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The Timken Company Announces Results for 2003 and Fourth Quarter

CANTON, Ohio, Jan. 22 /PRNewswire-FirstCall/ -- The Timken Company (NYSE: TKR) today reported record 2003 sales of $3.8 billion, a 49 percent increase from the prior year. Excluding the impact of the February 2003 acquisition of The Torrington Company, sales grew approximately 8 percent, including 3 percent related to foreign currency translation. Timken achieved 2003 net income of $36.5 million or $0.44 per diluted share, compared with $38.7 million or $0.62 per diluted share for the prior year. Adjusted 2003 net income was $56.0 million or $0.67 per diluted share compared to $53.3 million or $0.87 per diluted share in 2002, excluding the impact of special items discussed below and the cumulative effect of change in accounting principle in 2002.


In commenting on 2003 results, James W. Griffith, president and CEO, said: "2003 was a pivotal year for The Timken Company. Our $840 million strategic acquisition of Torrington was accretive to earnings and added $1 billion in new sales. We leveraged our balance sheet higher to purchase Torrington with debt peaking at more than $1 billion during the year, but we have since reduced this level by nearly $300 million. While we were disappointed in our 2003 earnings performance, the year ended with signs of improvement. We will continue to focus on returns to our shareholders by providing better value to our customers, as we grow opportunities and synergies created by the acquisition. Our actions in 2003 set the course for improved performance and created a solid foundation for our future."


    During 2003, the company:

     -- Acquired the Torrington Company -- the largest acquisition in Timken
         history -- and completed the first phase of integration.  For 2003,
         the company achieved pretax integration cost savings of $28 million
         -- $8 million above the stated target for the year -- primarily by
         leveraging the combined purchasing spend of the two companies and
         reducing employment.
     -- Reduced debt following the Torrington acquisition. Year-end debt was
         $735 million, or 40 percent of total capitalization.
     -- Raised $375 million in proceeds, before expenses, from equity
         offerings totaling 25.5 million common shares, including 9.4 million
         shares issued for $140 million of the purchase price for Torrington.
     -- Divested non-strategic assets, generating gross proceeds of $170
         million.
     -- Closed two industrial plants and rationalized production across
         automotive plants.
     -- Generated cash of $31 million in the Steel Group, despite a difficult
         economic environment.
     -- Began construction of the company's fourth bearing plant in China
         through a joint venture.


The 2003 reported income includes the following special pretax items that are excluded from adjusted results.


     -- $66 million of income received under the Continued Dumping and Subsidy
         Offset Act (CDSOA), which requires that tariffs collected on dumped
         imports be directed to the industries harmed.
     -- Restructuring, integration, reorganization and certain other charges
         in 2003 of $49 million, principally due to costs of integrating the
         Torrington acquisition.
     -- Non-recurring, non-cash impairment charge of $46 million in the fourth
         quarter relating to PEL Technologies, a joint venture investment of
         our Steel Group.


Fourth quarter results


For the quarter ended December 31, 2003, sales were a record $1.0 billion, an increase of 58 percent from a year ago. Excluding the impact of Torrington, sales grew approximately 10 percent, including 4 percent related to foreign currency translation.


Fourth quarter 2003 net income was $22.5 million, or $0.25 per diluted share. Excluding special items, the company reported adjusted fourth quarter net income of $23.3 million or $0.26 per diluted share versus $12.0 million or $0.19 per diluted share a year ago. Excluding the impact of Torrington, fourth quarter earnings per diluted share were $0.01.


Fourth quarter performance was driven by the Torrington acquisition. Torrington's fourth quarter results reflect seasonally strong volume, product mix, cost savings and the positive impact of acquisition and timing-related accrual adjustments.


The segment results that follow exclude special charges for all periods. They also reflect for all periods a reorganization of the Automotive and Industrial Groups that occurred in the first quarter of 2003. Automotive distribution operations are now reported as part of the Industrial Group. Additionally, company sales to emerging markets -- principally in central and eastern Europe and Asia-- previously were reported as part of the Industrial Group. Emerging market sales to automotive original equipment manufacturers are now included in the Automotive Group.


Automotive Group Results


In 2003, Automotive Group sales increased 86 percent to $1.4 billion due primarily to the Torrington acquisition. Excluding Torrington, Timken sales grew 9 percent, which included recent new product launches at Ford and Nissan for the light truck market.


Automotive Group earnings before interest and taxes (EBIT) in 2003 were $15.7 million compared with $11.1 million in 2002, with the increase in earnings due to the addition of Torrington. Excluding the Torrington acquisition, the Automotive Group reported sales in 2003 of $822.1 million and a loss of $7.7 million.


Automotive Group results reflected significantly higher costs in 2003 due to problems in executing the restructuring of automotive plants. This impacted both Timken and Torrington operations globally. The Automotive Group began to see some improvement from the rationalization initiatives in the fourth quarter.


The Automotive Group announced in the second half of 2003 that it would reduce manufacturing expenses, including workforce reductions of more than 700 positions, to achieve the benefits of rationalization programs and adjust to reduced demand. During the second half, workforce reductions exceeded 750.


In the fourth quarter of 2003, the Automotive Group recorded sales of $374.6 million, nearly twice the sales recorded a year ago. Fourth quarter 2003 sales increased primarily due to the Torrington acquisition but also benefited from 12 percent growth in the traditional Timken business.


Automotive Group EBIT was $8.3 million in the fourth quarter of 2003 compared with $7.7 million for the same period a year ago. Excluding Torrington, the Group incurred a loss in the 2003 fourth quarter of $5.1 million. Despite benefiting from increased sales, the Group incurred expenses in the 2003 fourth quarter associated with the manufacturing cost reductions as well as expenditures related to new ventures to grow the business.


Industrial Group Results


Industrial Group 2003 sales increased 54 percent from the prior year to $1.5 billion. The sales increase reflected the acquisition of Torrington and the favorable effect of foreign currency. Many markets served by the Industrial Group remained relatively flat during the year.


Industrial Group 2003 EBIT was $128.0 million, compared with $73.0 million in 2002. The increase reflected the addition of Torrington, the effect of the company's continued manufacturing improvement initiatives and improved European results. Excluding the impact of Torrington, the Industrial Group had 2003 EBIT of $94.8 million on sales of $1.0 billion.


Industrial Group sales in the 2003 fourth quarter increased 69 percent to $418.2 million from the prior year, reflecting the addition of Torrington and the favorable effect of foreign currency. Fourth quarter EBIT was $44.5 million, compared with $17.7 million a year earlier. Excluding Torrington, fourth quarter sales were $270.3 million and EBIT was $15.8 million.


Fourth quarter results reflected strong distribution sales and improving industrial order activity in the heavy industries, power transmission, off- highway and consumer markets.


Steel Group Results


Despite challenging market conditions, Steel Group 2003 sales, including inter-segment sales, were $1.0 billion, up 5 percent from 2002. The increase reflected penetration gains in industrial markets and increased demand from automotive and industrial customers. The group recorded a loss of $6.0 million in 2003 versus EBIT of $32.5 million in 2002. Steel Group performance in 2003 was negatively impacted by extremely high costs for scrap steel, natural gas and alloys.


Steel Group sales, including inter-segment sales, were $257.3 million in the fourth quarter of 2003, an increase of 7 percent from the prior year. The sales improvement resulted from increased demand from automotive and industrial customers. Inter-segment sales were lower due to the raw material conversion in bearing processes from tubing to forged components.


The group recorded a 2003 fourth quarter loss of $4.2 million before interest and taxes, compared with EBIT of $0.2 million a year ago. Performance was negatively affected by high raw material and energy costs and lower inter-segment sales, which could not be fully offset by higher external sales, implementation of new raw material surcharges, price increases and higher production levels.


Outlook


We expect improved performance in 2004 across all three segments. We currently expect earnings per diluted share, excluding special items to be $0.85 to $1.00 for the year and $0.15 to $0.20 for the first quarter. North American industrial markets are expected to grow slowly from low 2003 levels, while strong growth is expected in emerging markets. North American automotive production is expected to be up slightly. Medium and heavy truck production should strengthen further, and better Automotive Group profitability is expected with continued manufacturing improvements. Steel profitability is expected to be challenged by continued high raw material and energy costs and lower inter-segment sales.


Mr. Griffith said: "We are encouraged by our solid finish in 2003, and we are looking forward to building on this foundation in 2004."


The company will host a conference call for investors and analysts today to discuss financial results.


    Conference Call: Thursday, January 22, 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: 706-645-9291
                       Replay Passcode: 4536689

    Live Webcast:  www.timken.com


The Timken Company (NYSE: TKR, 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 29 countries. The company 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; risks associated with diversion of management's attention from operations during the integration process; risks associated with the greater level of debt associated with the acquisition; 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, 2002, in the Company's 2002 Annual Report, page 47, and in the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2003. The Company undertakes no obligation to update or revise any forward-looking statement.


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