Timken Co (TKR) 2002 Q1 法說會逐字稿

Welcome to the Timken Company's first quarter 2002 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad and questions will be taken in the order in which they were - are received. If you would like to withdraw your question, press the pound key. Thank you.

At this time, I would like to turn the call over to Mr. Richard Mertes, Manager Investor Relations. Mr. Mertes, you may begin your conference.

Thank you, Jeff. Good morning to everyone and welcome to the teleconference to discuss our first quarter financial results, which were released yesterday. We appreciate your interest in our company by being with us today.

With me on this teleconference is our President and Chief Operating Officer Jim Griffith, our Executive VP President our steel business, Bill Bowling, our Executive Vice President Administration and Finance Glenn Eisenberg, our Senior VP of Finance Gene Little and our Controller Sallie Bailey.

The agenda for today is as follows: Glenn will start off the teleconference with some highlights financial - of our financial - statistics. Bill Bowling will review our steel business followed by Jim, who will summarize the bearing business activity as well as any corporate issues he wishes to address. After our formal remarks as indicated earlier, we will entertain any and all questions Before we go further, we want to take advantage of the protection of the Safe Harbor Act and want to make the following comments: Certain statements made during this teleconference that are not based on historical facts may be forward-looking. In particular, statements regarding expected future sales and earnings performance of the company as well as the amount and timing of savings and charges the company expects to realize in connection with our strategic refocusing of the company's manufacturing operations are forward-looking.

As you know several factors could cause actual results to differ materially from those that are projected or implied, including general economic conditions, customer demand and the company's ability to achieve the benefits of its ongoing restructuring programs. Information concerning these and additional factors is contained in the company's annual report as of the end of the year as well as the 10-Q for the first quarter of 2002, which will be issued shortly.

Please refer to the Safe Harbor provisions within these documents for further details. Also, please note that the Webcast contains - that this Webcast of the teleconference contains time sensitive information that is accurate only as of the day of the live broadcast, which is today, April 17th, 2002. This call is the property of the Timken Company and any redistribution or rebroadcast of it without our express consent is strictly prohibited.

With all of these formalities out of the way, Glenn.

Thank you. Thank you. Good morning, everybody. As you've seen from our press release yesterday, the company had a good first quarter despite lower sales compared to the same period a year ago. In my comments today, I'll focus on our adjusted numbers that will take out the impact of any restructuring or any other one-time items.

Sales of $616 million were down seven percent driven by lower demand from our industrial bearings and field segments, which was partially offset by higher automotive bearing sales. Jim and bill will both review the operating segment results in more detail in a moment. Despite the lower sales, operating earnings were up 37 percent to $38 million.

Both gross profit and SG&A margins improved as a result of our manufacturing strategy initiative and cost containment. Gross profit margins improved 100 basis points to 19.6 percent while SG&A improved 90 basis points to 13.5 percent. Other expense was a little higher than normal at $7 million as a result of some one-time items.

As a result EBITD came in at around $30 million on margin improvement of 120 basis points to 4.9 percent. The company's tax rate for the quarter was 38 percent resulting in net income of $14 million or 23 cents per share. This is up from 19 cents last year and ahead of our guidance and analyst consensus estimate of 17 cents.

As we look back over the quarter, revenues were quite close to our expectations while improvement from our operating initiatives as well as our cost reduction came in better than we had expected. From a cash flow perspective operating cash usage was 17 million during the quarter compared to 19 million during the same period last year.

The cash usage stemmed from higher working capital levels of around $78 million. While receivable days remained about the same at 51.6 days, inventory days grew 5.8 to 110.6 days. Inventory levels grew at both the industrial and automotive bearing segments and steps are being taken to reduce these levels.

We entered the quarter with debt at $521 million, up 24 million from yearend and debt-to-capital came in just under 40 percent. As we look forward, we remain optimistic for the year. While there's been little improvement in demand for industrial products, we do expect to see some improvement in the second half of the year.

We also expect to see continued strength in the automotive sector. As a result, we're comfortable with the analyst consensus estimates for the year at 64 cents, which would be at the upper end of the 45 to 65 cents EPS guidance, which we provided to you at our March 19th news release and conference call.

With that, I'd like to turn it over to Bill to talk about the steel segment. Bill.

Thank you. Our steel business net sales, including intersegment sales, finished the first quarter 2002 at $238 million. This is down 11 percent from the first quarter of last year, but up 10 percent from the fourth quarter of last year.

Our markets continue to be sluggish other than strong shipments to the automotive industry. Our first quarter shipments to the automotive industry were up some 23 percent from last year. Sales to the bearing industry, other than automotive suppliers, were weak. Our industrial segment sales were down nearly five percent.

Oil country sales were 74 percent below last year. Now oil country sales, however, are small percentage of our total sales mix. Our steel service center shipments continue to be weak some 25 percent below last year. The aerospace business continued strong. Our shipments in the first quarter were nearly 30 percent higher than the first quarter of last year.

We believe, however, that aerospace sales will drop as Boeing cuts production of passenger planes. Our tool steel distribution business was down nearly 30 percent from last year reflecting overall weak industrial production. Our capacity utilizations in the first quarter recovered from the very low fourth quarter levels to some 70 to 80 percent varying by business and product.

Our capacity utilization was just slightly lower than the first quarter of last year. Scrap and alloy costs in the first quarter were just a few percentage points lower than the first quarter of last year, but considerably higher than the fourth quarter due to increased levels of demand in the industry.

Electricity and natural gas costs were lower than last year. The steel business efforts at cost reduction and continuous improvement are paying off. We achieved $12 million in earnings before interest and taxes excluding restructuring and reorganization charges. In spite of our lower sales, this is an increase over last year.

This is the result of very tight cost control. Our first quarter labor productivity was at record levels and we have reduced our purchasing costs through a combination of price reductions, substitute products and reduced consumption. In March, President Bush announced the remedies for injury to the U.S. steel industry found in his 201 trade initiative.

For hot roll and coal finished bar, which covers all of Timken's bars and aerospace deals the recommendations were for three years of declining tariffs starting at 30 percent in the first year, declining to 24 percent the second and 18 percent the third year. We are pleased by the president's decision.

For tool steel, which covers the rest of steels products, there was no relief granted. We are very disappointed with this determination unfairly imported tool steels continue to undermine the ability of Timken to compete. The tariffs will be on approximately 50 percent of our sales dollar.

The reaction is as expected. Foreign countries are retaliating with tariffs on products imported from the United States as well as tariffs on steel. Customers are lobbying for exclusions. Imports, however, had already started to drop last year with the mere threat of tariffs.

We have raised bar prices in early February in advance of the tariff and we increased them again two weeks ago and we are also increasing our penetration.

Now let me turn it over to Jim.

Thanks Bill. Good morning. We are moving into year three of our transformation and we are picking up momentum. The implementation of our manufacturing strategy is in full swing.

The creation of a network of focused plants, the closing of other plants, the cost savings that we promised, these are all on track. In fact, you can see the impact in our first quarter results.

We are also - we have also - made considerable growth - considerable progress on our growth - initiatives. New affiliations with a growing roster of companies, new products, new supply agreements for major automotive platforms and a growing emphasis on service businesses.

Each initiative in and of itself won't cause the earth to shake, but taken together they are reshaping our company's future. The results I review with you today for our automotive and industrial businesses will exclude the impact of special charges.

First the automotive business, the strength of automotive markets in the first quarter is a key factor driving our performance turnaround and even within the automotive industry the strength is not shared evenly across the markets that make up this important global industry. North American car passenger car production is up slightly, one percent, from last year's first quarter while Europe is weaker.

North American light truck is where the real strength of the market is. North American production is 12 percent over last year and we project it will remain up about four percent for the year. Medium and heavy truck production continues to be weak around the world.

In North America, production is down versus last year. We are projecting the North American production will actually be up about 12 percent for the year, but that is from levels that are 35 percent below 2000. There are some preliminary indications that we are seeing some improvement in Europe in the second half of the year.

More nearer-term North American demand is being positively influenced, that is we think pulled forward by changing of the end-of-year government emission regulation. Latin American automotive markets are being negatively impacted by the economic and political situation in that region.

Sales in the first quarter were $204 million, five percent stronger than the first quarter of 2001. This performance reflects the strength of the North American light truck market and $10 million in sales generated from new platform launches. For example the Ford Expedition, PT Cruiser, GM and Dodge Ram pickup.

EBITD for the first quarter was $15.2 million, up from a loss of 1.6 in the first quarter of last year. Strong volumes, efficient plan operations, enhanced by the manufacturing strategy initiative and aggressive business cost control contributed to this performance. Business cost spending was about $6 million below the first quarter of last year.

In early April, we announced a joint venture with NSK to build a new plant near Shanghai, China. This joint venture is an integral part of our manufacturing and our Asian strategy. The plant will produce small-size, medium to high volume tapered rolling bearings for automotive and industrial application.

The product produced will be sold by both companies. This joint venture continues our efforts to reduce our manufacturing costs and increases our footprint in Asia. Assuming no major oil shock, we believe that the strength of the automotive markets will continue for the remainder of the year and this volume coupled with the impact of our manufacturing strategy bodes well for our automotive business performance.

Now let's look at the industrial business. Industrial markets in general, as Bill indicated, remain weak and have shown few signs of recovery, that is of the recovery that is projected by the business press. Our forward order book for the industrial segment published on our Web site has moved up from the fourth quarter - fourth quarter's depressed level, but is still eight to 10 percent below last year's levels on average.

We believe that we have reached the bottom in most of our industrial markets, but have seen limited evidence of near-term recovery. In aerospace, we are seeing a mixed situation. We are seeing some selected improving commercial opportunities while military related activity has not demonstrated the strength originally projected.

We have pushed back the increase in military to next year in military sales expectation to early next year. After market levels remain weak. North American rail markets are continuing to spiral down. We have reduced our freight car build forecast for 2002 to 15,000 units, down from 28,000 cars last year.

First quarter last year was 11,000. This year it was 4,500. Repair activity continues to be at about the same level as last year. Sales for the industrial business in the first quarter were 213 million, 12 percent or 29 million below last year's first quarter.

North American industrial sales were the primary driver of this shortfall. The trend is the same for all industrial segments with minor declines also experienced in aerospace, super precision and rail. EBITD for the quarter was $3 million, down from 161/2 million last year. Reduced volume was the main driver of our EBITD decline.

Our plants did perform well in light of the volume decline and business costs were rigorously controlled to levels below last year. In the first quarter, we continued our effort to expand our industrial service offerings. With the purchase of an industrial repair facility in Youngstown, Ohio, which specializes in the repair and rebuild of components done in heavy industrial mill applications, we have taken another step forward in the industrial services sector.

As we look forward, we remain concerned about the strength and speed of the economic recovery, especially as it relates to the industrial sector, but there is good evidence, mounting evidence that our transformation is working and providing improved shareholder performance as intended.

Thank you. This concludes our formal remarks and we will be happy to entertain any questions that anyone would have at this moment.

At this time, I would like to remind everyone in order to ask a question, please press star then the number one on your telephone key. We will pause for just a moment to compose the Q&A roster.

Your first question comes the line of with CIBC.

Good morning. Good morning, guys, thank you. Yeah a question comes from the demand side that, you know vehicle production, you sort of put out, you know what the passengers and light trucks have been doing.

It looks like the market in general is probably a little bit stronger than your overall growth rate, particularly when you consider that, you know you had some new business in there to the tune of about 10 million. You know do you feel that you're lagging the industry at all or do you feel that you're growing with the industry, you know given that number?

Holden this is Jim Griffith. I'm not sure what numbers that you refer to. The straight answer to your question is no we don't feel that we're lagging. You have to look at the balance between the markets that we're serving to look at that growth and it is - it is - different than the market overall. It's also particularly important to look at North American production as opposed to North American sale.

Right. You know up five percent or 4.9 percent on the automotive piece is that, you know it looks like the billed schedule has actually been up at a greater pace than that in aggregate in the industry just looking at, you know a few different things. You know is that not the case or...

I don't have those numbers at my fingertips, but I can assure you we have not lost share. So if you're observing something, which you're just observing as a mix of the vehicles we're on versus vehicles we're not on.

And then on the steel business, you know it seems like your utilization is up. You know the pricing if you can give a sense of how much pricing played a role this quarter versus volume. You know auto demand is up. I guess I was just surprised to see a sharp - a decline in the steel business, you know given that you have a number of positives that are starting to flow through there.

Can you give some sense of, you know the impact between volumes and utilization in the automotive versus industrial mix?

Oh I'm not sure - you're talking about a sharp decline in sales?

Yes.

Well the sales actually rebounded over where they were in the fourth quarter, but in...

First quarter to first quarter.

Yeah first quarter to first quarter, but in the main we're still not seeing strong recovery of any of our markets other than the automotive side.

Right but automotive makes up a not insignificant piece of steel, correct?

It's not insignificant, but it's not over 50 percent.

OK. Can you give us a sense of how much, you know to what extent did pricing flow through and is that expected to continue to flow through in upcoming quarters at greater rates given sort of the way it flows?

Yes about 75 percent of our business is contract and the majority of those contracts are up in the fourth quarter. So we've - the price increases that we've put into effect so far on roughly 25 percent of our business in the spot market.

OK. Can you tell us what the pricing in steel was for the quarter?

Across the board no I'd rather not comment on that.

OK, but it was positive?

It was positive yes.

OK and what was the impact of mix in steel, was it positive, negative?

The mix was probably neutral, fairly strong tubing sales that carry a higher margin because of strong automotive sales. In the second quarter, you'll see an increase in our bar sales versus tubing sales, which will probably have an impact on margin, but in absolute terms it is a positive.

OK, but it might get a little softer going forward?

Yes.

OK, I'll step back in.

Your next question comes from the line of with Midwest Research.

Yes hi. Good morning, gentlemen. Just have two, you know basic questions, one what's your outlook for the cap ex number for '02? And also was, you know I'm wondering what the expectations for the impact of cash on working capital for '02 ?

The cap ex for the year is going to come in roughly around, call it 120, $130 million level....

OK.

...which would come in 20 to 30 million lower than our depreciation and amortization this year. We do expect a usage of working capital this year on projected higher volume during the year, but I think from a cash standpoint we're looking at relatively neutral year-over-year so profitable debt balances.

Great, thank you very much.

Your next question comes from the line of with McDonald Investments.

Hey good morning, guys.

Good morning.

Hey Mark.

Hey congratulations on a great quarter and also a congratulations on your 320th consecutive dividend payment or dividend announcement. That's unbelievable. I don't know how many companies have had more consecutive dividends than you guys, but there can't be very many.

I had a couple questions, one relates to the - this is kind of an off-the-wall question, but it relates to the - cash recoveries that you received, you under the tariff or under the anti-dumping legislation last year in the fourth quarter. There's been some - there's been some - press related to, you know possibly rescinding that or changing that.

I mean is there color of flavor you can give as far as that process and how it might unfold for this year?

Mark the straight answer to that is no. Bill talked about the reaction to the 201. There're similar kinds of reaction that's currently being appealed to the WTO. There's a lot of discussion going on around that and I don't think it would be appropriate nor really possible to forecast any legislative activity.

OK, all right. I'm just - it's just - something that seemed kind of interesting.

It is very interesting and it is - Tim talked about at the annual meeting yesterday and I thought handled it very well. It is in fact a effort to compensate those companies that have been negatively impacted by illegal dumping and it is good, good public policy but it is difficult to - a difficult political position to - maintain in the face of the WTO situation and we strongly support the program.

Obviously we have vested interest in it, but we strongly support if for all industries that impacted in the same way because it's good public policy.

OK, well going to see how that unfolds. I had another question it's somewhat theoretical. And you know what I think investors may be trying to do is look at, you know what's the - what's the - potential for Timken's earnings in this cycle.

You know recognizing we're really only at a very early stage of any upturn and you guys, you know other than some strengthening of the automotive order book in the first quarter I mean you're really - I mean we're a long ways away from where you guys could be, you know in an economic up cycle.

But one question that might be germane that you can address is if you look at the - your business on the bearing side in '97 and if you look at where it is today, is there - is there - any sense that you can give us in terms of the, you know the changing capacity or the, you know the change in unit shipment potential, you know with your asset base today versus where it was in '97?

That probably wasn't in the book that Mertes put together for you guys ahead of the conference call.

The - as a general response, you know we have - we have - actually in think in the prep I put together for the annual meeting, since '97, we've actually closed seven plants worldwide, a number of them in the rail aftermarket, couple of bank closures in the UK, one in Australia, there's one in Columbus and it's easy to read that from outside the comp[any and saying the productive capacity of the company has reduced. You also have to look and say offsetting has been the acquisition or the renovation of Poland, the renovation of the new plant in Romania.

Yeah.

The renovation and growth of the new plant in China.

You got India there also, don't you?

Yeah growth of our - growth of our - automotive integrated products business, which has been quite significant in our Alta Vista plant and down in Lincolnton without having numbers at my fingertips there is no question in my mind that the productive capacity of the company is well above today what it was in 1997. :Literally the ability to make and ship bearings in terms of dollar...

OK.

...sales. I don't think I could put a number on it without doing some research.

All right, but OK is that something though that we might be able to address at a future conference call or you know maybe we could get together offline and talk about this? Is that something worth exploring?

Sure.

I'd like to do that if possible just to get a sense of, you know how you - how you've increased the size of the business. OK.

Just on that note too I was just coming back from the store just the revenue in the bearings business just overall would have peaked in '98 for us at around 1.8 billion and clearly we'll be lower than that now. So as Jim says you not only potentially have more capacity, better manufacturing utilization that you did back then.

That clearly if the market's there we can absorb a lot more with what we have than arguably we could have even back then.

Yeah. OK I've got one other question and I'll pass on to . I just want to talk a little bit about and the tool steel market. You know A are you - you know what is the status of any anti-dumping petition on tools steel. A? And B what is the - what is the - perceived capital need for as far as technology, upgrades or just a refresh of that facility over the next 24 to 36 months?

OK as far as anti-dumping we've - we're considering it., we've looked at it we've made no decision. As far capital needs at there are some modest needs associated with their - with the rolling an melting facility.

OK terrific. Thanks Bill. Thanks and again congratulations on a great quarter.

Thanks Mark.

Your next question comes from the line of with Merrill Lynch.

Good morning a couple questions. First for Jim or Glenn here. March orders six of the eight divisions are down, ag's down for three months in a row now. Jim are there any suckers where you believe the bottom is yet to be found?

Wow that's a - that's a - open ended question.

Yeah it is. I mean, you know forget freight fares for a minute, but you know the other what you're looking at.

Well forget it. I'm sorry. The that you're reporting in and the order data that you're putting is what I'm up against.

Yeah the - the one that in my mind I think is the most uncertain is aerospace. I just think that is one that is incredibly difficult to project. We have anticipated a dramatic softening of commercial sales and a strengthening of military, obviously with what's going on in Afghanistan.

And we've seen almost exactly the opposite. We've seen stronger than expected commercial sales and we could have been expecting military sales so, you know our crystal ball is pretty cloudy on that.

No I don't see in the industrial markets a lot more downside risk. That would be - that would be - my assessment. I guess we just I guess we just haven't seen the light at the end of the tunnel on any of them that say they're - the train is about to take off.

OK, are there - are there - any concerns in terms of some of your customer's production numbers for this year where you may have to react to those later in the year, that they're just too aggressive at this point?

I'm not sure I follow your question.

As an example in the ag sector I know there's one supplier to one of the major ag companies that aren't even effective using that ag company's production model for the year because their concern is it's too aggressive and they'll have to shut things down very late in the year so they're trying to manage the process.

We work - we work - in general off very intimate relationships with our customers rather than dealing with a high level production model. It just it's not - this isn't a 2002 factor. It's just not the way we run the business.

OK.

We deal with too many different industries to be able to deal with that.

OK. And then the second component to that related to the inventory numbers that we saw on the quarter, is this primarily a build up in auto related or are there certain areas where we're going to have to see inventory depletion through the second quarter.

The answer is yes and yes.

OK what are the areas that we're going to have to see some depletion and how big is it going to - going to - be?

We are - we have an over inventory situation on both automotive and sort of across our industrial areas from what we would expect and we would expect that to come out in the second and third quarters. Now part of it relates to some buildup for new automotive platform launches.

Part of it relates to the closure of the plant in England and the build of inventory to carry us over retooling efforts and part of it is just at this point the very unpredictable nature of the market and the decision to carry inventory a little higher to be able to respond to the needs of our customers.

OK, but there's no concern that you're going to have to take down time to do the depletion?

It obviously depends on the marketplaces, but no we anticipate being able to take it out with our normal production schedules. I think it's important to note that by the end of April, we have effectively closed our plant in Dustin, England, which at the beginning - it'll be down to less than - less than and one production line where at the beginning of the year it was over 600 people.

So even without the markets coming back, we have already throttled back the production engine of the company quite significantly and so a fair amount of that inventory will come out pretty naturally.

OK great.

Bob and just to help quantify a day's inventory is about $6 million for us and I think we reported we grew four or five million - or four or five days so times six that would suggest we're 25, 30 million over the level amount of days for the quarter and our plan for the year is to reduce days. So that'll give you a sense of where we're aiming.

OK great and just finally for Bill if I could. In the steel business, can you give us an update on the steel component segment and are you willing to talk about in terms of the profitability for the quarter., how much of that was accounted for from steel components?

Well the steel components business is still strongly automotive related so they had significant growth in the first quarter, not only because of new platforms, but also just because the general level of the business.

It's clearly the more profitable portion of our - of our - steel sales because it's almost all tubular based. I guess I would rather not get into the specifics as far as what the margin is.

OK can we put it this way then, Bill, if you took that out of the - if you took that profitability out of the steel segment would your overall steel business still be profitable for the quarter?

Yes.

OK great, thanks.

Your next question comes from the line of with Morgan Stanley.

Hi I was actually going to ask about this inventory issue as well so most of that's been, but I guess it's safe to say that that was not a build in anticipation of, you know better orders layered in here and we shouldn't read that as a sort of telegraphing an improvement in the industrial market?

Steve could you repeat your last comment please?

Sure. The question was just regarding the inventory issues, which you maily addressed, but I just wanted to see whether it make any sense to view that as, you know some a vote of confidence from you, but the second half is going to better in the industrial businesses?

Again the answer is no. At this point I think I've said we're not seeing those lights. I would like to optimistically think that's how it will work out, but our intent is to take that inventory down based on a normal production schedule. We chose to believe that the market will strengthen and take it out performance in terms of increased sales.

OK that's what I thought. Now was this inventory build intended here or did this kind sneak up on you?

I was trying to decide who I wanted to say that on a Webcast.

You heard it anyway.

The answer to your question is a piece of it is directly related to the closure in Dustin and therefore is planned. It's actually about $5 million was planned because of that. A piece of it comes because we've got a large automotive program that's launching and let's say that's threeish million dollars.

And a piece of it comes because we're having right now we're feeling a very rapid ramp up of near-term automotive orders for some reason that we're not sure that we understand and struggling to get the right parts in place and then a piece of it relates to some production problems in a couple of our plants. So it's a combination of planned things and some problems in our production operation.

OK and just running with that for a second, the production problems I guess presumably would be as you move product lines around and things like that?

No, no, it happens to be we have - we had a couple of quality problems and we had some product that is held. It's just, you know routine things that come with running operations. Just happened at the end of the quarter.

OK, thank you.

Your next question comes the line of with McDonald Investments.

Yeah my, you know the one question I had was related to the - to the - inventories and appreciate you answering that as thoroughly as you have. The other question I had related to potential upside earnings impact from the - from the closure of the Dustin facility.

And I know that, you know you've really done very aggressive, you know work here to try to get that down and I guess it's coming offline here totally sometime in the second quarter. I mean what sort of - was there any contribution from that in the first quarter? And you know and then what should we look at as far as incrementally in the second quarter versus the first quarter from this activity?

Mark let me give you the high-level numbers that we have - we have - used. Clearly there's a benefit from all of the restructuring we're doing in the first quarter, but I can't put numbers on it. As of the end of 2001, we had committed that we would operating at an annualized savings rate of $20 million.

As of the end of 2002, we had committed that we would be operating at an annualized savings rate of $80 million. We met the 2001 number. We will meet the 2002 number. The best we could calculate we finished the first quarter operating at an annualized savings rate of about $35 million.

OK I guess it's if - you're saying it's too early to speculate on, you know what the closure of Dustin might do, might possibly accelerate that annualized rate for the second quarter or would be better off just to use a straight line kind of - you know kind of - an approach as we go through the year - through the year.

Now Gene I would say the straight line is the best guidance we can give, Mark.

OK. Hey Jim thanks.

Your next question comes from the line of with CIBC.

Thanks a couple profitability questions, first your - the industrial bearing business had a decline in the EBITD margin even though the volumes only sequentially were up a little bit, what is that attributable to? Does that have anything to do with the fact that they might be paying higher steel prices today, you know even though your - as a result of the increases that you've put in?

And then secondly could you give some idea and this is the run rates on the restructuring how much in dollar terms you might be recognizing in the quarter?

Well I think the release did say and the restructuring - the manufacturing restructuring - we were at a run rate at the end of the quarter of 35 million as Jim said.

Right, but how much did you actually recognize dollar savings?

Oh you mean the actual amount captured? Again the straight line between 21 and 35 yeah divided by the three months, OK. The - if I understood what you said, - this is Jim Griffith - I'm concerned that you're misreading the financials.

You said that the industrial business grew in sales and declined in profitability and in fact it declined in sales quite significantly, $240 million first quarter of 2001.

No referring sequentially the volumes were up Q4 to Q1.

Oh OK.

Yet the margin was down. I'm just curious whether, you know the steel price increases, which don't fully flow through the steel segment because of the lag you talked about might in fact be having a negative impact on your bearings business, which is buying them at higher prices.

No that's just mix issues.

OK, thanks.

At this time I would like to again remind everyone in order to ask a question, please press star then the number one on your telephone keypad. At this time there are no further questions.

At this point, Jim Griffith has a few closing comments.

You have a question that just popped up from with Principal Capital.

Hi I actually wasn't on the yearend call so this may be repetitive, but what is the mix of assets in your pension plan between bonds and stocks?

We have a pretty conventional mix and we would benchmark ourselves, but it's about around 2/3 equity, one-third fixed income.

Great, thank you.

Now there are no further questions.

OK Jim.

OK. I - as a number of the questioners have come across with their questions they've started with congratulations and I should say that at this point at the Timken Company we are feeling optimistic about the company's prospects. But that optimism is tempered with concern over the speed and strength of the recovery and also about the changes in the world economy.

In fact as a I reflect on the question, and I think it was asked about the North American automotive market and its growth versus our growth rate, I had to step back and reflect on what's going on in Latin America and its impact on our automotive sales, which is tempering in fact the global automotive business. We operate in a global business and the events of the world have the potential to impact us.

Given all of that, we are operating the company on an optimistic basis, but keeping focused on reducing and controlling costs, keeping a lid on hiring, focusing on our manufacturing restructure with a very clear aim of keeping our margins moving in the right direction and are very pleased to report that the first quarter of 2002 was the first move in that direction. Thank you very much.

Thank you, Jim. In conclusion, we thank you for your participation today. Any follow-up questions should be directed to myself, Dick Mertes, at 330-471-3924. If it's an urgent matter and I am not available please contact Gene Little at 330-471-4196 or Glen Eisenberg at 330-471-4096.

Our next teleconference is tentatively set for 10:00 a.m. on July 19th. The telephone will remain the same as today, which is 706-634-0975. Please mark this on your calendar for future reference. Also please refer to our Web site for any change in scheduling, phone number changes for the teleconference and/or replay as well as any access codes.

There's else to be - business to be conducted today. This concludes our teleconference and have a great day. Thank you.

Thank you for joining the Timken Company first quarter 2001 earnings release conference call. You may disconnect.