10-Q 1 0001.txt 1. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10Q [X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2000. Commission File No. 1-1169 THE TIMKEN COMPANY Exact name of registrant as specified in its charter Ohio 34-0577130 State or other jurisdiction of I.R.S. Employer incorporation or organization Identification No. 1835 Dueber Avenue, S.W., Canton, Ohio 44706-2798 Address of principal executive offices Zip Code (330) 438-3000 Registrant's telephone number, including area code Not Applicable Former name, former address and former fiscal year if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO ___ ___ Common shares outstanding at June 30, 2000, 60,586,153. PART I. FINANCIAL INFORMATION 2. THE TIMKEN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) June 30 Dec. 31 2000 1999 ASSETS ---------- ---------- Current Assets (Thousands of dollars) Cash and cash equivalents........................... $ 6,450 $ 7,906 Accounts receivable, less allowances, (2000-$10,199; 1999-$9,497)......................... 406,157 339,326 Deferred income taxes............................... 38,929 39,706 Inventories (Note 2) ............................... 484,376 446,588 ---------- ---------- Total Current Assets...................... 935,912 833,526 Property, Plant and Equipment....................... 2,907,983 2,912,733 Less allowances for depreciation................... 1,563,492 1,531,259 ---------- ---------- 1,344,491 1,381,474 Costs in excess of net assets of acquired business, less amortization, (2000-$38,102; 1999-$34,879)..... 154,081 153,847 Other assets........................................ 75,488 72,471 ---------- ---------- Total Assets.................................. $2,509,972 $2,441,318 ========== ========== LIABILITIES Current Liabilities Accounts payable and other liabilities.............. $248,285 $236,602 Short-term debt and commercial paper................ 181,620 122,547 Accrued expenses.................................... 176,514 198,512 ---------- ---------- Total Current Liabilities................. 606,419 557,661 Noncurrent Liabilities Long-term debt (Note 3) ............................ 305,908 327,343 Accrued pension cost................................ 115,087 76,005 Accrued postretirement benefits cost................ 396,705 394,084 Deferred income taxes............................... 19,279 6,147 Other noncurrent liabilities........................ 31,343 34,097 ---------- ---------- Total Noncurrent Liabilities.............. 868,322 837,676 Shareholders' Equity (Note 4) Common stock........................................ 262,282 273,199 Earnings invested in the business................... 852,239 836,916 Accumulated other comprehensive income.............. (79,290) (64,134) ---------- ---------- Total Shareholders' Equity................ 1,035,231 1,045,981 Total Liabilities and Shareholders' Equity.... $2,509,972 $2,441,318 ========== ========== PART I. FINANCIAL INFORMATION Continued 3. THE TIMKEN COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Six Months Ended Three Months Ended June 30 June 30 June 30 June 30 2000 1999 2000 1999 ---------- ---------- -------- -------- (Thousands of dollars, except per share data) Net sales................................................... $1,379,054 $1,261,469 $693,263 $636,099 Cost of products sold....................................... 1,091,613 1,015,309 550,787 516,498 ---------- ---------- -------- -------- Gross Profit............................................. 287,441 246,160 142,476 119,601 Selling, administrative and general expenses................ 185,260 177,111 91,115 87,781 Impairment and restructuring................................ 18,081 - 3,322 - ---------- ---------- -------- -------- Operating Income......................................... 84,100 69,049 48,039 31,820 Interest expense............................................ (14,693) (13,525) (7,471) (6,869) Interest income............................................. 1,109 1,148 560 721 Other income (expense)...................................... (6,240) (6,163) (3,585) (2,748) ---------- ---------- -------- -------- Income Before Income Taxes............................... 64,276 50,509 37,543 22,924 Provision for income taxes (Note 6)......................... 26,996 21,666 16,303 10,660 ---------- ---------- -------- -------- Net Income............................................... $37,280 $28,843 $21,240 $12,264 ========== ========== ======== ======== Earnings Per Share * .................................... $0.61 $0.47 $0.35 $0.20 Earnings Per Share - assuming dilution **............... $0.61 $0.46 $0.35 $0.20 Dividends Per Share...................................... $0.36 $0.36 $0.18 $0.18 ========== ========== ======== ======== * Average shares outstanding............................... 60,969,469 61,884,046 60,837,740 61,906,626 ** Average shares outstanding - assuming dilution........... 61,171,114 62,122,559 61,103,848 62,224,795
PART I. FINANCIAL INFORMATION Continued 4. THE TIMKEN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended Cash Provided (Used) June 30 June 30 2000 1999 ------- ------- OPERATING ACTIVITIES (Thousands of dollars) Net Income............................................. $37,280 $28,843 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................... 75,894 73,652 Provision (credit) for deferred income taxes.......... 15,312 (10,904) Stock issued in lieu of cash to employee benefit plans 60 3,394 Non-cash portion of impairment and restructuring charges.............................................. 16,445 - Changes in operating assets and liabilities: Accounts receivable.................................. (71,932) (6,300) Inventories.......................................... (45,032) 36,541 Other assets......................................... (10,549) (3,309) Accounts payable and accrued expenses................ 30,064 23,660 Foreign currency translation......................... (738) 2,823 ------- ------- Net Cash Provided by Operating Activities........... 46,804 148,400 INVESTING ACTIVITIES Purchases of property, plant and equipment - net...... (57,055) (88,065) Acquisitions.......................................... - (27,939) ------- ------- Net Cash Used by Investing Activities............... (57,055) (116,004) FINANCING ACTIVITIES Cash dividends paid to shareholders................... (21,957) (22,284) Purchase of treasury shares........................... (10,977) (339) Payments on long-term debt............................ (1,453) (279) Proceeds from issuance of long-term debt.............. 2,061 2,723 Short-term debt activity - net........................ 41,585 7,570 ------- ------- Net Cash Provided (Used) by Financing Activities.... 9,259 (12,609) Effect of exchange rate changes on cash................ (464) (530) (Decrease) increase in Cash and Cash Equivalents....... (1,456) 19,257 Cash and Cash Equivalents at Beginning of Period....... 7,906 320 ------- ------- Cash and Cash Equivalents at End of Period............. $ 6,450 $19,577 ======= ======= PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 5. Note 1 -- Basis of Presentation The accompanying consolidated condensed financial statements (unaudited) for the Timken Company (the "company") have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes included in the company's annual report on Form 10-K for the year ended December 31, 1999. 6/30/00 12/31/99 Note 2 -- Inventories -------- --------- (Thousands of dollars) Finished products $179,114 $172,682 Work-in-process and raw materials 267,382 235,251 Manufacturing supplies 37,880 38,655 -------- -------- $484,376 $446,588 ======== ======== Note 3 -- Long-term Debt 6/30/00 12/31/99 -------- --------- (Thousands of dollars) State of Ohio Pollution Control Revenue Refunding Bonds, maturing on July 1, 2003. The variable interest rate is tied to the bank's tax exempt weekly interest rate. The rate at June 30, 2000 is 4.75%. $17,000 $17,000 State of Ohio Water Development Revenue Refunding Bond, maturing on May 1, 2007. The variable interest rate is tied to the bank's tax exempt weekly interest rate. The rate at June 30, 2000 is 4.80%. 8,000 8,000 State of Ohio Air Quality and Water Development Revenue Refunding Bonds, maturing on June 1, 2001. The variable interest rate is tied to the bank's tax exempt weekly interest rate. The rate at June 30, 2000 is 4.80%. 21,700 21,700 State of Ohio Water Development Authority Solid Waste Revenue Bonds, maturing on July 2, 2032. The variable interest rate is tied to the bank's tax exempt weekly interest rate. The rate at June 30, 2000 is 4.85%. 24,000 24,000 Fixed Rate Medium-Term Notes, Series A, due at various dates through May, 2028 with interest rates ranging from 6.20% to 7.76%. 252,000 252,000 Other 10,419 9,957 -------- -------- 333,119 332,657 Less: Current Maturities 27,211 5,314 -------- -------- $305,908 $327,343 ======== ======== PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) Continued 6. Note 4 -- Shareholders' Equity 6/30/00 12/31/99 -------- -------- Class I and Class II serial preferred stock (Thousands of dollars) without par value: Authorized -- 10,000,000 shares each class Issued - none $ - $ - Common Stock without par value: Authorized -- 200,000,000 shares Issued (including shares in treasury) 2000 - 63,082,626 shares 1999 - 63,082,626 shares Stated Capital 53,064 53,064 Other paid-in capital 258,347 258,287 Less cost of Common Stock in treasury 2000 - 2,496,472 shares 1999 - 1,886,537 shares 49,129 38,152 -------- -------- $262,282 $273,199 ======== ======== An analysis of the change in capital and earnings invested in the business is as follows: Common Stock Earnings Accumulated Other Invested Other Stated Paid-In in the Comprehensive Treasury Capital Capital Business Income Stock Total ------- -------- -------- ---------- -------- ---------- (Thousands of dollars) Balance December 31, 1999 $53,064 $258,287 $836,916 ($64,134) ($38,152) $1,045,981 Net Income 37,280 37,280 Foreign currency translation adjustment (15,156) (15,156) ---------- Total comprehensive income 22,124 Dividends - $.36 per share (21,957) (21,957) Stock Options, employee benefit and dividend reinvestment plans: 60 (10,977) (10,917) Treasury - acquired 641,200 shares, net ------- -------- -------- ---------- -------- ---------- Balance June 30, 2000 $53,064 $258,347 $852,239 ($79,290) ($49,129) $1,035,231 ======= ======== ======== ========== ======== ========== The total comprehensive income for the three months ended June 30, 2000 and 1999 was $10,927,000 and $8,150,000, respectively. Total comprehensive income for the six months ended June 30, 1999 was $11,180,000.
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 7. Continued Note 5 -- Impairment and Restructuring Charges In March 2000, the company announced an acceleration of its global restucturing to position itself for profitable growth, streamline operations, reduce costs and improve European profitability. This restructuring is expected to save the company approximately $35 million annually before taxes by the end of 2001. Employee severance, exit costs, non-cash impairment and reorganization charges of an estimated $55 million before taxes are expected to be recorded over the next one to two years. Of this amount, approximately $35 million is anticipated as impairment and restructuring charges, and the remaining $20 million will be classified as either cost of products sold or selling, administrative and general expense. Of the $21.6 million recorded through June 2000, $18.1 million were restructuring and impairment charges related to the global restucturing acceleration. In addition, reorganization expenses of $3.5 million were recorded with $2.9 million related to bearing operations and $0.6 million related to steel operations. Impairment charges of $13.5 million reflected costs associated with the consolidation of operations as well as abandoned acquisition, affiliation and divestiture efforts. The restructuring charges of $4.6 million primarily relate to the severance costs associated with the future termination of 120 positions in Europe and the U.S. Of the 120 positions to be terminated, 31 have exited as of June 30, 2000. The remaining positions are expected to exit by the end of the first quarter of 2001. Payments charged against the restructuring liability through the end of the second quarter were $1.6 million, resulting in an accrual balance of $3 million. Key elements of the restructuring and impairment charges by industry through June are as follows (in thousands of dollars): Bearing Steel Total Restructuring: -------- --------- --------- Separation costs - operations $ 2,220 $ - $ 2,220 Separation costs - administration 1,898 419 2,317 Exit costs 38 - 38 -------- --------- --------- $ 4,156 $ 419 $ 4,575 Impaired assets: Property, plant and equipment 764 8,526 9,290 Abandoned acquisitions 214 4,002 4,216 -------- --------- --------- $ 978 $ 12,528 $ 13,506 -------- --------- --------- $ 5,134 $ 12,947 $ 18,081 ======== ========= ========= PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 8. Continued Note 6 -- Income Tax Provision Six Months Ended Three Months Ended June 30 June 30 June 30 June 30 2000 1999 2000 1999 -------- -------- -------- -------- U.S. (Thousands of dollars) Federal $18,841 $17,455 $11,910 $8,349 State & Local 965 1,421 460 386 Foreign 7,190 2,790 3,933 1,925 ------- ------- ------- ------- $26,996 $21,666 $16,303 $10,660 ======= ======= ======= ======= Taxes provided exceed the U.S. statutory rate primarily due to state and local taxes and losses without current tax benefits. The restructuring charges are increasing the company's annualized income tax rate above 1999 levels due to the inability to tax effect certain current foreign losses. Note 7 -- Segment Information (Thousands of Dollars) Six Months Ended Three Months Ended June 30 June 30 June 30 June 30 Bearings 2000 1999 2000 1999 -------- -------- -------- -------- Net sales to external customers $936,408 $890,155 $466,034 $451,438 Depreciation and amortization 42,093 41,003 20,806 20,517 Earnings before interest and taxes 58,769 43,319 26,636 20,070 Interest expense (12,069) (10,503) (6,536) (5,423) Interest income 1,211 1,203 599 755 Steel Net sales to external customers 442,646 371,314 227,229 184,661 Intersegment sales 106,914 103,643 51,332 48,265 Depreciation and amortization 33,801 32,649 16,867 16,538 Earnings before interest and taxes 19,526 18,279 16,735 7,250 Interest expense (5,579) (4,568) (2,917) (2,252) Interest income 2,854 1,492 1,943 773 Profit Before Taxes Total EBIT for reportable segments 78,295 61,598 43,371 27,320 Interest expense (14,693) (13,525) (7,471) (6,869) Interest income 1,109 1,148 560 721 Intersegment adjustments (435) 1,288 1,083 1,752 Income before income taxes 64,276 50,509 37,543 22,924 9. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations --------------------- The Timken Company reported net sales of $693.3 million for the second quarter of 2000, an increase of 9% from $636.1 million in 1999's second quarter. Net income increased by 72% to $21.2 million compared to $12.3 million in the second quarter of 1999. In the second quarter of 2000, the company incurred total pretax charges of $4.8 million related to the company's restructuring and reorganization. These charges included $3.3 million related to restructuring and impairment charges and $1.5 million related to reorganization expenses, which were reflected in the company's cost of products sold and selling, administrative and general expenses for the quarter. The increase in sales volume resulted from continued improvement in North American industrial markets as well as strengthening demand in international markets such as Latin America and Asia. The North American automotive industry remained strong through the quarter although the heavy truck sector showed signs of weakening. Gross profit was $142.5 million (20.6% of net sales) in the second quarter of 2000, compared to $119.6 million (18.8% of net sales) in 1999's second quarter. The effect of higher sales volumes combined with a more favorable product mix in industrial and aftermarket products contributed to the increase. Selling, administrative and general expenses were $91.1 million (13.1% of net sales) in the second quarter of 2000, compared to $87.8 million (13.8% of net sales) recorded in 1999's second quarter. This increase in total expenses resulted primarily from increased expenses for Timken India Limited, in which the company acquired a majority interest in March 1999, and reorganization expense related to the company's realignment of businesses into global units. Pursuant to the acceleration of the company's global restructuring announced in March 2000, $21.6 million of the estimated $55 million pretax charge was recorded in the first half of 2000. The pretax charge included $18.1 million in restructuring and impairment charges, $12.5 million of which related to the impairment of domestic steel assets, with the balance primarily being bearing severance expense. Also included was $3.5 million in reorganization expense, primarily selling, administrative and general expenses related to the realignment of the bearing business into global units. The remainder of the impairment and restructuring charges are anticipated to be recorded over the next three quarters, with full impact of savings from these programs realized by the end of 2001. 10. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) The restructuring is utilizing initiatives to improve competitiveness, promote profitable worldwide growth and transform the company into global business units. These initiatives include rationalization of plants and businesses to reduce asset intensity as well as streamlining the management structure. Of the 600 positions to be eliminated worldwide, 120 have been identified, primarily in Europe and the U.S., with 31 actual terminations to date. Payments charged against the $4.6 million restructuring liability through the end of the second quarter of 2000 were $1.6 million, resulting in an accrual balance of $3 million. Other income (expense) reflected higher expense in the second quarter of 2000 due primarily to higher transactional foreign currency exchange losses recorded in the second quarter of 2000 related to the strength of the U.S. dollar and British pound against other weakened currencies. Bearings Bearings' net sales were $466 million in the second quarter of 2000, up 3.2% compared to $451.4 million recorded in the year-earlier period. Sales increased as a result of the continued recovery of North American industrial demand and strengthening in international markets such as Asia and Latin America, which offset the softening of sales in the North American rail and aerospace industries. North American automotive sales were relatively flat compared to the second quarter of 1999. Although North American passenger car and light truck markets remained strong through the second quarter, the heavy truck industry showed signs of weakening. Sales in the North American industrial sector, which includes original equipment and aftermarket, increased 13% from the year-ago period. This continued the upward trend begun in the first quarter of 2000, following weakened industrial bearing sales during 1999. Sales in Latin America were higher by 24% and sales in Asia Pacific increased by 16%. However, aerospace and super-precision bearing sales in the second quarter of 2000 decreased 3% compared to the same period a year ago. In addition, North American railroad sales declined by 13%. Excluding Bearings' portion of the impairment and restructuring charge as well as reorganization expense, Bearings' EBIT was $31.2 million, up 55.2% from 1999's second quarter. Including these charges, Bearings' earnings before interest and income taxes (EBIT) for the second quarter was $26.6 million, compared to $20.1 million in the second quarter of 1999. One of the major factors contributing to this 11. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) increase was the increased sales volume in the second quarter of 2000 compared to the same period a year-ago. Additionally, there has been a shift in the product mix attributable to the increased sales in the industrial sector, which is related to increased production to cover depleted dealer stock in construction and farm equipment as well as the increase in aftermarket business fueled by the recovery in Latin and North America. Bearings' selling and administrative expenses in the second quarter of 2000 were higher than the year-ago quarter due primarily to the increased expenses for Timken India Limited, in which the company acquired a majority interest in March 1999, and reorganization expense. Steel Steel's net sales, including intersegment sales were $278.6 million in the second quarter of 2000, an increase of 19.6% from the $232.9 million recorded a year earlier. Sales in the second quarter of 2000 were the strongest since the second quarter of 1998. The second quarter of 2000 reflected the continued strength in the automotive and bearings industries and stronger sales in the industrial, aerospace, oil and service center markets. Sales to oil country customers increased three times from a low base in the second quarter of 1999 while service center sales increased by more than 137%. Sales to oil country and service center customers were favorably impacted in the current quarter because of the increase in oil prices, which has caused an increase in active oil rigs. As a result, the replenishment of distributor inventory has caused this increase in sales. In the second quarter of 1999, these customers reduced excess inventories and sales were markedly depressed. Sales to external bearing customers were up by approximately 30%. Industrial sales increased almost 34%. For automotive customers, second quarter 2000 sales of precision steel components were higher by about 10% whereas alloy steel automotive sales decreased slightly by about 5% from the second quarter of 1999. Excluding Steel's portion of the impairment and restructuring charge and reorganization expense, Steel's EBIT was $16.9 million, more than double the EBIT in the second quarter of 1999. Steel's EBIT was $16.7 million in the second quarter of 2000 compared to $7.3 million in 1999's second quarter. Second quarter 2000 included impairment and restructuring charges related primarily to administrative severance costs. Higher sales volume as well as controlling of business costs in the second quarter more than offset the effect of higher scrap prices and other manufacturing costs. 12. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) Financial Condition ------------------- Total assets as shown on the Consolidated Condensed Balance Sheets increased by approximately $69 million from December 31, 1999. Inventory balances at the end of the second quarter were higher compared to year- end 1999 levels. The number of days' supply in inventory increased by three days to 111 days at June 30, 2000, compared to 108 days at December 31, 1999. Bearings' and Steel's inventories both increased approximately three days. As shown on the Consolidated Condensed Statement of Cash Flows, the increase in inventories required $45 million of cash during the first six months of 2000. Accounts receivable increased by $71.9 million since December 31, 1999, reflecting the higher level of sales in the first half of 2000. The number of days' sales in receivables as of June 30, 2000, increased approximately 1 day compared to December 31, 1999. Cash was provided as a result of a $30.1 million increase in accounts payable and accrued expenses due primarily to higher accruals for pension liabilities related to the labor union agreement ratified in the first quarter of 2000 and an increase in amounts payable to suppliers. Purchases of property, plant and equipment used $57.1 million of cash in the first six months of 2000, below the $88.1 million spent during the same period in 1999. The company expects the level of spending to increase this year to support industry leadership strategies and improvement in core businesses incorporating growth and profitability. The 32% debt-to-total-capital ratio at June 30, 2000, was higher than the 30.1% at year-end 1999. Debt increased by $37.6 million during the first six months of 2000 to $487.5 million at June 30, 2000. In addition to capital expenditures, cash was used to fund working capital, pay dividends to shareholders, and buy back shares of common stock as authorized under the company's 1998 common stock purchase plan. Short-term borrowing and issuance of medium-term notes should meet future cash needs that exceed cash generated from operations. Total shareholders' equity decreased by approx- imately $10.8 million since December 31, 1999. The $37.3 million increase in equity from net income was offset by the $15.1 million foreign currency translation adjustment as well as the payment of approximately $22 million in dividends and the $11 million net effect of transactions involving the company's treasury shares of common stock. The increase in the foreign currency translation adjustment was mainly a result of the fluctuation in exchange rates for currencies such as the British pound, Euro and Australian and Canadian dollars. 13. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) Other Information ----------------- The industry's antidumping duty orders covering imports of tapered roller bearings from Japan, China, Hungary and Romania were reviewed by U.S. government agencies to determine whether dumping and injury to the domestic industry are likely to continue or recur if orders were to be revoked. These reviews commenced in April 1999, and the company has actively participated in the proceedings. In early June 2000, the U.S. International Trade Commission (ITC) voted to revoke the antidumping orders on imports of tapered roller bearings from Japan, Romania and Hungary. The ITC determined that revocation of the antidumping duty orders on tapered roller bearings from those countries was not likely to lead to continuation or recurrence of material injury to the domestic industry within a reasonably foreseeable time. The ITC upheld the antidumping duty order against China. The company has filed an appeal of the ITC's decision regarding Japan. If following the revocation of the orders and contrary to the ITC's finding, injurious dumping from these countries continues or recurs, the improved conditions of trade of tapered roller bearings in the U.S., which resulted from the existing orders, would deteriorate. If injurious dumping does occur, such dumping could have a material adverse effect on the company's business, financial condition or results of operations. The company would explore alternatives to remedy this material adverse effect as the law provides for expedited investigations in cases where an order was revoked as a result of this review. The ITC separately extended the antidumping duty orders on ball bearings from Germany, France, Japan and several other countries. These extended orders should continue to provide the company's aerospace business with fair competition for these products in the U.S. Assets and liabilities of subsidiaries, other than Timken Romania which is considered to operate in a highly inflationary economy, are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rates of exchange prevailing during the quarter. Related translation adjustments are reflected as a separate component of accumulated other comprehensive income. Foreign currency gains and losses resulting from transactions and the translation of financial statements are included in the results of operations. Foreign currency exchange losses included in the company's operating results for the first six months of 2000 totaled $0.6 million compared to $7.1 million in the year-ago period. The January 1999 devaluation of the Brazilian Real contributed to 1999's foreign currency losses; however, the company's operations in France and the United Kingdom 14. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) recorded the most significant translation losses. Also, in the first half of 2000, the company recorded a foreign currency translation adjustment of $15.1 million that reduced shareholders' equity compared to a foreign currency translation adjustment of $17.7 million in the first half of 1999. Continued weakening currencies in many of the countries in which the company operates caused the adjustments in the first half of 2000. During the second quarter of 2000, the company purchased 403,900 shares of its common stock to be held in treasury as authorized under the company's 1998 common stock purchase plan. To date, 3.3 million shares of the 4 million shares authorized have been purchased pursuant to the plan. The authorization to purchase shares under the 1998 plan expires December 31, 2001. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletion (SAB) No. 101, "Revenue Recognition." SAB No. 101 provides guidance on numerous revenue recognition issues and is required to be adopted by the company in the fourth quarter of 2000. The company has not yet determined its effects, if any, on its operations or financial position. The statements set forth in this document that are not historical in nature are forward-looking statements. The company cautions readers that actual results may differ materially from those projected or implied in forward-looking statements made by or on behalf of the company due to a variety of important factors, such as: a) changes in world economic conditions. This includes, but is not limited to, the potential instability of governments and legal systems in countries in which the company conducts business and significant changes in currency valuations. b) the effects of changes in customer demand on sales, product mix, and prices. This includes the effects of customer strikes, the impact of changes in industrial business cycles and whether conditions of fair trade continue in the U.S. market, in light of the ITC voting in June 2000 to revoke the antidumping orders on imports of tapered roller bearings from Japan, Romania and Hungary. c) competitive factors, including changes in market penetration, the introduction of new products by existing and new competitors, and new technology that may impact the way the company's products are sold or distributed. 15. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) d) changes in operating costs. This includes the effect of changes in the company's manufacturing processes; changes in costs associated with varying levels of operations; changes resulting from inventory management and cost reduction initiatives and different levels of customer demands; the effects of unplanned work stoppages; changes in the cost of labor and benefits; and the cost and availability of raw materials and energy. e) the success of the company's operating plans, including its ability to achieve the benefits from its ongoing continuous improvement and rationalization programs; its ability to integrate acquisitions into company operations; the ability of recently acquired companies to achieve satisfactory operating results; its ability to maintain appropriate relations with unions that represent company associates in certain locations in order to avoid disruptions of business and its ability to successfully implement its new organizational structure. e) unanticipated litigation, claims or assessments. This includes, but is not limited to, claims or problems related to product warranty and environmental issues. f) changes in worldwide financial markets to the extent they affect the company's ability or costs to raise capital, have an impact on the overall performance of the company's pension fund investments and/or cause changes in the economy which affect customer demand. 16. Part II. OTHER INFORMATION Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a). Exhibits 10 Consulting agreement entered into with Robert L. Leibensperger 10.1 Consulting agreement entered into with John Schubach 11 Computation of Per Share Earnings 12 Computation of Ratio of Earnings to Fixed Charges 27 Financial Data Schedule The company did not file any reports on Form 8-K during the three months ended June 30, 2000. 17. SIGNATURES 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 thereunto duly authorized. The Timken Company _______________________________ Date August 11, 2000 BY /s/ W. R. Timken, Jr. ________________________ _______________________________ W. R. Timken, Jr., Director and Chairman; Chief Executive Officer Date August 11, 2000 BY /s/ G. E. Little ________________________ _______________________________ G. E. Little Senior Vice President - Finance