Notes to Consolidated Financial Statements
(Thousands of dollars, except share data)
14 Segment Information
Description of types of products and services from which each reportable segment derives its revenues
The company’s reportable segments are business units that target different industry segments. Each reportable segment is managed separately because of the need to specifically address customer needs in these different industries. The company has three reportable segments: Automotive, Industrial and Steel Groups.
Beginning in the first quarter of 2003, the company reorganized two of its reportable segments – the Automotive and Industrial Groups. Timken’s automotive aftermarket business is now part of the Industrial Group, which manages the combined distribution operations. The company’s sales to emerging markets, principally in central and eastern Europe and Asia, previously were reported as part of the Industrial Group. Emerging market sales to automotive original equipment manufacturers are now included in the Automotive Group.
The Automotive Group includes sales of bearings and other products and services (other than steel) to automotive original equipment manufacturers for passenger cars, trucks and trailers. The Industrial Group includes sales of bearings and other products and services (other than steel) to a diverse customer base, including: industrial equipment; off-highway; rail; and aerospace and defense customers. The company’s bearing products are used in a variety of products and applications including passenger cars, trucks, aircraft wheels, locomotive and railroad cars, machine tools, rolling mills and farm and construction equipment, in aircraft, missile guidance systems, computer peripherals and medical instruments.
Steel Group includes sales of intermediate alloy, vacuum processed alloys, tool steel and some carbon grades. These are available in a wide range of solid and tubular sections with a variety of finishes. The company also manufactures custom-made steel products, including precision steel components. A significant portion of the company’s steel is consumed in its bearing operations. In addition, sales are made to other anti-friction bearing companies and to aircraft, automotive, forging, tooling, oil and gas drilling industries and steel service centers. Tool steels are sold through the company’s distribution facilities.
Measurement of segment profit or loss and segment assets
The company evaluates performance and allocates resources based on return on capital and profitable growth. The primary measurement used by management to measure the financial performance of each Group is adjusted EBIT (earnings before interest and taxes excluding special items such as impairment and restructuring, reorganization and integration costs, one-time gains or losses on sales of assets, allocated receipts received or payments made under the CDSOA, acquisition-related currency exchange gains, and other items similar in nature). The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are recorded at values based on market prices, which creates intercompany profit on intersegment sales or transfers.
Factors used by management to identify the enterprise’s reportable segments
Geographical entities as defined here are not reflective of how the Automotive, Industrial and Steel Groups are operated by the company. Europe information presented reflects shipments from European locations. The information does not include product manufactured by facilities located outside Europe and shipped directly to customers located in Europe.
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| Geographic Financial Information |
United States |
Europe |
Other Countries |
Consolidated |
|
2003 |
| Net sales |
$ 2,790,359 |
$ 674,188 |
$ 323,550 |
$ 3,788,097 |
| Non-current assets |
1,753,221 |
365,969 |
193,494 |
2,312,684 |
|
2002 |
| Net sales |
$ 1,987,499 |
$ 365,460 |
$ 197,116 |
$ 2,550,075 |
| Non-current assets |
1,472,680 |
223,348 |
84,036 |
1,780,064 |
|
2001 |
| Net sales |
$ 1,906,823 |
$ 351,242 |
$ 189,113 |
$ 2,447,178 |
| Non-current assets |
1,402,780 |
232,105 |
69,819 |
1,704,704 |
|
|
| Segment Financial Information |
2003 |
2002 |
2001 |
|
| Automotive Group |
|
|
|
| Net sales to external customers |
$ 1,396,104 |
$ 752,763 |
$ 642,943 |
| Depreciation and amortization |
82,958 |
33,866 |
36,381 |
| EBIT (loss), as adjusted |
15,685 |
11,095 |
(28,795) |
| Capital expenditures |
69,040 |
34,948 |
36,427 |
| Assets employed at year-end |
1,180,867 |
663,864 |
583,891 |
|
| Industrial Group |
|
|
|
| Net sales to external customers |
$ 1,498,832 |
$ 971,534 |
$ 990,365 |
| Intersegment sales |
837 |
- |
- |
| Depreciation and amortization |
61,018 |
45,429 |
48,314 |
| EBIT, as adjusted |
128,031 |
73,040 |
55,981 |
| Capital expenditures |
33,724 |
32,178 |
34,646 |
| Assets employed at year-end |
1,617,568 |
1,105,684 |
1,044,269 |
|
| Steel |
|
|
|
| Net sales to external customers |
$ 893,161 |
$ 825,778 |
$ 813,870 |
| Intersegment sales |
133,356 |
155,500 |
146,492 |
| Depreciation and amortization |
64,875 |
67,240 |
67,772 |
| EBIT (loss), as adjusted |
(6,043) |
32,520 |
12,115 |
| Capital expenditures |
24,297 |
23,547 |
31,274 |
| Assets employed at year-end |
891,354 |
978,808 |
904,924 |
|
| Total |
|
|
|
| Net sales to external customers |
$ 3,788,097 |
$2,550,075 |
$2,447,178 |
| Depreciation and amortization |
208,851 |
146,535 |
152,467 |
| EBIT, as adjusted |
137,673 |
116,655 |
39,301 |
| Capital expenditures |
127,061 |
90,673 |
102,347 |
| Assets employed at year-end |
3,689,789 |
2,748,356 |
2,533,084 |
|
| Reconciliation to Income Before Income Taxes |
|
|
|
| Total EBIT, as adjusted, for reportable segments |
$ 137,673 |
$ 116,655 |
$ 39,301 |
| Impairment and restructuring |
(19,154) |
(32,143) |
(54,689) |
| Integration/Reorganization expenses |
(33,913) |
(18,445) |
(12,617) |
| Gain on sale of assets |
1,996 |
- |
- |
| CDSOA net receipts, net of expenses |
65,559 |
50,202 |
29,555 |
| Acquisition-related unrealized currency exchange gains |
1,696 |
- |
- |
| Impairment charge for investment in PEL |
(45,730) |
- |
- |
| Interest expense |
(48,401) |
(31,540) |
(33,401) |
| Interest income |
1,123 |
1,676 |
2,109 |
| Intersegment adjustments |
(47) |
(887) |
2,859 |
|
| Income (loss) before income taxes and cumulative effect of change in accounting principle |
$ 60,802 |
$ 85,518 |
$ (26,883) |
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Financial Summary • Letter to Shareholders • Soaring with Opportunities • Driving New Opportunities
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Financial Information • Directors • Officers and Executives • Shareholder Information
2003 Annual Report in Print Friendly Format (600K - PDF format)
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