE SHEET
(Thousands of U.S. dollars)
Sept 30 June 30 Mar 31 Dec 31 Sept 30
2000 2000 2000 1999 1999
ASSETS
Cash & cash
equivalents $18,921 $6,450 $9,620 $7,906 $18,379
Accounts receivable 380,111 406,157 394,033 339,326 358,873
Deferred income taxes 35,421 38,929 39,901 39,706 39,276
Inventories 500,599 484,376 478,387 446,588 422,908
Total Current
Assets $935,052 $935,912 $921,941 $833,526 $839,436
Property, plant &
equipment 1,335,307 1,344,491 1,349,779 1,381,474 1,373,079
Deferred income
taxes 0 0 0 0 13,641
Other assets 218,765 229,569 220,562 226,318 233,131
Total Assets $2,489,124 $2,509,972 $2,492,282 $2,441,318 $2,459,287
LIABILITIES
Accounts payable &
other liabilities $233,743 $248,285 $241,101 $236,602 $210,609
Short-term debt &
commercial paper 212,693 181,620 141,288 122,547 178,730
Accrued expenses 164,325 176,514 205,823 198,512 117,744
Total Current
Liabilities $610,761 $606,419 $588,212 $557,661 $507,083
Long-term debt 305,624 305,908 326,302 327,343 327,645
Accrued pension cost 128,892 115,087 101,456 76,005 138,273
Accrued postretirement
benefits 398,039 396,705 395,531 394,084 393,977
Deferred income taxes 3,780 19,279 5,453 6,147 0
Other non-current
liabilities 29,258 31,343 32,643 34,097 36,165
Total Liabilities $1,476,354 $1,474,741 $1,449,597 $1,395,337 $1,403,143
SHAREHOLDERS'
EQUITY 1,012,770 1,035,231 1,042,685 1,045,981 1,056,144
Total Liabilities
and Shareholders'
Equity $2,489,124 $2,509,972 $2,492,282 $2,441,318 $2,459,287