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, 1998. 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, 1998, 62,337,673.
PART I. FINANCIAL INFORMATION 2. THE TIMKEN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) June 30 Dec. 31 1998 1997 ASSETS ---------- ---------- Current Assets (Thousands of dollars) Cash and cash equivalents......................... $22,103 $9,824 Accounts receivable, less allowances, (1998-$7,816; 1997-$7,003)........................ 383,431 357,423 Deferred income taxes............................. 46,780 42,071 Inventories (Note 2) ............................. 488,058 445,853 ---------- ---------- Total Current Assets.................... 940,372 855,171 Property, Plant and Equipment..................... 2,766,076 2,677,786 Less allowances for depreciation................. 1,486,667 1,457,270 ---------- ---------- 1,279,409 1,220,516 Costs in excess of net assets of acquired business, less amortization, (1998-$26,113; 1997-$23,448)... 149,898 139,409 Deferred income taxes............................. 19,807 26,605 Other assets...................................... 80,285 84,849 ---------- ---------- Total Assets................................ $2,469,771 $2,326,550 ========== ========== LIABILITIES Current Liabilities Accounts payable and other liabilities............ $239,706 $253,033 Short-term debt and commercial paper.............. 118,738 156,585 Accrued expenses.................................. 143,599 157,343 ---------- ---------- Total Current Liabilities............... 502,043 566,961 Noncurrent Liabilities Long-term debt (Note 3) .......................... 339,759 202,846 Accrued pension cost.............................. 124,719 103,061 Accrued postretirement benefits cost.............. 390,242 389,749 Other noncurrent liabilities...................... 49,417 31,857 ---------- ---------- Total Noncurrent Liabilities............ 904,137 727,513 Shareholders' Equity (Note 4) Common stock...................................... 296,184 321,069 Earnings invested in the business................. 814,396 749,033 Accumulated other comprehensive income............ (46,989) (38,026) ---------- ---------- Total Shareholders' Equity.............. 1,063,591 1,032,076 Total Liabilities and Shareholders' Equity.. $2,469,771 $2,326,550 ========== ==========
<TABLE> 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 1998 1997 1998 1997 --------- --------- ------- ------- (Thousands of dollars, except per share data) <S> <C> <C> <C> <C> Net sales............................................. $1,409,128 $1,316,587 $701,747 $676,003 Cost of product sold.................................. 1,070,020 999,578 537,005 510,423 --------- --------- ------- ------- Gross Profit....................................... 339,108 317,009 164,742 165,580 Selling, administrative and general expenses.......... 178,041 163,245 89,900 84,842 --------- --------- ------- ------- Operating Income................................... 161,067 153,764 74,842 80,738 Interest expense...................................... (12,470) (11,053) (6,607) (5,588) Other income (expense)................................ (7,627) (1,718) (6,773) (1,149) --------- --------- ------- ------- Income Before Income Taxes......................... 140,970 140,993 61,462 74,001 Provision for Income Taxes (Note 5)................... 53,145 54,987 22,773 29,061 --------- --------- ------- ------- Net Income......................................... $87,825 $86,006 $38,689 $44,940 ========= ========= ======= ======= Earnings Per Share * .............................. $1.41 $1.37 $0.62 $0.72 Earnings Per Share - assuming dilution **......... $1.39 $1.35 $0.61 $0.70 Dividends Per Share................................ $0.36 $0.33 $0.18 $0.165 * Per average shares outstanding..................... 62,379,675 62,616,397 62,213,764 62,751,517 ** Per average shares outstanding - assuming dilution. 63,287,712 63,810,385 63,179,905 64,198,860 </TABLE>
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 1998 1997 ------- ------- OPERATING ACTIVITIES (Thousands of dollars) Net Income............................................. $87,825 $86,006 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................... 69,003 66,753 Credit for deferred income taxes...................... (383) (7,184) Stock issued in lieu of cash to employee benefit plans 18,989 12,496 Changes in operating assets and liabilities: Accounts receivable.................................. (27,541) (54,081) Inventories and other assets......................... (55,230) (17,147) Accounts payable and accrued expenses................ 18,662 21,913 Foreign currency translation......................... 1,034 (305) ------- ------- Net Cash Provided by Operating Activities 112,359 108,451 INVESTING ACTIVITIES Purchases of property, plant and equipment - net...... (133,107) (70,687) Purchase of subsidiaries.............................. 0 (36,515) ------- ------- Net Cash Used by Investing Activities............... (133,107) (107,202) FINANCING ACTIVITIES Cash dividends paid to shareholders................... (22,462) (17,915) Purchase of Treasury Shares........................... (43,875) (9,361) Payments on long-term debt............................ (23,190) (125) Proceeds from issuance of long-term debt.............. 138,272 0 Short-term debt activity - net........................ (15,645) 31,189 ------- ------- Net Cash Provided by Financing Activities........... 33,100 3,788 Effect of exchange rate changes on cash................ (73) (473) Increase in Cash and Cash Equivalents.................. 12,279 4,564 Cash and Cash Equivalents at Beginning of Period....... 9,824 5,342 ------- ------- Cash and Cash Equivalents at End of Period............. $22,103 $9,906 ======= =======
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, 1997. Certain amounts for 1997 have been reclassified to conform with the 1998 presentation. 6/30/98 12/31/97 Note 2 -- Inventories ------- -------- (Thousands of dollars) Finished products $156,476 $144,621 Work-in-process and raw materials 294,116 264,784 Manufacturing supplies 37,466 36,448 ------- ------- $488,058 $445,853 ======= ======= Note 3 -- Long-term Debt 6/30/98 12/31/97 ------- -------- (Thousands of dollars) 7-1/2% State of Ohio Pollution Control Revenue Refunding Bonds, maturing on January 1, 2002. $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, 1998 is 3.60%. 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, 1998 is 3.60%. 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, 1998 is 3.55%. 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 9.10%. 267,000 153,000 Other 3,854 2,766 ------- ------- 341,554 226,466 Less: Current Maturities 1,795 23,620 ------- ------- $339,759 $202,846 ======= =======
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 6. Continued Note 4 -- Shareholders' Equity 6/30/98 12/31/97 ------- -------- Class I and Class II serial preferred stock (Thousands of dollars) without par value: Authorized -- 10,000,000 shares each class Issued - none $0 $0 Common Stock without par value: Authorized -- 200,000,000 shares Issued (including shares in treasury) 1998 - 63,082,626 shares 1997 - 63,082,626 shares Stated Capital 53,064 53,064 Other paid-in capital 268,488 273,873 Less cost of Common Stock in treasury 1998 - 744,953 shares 1997 - 202,627 shares 25,368 5,868 -------- -------- $296,184 $321,069 ======== ======== <TABLE> 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) <S> <C> <C> <C> <C> <C> <C> Balance December 31, 1997 $53,064 $273,873 $749,033 ($38,026) ($5,868) $1,032,076 Net Income 87,825 87,825 Foreign currency translation adjustment (8,963) (8,963) ------ Total comprehensive income 78,862 Dividends - $.36 per share (22,462) (22,462) Stock Options, employee benefit and dividend reinvestment plans: (5,385) (19,500) (24,885) Treasury -(issued)/acquired (213,831) shares ------- -------- -------- ---------- --------- ---------- Balance June 30, 1998 $53,064 $268,488 $814,396 ($46,989) ($25,368) $1,063,591 ======= ======== ======== ========== ========= ========== </TABLE>
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 7. Continued Note 5 -- Income Tax Provision Six Months Ended Three Months Ended June 30 June 30 June 30 June 30 1998 1997 1998 1997 ------- ------- ------- ------- U.S. (Thousands of dollars) Federal $41,530 $40,693 $17,404 $21,244 State & Local 5,170 7,424 2,186 4,201 Foreign 6,445 6,870 3,183 3,616 ------- ------- ------- ------- $53,145 $54,987 $22,773 $29,061 ======= ======= ======= ======= Taxes provided exceed the U.S. statutory rate primarily due to state and local taxes and losses without current tax benefits.
8. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The Timken Company reported increased sales for the second quarter and first six months of 1998. Net sales for the second quarter were $701.7 million, an increase of 3.8% above 1997's second quarter sales of $676 million. Demand for the company's products remained strong in North America, Europe and Latin America; however, the company experienced some softening of demand in certain market segments. The General Motors strike reduced sales in June and continued to impact sales in the third quarter. Gross profit was $164.7 million (23.5% of net sales) in the second quarter of 1998, compared to $165.6 million (24.5% of net sales) in 1997's second quarter. The decline in gross profit in the second quarter of 1998 was due in part to lower-margin sales, steel plant start-up costs and operational complications stemming from electrical power outages in the company's Ohio steel plants. Plant utilization throughout the company remained high with the majority of its facilities running at full levels; however, electrical power outages temporarily suspended operations at the company's Faircrest Steel Plant in late June. Also, during July, a transformer malfunction at the Faircrest plant and another power outage curtailed melt operations and will affect third quarter operations. Selling, administrative, and general expenses were $89.9 million (12.8% of net sales) in the second quarter of 1998 compared to $84.8 million (12.6% of net sales) in 1997. As a percent of net sales, the company maintained a level of spending comparable to last year's despite higher targeted spending related to initiatives to increase the growth rate of the company, increased new product development costs and higher expense related to improvements in computer systems. Interest expense was $1 million higher in the second quarter of 1998 compared to the year-ago period. This increase resulted from the higher average level of debt outstanding during the second quarter. The increase in other expense relates primarily to the disposal of certain fixed assets resulting from a company-initiated internal fixed asset review that is conducted approximately every five years. The review was begun in the second quarter and is expected to be completed in the third quarter. "Other income (expense)" also includes foreign currency losses related to the company's newly acquired Romanian subsidiary. Bearing Business net sales were $469.8 million in the second quarter of 1998, up 5.6% over the $444.9 million recorded in the year-earlier period. North American automotive and heavy- and light-truck bearing sales were strong, accounting for over 65% of the sales increase, despite the effect of the General Motors
9. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) strike, which reduced bearing sales in June. Sales to rail car manufacturers were up more than 50%. European economic activity is encouraging; however, the company's increase in sales in Europe, excluding recent acquisitions, represented less than 5% of the quarter-to-quarter increase. The company's recent acquisitions accounted for approximately 24% of the increase in bearing sales volume. Industrial and aftermarket sales in Europe were weaker. Sales in Latin America in the second quarter continued at a good pace but remained relatively constant with the year-earlier period. The economic problems in Asia have begun to affect other markets around the world. Sales to the company's Asia Pacific customers in the second quarter of 1998 were down by more than $8 million compared to the year-ago quarter. The sustained trend of economic problems in Asia is of concern, particularly as the continuing weakness of Asian currencies begins to affect the ability of U.S. companies to compete effectively in those markets. Bearing Business operating income was down 3.4% in the second quarter of 1998 to $45.6 million from $47.2 million in 1997's second period. A less favorable sales mix and actions taken to control inventories contributed to the reduction in operating income. In addition, lower bearing sales in Asia Pacific markets hurt operating income by about $4 million in the second quarter. The Bearing Business also experienced increased manufacturing costs related to the sourcing of certain products from higher cost capacity outside the U.S. This is expected to have a short- term impact on profits and should improve in the last half of the year. In May, the company completed the acquisition of Bearing Repair Specialists, an industrial bearing repair business in South Bend, Indiana. Bearing Repair Specialists reconditions or modifies a wide variety of bearing types for industrial customers in the United States and Canada. The newly acquired facility, which employs 25 people and consists of approximately 40,000 square feet, will operate as a new plant in the company's U.S. bearing operations. In April 1998, the company announced plans for a $12 million expansion at its Altavista Bearing Plant in Virginia. Growing demand in light truck and sport utility vehicle markets prompted the plant's third expansion since it was built in 1991. The new investment will increase production capacity at the plant by about twenty-five percent. Steel Business net sales were $231.9 million in the second quarter of 1998 compared to $231.1 million recorded a year earlier. Demand remains strong in the automotive and industrial segments; however, manufacturers and distributors in the oil and service center markets are adjusting inventories, which is softening demand for some products. The effect of the General Motors strike on the second quarter was minimal as capacity was
10. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) shifted from General Motors' orders to other customers. The order book for Timken steel looks promising through year-end, providing the General Motors strike impact is not prolonged. Steel Business operating income in the second quarter of 1998 was $29.3 million, down 12.5% from $33.5 million in last year's corresponding period. The decrease was due in part to a less favorable sales mix and electricity supply interruptions which increased electrical costs by about $1 million and resulted in $1.5 million of lost sales in the second quarter of 1998. In addition, the Steel Business incurred expense of over $5 million related to the startup of its new $55 million rolling mill at the Harrison Steel Plant in Canton, Ohio, and its new $15 million profile ring mill at the Parts Business's Tryon Peak Plant in North Carolina. The General Motors strike began affecting operating performance late in June. The startup of the new rolling mill has gone exceptionally well and product from the new mill has exceeded expectations with regard to straightness and surface quality. The Steel Business expects that these planned increased costs will be offset in the last half of the year by manufacturing cost reductions achieved as a result of the new equipment. In July, the Steel Business experienced a transformer malfunction which halted melting operations at its Faircrest plant for seventeen days. As a result, the company's melting capacity will be reduced by about 10% in the third quarter of 1998. The impact of the equipment failure was minimized by moving up maintenance shutdowns scheduled later in the year and by aggressively reducing in-process inventory that was higher than desired. Melting operations were also shut down for six hours during one day in July due to an electricity supply interruption that was precipitated by unusually hot summer weather. Third quarter operating results will be affected by the General Motors strike and additional planned start-up costs related to its new Harrison Steel Plant rolling mill. The company estimates the total effect of these events on operating income will be approximately $15 million in the third quarter. On April 22, 1998, the company announced tentative plans for a new $110 million steel tube mill that would expand its tubing product line. Plans are contingent upon completion of discussions with all key constituents. The facility would include state-of-the-art piercing, rolling and finishing operations designed to complement the company's existing piercing mills by expanding the wall thickness and size offerings. Timken seamless tubing is used in applications in many industries, including automotive, bearing and oil country. The location of the facility has not been determined. The company has met several times with representatives of the local, district and international offices of the United Steelworkers of America, AFL- CIO, to develop a labor agreement to place the Canton area in the running as a potential site for the company's proposed tube mill.
11. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) The discussions have not resulted in a mutually acceptable agreement. It is still possible for the company and union to reach an agreement that would keep Canton on the short list of potential sites. But there are no further discussions scheduled at this time. Financial Condition Total assets increased by $143.2 million from December 31, 1997. The increase resulted in part from higher accounts receivable and inventories required to support the higher demand levels, and increased investment in property, plant and equipment. The $27.5 million increase in accounts receivable, as reflected in the Consolidated Condensed Statements of Cash Flows, relates primarily to the increase in sales. The number of days' sales in receivables at June 30, 1998, was about one day lower than the year-end 1997 level. Inventories and other assets increased by $55.2 million compared to year-end 1997. The increase in inventories relates in part to the higher level of activity. The number of days supply in inventory increased by about 5 days over the 112 days' inventory at December 31, 1997. Bearing Business inventory at June 30, 1998, remained relatively constant with year-end 1997 levels. The Steel Business added to inventory in order to maintain an uninterrupted supply of products to customers during the start-up of its new rolling mill. Steel inventory was increased also to help offset the potential impact of a work stoppage at its Latrobe Steel subsidiary that ultimately lasted for only three days in May. The decline in accrued expenses from $157.3 million at year-end 1997 to $143.6 million at the end of the second quarter resulted primarily from the June payment of income taxes. Debt increased to $458.5 million at the end of the second quarter of 1998 compared to $359.4 million at year-end 1997. During the six months ended June 30, 1998, cash was required to fund working capital and capital expansion and improvement needs, as well as for the purchase of shares under its previously announced 1996 and 1998 common stock purchase plans. Any future cash needs that exceed cash generated from operations will be met by short-term borrowing and issuance of medium-term notes. On April 24, 1998, the company's registration statement to register $300 million of medium-term notes was declared effective by the Securities and Exchange Commission. On May 8, 1998, the company issued $100 million of 30-year notes, maturing on May 8, 2028, pursuant to this shelf registration. The notes have a coupon rate of 6.875%. The 30.1% debt to total capital ratio at June 30, 1998, was higher than the 25.8% at year-end 1997. Debt increased by $99.1 million during the first six months of 1998; total shareholders' equity increased by $31.5 million. The increase in debt was
12. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) required to meet the company's working capital needs, its capital expansion and improvement needs, and to help fund its purchase of shares under the 1996 and 1998 common stock purchase plans. "Purchases of property, plant and equipment - net" during the six months ended June 30, 1998, were $133.1 million compared to $70.7 million one year earlier. The company continues to invest in activities consistent with the strategies it is pursuing to achieve industry leadership positions. Further capital investments in technologies in the company's plants throughout the world and new acquisitions provide Timken with the opportunity to improve the company's competitiveness and meet the needs of its growing base of customers. Other Information The Timken Company has approached being year 2000 compliant using a defined methodology that includes assessment and inventory, strategy definition, remediation, test, integration and implementation components. This program encompasses all Timken business systems, manufacturing and distribution systems, technical architecture, end-user computing, and the company's supplier base. Additionally, the company's corporate information systems department has instituted a corporate level reporting and tracking process that encompasses all Timken year 2000 project efforts world-wide. Through the use of this methodology over the past two years, the company is well into its year 2000 conversion effort. Current project plans call for Timken to have all of its critical systems year 2000 compliant by the last quarter of 1998. Although the company plans to meet this projected completion date, it can provide no assurances that all of its year 2000 efforts will be successful. The costs associated with Timken's total year 2000 conversion efforts will not have a material effect on the company's financial position, results of operations or cash flows. The company's financial results are also dependent on the ability of its customers, suppliers and the government to become year 2000 compliant. The company has implemented a structured plan to communicate with its customers and suppliers on this issue in an effort to minimize any potential year 2000 compliance impact; however, it is not possible to guarantee their compliance. The company will be finalizing all financial and operating contingency plans during the first half of 1999. On August 7, 1998, the Board of Directors declared a quarterly cash dividend of 18 cents per share payable September 8, 1998, to shareholders of record at the close of business on August 21, 1998. On April 21, 1998, the company announced board approval of the 1998 common stock purchase plan. The company's 1996 common stock purchase plan had authorized the company to buy back, in the open market, up to two million shares of common stock to be held as
13. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) treasury shares and used for benefit plans. The company has purchased all of the two million shares authorized under the 1996 common stock purchase plan. The company's 1998 common stock purchase plan authorizes the company to buy, in the open market on the New York Stock Exchange or otherwise in connection with privately negotiated transactions, at prevailing market prices, up to four million shares of common stock, which are to be held as treasury shares and used for specific purposes. The company may exercise this authorization until December 31, 2001. Shares of common stock purchased pursuant to the 1998 common stock purchase plan can be used as follows: to fund qualified employee benefit plans maintained by the company and its direct and indirect wholly owned domestic subsidiaries; to satisfy the company's obligations under its equity-based incentive plans; for use in making future acquisitions; and to deliver shares under existing and future equity-based compensation arrangements to associates and directors of the company and to associates of direct and indirect subsidiaries of the company. Based on the Brazilian three-year cumulative inflation rate being below 100% and the company's evaluation of the Brazilian economy, in January 1998 the company began to consider Brazil a non- hyperinflated economy. The initial adjustment of $6 million to revalue Brazilian assets at current exchange rates was reflected as a reduction of other comprehensive income in the first quarter of 1998. Prospectively, exchange gains or losses on the conversion of net assets also will be reflected in other comprehensive income. Because of the trading relationship between the company and its Mexican subsidiary, the functional currency used for Mexico is the U.S. dollar. Accordingly, the evaluation of the economy in Mexico as hyperinflated does not impact the company's accounting for this subsidiary. The company's recently acquired Romanian subsidiary is considered to be operating in a highly inflationary economy and therefore, foreign currency gains and losses resulting from transactions and the translation of financial statements are included in the results of operations. Effective in the first quarter 1998, the company adopted the American Institute of Certified Public Accountants Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This SOP offers new guidance concerning the capitalization and/or expensing of costs associated with developing or obtaining internal use software. The adoption of this SOP did not have a material effect on the company's financial position, results of operations or cash flows. 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:
14. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) 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, significant changes in currency valuations, the implementation of the Euro and the effects of year 2000 compliance. b) changes in customer demand on sales and product mix. This includes the effect of customer strikes and the impact of changes in industrial business cycles. c) competitive factors, including changes in market penetration and the introduction of new products by existing and new competitors. 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 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 on-going continuous improvement programs, its ability, along with that of its customers and suppliers, to update computer systems to be year 2000 compliant; its ability to integrate acquisitions into company operations, the ability of recently acquired companies to achieve satisfactory operating results and the company's ability to maintain appropriate relations with unions that represent company associates in certain locations in order to avoid disruptions of business. f) unanticipated litigation, claims or assessments. This includes, but is not limited to, claims or problems related to product warranty and environmental issues. g) 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 cause changes in the economy which affect customer demand.
15. 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 4 Credit Agreement dated as of July 10, 1998 among The Timken Company, as Borrower, Various Financial Institutions, as Banks, and Keybank National Association, as Agent 11 Computation of Per Share Earnings 12 Computation of Ratio of Earnings to Fixed Charges 27 Financial Data Schedule
16. 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 13, 1998 BY /s/ W. R. Timken, Jr. ________________________ _______________________________ W. R. Timken, Jr., Director and Chairman; President and Chief Executive Officer Date August 13, 1998 BY /s/ G. E. Little ________________________ _______________________________ G. E. Little Senior Vice President - Finance