SECURITIES AND EXCHANGE COMMISSION 1.
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number 1-1169
December 31, 1994
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)
Registrants telephone number, including area code (216) 438-3000
___________________
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
______________________________ _______________________
Common Stock without par value New York Stock Exchange
Rights to Purchase Common Stock without par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
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
___ ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X].
The aggregate market value of the voting stock held by all shareholders other
than shareholders identified under item 12 of this Form 10-K as of February
20, 1995 was $880,500,477 (representing 26,088,903 shares).
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of February 20, 1995.
Common Stock without par value -- 31,074,850 shares (representing a market
___________________________________________________ value of $1,048,776,188)
<PAGE>
2.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1994, are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual meeting of shareholders to be
held on April 18, 1995, are incorporated by reference into parts III and IV.
Exhibit Index may be found on Pages 15 thru 18.
<PAGE>
3.
PART I
______
Item 1. Description of Business
________________________________
General
_______
As used herein the term "Timken" or the "company" refers to The Timken
Company and its subsidiaries unless the context otherwise requires.
Timken, an outgrowth of a business originally founded in 1899, was
incorporated under the laws of Ohio in 1904.
Products
________
Timken's products are divided into two industry segments. The first
includes anti-friction bearings; the second industry segment is steel.
Anti-friction bearings constitute Timken's principal industry product.
Basically, the tapered roller bearing made by Timken is its principal
product in the anti-friction industry segment. It consists of four
components (1) the cone or inner race, (2) the cup or outer race, (3) the
tapered rollers which roll between the cup and cone, and (4) the cage
which serves as a retainer and maintains proper spacing between the
rollers. These four components are manufactured and sold in a wide
variety of configurations and sizes. Matching bearings to service
requirements of customers' applications requires engineering, and
oftentimes sophisticated analytical techniques. The design of every
tapered roller bearing made by Timken permits distribution of unit
pressures over the full length of the roller. This fact, coupled with its
tapered design, high precision tolerances and proprietary internal
geometry and premium quality material, provides a bearing with high load
carrying capacity, excellent friction-reducing qualities and long life.
With the acquisition of MPB Corporation in May 1990, Timken expanded into
the super precision ball and roller bearing business thus gaining access
to those portions of the aerospace, defense, computer disk drive, and
other markets requiring high precision applications. MPB's products
utilizing balls and straight rolling elements are the super precision end
of the general ball and straight roller bearing product range in the
bearing industry. A majority of MPB's products are special
custom-designed bearings and spindle assemblies. They often involve
highly specialized materials and coatings for use in applications that
subject the bearings to extreme operating conditions of speed and
temperature. With its 1993 acquisition of equipment and inventory of the
U.S. jet engine bearing operations of The Torrington Company, a subsidiary
of Ingersoll-Rand Company, MPB expanded its line of bearings for jet
engine manufacturers.
In January 1995, Timken acquired Rail Bearing Service Corporation. The
Virginia-based company provides bearing reconditioning services for the
railroad industry. The company expects that this acquisition will result
in increased sales in North America plus the development of new markets
elsewhere in the world.
On March 6, 1995, Timken launched its newest line of bearing products,
cylindrical bearings for the rolling mill market. This is the first time
the company will produce and sell bearings featuring the Timken brand with
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4.
Products (Cont.)
________________
straight versus tapered rollers. The broadening of the company's product
line is consistent with its corporate mission of leadership in
high-quality anti-friction bearings.
Steel products include steels of alloy, vacuum processed alloys,
intermediate alloy, low alloy and carbon grades, tool steels, and other
custom-made specialty steel products. These are available in a wide range
of solid and tubular sections with a variety of finishes.
Timken has been increasing the marketing of high volume semifinished
components to major customers produced from its own steel. This value
added activity is a small but growing portion of the business. In
September 1993, the company's Steel Business began operation of its St.
Clair Precision Tubing Components Plant in Eaton, Ohio. The facility
produces sub-components for automotive and industrial customers. The
development of the precision parts business provides the company with the
opportunity to further expand its market for tubing and capture more
higher-value steel sales. This will also enable the company's traditional
tubing customers in the automotive and bearing industries to take
advantage of higher-performing components that cost less than those they
now use.
On March 16, 1995, The Timken Company announced that it will expand its
steel parts manufacturing capabilities with the opening of a new plant in
Columbus, North Carolina. The plant will use seamless tubing produced in
the company's Ohio plants to manufacture steel rings primarily for the
bearing industry.
In June 1994, the company's Steel Business announced a new product line
called DynametalTM Performance Steels. The company's associates developed
this new, environmentally friendly replacement for medium carbon leaded
steels and cast iron components. No capital investment was required. The
Steel Business' aggressive move into this market represents part of its
continuing strategy to improve financial performance by focusing its
energies and production on higher-value engineered steel bars and tubes.
Sales and Distribution
______________________
Timken's products in the bearing industry segment are sold principally by
its own sales organization. A major portion of the shipments are made
directly from Timken's plants and the balance from warehouses located in a
number of cities in the United States, Great Britain, France, Germany,
Canada, Mexico, and Argentina. These warehouse inventories are augmented
by authorized distributor and jobber inventories throughout the world
which provide local availability when service is required. The company
operates an Export Service Center in Atlanta, Georgia, which specializes
in the export of tapered roller bearings for the replacement markets in
the Caribbean, Central and South America and other regions. Timken's
tapered roller bearings are used in general industry and in a wide variety
of products including passenger cars, trucks, railroad cars and
locomotives, machine tools, rolling mills and farm and construction
equipment. MPB's products, which are at the super precision end of the
general ball and straight roller bearing segment, are used in aircraft,
missle guidance systems, computer peripherals, and medical instruments.
<PAGE>
5.
Sales and Distribution (Cont.
_____________________________
A significant portion of Timken's steel production is consumed in its
bearing operations. In addition, sales are made to other anti-friction
bearing companies and to the aircraft, automotive, forging, tooling and
oil and gas drilling industries. In addition, sales are made to steel
service centers. Timken's steel products are sold principally by its own
sales organization. Most orders are custom made to satisfy specific
customer applications and are shipped directly to customers from Timken's
steel manufacturing plants.
Timken does have a number of customers in the automotive industry
including both manufacturers and suppliers. However, Timken feels that
because of the size of that industry, the diverse bearing applications,
and the fact that its business is spread among a number of customers, both
foreign and domestic, in original equipment manufacturing and aftermarket
distribution, its relationship with the automotive industry is well
diversified.
Timken has entered into individually negotiated contracts with some of its
customers in both the bearing and steel segments. These contracts may
extend for one or more years and, if a price is fixed for any period
extending beyond current shipments, customarily include a commitment by
the customer to purchase a designated percentage of its requirements from
Timken. Contracts extending beyond one year that are not subject to price
adjustment provisions do not represent a material portion of Timken's
sales. Timken does not believe that there is any significant loss of
earnings risk associated with any given contract.
Industry Segments
_________________
Segment information in Note 12 of the Notes to Consolidated Financial
Statements and Information by Industry and Geographic Area on pages 32 and
33 of the Annual Report to Shareholders for the year ended December 31,
1994 are incorporated herein by reference. Export sales from the U.S. and
Canada are not separately stated since such sales amount to less than 10%
of revenue. The company's Bearing Business has historically participated
in the worldwide bearing markets while the Steel Business has concentrated
on U.S. markets.
Timken's non-U.S. operations are subject to normal international business
risks not generally applicable to domestic business. These risks include
currency fluctuation, changes in tariff restrictions, and restrictive
regulations by foreign governments including price and exchange controls.
Competition
___________
Both the anti-friction bearing business and the steel business are
extremely competitive. The principal competitive factors involved, both
in the United States and in foreign markets, include price, product
quality, service, delivery, order lead times and technological innovation.
<PAGE>
6.
Competition (Cont.)
___________________
Timken manufactures an anti-friction bearing known as the tapered roller
bearing. The tapered principle of bearings made by Timken permits ready
absorption of both radial and axial loads in combination. For this
reason, they are particularly well adapted to reducing friction where
shafts, gears, or wheels are used. Since the invention of the tapered
roller bearing by its founder, Timken has maintained primary focus in its
product and process technology on the tapered roller bearing segment.
This has been important to its ability to remain a leader in the world's
bearing industry. This contrasts with the majority of its major
competitors who offer a wider variety of bearing types such as ball,
straight roller, spherical roller and needle for the general industrial
and automotive markets and are, therefore, less specialized in the tapered
roller bearing segment. Timken competes with domestic manufacturers and
many foreign manufacturers of anti-friction bearings.
The anti-friction bearing business is intensely competitive in every
country in which Timken competes. However, market conditions changed
rapidly in 1994 with utilization of excess production capacity globally as
economies around the world strengthened rapidly. As the U.S. dollar
weakened against the Japanese Yen and German Mark, U.S. exports grew. The
influx of tapered roller bearings into the United States market from
foreign producers was reported by the United States Department of Commerce
to be $170 million in 1994 or approximately 15 percent of the domestic
tapered roller bearing market. In addition, Timken estimates the tapered
roller bearings contained as components of foreign automobiles and heavy
equipment produced outside the United States and imported into this
country, to be approximately $120 million in 1994.
In August 1986, the company filed a petition on behalf of the U.S. tapered
roller bearing industry with both the International Trade Commission and
the Department of Commerce. The petition sought the imposition of
anti-dumping duties on imports of tapered roller bearings from Japan,
Italy, Yugoslavia, Romania, Hungary, and the People's Republic of China.
The Department of Commerce found that product from each of the countries
was being sold in the United States at less than fair value or "dumped",
and The International Trade Commission found such imports were causing
injury to the domestic industry. The Department also identified the
amount by which selling prices in the United States are less than fair
value. This amount is expressed as a weighted average percentage known as
the final margin. The final margins for Japan as originally calculated in
1986 were approximately 36 percent. If requested, these margins are
reviewed by the Department of Commerce on an annual basis. The final
margins for Japan announced in 1993 for imports during 1992 ranged from
approximately 3 to 46 percent. The margins for the other countries range
from 0 to 37 percent. The Department of Commerce has not announced yet
final margins for imports during 1993 or 1994. Importers are currently
required to post a cash deposit with the U.S. Customs Department equal to
the margin percentage times the export price of any imported product
covered by the dumping petition. To the extent such dumping continues,
the deposits would become the property of the U.S. government. Although
Timken will not receive any monetary award from such deposits, its benefit
has been and will continue to be, the reduction of unfair competition.
<PAGE>
7.
Competition (Cont.)
___________________
Timken manufactures carbon and alloy seamless tubing, carbon and alloy
steel solid bars and various solid shapes, tool steels and other
custom-made specialty steel products. Specialty steels are characterized
by special chemistry, tightly controlled melting and precise processing.
Maintaining high standards of product quality and reliability while
keeping production costs competitive is essential to Timken's ability to
compete in the specialty steel industry with domestic and foreign steel
manufacturers.
In May 1993, the U.S. Department of Commerce determined that Brazilian
steel was being dumped in the U.S. market at prices up to 27% below fair
value. This government action was in response to an anti-dumping petition
filed in 1992 by the company and Republic Engineered Steel, Inc. In July
1993, the International Trade Commission (ITC) ruled that domestic
producers of special quality finished hot-rolled steel bars were not being
injured by imports from Brazil. The company and Republic appealed this
ruling during the third quarter of 1993 to the U.S. Court of International
Trade in New York. The company believes that the ITC ruled incorrectly
and that its determination is not supported by fact. A decision has not
yet been issued by the court.
Backlog
_______
The backlog of orders of Timken's domestic and overseas operations is
estimated to have been $880 million at December 31, 1994, and $520 million
at December 31, 1993. Actual shipments are dependent upon ever-changing
production schedules of the customer. Accordingly, Timken does not
believe that its backlog data and comparisons thereof as of different
dates are reliable indicators of future sales or shipments.
Raw Materials
_____________
The principal raw materials used by Timken in its North American plants to
manufacture bearings are its own steel tubing and bars and purchased strip
steel. Outside North America the company purchases raw materials from
local sources with whom it has worked closely to assure steel quality
according to its demanding specifications.
The principal raw materials used by Timken in steel manufacturing are
scrap metal, nickel, and other alloys. Timken believes that the
availability of raw materials and alloys are adequate for its needs, and,
in general, it is not dependent on any single source of supply.
Research
________
Timken's major research center, located in Stark County, Ohio near its
largest manufacturing plant, is engaged in research on bearings, steels,
manufacturing methods and related matters. Research facilities are also
located at the MPB New Hampshire Plants, the Duston, England plant and at
the Latrobe, Pennsylvania plant. Expenditures for research, development
and testing amounted to approximately $36,000,000 in 1994, $37,000,000 in
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8.
Research (Cont.)
________________
1993, and $42,000,000 in 1992. The company's research program is
committed to the development of new and improved bearing and steel
products, as well as more efficient manufacturing processes and techniques
and the expansion of application of existing products.
Environmental Matters
_____________________
The company continues to focus on protecting the environment and meeting
compliance with environmental protection laws. In doing so, the company
has invested in pollution control equipment and updated plant operational
practices. To the extent that the company's non-U.S. competitors are not
subject to similar laws and regulations in their home countries, the
company is placed at a competitive disadvantage.
It is very difficult to assess the possible effect of compliance with
future requirements that may differ from existing ones. The company
believes that the effect of amendments to the Clean Air Act of 1990 on its
utility suppliers will increase its costs of electricity by $4 million to
$5 million annually beginning in the second quarter of 1995. Furthermore,
regulations related to these amendments have been proposed that, if
adopted, would mandate significant changes in the way the company monitors
air emissions. This would require capital expenditures in excess of $1
million and the addition of personnel. A large cross section of
industries has expressed opposition to the proposed regulations for a
variety of reasons. The U.S. Environmental Protection Agency (EPA) is
considering amending the regulations before they are adopted in a fashion
that would lessen substantially their impact on the company and delay the
timing of the anticipated expenditures.
The company and certain of its U.S. subsidiaries have been designated as
potentially responsible parties (PRPs) by the United States Environmental
Protection Agency for site investigation and remediation at certain sites
under the Comprehensive Environmental Response, Compensation and Liability
Act (Superfund). Such designations are made regardless of the company's
limited involvement at each site. The claims for remediation have been
asserted against numerous other entities, which are believed to be
financially solvent and are expected to fulfill their proportionate share
of the obligation. Additionally, the company and its Latrobe Steel
subsidiary have been notified by the EPA regarding possible participation
at two additional superfund sites. Neither the company nor Latrobe has
been named a PRP at the sites at this time. Management believes that any
ultimate liability with respect to these actions will not materially
affect the company's operations or consolidated financial position.
The company's MPB Corporation subsidiary is engaged in environmental
projects at its manufacturing locations in New Hampshire. The costs for
these projects, estimated at slightly more than $3 million, were recorded
previously. A portion of these costs will be recovered from a former
owner of the property. MPB also has filed suit against its insurance
companies for reimbursement of clean-up costs. The full extent of
reimbursement cannot be estimated. In late 1993, MPB was notified by the
city of Keene, New Hampshire, that city officials were looking to MPB to
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9.
Environmental Matters (Cont.)
_____________________________
contribute to the costs of cleaning up alleged soil and groundwater
contamination of a city dump, which allegedly had been used by MPB along
with many others for industrial waste disposal. This is not a superfund
site. No specific monetary request has been made.
Additionally, the company will begin work in 1995 on an environmental
project at its Canton, Ohio, location. The cost of this project,
estimated to be in the range of $1.0 million to $1.5 million, was recorded
previously.
Patents, Trademarks and Licenses
________________________________
Timken owns a number of United States and foreign patents, trademarks and
licenses relating to certain of its products. While Timken regards these
as items of importance, it does not deem its business as a whole, or
either industry segment, to be materially dependent upon any one item or
group of items.
Employment
__________
At December 31, 1994, Timken had 16,202 associates.
Executive Officers of the Registrant
____________________________________
The officers are elected by the Board of Directors normally for a term of
one year and until the election of their successors. All officers, except
L. R. Brown and S. A. Perry, have been employed by Timken or by a
subsidiary of the company during the past five-year period. The Executive
Officers of the company as of February 20, 1995, are as follows:
Current Position and Previous
Name Age Positions During Last Five Years
____ ___ ______________________________________________
W. R. Timken, Jr. 56 1989 Chairman - Board of Directors; Director;
Officer since 1968.
J. F. Toot, Jr. 59 1989 President;
1992 President and Chief Executive Officer;
Director; Officer since 1967.
P. J. Ashton 59 1989 Executive Vice President - Bearings;
1992 Executive Vice President and President -
Bearings;
Director; Officer since 1980.
C. H. West 60 1989 Executive Vice President - Steel;
1992 Executive Vice President and President -
Steel;
Director; Officer since 1982.
M. J. Amiel 63 1989 Vice President - Bearings - Europe,
Africa, and West Asia;
Officer since 1989.
1995 Vice President and Chairman - Bearings -
Europe, Africa and West Asia;
<PAGE>
10.
Executive Officers of the Registrant (Cont.)
____________________________________________
Current Position and Previous
Name Age Positions During Last Five Years
____ ___ ______________________________________________
S. A. Perry 49 1989 Director - Purchasing and Logistics;
1993 Vice President - Human Resources and
Logistics; Officer since 1993.
L. R. Brown 59 1990 Vice President and General Counsel;
Secretary; prior thereto Managing
Partner, Day, Ketterer, Raley, Wright
& Rybolt - Law Firm; Officer since
1990.
D. L. Hart 63 1989 Vice President - Bearings - North and
South America;
Officer since 1978.
R. L. Leibensperger 56 1989 Vice President - Technology;
Officer since 1986.
G. E. Little 51 1989 Director Finance and Assistant
Treasurer;
1990 Treasurer;
1992 Vice President - Finance; Treasurer;
Officer since 1990.
J. J. Schubach 58 1989 Vice President - Strategic Management;
Officer since 1984.
W. J. Timken 52 1989 Director - Human Resource Development;
1992 Vice President; Director; Officer since
1992.
Item 2. Properties
___________________
Timken has bearing and steel manufacturing facilities at several locations
in the United States. Timken also has bearing manufacturing facilities in
several countries outside the United States. The aggregate floor area of
these facilities worldwide is approximately 10,917,000 square feet, all of
which, except for approximately 355,000 square feet, is owned in fee. The
buildings occupied by Timken are principally of brick, steel, reinforced
concrete and concrete block construction, all of which are suitably
equipped and in satisfactory operating condition.
Timken's bearing manufacturing and distribution facilities in the United
States are located in Ashland, Bucyrus, Canton, Columbus and New
Philadelphia, Ohio; Gaffney, South Carolina; Asheboro and Lincolnton,
North Carolina; Altavista, Virginia; Keene and Lebanon, New Hampshire;
Carlyle, Illinois; North Little Rock, Arkansas; Knoxville, Tennessee;
Lenexa, Kansas; Ogden, Utah; and Richmond, Virginia. These facilities,
including the research facility in Canton, Ohio, and warehouses at plant
locations, have an aggregate floor area of approximately 4,457,000 square
feet. Timken's steel manufacturing and distribution facilities in the
United States are located in Canton, Eaton, Wauseon and Wooster, Ohio; and
Franklin and Latrobe, Pennsylvania. These facilities have an aggregate
floor area of approximately 4,781,000 square feet. Timken's bearing
manufacturing plants outside the United States are located in Duston,
England; Colmar, France; St. Thomas, Canada; Benoni, South Africa; Sao
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11.
Item 2. Properties (Cont.)
___________________________
Paulo, Brazil; Ballarat, Australia; Medemblik, The Netherlands, and
Singapore. The facilities have an aggregate floor area of approximately
1,679,000 square feet. In addition to the manufacturing facilities
discussed above, Timken owns warehouses in the United States, England,
Germany, Mexico and Argentina, and leases several relatively small
warehouse facilities in cities throughout the world.
During 1994, the company's Bearing and Steel Businesses experienced
increased plant utilization compared to 1993 as a result of increased
sales in almost all product lines.
Also during 1994, the company completed the start-up of three new
facilities and the consolidation of two plants. The new facilities were
completed either on time or ahead of schedule and were completed under
budget.
During the second quarter of 1994, the company's subsidiary, Latrobe Steel
Company, began operating its Sandycreek Service Center for bar products
near Franklin, Pennsylvania. The plant, with its state-of-the-art
distribution systems, will serve Latrobe's tool and die steel customers.
During the third quarter, the company started operations at its Asheboro,
North Carolina, Plant. The plant incorporates advanced technologies,
processes and work practices that will enable the company to produce
specialized bearings at mass production speed. The start-up of this plant
greatly enhances the company's ability to deliver quality bearings
tailored to customer's individual requirements at competitive prices.
In the fourth quarter, the company's subsidiary MPB Corporation, announced
the beginning of operations at a new plant in Singapore. MPB established
this facility in the Pacific Rim to serve customers in the computer disk
drive market.
In the United Kingdom, the company combined its Daventry bearing
manufacturing operations with those of its Duston Bearing Plant. In
Brazil, the company's Santa Barbara facility was merged successfully with
the Sao Paulo Plant.
Also during 1994, the Altavista, Virginia, Bearing Plant doubled its
capacity and began large-scale production of SENSOR-PACTM bearings,
principally for the growing light truck market.
In November 1994, the company announced it entered into a definitive
agreement to purchase Rail Bearing Service Corporation. The purchase was
completed in January 1995. The Virginia-based company provides bearing
reconditioning services for the railroad industry and employs some 300
people in the United States.
On March 16, 1995, The Timken Company announced that it will expand its
steel parts manufacturing capabilities with the opening of a new plant in
Columbus, North Carolina. The plant will use seamless tubing produced in
the company's Ohio plants to manufacture steel rings primarily for the
bearing industry. The plant will consist of 30,000 square feet of
manufacturing and warehouse space and initially employ about a dozen
associates.
<PAGE>
12.
Item 2. Properties (Cont.)
___________________________
The company is a forty percent shareholder in Tata Timken Limited, a joint
venture with The Tata Iron and Steel Company Limited. The joint venture
consists of a manufacturing facility in Jamshedpur, India, completed in
March of 1992, and four sales offices, also located in India.
The $1 billion capital expenditure program announced in March 1989 was
intended to cover the years through 1994. While more than $700 million
has been invested through 1994 encompassing the initiation of several new
bearing and steel facilities, the entire $1 billion in capital
expenditures were not spent.
At the time the program was announced, the company indicated that the
investment amounts and timing would be continually reviewed with the
intention of meeting economic conditions, both internal and external to
the company, as they developed. Finding less capital intensive
alternatives has been a major factor enabling the company to spend less.
Additionally, in 1990, the company entered the super precision bearing
business with the $195 million acquisition of MPB Corporation. Cost
reducing initiatives with less capital intensity also received priority
over investments in some markets.
Item 3. Legal Proceedings
__________________________
The company is currently involved in negotiations with the Ohio Attorney
General's office regarding alleged violations of the company's NPDES water
discharge permits at its Canton, Ohio, location. The company believes it
has substantial defenses to the violations alleged by the Attorney
General, and that the matter will ultimately be settled for an amount that
will not be material to its financial condition or results of operations.
In August 1994, the company's Latrobe Steel Company subsidiary was served
with a complaint filed by seven former employees. Each of the employees
had been terminated from employment in late 1993 as part of the company's
administrative streamlining efforts. The plaintiffs' claims include
discrimination on account of age and/or disability status, wrongful
termination in violation of public policy, breach of contract and
promissory estoppel. The relief requested includes reinstatement, back
pay, front pay, liquidated damages, attorneys' fees and compensatory and
punitive damages under the Americans With Disabilities Act and
Pennsylvania law.
The company has denied all of the plaintiffs' allegations and believes
that it has valid defenses to the plaintiffs' claims. The case is
currently in the early stages of discovery. At this time, the company
believes that the ultimate resolution of this matter will not be material
to its financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
____________________________________________________________
No matters were submitted to a vote of security holders during the fourth
quarter ended December 31, 1994.
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13.
PART II
_______
Item 5. Market for the Registrant's Common Equity and Related Stock
____________________________________________________________________
Holder Matters
______________
The company's common stock is traded on the New York Stock Exchange (TKR).
The estimated number of record holders of the company's common stock at
December 31, 1994, was 49,968.
High and low stock prices and dividends for the last two years are
presented in the Quarterly Financial Data schedule on Page 1 of the Annual
Report to Shareholders for the year ended December 31, 1994, and is
incorporated herein by reference.
Item 6. Selected Financial Data
________________________________
The Summary of Operations and Other Comparative Data on Pages 34 and 35 of
the Annual Report to Shareholders for the year ended December 31, 1994, is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
________________________________________________________________________
Results of Operation
____________________
Management's Discussion and Analysis of Financial Condition and Results of
Operations on Pages 17-23 of the Annual Report to Shareholders for the
year ended December 31, 1994, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
____________________________________________________
The Quarterly Financial Data schedule included on Page 1, the consolidated
financial statements of the registrant and its subsidiaries on Pages
18-24, the notes to consolidated financial statements on Pages 25-33, and
the Report of Independent Auditors on Page 33 of the Annual Report to
Shareholders for the year ended December 31, 1994, are incorporated herein
by reference.
Item 9. Changes in and Disagreements with Accountants
______________________________________________________
on Accounting and Financial Disclosure
______________________________________
Not applicable.
<PAGE>
14.
PART III
________
Item 10. Directors and Executive Officers of the Registrant
____________________________________________________________
Required information is set forth under the caption "Election of
Directors" on Pages 4-7 of the proxy statement issued in connection with
the annual meeting of shareholders to be held April 18, 1995, and is
incorporated herein by reference. Information regarding the executive
officers of the registrant is included in Part I hereof.
Item 11. Executive Compensation
________________________________
Required information is set forth under the caption "Executive
Compensation" on Pages 10-18 of the proxy statement issued in connection
with the annual meeting of shareholders to be held April 18, 1995, and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
________________________________________________________________________
Required information regarding Security Ownership of Certain Beneficial
Owners and Management, including institutional investors owning more than
5% of the company's Common Stock, is set forth under the caption
"Beneficial Ownership of Common Stock" on Pages 8-9 of the proxy statement
issued in connection with the annual meeting of shareholders to be held
April 18, 1995, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
________________________________________________________
Required information is set forth under the caption "Election of
Directors" on Pages 4-7 of the proxy statement issued in connection with
the annual meeting of shareholders to be held April 18, 1995, and is
incorporated herein by reference.
<PAGE>
15.
PART IV
_______
Item 14. Exhibits, Financial Statement Schedules, and Report on Form 8-K
_________________________________________________________________________
(a)(1) and (2) - The response to this portion of Item 14 is submitted
as a separate section of this report.
(3) Listing of Exhibits
Exhibit
_______
(3)(i) Amended Articles of Incorporation of The Timken Company
(Effective August 22, 1988) were filed with Form S-8
dated October 13, 1993, and are incorporated herein by
reference.
(3)(ii) Amended Regulations of The Timken Company effective April
21, 1987, were filed with Form 10-K for the period ended
December 31, 1992, and are incorporated herein by
reference.
(4) Revolving Credit Agreement (364-Day Facility) dated as of
November 15, 1994, among Timken and certain banks.
(4.1) Third Amendment Agreement dated November 15, 1994, to the
amended restated credit agreement as amended February 23,
1993, and May 31, 1994, between Timken and certain banks.
(4.2) Second Amendment Agreement dated May 31, 1994, to the
amended restated credit agreement as amended February 23,
1993, between Timken and certain banks, was filed with
Form 10-Q for the period ended June 30, 1994, and is
incorporated herein by reference.
(4.3) First Amendment Agreement dated February 26, 1993, to the
restated credit agreement as amended December 31, 1991,
between Timken and certain banks was filed with Form 10-K
for the period ended December 31, 1992, and is
incorporated herein by reference.
(4.4) Credit Agreement amended as of December 31, 1991, between
Timken and certain banks was filed with Form 10-K for the
period ended December 31, 1991, and is incorporated
herein by reference.
(4.5) Rights Agreement dated as of December 18, 1986, as
amended and restated as of February 1, 1991, between
Timken and First Chicago Trust Company (formerly Morgan
Shareholder Services Trust Company) was filed with Form
8-K dated February 1, 1991, and is incorporated herein by
reference.
<PAGE>
16.
Exhibit (Cont.)
_______________
(4.6) Indenture dated as of July 1, 1990, between Timken and
Ameritrust Company of New York, which was filed with
Timken's Form S-3 registration statement dated July 12,
1990, and is incorporated herein by reference.
(4.7) The company is also a party to agreements with respect to
other long-term debt in total amount less than 10% of the
registrant's consolidated total assets. The registrant
agrees to furnish a copy of such agreements upon request.
Management Contracts and Compensation Plans
___________________________________________
(10) The Management Performance Plan of The Timken Company for
Officers and Certain Management Personnel was filed with
Form 10-K for the period ended December 31, 1993, and is
incorporated herein by reference.
(10.1) The Long Term Incentive Plan of The Timken Company for
officers and other key employees as approved by
shareholders April 21, 1992, was filed with Form 10-K for
the period ended December 31, 1992, and is incorporated
herein by reference.
(10.2) The 1985 Incentive Plan of The Timken Company for
Officers and other key employees as amended through April
16, 1991, was filed with Form 10-K for the period ended
December 31, 1991, and is incorporated herein by
reference.
(10.3a) The form of Severance Agreement entered into with
W. R. Timken, Jr. was filed with Form 10-K for the period
ended December 31, 1992, and is incorporated herein by
reference.
(10.3b) The form of Severance Agreement entered into with
Joseph F. Toot, Jr. was filed with Form 10-K for the
period ended December 31, 1992, and is incorporated
herein by reference.
(10.3c) The form of Severance Agreement entered into with
Peter J. Ashton was filed with Form 10-K for the
period ended December 31, 1992, and is incorporated
herein by reference.
(10.3d) The form of Severance Agreement entered into with
Charles H. West was filed with Form 10-K for the
period ended December 31, 1992, and is incorporated
herein by reference.
(10.3e) The form of Severance Agreement entered into with
Donald L. Hart was filed with Form 10-K for the period
ended December 31, 1993, and is incorporated herein by
reference.
<PAGE>
17.
Exhibit (Cont.)
_______________
(10.3f) The form of Severence Agreement entered into with all
Executive Officers of the company and certain other key
employees of the company and its subsidiaries was filed
with Form 10-K for the period ended December 31, 1993,
and is incorporated herein by reference. Each differs
only as to name and date executed.
(10.4) The form of Death Benefit Agreement entered into with all
Executive Officers of the company was filed with Form
10-K for the period ended December 31, 1993, and is
incorporated herein by reference. Each differs only as
to name and date executed, except Mr. Amiel, who is a
non-resident.
(10.5) The form of Indemnification Agreements entered into with
all Directors who are not Executive Officers of the
company was filed with Form 10-K for the period ended
December 31, 1990, and is incorporated herein by
reference. Each differs only as to name and date
executed.
(10.6) The form of Indemnification Agreements entered into with
all Executive Officers of the company who are not
Directors of the company was filed with Form 10-K for the
period ended December 31, 1990 and is incorporated herein
by reference. Each differs only as to name and date
executed.
(10.7) The form of Indemnification Agreements entered into with
all Executive Officers of the company who are also
Directors of the company was filed with Form 10-K for the
period ended December 31, 1990 and is incorporated herein
by reference. Each differs only as to name and date
executed.
(10.8) The form of Employee Excess Benefits Agreement entered
into with all active Executive Officers, certain retired
Executive Officers, and certain other key employees of
the company was filed with Form 10-K for the period ended
December 31, 1991 and is incorporated herein by
reference. Each differs only as to name and date
executed, except Mr. Brown who will be given additional
service and Mr. Amiel who is a non-resident.
(11) Computation of Per Share Earnings.
(13) Annual Report to Shareholders for the year ended December
31, 1994, (only to the extent expressly incorporated
herein by reference).
(21) A list of subsidiaries of the registrant.
<PAGE>
18.
Exhibit (Cont.)
_______________
(23) Consent of Independent Auditors.
(24) Power of Attorney
(27) Article 5
(b) Reports on Form 8-K:
None.
(c) The exhibits are contained in a separate section of this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE TIMKEN COMPANY
By /s/ J. F. Toot, Jr. By /s/ G. E. Little
________________________________ _____________________________
J. F. Toot, Jr., Director; G. E. Little
President and Chief Executive Vice President - Finance
Officer (Principal Financial and
Accounting Officer)
Date March 24, 1995
________________________________ Date March 24, 1995
_____________________________
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By /s/ Robert Anderson* By /s/ John M. Timken, Jr.*
__________________________________ _______________________________
Robert Anderson Director John M. Timken, Jr. Director
Date March 24, 1995 Date March 24, 1995
__________________________________ _______________________________
By /s/ Peter J. Ashton* By /s/ W. J. Timken*
__________________________________ _______________________________
Peter J. Ashton Director W. J. Timken Director
Date March 24, 1995 Date March 24, 1995
__________________________________ _______________________________
By /s/ Stanley C. Gault* By /s/ W. R. Timken, Jr.*
__________________________________ _______________________________
Stanley C. Gault Director W. R. Timken, Jr. Director
Chairman - Board of Directors
Date March 24, 1995 Date March 24, 1995
__________________________________ _______________________________
By /s/ J. Clayburn La Force, Jr.* By /s/ Charles H. West*
__________________________________ _______________________________
J. Clayburn La Force, Jr. Director Charles H. West Director
Date March 24, 1995 Date March 24, 1995
__________________________________ _______________________________
By /s/ Robert W. Mahoney* By /s/ Alton W. Whitehouse*
__________________________________ _______________________________
Robert W. Mahoney Director Alton W. Whitehouse Director
Date March 24, 1995 Date March 24, 1995
__________________________________ _______________________________
By /s/ James W. Pilz*
__________________________________ By: /s/ G. E. Little
James W. Pilz Director _______________________________
Date March 24, 1995 G. E. Little, attorney-in-fact
__________________________________ by authority of Power of
Attorney filed as Exhibit 24
hereto<PAGE>
EXHIBIT 4
REVOLVING CREDIT AGREEMENT
[364-Day Facility]
among
THE TIMKEN COMPANY
and
SOCIETY NATIONAL BANK,
Individually and as Agent
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
THE BANK OF NEW YORK
THE BANK OF NOVA SCOTIA
BANK ONE, AKRON, N.A.
CREDIT SUISSE
MELLON BANK, N.A.
NBD BANK, N.A.
THE NORTHERN TRUST COMPANY
NATIONSBANK OF NORTH CAROLINA, N.A.
MIDLAND BANK, PLC
Dated as of
November 15, 1994
<PAGE>
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS 1
ARTICLE II. AMOUNT AND TERMS OF CREDIT 7
SECTION 2.1. AMOUNT AND NATURE OF CREDIT 7
SECTION 2.2. CONDITIONS TO LOANS 9
SECTION 2.3. PAYMENT ON NOTES, ETC. 10
SECTION 2.4. PREPAYMENT 10
SECTION 2.5. FACILITY FEES; TERMINATION OR REDUCTION OF COMMITMENTS 11
SECTION 2.6. INCREASED CAPITAL 12
SECTION 2.7. EXTENSION OF COMMITMENT TERMINATION DATE 12
ARTICLE III. ADDITIONAL PROVISIONS RELATING TO LIBOR LOANS 12
SECTION 3.1. RESERVES OR DEPOSIT REQUIREMENTS, ETC. 12
SECTION 3.2. TAX LAW, ETC. 13
SECTION 3.3. EURODOLLAR DEPOSITS UNAVAILABLE OR INTEREST RATE
UNASCERTAINABLE 14
SECTION 3.4. INDEMNITY 14
SECTION 3.5. CHANGES IN LAW RENDERING LIBOR LOANS UNLAWFUL 14
SECTION 3.6. FUNDING 15
ARTICLE IV. ADDITIONAL PROVISIONS RELATING TO 15
SECTION 4.1. INCREASED COST 15
SECTION 4.2. QUOTED RATES 15
SECTION 4.3. CHANGE OF LAW 16
SECTION 4.4. INDEMNITY 16
ARTICLE V. OPENING COVENANTS 16
SECTION 5.1. RESOLUTIONS 16
i
<PAGE>
SECTION 5.2. LEGAL OPINION 17
SECTION 5.3. CERTIFICATE OF INCUMBENCY 17
ARTICLE VI. COVENANTS 17
SECTION 6.1. INCORPORATION BY REFERENCE 17
ARTICLE VII. WARRANTIES 17
SECTION 7.1. EXISTENCE 17
SECTION 7.2. RIGHT TO ACT 17
SECTION 7.3. LITIGATION AND LIENS 18
SECTION 7.4. ERISA COMPLIANCE 18
SECTION 7.5. ACTUARIAL VALUATION REPORTS 18
SECTION 7.6. ENVIRONMENTAL CONTROL 18
SECTION 7.7. FINANCIAL STATEMENTS 19
SECTION 7.8. REGULATIONS 19
SECTION 7.9. INVESTMENT COMPANY ACT 19
SECTION 7.10. PURPOSE OF LOANS 19
SECTION 7.11. SOLVENCY 19
SECTION 7.12. DEFAULTS 19
ARTICLE VIII. EVENTS OF DEFAULT 20
SECTION 8.1. PAYMENTS 20
SECTION 8.2. COVENANTS 20
SECTION 8.3. WARRANTIES 20
SECTION 8.4. CROSS DEFAULT 20
SECTION 8.5. TERMINATION OF PLAN 20
SECTION 8.6. SOLVENCY 20
ARTICLE IX. REMEDIES UPON DEFAULT 21
SECTION 9.1. OPTIONAL DEFAULTS 21
ii
<PAGE>
SECTION 9.2. AUTOMATIC DEFAULTS 21
SECTION 9.3. OFFSETS 21
SECTION 9.4. EQUALIZATION PROVISION 22
ARTICLE X. CHANGE OF CONTROL 22
SECTION 10.1. CHANGE OF CONTROL OPTION 22
ARTICLE XI. THE AGENT 23
SECTION 11.1. APPOINTMENT AND AUTHORIZATION 23
SECTION 11.2. NOTE HOLDERS 24
SECTION 11.3. CONSULTATION WITH COUNSEL 24
SECTION 11.4. DOCUMENTS 24
SECTION 11.5. AGENT AND AFFILIATES 24
SECTION 11.6. KNOWLEDGE OF DEFAULT 24
SECTION 11.7. ACTION BY AGENT 24
SECTION 11.8. NOTICES, DEFAULT, ETC. 24
SECTION 11.9. INDEMNIFICATION 25
ARTICLE XII. MISCELLANEOUS 25
SECTION 12.1. BANKS' INDEPENDENT INVESTIGATION 25
SECTION 12.2. NO WAIVER; CUMULATIVE REMEDIES 25
SECTION 12.3. AMENDMENTS, CONSENTS 25
SECTION 12.4. NOTICES 26
SECTION 12.5. COSTS, EXPENSES AND TAXES 26
SECTION 12.6. OBLIGATIONS SEVERAL 26
SECTION 12.7. EXECUTION IN COUNTERPARTS 27
SECTION 12.8. BINDING EFFECT; ASSIGNMENT; PARTICIPATIONS 27
SECTION 12.9. GOVERNING LAW 27
SECTION 12.10. SEVERABILITY OF PROVISIONS; CAPTIONS 27
iii
<PAGE>
SECTION 12.11. JURY TRIAL WAIVER 28
ANNEX A 39
EXHIBIT A 40
EXHIBIT A-1 42
iv
<PAGE>
REVOLVING CREDIT AGREEMENT
Revolving Credit Agreement, effective as of the 15th day of November,
1994 (hereinafter sometimes called this credit agreement) between THE TIMKEN
COMPANY, an Ohio corporation (hereinafter sometimes called the Borrower), the
banking institutions named in Annex A attached hereto and made a part hereof
(hereinafter sometimes collectively called the Banks and individually Bank)
and SOCIETY NATIONAL BANK, Cleveland, Ohio, as Agent for the Banks under this
credit agreement (hereinafter sometimes called the Agent).
ARTICLE I. DEFINITIONS
As used in this credit agreement, the following terms shall have the
following meanings:
"Adjusted LIBOR" shall mean a rate per annum equal to the quotient
obtained (rounded upwards, if necessary, to the nearest 1/100th of 1%) by
dividing (i) the applicable LIBOR rate by (ii) 1.00 minus the Reserve
Percentage.
"Advantage" shall mean any payment (whether made voluntarily or
involuntarily, by offset of any deposit or other indebtedness or otherwise)
received by any Bank in respect of Borrower's Debt to the Banks if such
payment results in that Bank having a lesser share of Borrower's Debt to the
Banks, than was the case immediately before such payment.
"Basis Point" shall mean one one-hundredth (1/100) of a percentage
point.
"C/D Reference Banks" shall mean Society National Bank and Morgan
Guaranty Trust Company of New York.
"Cleveland banking day" shall mean a day on which the main office of the
Agent is open for the transaction of business.
"Commitment" shall mean the obligation hereunder of each Bank to make
loans up to the amount set opposite such Bank's name under the column headed
Maximum Amount as set forth in Annex A hereof during the Commitment Period
(or such lesser amount as shall be determined pursuant to Section 2.5
hereof).
"Commitment Period" shall mean the period from the date hereof to the
Commitment Termination Date.
"Commitment Termination Date" shall mean November 14, 1995, or any date
to which the Commitment Termination Date shall have been extended pursuant to
Section 2.7 hereof.
"Consolidated Net Worth" shall mean the excess of the net book value
(after deduction of all applicable reserves and excluding any re-appraisal or
write-up of assets) of the assets
1
<PAGE>
(other than patents, good will and treasurystock created subsequent to May 1,
1994) plus the absolute dollar amount of consolidated Foreign Currency
Translation Adjustment losses (or minus gains) incurred subsequent to January
1, 1993 of Borrower and its Consolidated Subsidiaries over all of their
liabilities, as determined on a consolidated basis in accordance with
generally accepted accounting principles applied on a basis consistent with
their present accounting procedures; provided, that the initial impact of
applying any standard pertaining to the financial reporting of pension
liabilities or any other material changes in accounting standards prescribed
by the Securities and Exchange Commission, the Financial Accounting Standards
Board, the American Institute of Certified Public Accountants, or any other
body prescribing accounting standards which Borrower and its Consolidated
Subsidiaries may be required or may elect to follow and promulgated after
December 31, l991, shall not be taken into account in computing Consolidated
Net Worth hereunder. As used herein, 'Foreign Currency Translation
Adjustment' shall mean the exchange rate gain or loss on conversion of net
assets located outside of the United States, as reported separately in the
Shareholders Equity section on Borrower's balance sheet and determined in
accordance with generally accepted accounting principles.
"Consolidated Subsidiary" shall mean, at any particular time, every
Subsidiary of Borrower which would, in accordance with generally accepted
accounting principles, be included as a consolidated subsidiary of Borrower
in consolidated financial statements of Borrower and its consolidated
subsidiaries as at such time.
"Controlled Group" shall mean a controlled group of corporations as
defined in Section 1563 of the Internal Revenue Code of 1986, as amended, of
which Borrower or any Consolidated Subsidiary is a part.
"Debt" shall mean, collectively, all indebtedness incurred by Borrower
to the Banks pursuant to this credit agreement and includes the principal of
and interest on all Notes and each extension, renewal or refinancing thereof
in whole or in part, the facility fees and any prepayment premium payable
hereunder.
"Domestic Base Rate" shall mean a rate per annum determined pursuant to
the following formula:
(Dom. CD) *
DBR = ( ) + AR
_________
(1.00 - RP)
DBR = Domestic Base Rate
Dom. CD = Domestic C/D Rate
RP = Domestic Reserve Percentage
AR = Assessment Rate
*The amount in brackets being rounded upwards, if necessary, to the
nearest 1/100 of 1%.
"Domestic C/D Rate" means with respect to each Domestic Interest Period
the rate of interest determined by the Agent to be the arithmetic average
(rounded upwards, if necessary, to the nearest 1/100 of 1%) of the prevailing
2
<PAGE>
rates per annum bid at 9:00 a.m. (Cleveland, Ohio time) (or as soon
thereafter as practicable) on the first day of the relevant Domestic Interest
Period by New York certificate of deposit dealers of recognized standing to
each C/D Reference Bank and reported to the Agent by two or more such dealers
for the purchase at face value from such C/D Reference Bank of its
certificates of deposit in an amount approximately equal or comparable to
such C/D Reference Bank's pro rata share of such Domestic Fixed Rate Loans
and having a maturity of 30, 60, 90, 180 or, subject to availability, 270 or
360 days, as selected by the Borrower.
"Domestic Reserve Percentage" shall mean for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without limitation,
all basic, supplemental, marginal and other reserves and taking into account
any transitional adjustments or other scheduled changes in reserve
requirements) for a member bank of the Federal Reserve System in Cleveland,
Ohio, in respect of new nonpersonal time deposits in dollars in the United
States, having a maturity comparable to the related Domestic Interest Period
and in an amount of One Hundred Thousand Dollars ($100,000.00) or more. The
Domestic Base Rate shall be adjusted automatically on and as of the effective
date of any change in the Domestic Reserve Percentage.
"Assessment Rate" shall mean for any Domestic Interest Period the net
annual assessment rate (rounded upwards, if necessary, to the next higher
1/100th of 1%) actually incurred by Agent to the Federal Deposit Insurance
Corporation (or any successor) for such corporation's (or such successor's)
insuring deposits in United States dollars at the offices of Agent in the
United States during the most recent period for which such rate has been
determined prior to the commencement of such Domestic Interest Period. The
Domestic Base Rate shall be automatically adjusted on and as of the effective
date of any change in the Assessment Rate.
"Domestic Fixed Rate" shall mean a rate per annum equal to the sum of
the Domestic Margin plus the Domestic Base Rate.
"Domestic Fixed Rate Loans" shall mean those loans described in Section
2.1 hereof on which the Borrower shall pay interest at a rate based on the
applicable Domestic Fixed Rate.
"Domestic Interest Period" shall mean a period of 30, 60, 90 or 180 days
(or 270 or 360 days if offered by the Banks) (as selected by the Borrower)
commencing on the applicable borrowing date of each Domestic Fixed Rate Loan
and on each Interest Adjustment Date with respect thereto; provided, however,
that if any such period would be affected by a reduction in Commitment as
provided in Section 2.5 hereof, prepayment or conversion rights as provided
in Section 4.3 hereof or maturity of Domestic Fixed Rate Loans as provided in
Section 2.1 hereof, such period shall be shortened to end on such date. If
the Borrower fails to select a
3
<PAGE>
new Domestic Interest Period with respect to an outstanding Domestic Fixed
Rate Loan at least three Cleveland banking daysprior to any Interest
Adjustment Date, the Borrower shall be deemed to have selected a Domestic
Interest Period of the same duration as the immediately preceding Domestic
Interest Period (subject to the proviso of the preceding sentence).
"Domestic Margin" shall mean Fifty (50) Basis Points so long as Moody's
Investors Service, Inc. ('Moody's') or Standard & Poor's Corporation ('S&P')
accords to Borrower's bonds or debentures (or any thereof) a rating of A3 or
higher (in the case of Moody's), or a rating of A- or higher (in the case of
S&P); provided, however, that if at any time both Moody's and S&P shall have
lowered the ratings which they accord to any of Borrower's bonds or
debentures to ratings the higher of which (in the case of Moody's) is Baa1,
Baa2 or Baa3 or (in the case of S&P) is BBB+, BBB or BBB-, then during any
such period and for so long as both of such lowered ratings are in effect,
the 'Domestic Margin' shall be increased to Sixty-Two and One-Half (62.5)
Basis Points; and further provided, however, that if at any time both Moody's
and S&P shall have lowered the ratings which they accord to any of Borrower's
bonds or debentures to ratings the higher of which (in the case of Moody's)
is Ba (or some lower rating assigned by Moody's) or (in the case of S&P) is
BB+ (or some lower rating assigned by S&P) then during any such period and
for so long as both of such lowered ratings are in effect, the 'Domestic
Margin' shall be increased to Seventy-Five (75) Basis Points.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Guarantor" shall mean one who pledges his credit or property in any
manner for the payment or other performance of the indebtedness, contract or
other obligation of another and includes (without limitation) any guarantor
(whether of payment or of collection), surety, comaker, endorser or one who
agrees conditionally or otherwise to make any purchase, loan or investment in
order thereby to enable another to prevent or correct a default of any kind.
"Interest Adjustment Date" shall mean the last day of each Interest
Period or each Domestic Interest Period, as the case may be.
"Interest Period" shall mean a period of one, two, three, or six months
(or as to any Bank, nine months if offered by such Bank) (as selected by the
Borrower) commencing on the applicable borrowing or conversion date of each
LIBOR Loan and on each Interest Adjustment Date with respect thereto;
provided, however, that if any such period would be affected by a reduction
in Commitment as provided in Section 2.5 hereof, prepayment or conversion
rights as provided in Section 3.5 hereof or maturity of LIBOR Loans as
provided in Section 2.1 hereof, such period shall be shortened to end on such
date. If the Borrower fails to select a new Interest Period with respect to
an outstanding LIBOR Loan at least three (3) London banking days prior to any
Interest Adjustment Date, the Borrower shall be deemed to have selected an
Interest Period of the same duration as the immediately preceding Interest
Period (subject to the proviso of the preceding sentence).
"LIBOR" shall mean the average (rounded upward to the nearest 1/16th of
1%) of the per annum rates at which deposits in immediately available funds
in United States dollars for
4
<PAGE>
the relevant Interest Period and in the amount of the LIBOR Loan to be
disbursed or to remain outstanding during such Interest Period, as the case
may be, are offered to the Reference Banks by prime banks in any Eurodollar
market reasonably selected by the Reference Banks, determined as of 11:00
a.m. London time (or as soon thereafter as practicable), two (2) London
banking days prior to the beginning of the relevant Interest Period
pertaining to a LIBOR Loan hereunder. In the event one or more of the
Reference Banks fail to furnish its quote of any rate required herein, such
rate shall be determined on the basis of the quote or quotes of the remaining
Reference Bank or Banks.
"LIBOR Loans" shall mean those loans described in Section 2.1 hereof on
which the Borrower shall pay interest at a rate based on LIBOR.
"LIBOR" Margin shall mean Thirty-Seven and One-Half (37.5) Basis Points
so long as Moody's Investors Service, Inc. ('Moody's') or Standard & Poor's
Corporation ('S&P') accords to Borrower's bonds or debentures (or any
thereof) a rating of A3 or higher (in the case of Moody's), or a rating of A-
or higher (in the case of S&P); provided, however, that if at any time both
Moody's and S&P shall have lowered the ratings which they accord to any of
Borrower's bonds or debentures to ratings the higher of which (in the case of
Moody's) is Baa1, Baa2 or Baa3 or (in the case of S&P) is BBB+, BBB or BBB-,
then during any such period and for so long as both of such lowered ratings
are in effect, the 'LIBOR Margin' shall be increased to Fifty (50) Basis
Points; and further provided, however, that if at any time both Moody's and
S&P shall have lowered the ratings which they accord to any of Borrower's
bonds or debentures to ratings the higher of which (in the case of Moody's)
is Ba (or some lower rating assigned by Moody's) or (in the case of S&P) is
BB+ (or some lower rating assigned by S&P) then during any such period and
for so long as both of such lowered ratings are in effect, the 'LIBOR Margin'
shall be increased to Sixty-Two and One-Half (62.5) Basis Points.
"London banking day" shall mean a day on which banks are open for
business in London, England, and quoting deposit rates for dollar deposits,
and on which banks are not required or authorized to close in New York City
or in Cleveland, Ohio.
"Note" or "Notes" shall mean a note or notes executed and delivered
pursuant to Section 2.1 hereof.
"Plan" shall mean any employee pension benefit plan subject to Title IV
of the Employee Retirement Income Security Act of 1974, as amended,
established or maintained by Borrower, any Consolidated Subsidiary, or any
member of the Controlled Group, or any such Plan to which Borrower, any
Consolidated Subsidiary, or any member of the Controlled Group is required to
contribute on behalf of any of its employees.
"Possible Default" shall mean an event, condition or thing which
constitutes, or which with the lapse of any applicable grace period or the
giving of notice or both would constitute, any event of default referred to
in Article VIII hereof and which has not been appropriately waived by the
Banks in writing or fully corrected prior to becoming an actual event of
default.
5
<PAGE>
"Prime Rate" shall mean that interest rate established from time to time
by Agent as the Agent's Prime Rate, whether or not such rate is publicly
announced; the Prime Rate may not be the lowest interest rate charged by
Agent for commercial or other extensions of credit. Any change in the Prime
Rate shall be effective hereunder immediately from and after the effective
date of change in such rate by Agent.
"Prime Rate Loans" shall mean those loans described in Section 2.1
hereof on which the Borrower shall pay interest at a rate based on the higher
of (a) the Prime Rate or (b) the Reference Rate, which shall mean one-fourth
per cent (1/4 of 1%) above the effective overnight Federal funds rate to
Agent from time to time in effect.
"Reference Banks" shall mean Morgan Guaranty Trust Company of New York
and the Cayman Islands branch office of Society National Bank.
"Regulatory Change" shall mean, as to any Bank, any change in United
States federal, state or foreign laws or regulations or the adoption or
making of any interpretations, directives or requests of or under any United
States federal, state or foreign laws or regulations (whether or not having
the force of law) by any court or governmental authority charged with the
interpretation or administration thereof, excluding, however, any such change
which results in an adjustment of the Assessment Rate or the Domestic Reserve
Percentage and the effect of which is reflected in a change in the Domestic
Base Rate.
"Related Writing" shall mean any assignment, mortgage, security
agreement, subordination agreement, financial statement, audit report or
other writing furnished by Borrower or any of its officers to the Banks
pursuant to or otherwise in connection with this credit agreement.
"Reportable Event" shall mean a reportable event as that term is defined
in Title IV of the Employee Retirement Income Security Act of 1974, as
amended, except actions of general applicability by the Secretary of Labor
under Section 110 of such Act.
"Reserve Percentage" shall mean for any day that percentage (expressed
as a decimal) which is in effect on such day, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining
the maximum reserve requirement (including, without limitation, all basic,
supplemental, marginal and other reserves and taking into account any
transitional adjustments or other scheduled changes in reserve requirements)
for a member bank of the Federal Reserve System in Cleveland, Ohio, in
respect of Eurocurrency Liabilities. The Adjusted LIBOR shall be adjusted on
and as of the effective date of any change in the Reserve Percentage.
"Revolving Credit Note" shall mean a note executed and delivered
pursuant to Section 2.1 hereof.
"Subordinated" as applied to indebtedness, shall mean that the
indebtedness has been subordinated (by written terms or agreement being in
form and substance satisfactory to the Banks) in favor of the prior payment
in full of Borrower's Debt to the Banks.
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"Subsidiary" shall mean an existing or future corporation, the majority
of the outstanding capital stock or voting power, or both, of which is (or
upon the exercise of all outstanding warrants, options and other rights would
be) owned at the time in question by Borrower or by another such corporation
or by any combination of Borrower and such corporations.
"1991 Credit Agreement" shall mean the Amended and Restated Credit
Agreement dated as of December 31, 1991, entered into among the Borrower and
the Banks, as amended from time to time, which currently provides, among
other things, for a revolving credit in the aggregate principal amount of
$200,000,000 at any one time outstanding, all upon certain terms and
conditions.
Any accounting term not specifically defined in this Article I shall
have the meaning ascribed thereto by generally accepted accounting principles
not inconsistent with Borrower's present accounting procedures.
The foregoing definitions shall be applicable to the singulars and
plurals of the foregoing defined terms.
ARTICLE II. AMOUNT AND TERMS OF CREDIT
SECTION 2.1. AMOUNT AND NATURE OF CREDIT. Subject to the terms and
provisions of this credit agreement each Bank will participate to the extent
hereinafter provided in making loans to the Borrower in such aggregate amount
as the Borrower shall request; provided, however, that in no event shall the
aggregate principal amount of all loans outstanding to the Borrower under
this credit agreement be in excess of One Hundred Million and 00/100 Dollars
($100,000,000.00).
Each Bank, for itself and not one for any other, agrees to participate
in borrowings made hereunder on such basis that (a) immediately after the
completion of any borrowing by the Borrower hereunder the aggregate principal
amount then outstanding on Notes issued to such Bank shall not be in excess
of the amount shown opposite the name of such Bank under the column headed
Maximum Amount as set forth in Annex A hereto for the Commitment Period and
(b) such aggregate principal amount outstanding on Notes issued to such Bank
shall represent that percentage of the aggregate principal amount then
outstanding on all Notes (including the Notes held by such Bank) which is
shown opposite the name of such Bank under the column headed Percentage in
Annex A hereto.
Each borrowing from, and reduction of Commitments of, the Banks
hereunder shall be made pro rata according to their respective Commitments.
The aforementioned loans may be made as revolving credits, as follows:
Revolving Credit. Subject to the terms and conditions of this credit
agreement, during the Commitment Period each Bank will make a loan or loans
to the Borrower in such amount or amounts as the Borrower may from time to
time request but not exceeding in aggregate principal amount at any one time
outstanding hereunder the Commitment of such Bank. The Borrower shall have
the option, subject to the terms and conditions set forth herein, to borrow
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hereunder up to the Commitment by means of any combination of (i) Prime Rate
Loans maturing on the Commitment Termination Date, bearing interest at a rate
per annum which shall be equal to the higher of (a) the Prime Rate or (b) the
Reference Rate and drawn down in aggregate amounts of not less than Two
Million and 00/100 Dollars ($2,000,000.00), (ii) LIBOR Loans maturing one,
two, three, six or nine months after being made (but in no event later than
the Commitment Termination Date), drawn down in aggregate amounts of not less
than Five Million and 00/100 Dollars ($5,000,000.00) at any one time, bearing
interest at a rate per annum which shall be equal to Adjusted LIBOR plus the
LIBOR Margin or (iii) Domestic Fixed Rate Loans maturing 30, 60, 90, 180, 270
or 360 days after being made (but in no event later than the Commitment
Termination Date), drawn down in aggregate amounts of not less than Five
Million and 00/100 Dollars ($5,000,000.00), bearing interest at a rate per
annum equal to the applicable Domestic Fixed Rate.
The Borrower shall pay interest (based on a year having 360 days and
calculated for the actual number of days elapsed) on the unpaid principal
amount of Prime Rate Loans outstanding from time to time on and from the date
thereof until maturity, payable on March 31, June 30, September 30 and
December 31 of each year and at the maturity thereof commencing December 31,
1994, at a rate per annum which shall be equal to the higher of (a) the Prime
Rate from time to time in effect or (b) the Reference Rate. The Borrower
shall pay interest (based on a year having 360 days and calculated for the
actual number of days elapsed) at a fixed rate for each Interest Period on
the unpaid principal amount of LIBOR Loans outstanding from time to time on
and from the date thereof until maturity, payable on each Interest Adjustment
Date with respect to an Interest Period (provided that if an Interest Period
exceeds three months, the interest must be paid every three months,
commencing three months from the beginning of such Interest Period), at a
rate per annum equal to Adjusted LIBOR plus the LIBOR Margin, fixed in
advance of each Interest Period as herein provided for each such Interest
Period. The Borrower shall pay interest (based on a year having 360 days and
calculated for the actual number of days elapsed) at a fixed rate for each
Domestic Interest Period on the unpaid principal amount of Domestic Fixed
Rate Loans outstanding from time to time on and from the date thereof until
maturity, payable on each Interest Adjustment Date with respect to a Domestic
Interest Period (provided that if a Domestic Interest Period exceeds ninety
days, the interest must be paid every ninety days, commencing ninety days
from the beginning of such Domestic Interest Period), at a rate per annum
equal to the applicable Domestic Fixed Rate, fixed in advance of each
Domestic Interest Period as herein provided for each such Domestic Interest
Period; provided that if any portion of any Domestic Fixed Rate Loan shall
have a Domestic Interest Period of less than thirty (30) days, such portion
shall bear interest during such Domestic Interest Period at the rate per
annum which would apply if such portion were a Prime Rate Loan.
At the request of the Borrower, provided, no event of default exists
hereunder, and subject at all times to the applicable notice provisions set
forth in Section 2.2 hereof, the Banks shall convert Prime Rate Loans to
LIBOR Loans or Domestic Fixed Rate Loans at any time and shall convert LIBOR
Loans or Domestic Fixed Rate Loans to Prime Rate Loans on any Interest
Adjustment Date applicable to the LIBOR Loan or Domestic Fixed Rate Loan, as
the case may be, but each request for loans must either be for Prime Rate
Loans or Domestic Fixed Rate Loans or LIBOR Loans.
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The obligation of the Borrower to repay the Prime Rate Loans and the
Domestic Fixed Rate Loans made by each Bank and to pay interest thereon shall
be evidenced by a promissory note of the Borrower substantially in the form
of Exhibit A hereto, and the obligation of the Borrower to repay the LIBOR
Loans made by each Bank and to pay interest thereon shall be evidenced by a
promissory note of the Borrower substantially in the form of Exhibit A-1
hereto, each with appropriate insertions, dated the date of this credit
agreement and payable to the order of such Bank on the Commitment Termination
Date, in the principal amount of its Commitment, or if less, the aggregate
unpaid principal amount of revolving credit loans made hereunder by such
Bank. Each of such promissory notes is herein called a Note and each
together, as well as collectively with the promissory notes payable to the
other Banks, the Notes. The principal amount of the Prime Rate Loans,
Domestic Fixed Rate Loans and the LIBOR Loans made by each Bank and all
prepayments thereof and the applicable dates with respect thereto shall be
recorded by such Bank from time to time on the grid(s) attached to the
appropriate Note, or so long as such Bank remains the holder of such Note, in
such Bank's records in its usual and customary manner. The aggregate unpaid
amount of the Prime Rate Loans, Domestic Fixed Rate Loans and LIBOR Loans set
forth on the respective grid(s) attached to the appropriate Note, or in such
Bank's records as the case may be, shall be presumptive evidence of the
principal amount owing and unpaid on each of such Notes, respectively. If
any Note shall not be paid at maturity, whether such maturity occurs by
reason of lapse of time or by operation of any provision of acceleration of
maturity therein contained, the principal thereof and the unpaid interest
thereon shall bear interest, until paid, for Prime Rate Loans, LIBOR Loans
and Domestic Fixed Rate Loans at a rate per annum which shall be two per cent
(2%) above the Prime Rate from time to time in effect, payable on demand.
Subject to the provisions of this credit agreement the Borrower shall be
entitled to borrow funds, repay the same in whole or in part and reborrow
hereunder at any time and from time to time.
SECTION 2.2. CONDITIONS TO LOANS. The obligation of each Bank to make
the loans hereunder is conditioned, in the case of each borrowing hereunder,
upon (i) receipt by the Agent from the Borrower of notice not later than
10:00 a.m. Cleveland time on the same Cleveland banking day on which Borrower
wishes to make a borrowing of any Prime Rate Loans, of the proposed date and
aggregate amount of the borrowing of any Prime Rate Loans, not less than one
(1) Cleveland banking day's notice from the Borrower of the proposed date,
aggregate amount and initial Domestic Interest Period for any Domestic Fixed
Rate Loans, and not less than three (3) London banking days' notice from the
Borrower of the proposed date, aggregate amount and initial Interest Period
of any LIBOR Loans, of which date, amount and initial Interest Period or
initial Domestic Interest Period (if applicable) the Agent shall notify each
Bank promptly upon the receipt of such notice, and on which date each Bank
shall provide the Agent not later than 4:00 P.M. Cleveland time, with the
amount in Federal or other immediately available funds required of it; (ii)
the fact that no Possible Default shall then exist or immediately after the
loan would exist; and (iii) the fact that the representations and warranties
contained in Article VII hereof shall be true and correct in all material
respects with the same force and effect as if made on and as of the date of
such borrowing except to the extent that any thereof expressly relate to an
earlier date. Each borrowing by the Borrower hereunder shall be deemed to be
a representation and warranty by the Borrower as of the date of such
borrowing as to the facts specified in (ii) and (iii) above.
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SECTION 2.3. PAYMENT ON NOTES, ETC. All payments of principal,
interest and commitment and other fees shall be made to the Agent in
immediately available funds for the account of the Banks, and the Agent
forthwith shall distribute in like funds to each Bank its ratable share of
the amount of principal, interest and facility fees received by it for the
account of such Bank. Each Bank shall endorse each Note held by it with
appropriate notations evidencing each payment of principal made thereon, or,
so long as any such Bank remains the holder of its Note, in such Bank's
records in its usual and customary manner. Whenever any payment to be made
hereunder, including without limitation any payment to be made on any Note,
shall be stated to be due on a day which is not a Cleveland banking day, such
payment may be made on the next succeeding Cleveland banking day and such
extension of time shall in each case be included in the computation of the
interest payable on such Note ; provided, however, that with respect to any
LIBOR Loan, if the next succeeding Cleveland banking day falls in the
succeeding calendar month, such payment shall be made on the preceding
Cleveland banking day and the relevant Interest Period shall be adjusted
accordingly
SECTION 2.4. PREPAYMENT. The Borrower shall have the right at any time
or from time to time, upon two (2) Cleveland banking days' prior written
notice to the Agent in the case of Prime Rate Loans, without the payment of
any premium or penalty, or four (4) London banking days' prior written notice
in the case of LIBOR Loans (subject to the payment of a prepayment penalty as
hereinafter described in this Section 2.4), to prepay on a pro rata basis,
all or any part of the principal amount of the Notes then outstanding as
designated by the Borrower, plus interest accrued on the amount so prepaid to
the date of such prepayment. In any case of prepayment of any LIBOR Loans,
the Borrower agrees that if LIBOR as determined as of 11:00 a.m. London time,
two (2) London banking days prior to the date of prepayment of any LIBOR
Loans (hereinafter Prepayment LIBOR) shall be lower than the last LIBOR
previously determined for those LIBOR Loans with respect to which prepayment
is intended to be made (hereinafter, Last LIBOR), then the Borrower shall,
upon written notice by the Agent, promptly pay to the Agent, for the account
of each of the Banks, in immediately available funds, a prepayment penalty
measured by a rate (the Prepayment Penalty Rate) which shall be equal to the
difference between the Last LIBOR and the Prepayment LIBOR. In determining
the Prepayment LIBOR, Agent shall apply a rate equal to LIBOR for a deposit
approximately equal to the amount of such prepayment which would be
applicable to an Interest Period commencing on the date of such prepayment
and having a duration as nearly equal as practicable to the remaining
duration of the actual Interest Period during which such prepayment is to be
made. The Prepayment Penalty Rate shall be applied to all or such part of
the principal amounts of the Notes as related to the LIBOR Loans to be
prepaid, and the prepayment penalty shall be computed for the period
commencing with the date on which such prepayment is to be made to that date
which coincides with the last day of the Interest Period previously
established when the LIBOR Loans, which are to be prepaid, were made. Each
prepayment of a LIBOR Loan shall be in the aggregate principal sum of not
less than Five Million and 00/100 Dollars ($5,000,000.00). In the event the
Borrower cancels a proposed LIBOR Loan subsequent to the delivery to the
Agent of the notice of the proposed date, aggregate amount and initial
Interest Period of such loan, but prior to the draw down of funds thereunder,
such cancellation shall be treated as a prepayment subject to the
aforementioned prepayment penalty. Except as provided in Sections 2.5, 4.1
and 4.3 hereof, the Borrower shall have no right to prepay the Domestic Fixed
Rate Loans. In the event any Domestic Fixed Rate Loan is prepaid pursuant to
Section 2.5 hereof, the Borrower agrees that if
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the Domestic Fixed Rate as determined as of 11:00 a.m. Cleveland time, two
(2) Cleveland banking days prior to the date of prepayment of any Domestic
Fixed Rate Loans (hereinafter, Prepayment Domestic Fixed Rate) shall be lower
than the last Domestic Fixed Rate previously determined for those Domestic
Fixed Rate Loans with respect to which prepayment is intended to be made
(hereinafter, Last Domestic Fixed Rate), then the Borrower shall, upon
written notice by the Agent, promptly pay to the Agent, for the account of
each of the Banks, in immediately available funds, a prepayment penalty
measured by a rate (the Prepayment Domestic Penalty Rate) which shall be
equal to the difference between the Last Domestic Fixed Rate and the
Prepayment Domestic Fixed Rate. In determining the Prepayment Domestic Fixed
Rate, Agent shall apply the Domestic Fixed Rate which would be applicable to
a Domestic Fixed Rate Loan approximately equal to the amount of such
prepayment having a Domestic Interest Period commencing on the date of such
prepayment and having a duration as nearly equal as practicable to the
remaining duration of the actual Domestic Interest Period during which such
prepayment is to be made. The Prepayment Domestic Penalty Rate shall be
applied to all or such part of the principal amounts of the Notes as related
to the Domestic Fixed Rate Loans to be prepaid, and the prepayment penalty
shall be computed for the period commencing with the date on which such
prepayment is to be made to the date which coincides with the last day of the
Domestic Interest Period previously established when the Domestic Fixed Rate
Loans, which are to be prepaid, were made. In the event the Borrower cancels
a proposed Domestic Fixed Rate Loan subsequent to the delivery to the Agent
of the notice of the proposed date, aggregate amount and initial Domestic
Interest Period of such loan, but prior to the draw down of funds thereunder,
such cancellation shall be treated as a prepayment subject to the
aforementioned prepayment penalty.
SECTION 2.5. FACILITY FEES; TERMINATION OR REDUCTION OF COMMITMENTS.
Borrower agrees to pay to Agent, for the ratable account of each Bank, as a
consideration for its Commitment hereunder, a facility fee calculated at the
rate of Ten (10) Basis Points per annum (based on a year having 360 days and
calculated for the actual number of days elapsed) from the date hereof to and
including the last day of the Commitment Period (as the same may be extended
from time to time), on the total amount of such Bank's Commitment hereunder,
payable on the 31st day of December, 1994, and quarter-annually thereafter.
Borrower may at any time or from time to time terminate in whole or ratably
in part the Commitments of the Banks hereunder to an amount not less than the
aggregate principal amount of the loans then outstanding, by giving Agent not
less than two (2) Cleveland banking days' notice, provided that any such
partial termination shall be in an aggregate amount for all the Banks of Ten
Million Dollars ($10,000,000) or any integral multiple thereof. The Agent
shall promptly notify each Bank of its proportionate amount and the date of
each such termination. After each such termination, the facility fees
payable hereunder shall be calculated upon the Commitments of the Banks as so
reduced. If the Borrower terminates in whole the Commitments of the Banks,
on the effective date of such termination (the Borrower having prepaid in
full the unpaid principal balance, if any, of the Notes outstanding together
with all interest (if any) and facility fees accrued and unpaid) all of the
Notes outstanding shall be delivered to the Agent marked Canceled and
redelivered to the Borrower. Any partial reduction in the Commitments of the
Banks shall be effective during the remainder of the Commitment Period.
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SECTION 2.6. INCREASED CAPITAL. In the event that any applicable law,
treaty, rule or regulation (whether domestic or foreign) now or hereafter in
effect and whether or not presently applicable to any Bank or the Agent, or
any interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof, or compliance by
any Bank or the Agent with any guideline, request or directive of any such
authority (whether or not having the force of law), including any risk-based
capital guidelines, affects or would affect the amount of capital required or
expected to be maintained by such Bank or the Agent (or any corporation
controlling such Bank or the Agent) and such Bank or the Agent, as the case
may be, determines that the amount of such capital is increased by or based
upon the existence of such Bank's or the Agent's obligations hereunder and
such increase has the effect of reducing the rate of return on such Bank's or
the Agent's (or such controlling corporation's) capital as a consequence of
such obligations hereunder to a level below that which such Bank or the Agent
(or such controlling corporation) could have achieved but for such
circumstances (taking into consideration its policies with respect to capital
adequacy) by an amount deemed by such Bank or the Agent to be material, then
the Borrower shall pay to such Bank or the Agent, as the case may be, from
time to time, upon request by such Bank (with a copy of such request to be
provided to the Agent), additional amounts sufficient to compensate such Bank
or the Agent (or such controlling corporation) for any increase in the amount
of capital and reduced rate of return which such Bank or the Agent reasonably
determines to be allocable to the existence of such Bank's or the Agent's
obligations hereunder. A statement as to the amount of such compensation,
prepared in good faith and in reasonable detail by such Bank or the Agent, as
the case may be, and submitted by such Bank or the Agent to the Borrower,
shall be conclusive and binding for all purposes absent manifest error in
computation.
SECTION 2.7. EXTENSION OF COMMITMENT TERMINATION DATE. Not later than
sixty (60) days prior to the Commitment Termination Date then in effect, the
Borrower may deliver to the Agent (which shall promptly transmit a copy to
each Bank) a written notice requesting that the Commitments then remaining in
effect be extended to the date 364 days after the Commitment Termination Date
at the time in effect. Within thirty (30) days prior to the Commitment
Termination Date, each Bank shall notify the Agent in writing of its
willingness or unwillingness so to extend its Commitment. Any Bank which
shall fail so to notify the Agent within such period shall be deemed to have
declined to extend its Commitment. The Commitment of any Bank that so shall
decline (or be deemed to have declined) to extend its Commitment pursuant to
this Section shall terminate on the Commitment Termination Date at the time
in effect and the loans, if any, of such Bank made pursuant to this credit
agreement shall be repaid on such date, together with all interest accrued
thereon and the accrued facility fee of such Bank. If Banks holding at least
seventy per cent (70%) (by amount) of the Commitments notify the Agent that
they are willing to extend their Commitments, the Commitments of such Banks
shall be extended, effective as of the date which shall theretofore have been
the Commitment Termination Date to the date 364 days after such date.
ARTICLE III. ADDITIONAL PROVISIONS RELATING TO LIBOR LOANS
SECTION 3.1. RESERVES OR DEPOSIT REQUIREMENTS, ETC. If at any time any
law, treaty or regulation (including, without limitation, Regulation D of the
Board of
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Governors of the Federal Reserve System) or the interpretation thereof by any
governmental or regulatory authority charged with the administration thereof
or any central bank or other fiscal, monetary or other authority shall impose
(whether or not having the force of law), modify or deem applicable any
reserve and/or special deposit requirement (other than reserves included in
the Reserve Percentage, the effect of which is reflected in the interest
rate(s) of the LIBOR Loan(s) in question) against assets held by, or deposits
in or for the amount of any loans by, any Bank, and the result of the
foregoing is to increase the cost (whether by incurring a cost or adding to a
cost) to such Bank of making or maintaining hereunder LIBOR Loans or to
reduce the amount of principal or interest received by such Bank with respect
to such LIBOR Loans, then upon demand by such Bank the Borrower shall pay to
such Bank from time to time on Interest Adjustment Dates with respect to such
loans, as additional consideration hereunder, additional amounts sufficient
to fully compensate and indemnify such Bank for such increased cost or
reduced amount, assuming (which assumption such Bank need not corroborate)
such additional cost or reduced amount was allocable to such LIBOR Loans. A
certificate as to the increased cost or reduced amount as a result of any
event mentioned in this Section 3.1, setting forth the calculations therefor,
shall be promptly submitted by such Bank to the Borrower and shall, in the
absence of manifest error, be conclusive and binding as to the amount
thereof. Notwithstanding any other provision of this credit agreement, after
any such demand for compensation by any Bank, Borrower, upon at least three
(3) Cleveland banking days' prior written notice to such Bank through the
Agent, may prepay the affected LIBOR Loans in full or convert all LIBOR Loans
to Prime Rate Loans or Domestic Fixed Rate Loans regardless of the Interest
Period of any thereof. Any such prepayment or conversion shall be subject to
the prepayment penalties set forth in Section 2.4 hereof. Each Bank will
notify Borrower as promptly as practicable (with a copy thereof delivered to
the Agent) of the existence of any event which will likely require the
payment by Borrower of any such additional amount under this Section.
SECTION 3.2. TAX LAW, ETC. In the event that by reason of any law,
regulation or requirement or in the interpretation thereof by an official
authority, or the imposition of any requirement of any central bank whether
or not having the force of law, any Bank shall, with respect to this credit
agreement or any transaction under this credit agreement, be subjected to any
tax, levy, impost, charge, fee, duty, deduction or withholding of any kind
whatsoever (other than any tax imposed upon the total net income of such
Bank) and if any such measures or any other similar measure shall result in
an increase in the cost to such Bank of making or maintaining any LIBOR Loan
or in a reduction in the amount of principal, interest or facility fee
receivable by such Bank in respect thereof, then such Bank shall promptly
notify the Borrower stating the reasons therefor. The Borrower shall
thereafter pay to such Bank upon demand from time to time on Interest
Adjustment Dates with respect to such LIBOR Loans, as additional
consideration hereunder, such additional amounts as will fully compensate
such Bank for such increased cost or reduced amount. A certificate as to any
such increased cost or reduced amount, setting forth the calculations
therefor, shall be submitted by such Bank to the Borrower and shall, in the
absence of manifest error, be conclusive and binding as to the amount
thereof.
Notwithstanding any other provision of this credit agreement, after any
such demand for compensation by any Bank, Borrower, upon at least three (3)
Cleveland banking days' prior written notice to such Bank through the Agent,
may prepay the affected LIBOR Loans in
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full or convert all LIBOR Loans to Prime Rate Loans or Domestic Fixed Rate
Loans regardless of the Interest Period of any thereof. Any such prepayment
or conversion shall be subject to the prepayment penalties set forth in
Section 2.4 hereof.
SECTION 3.3. EURODOLLAR DEPOSITS UNAVAILABLE OR INTEREST RATE
UNASCERTAINABLE. In respect of any LIBOR Loans, in the event that the Agent
shall have determined that dollar deposits of the relevant amount for the
relevant Interest Period for such LIBOR Loans are not available to the
Reference Banks in the applicable Eurodollar market or that, by reason of
circumstances affecting such market, adequate and reasonable means do not
exist for ascertaining the LIBOR rate applicable to such Interest Period, as
the case may be, the Agent shall promptly give notice of such determination
to the Borrower and (i) any notice of new LIBOR Loans (or conversion of
existing loans to LIBOR Loans) previously given by the Borrower and not yet
borrowed (or converted, as the case may be) shall be deemed a notice to make
Prime Rate Loans, and (ii) the Borrower shall be obligated either to prepay
or to convert any outstanding LIBOR Loans on the last day of the then current
Interest Period or Periods with respect thereto.
SECTION 3.4. INDEMNITY. Without prejudice to any other provisions of
this Article III, the Borrower hereby agrees to indemnify each Bank against
any loss or expense which such Bank may sustain or incur as a consequence of
any default by the Borrower in payment when due of any amount due hereunder
in respect of any LIBOR Loan, including, but not limited to, any loss of
profit, premium or penalty incurred by such Bank in respect of funds borrowed
by it for the purpose of making or maintaining such LIBOR Loan, as determined
by such Bank in the exercise of its sole but reasonable discretion. A
certificate as to any such loss or expense shall be promptly submitted by
such Bank to the Borrower and shall, in the absence of manifest error, be
conclusive and binding as to the amount thereof.
SECTION 3.5. CHANGES IN LAW RENDERING LIBOR LOANS UNLAWFUL. If at any
time any new law, treaty or regulation, or any change in any existing law,
treaty or regulation, or any interpretation thereof by any governmental or
other regulatory authority charged with the administration thereof, shall
make it unlawful for any Bank to fund any LIBOR Loans which it is committed
to make hereunder with moneys obtained in the Eurodollar market, the
Commitment of such Bank to fund LIBOR Loans shall, upon the happening of such
event forthwith be suspended for the duration of such illegality, and such
Bank shall by written notice to the Borrower and the Agent declare that its
Commitment with respect to such loans has been so suspended and, if and when
such illegality ceases to exist, such suspension shall cease and such Bank
shall similarly notify the Borrower and the Agent. If any such change shall
make it unlawful for any Bank to continue in effect the funding in the
applicable Eurodollar market of any LIBOR Loan previously made by it
hereunder, such Bank shall, upon the happening of such event, notify the
Borrower, the Agent and the other Banks thereof in writing stating the
reasons therefor, and the Borrower shall, on the earlier of (i) the last day
of the then current Interest Period or (ii) if required by such law,
regulation or interpretation, on such date as shall be specified in such
notice, either convert all LIBOR Loans to Prime Rate Loans or Domestic Fixed
Rate Loans or prepay all LIBOR Loans to the Banks in full. Any such
prepayment or conversion shall be subject to the prepayment penalties
prescribed in Section 2.4 hereof.
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SECTION 3.6. FUNDING. Each Bank may, but shall not be required to,
make LIBOR Loans hereunder with funds obtained outside the United States.
ARTICLE IV. ADDITIONAL PROVISIONS RELATING TO
DOMESTIC FIXED RATE LOANS
SECTION 4.1. INCREASED COST. If, as a result of any Regulatory Change:
(a) the basis of taxation of payments to any Bank of the principal of
or interest on any Domestic Fixed Rate Loan or any other amounts payable
under this credit agreement in respect thereof (other than taxes imposed
on the overall net income of such Bank by the jurisdiction in which such
Bank has its main office) is changed; or
(b) any reserve, special deposit or similar requirements relating to
any extensions of credit or other assets of, or any deposits with or
liabilities of, any Bank are imposed, modified or deemed applicable; or
(c) any other condition affecting this credit agreement or any of the
Domestic Fixed Rate Loans is imposed on any Bank;
and such Bank determines that, by reason thereof, the cost to such Bank of
making or maintaining any of the Domestic Fixed Rate Loans is increased, or
any amount received by such Bank hereunder in respect of any such loans is
reduced (such increase in cost and reductions in amounts receivable being
herein called Increased Costs), then the Borrower shall pay to such Bank upon
demand such additional amount or amounts as will compensate such Bank for
such Increased Costs (such demand to be accompanied by a statement setting
forth the basis for the calculation thereof). Determinations by such Bank
for purposes of this Section of the effect of any Regulatory Change on its
costs of making or maintaining Domestic Fixed Rate Loans or on amounts
receivable by it in respect of such Domestic Fixed Rate Loans, and of the
additional amounts required to compensate such Bank in respect of any
Increased Cost shall be conclusive in the absence of manifest error.
Notwithstanding any other provision of this credit agreement, after any such
demand for compensation by any Bank, Borrower, upon at least three (3)
Cleveland banking days' prior written notice to such Bank through the Agent,
may prepay the affected Domestic Fixed Rate Loans in full or convert all
Domestic Fixed Rate Loans to Prime Rate Loans or LIBOR Loans regardless of
the Domestic Interest Period of any thereof. Any such prepayment or
conversion shall be subject to the prepayment penalty set forth in Section
2.4 hereof. Each Bank will notify Borrower as promptly as practicable (with
a copy thereof delivered to the Agent) of the existence of any event which
will likely require the payment by Borrower of any such additional amounts
under this Section.
SECTION 4.2. QUOTED RATES. Anything herein to the contrary
notwithstanding, if on or before the first day of the applicable Domestic
Interest Period for any Domestic Fixed Rate Loan (i) the Agent determines
that for any reason whatsoever, dealers of recognized standing are not
providing quotes for certificates of deposit (in the applicable amounts) of
each C/D Reference Bank for a period of time comparable to the applicable
Domestic Interest Period or (ii) the Agent shall determine that the rates
quoted by such dealers for purposes of
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computing the rate of interest on Domestic Fixed Rate Loans for the
applicable Domestic Interest Period do not accurately reflect the cost to the
Banks of making or maintaining such Domestic Fixed Rate Loans for such
period, then the Agent shall give the Borrower prompt notice thereof, and so
long as such failure to quote such rates continues and/or rates fail to
accurately reflect costs to the Banks as aforesaid, the Banks shall be under
no obligation to make Domestic Fixed Rate Loans or to convert Prime Rate
Loans or LIBOR Loans into Domestic Fixed Rate Loans under this credit
agreement and the Borrower shall not be entitled to obtain any Domestic Fixed
Rate Loans hereunder until the Agent has notified the Borrower that the
conditions giving rise to the operation of this Section no longer exist.
SECTION 4.3. CHANGE OF LAW. Notwithstanding any other provision in
this credit agreement, in the event that any Regulatory Change shall make it
unlawful for any Bank to fund any Domestic Fixed Rate Loans, the Commitment
of such Bank to fund Domestic Fixed Rate Loans shall, upon the happening of
such event forthwith be suspended for the duration of such illegality, and
such Bank shall by written notice to the Borrower and the Agent declare that
its Commitment with respect to such loans has been so suspended and, if and
when such illegality ceases to exist, such suspensions shall cease and such
Bank shall similarly notify the Borrower and the Agent. If any such change
shall make it unlawful for any Bank to continue in effect the funding of
Domestic Fixed Rate Loans, such Bank shall, upon the happening of such event,
notify the Borrower, the Agent and the other Banks thereof in writing stating
the reasons therefor, and the Borrower shall, on the earlier of (i) the last
day of the then current Domestic Interest Period or (ii) if required by such
Regulatory Change, on such date as shall be specified on such notice, either
convert all Domestic Fixed Rate Loans to Prime Rate Loans or LIBOR Loans or
prepay all Domestic Fixed Rate Loans to the Banks in full. Any such
prepayment or conversion shall be subject to the prepayment penalties
prescribed in Section 2.4 hereof.
SECTION 4.4. INDEMNITY. Without prejudice to any other provisions of
this Article IV, the Borrower hereby agrees to indemnify each Bank against
any loss or expense which such Bank may sustain or incur as a consequence of
any default by the Borrower in payment when due of any amount due hereunder
in respect of any Domestic Fixed Rate Loan, including, but not limited to,
any loss of profit, premium or penalty incurred by such Bank in respect of
funds borrowed by it for the purpose of making or maintaining such Domestic
Fixed Rate Loan, as determined by such Bank in the exercise of its sole but
reasonable discretion. A certificate as to any such loss or expense shall be
promptly submitted by such Bank to the Borrower and shall, in the absence of
manifest error, be conclusive and binding as to the amount thereof.
ARTICLE V. OPENING COVENANTS
Prior to or concurrently with the execution and delivery of this credit
agreement, Borrower shall furnish to each Bank, in form and substance
satisfactory to each Bank, the following:
SECTION 5.1. RESOLUTIONS. Certified copies of the resolutions of the
board of directors of Borrower evidencing approval of the execution of this
credit agreement and the execution and delivery of the Notes as provided for
herein.
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SECTION 5.2. LEGAL OPINION. A favorable opinion of counsel for
Borrower as to the matters referred to in Sections 7.1, 7.2, 7.3, 7.8 and 7.9
of this credit agreement and such other matters as Agent and the Banks may
reasonably request.
SECTION 5.3. CERTIFICATE OF INCUMBENCY. A certificate of the Chairman
- - Board of Directors or President of Borrower certifying the names of the
officers of Borrower authorized to sign this credit agreement, and the Notes,
together with the true signatures of such officers.
ARTICLE VI. COVENANTS
Borrower agrees that so long as the Commitments remain in effect and
thereafter until the principal of and interest on all Notes and all other
payments due hereunder shall have been paid in full, Borrower will perform
and observe and will cause each of its Subsidiaries to perform and observe,
each of the following provisions on their respective parts to be complied
with, namely:
SECTION 6.1. INCORPORATION BY REFERENCE. Borrower will perform and
observe all provisions of Article VI of the 1991 Credit Agreement as in
effect on the date hereof (which are incorporated by reference herein and
which shall be deemed to survive the payment in full by Borrower of its
obligations thereunder and/or termination of the 1991 Credit Agreement), the
intent hereof being that each of said provisions shall inure to the benefit
of each Bank as if set forth in length in this credit agreement. Capitalized
terms used in such Article, not otherwise defined herein, shall be defined in
accordance with Article I of the 1991 Credit Agreement.
ARTICLE VII. WARRANTIES
Subject only to such exceptions, if any, as may be fully disclosed in an
officer's certificate or written opinion of counsel furnished by Borrower to
each Bank prior to the execution and delivery hereof, Borrower represents and
warrants as follows:
SECTION 7.1. EXISTENCE. Borrower is a duly organized and validly
existing Ohio corporation and is in good standing with the State of Ohio.
SECTION 7.2. RIGHT TO ACT. No registration with or approval of, or
notice to or filing with, any governmental agency of any kind is required in
connection with any borrowings hereunder or for the due execution and
delivery or for the enforceability of this credit agreement and any Note
issued pursuant to this credit agreement, except such filings as may be
required under the Securities Exchange Act of 1934. Borrower has legal power
and right to execute and deliver this credit agreement and any Note issued
pursuant to this credit agreement and to perform and observe the provisions
of this credit agreement and any Note issued pursuant hereto. By executing
and delivering this credit agreement and any Note issued pursuant to this
credit agreement and by performing and observing the provisions of this
credit agreement and any Note issued pursuant hereto, Borrower will not
violate any existing provision of its articles of incorporation, code of
regulations or by-laws or any applicable law or violate or otherwise become
in default under any existing contract or other obligation binding upon or
affecting Borrower. The execution, delivery and performance by Borrower of
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this credit agreement and each of their respective Notes have been duly
authorized by all necessary corporate action. The officers executing and
delivering this credit agreement on behalf of Borrower have been duly
authorized to do so, and this credit agreement, when executed, is legally
valid and binding upon Borrower in every respect and is enforceable against
Borrower in accordance with its respective terms. Any Note, when executed by
Borrower, is legally valid and binding upon Borrower in every respect and is
enforceable against Borrower in accordance with its terms.
SECTION 7.3. LITIGATION AND LIENS. No litigation or proceeding is
pending or threatened which might, if successful, adversely and materially
affect Borrower. The Internal Revenue Service has not alleged any material
default by Borrower in the payment of any tax or threatened to make any
material assessment in respect thereof.
SECTION 7.4. ERISA COMPLIANCE. Neither Borrower nor any Consolidated
Subsidiary has incurred any material accumulated funding deficiency within
the meaning of the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations thereunder. No Reportable
Event has occurred with respect to any Plan. The Pension Benefit Guaranty
Corporation, established thereunder, has not asserted that Borrower or any
Consolidated Subsidiary has incurred any material liability in connection
with any Plan. No lien has been attached and no person has threatened to
attach a lien on any property of Borrower or any Consolidated Subsidiary as a
result of Borrower's or any Consolidated Subsidiary's failing to comply with
such act or regulation. As used in this section, material means the measure
of a matter of significance which shall be determined as being an amount
equal to at least five per cent (5%) of the Consolidated Net Worth of
Borrower and its Consolidated Subsidiaries.
SECTION 7.5. ACTUARIAL VALUATION REPORTS. To the best of Borrower's
knowledge, the actuarial valuation reports respectively prepared and
certified by the actuaries and employee benefit consultants of Borrower and
its Consolidated Subsidiaries, with respect to each Plan as of the end of the
Borrower's preceding fiscal year, fairly present the actuarial condition of
each Plan as of the end of Borrower's preceding fiscal year and the annual
contribution requirements for the year in which this credit agreement is
executed.
SECTION 7.6. ENVIRONMENTAL CONTROL. Borrower and each of its
Subsidiaries is in compliance in all material respects with all applicable
existing laws and regulations (other than laws and regulations the validity
or applicability of which is being contested by Borrower in good faith by
appropriate proceedings diligently prosecuted) relating to environmental
control in all jurisdictions where Borrower or any of its Subsidiaries is
presently doing business and Borrower and each of its Subsidiaries is in
compliance in all material respects with the Occupational Safety and Health
Act of 1970 and all rules, regulations and applicable orders thereunder
(other than rules, regulations and orders the validity or applicability of
which is being contested by Borrower in good faith by appropriate proceedings
diligently prosecuted). Borrower will use its best efforts to comply and to
cause each of its Subsidiaries to comply with all such laws and regulations
(other than laws and regulations the validity or applicability of which is
being contested by Borrower in good faith by appropriate proceedings
diligently prosecuted) which may be legally imposed in the future in
jurisdictions in which Borrower or any Subsidiary may then be doing business.
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SECTION 7.7. FINANCIAL STATEMENTS. Borrower's and its Consolidated
Subsidiaries' consolidated financial statements dated June 30, 1994,
heretofore furnished to each Bank, are true and complete, have been prepared
in accordance with generally accepted accounting principles applied on a
basis consistent with those used by Borrower and its Consolidated
Subsidiaries during Borrower's immediately preceding full fiscal year, except
as stated therein, and fairly present Borrower's and its Consolidated
Subsidiaries' financial condition as of that date and the results of their
operations for the interim period then ending. Since that date, there has
been no material adverse change in Borrower's and its Consolidated
Subsidiaries' financial condition, properties or business nor any change in
their accounting procedures except as disclosed to the Banks in writing prior
to the date of this credit agreement. As used in this section, material
means the measure of a matter of significance which shall be determined as
being an amount equal to at least five per cent (5%) of the Consolidated Net
Worth of Borrower and its Consolidated Subsidiaries.
SECTION 7.8. REGULATIONS. Borrower is not engaged principally or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying any margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System of the
United States of America). Neither the granting of any loans hereunder (or
any conversion thereof) nor the use of the proceeds of such loans will
violate, or be inconsistent with, the provisions of Regulation U or X of said
Board of Governors.
SECTION 7.9. INVESTMENT COMPANY ACT. Borrower is not an investment
company, or a company controlled by an investment company, within the meaning
of the Investment Company Act of 1940, as amended.
SECTION 7.10. PURPOSE OF LOANS. The proceeds of loans made hereunder
shall be used for general corporate purposes and for possible repurchases of
Borrower's outstanding stock.
SECTION 7.11. SOLVENCY. Borrower has received consideration which is
the reasonable equivalent value of the obligations and liabilities that
Borrower has incurred to the Banks. Borrower is not insolvent as defined in
any applicable state or federal statute, nor will Borrower be rendered
insolvent by the execution and delivery of this credit agreement or any Note
to the Banks. Borrower is not engaged or about to engage in any business or
transaction for which the assets retained by it shall be an unreasonably
small capital, taking into consideration the obligations to the Banks
incurred hereunder. Borrower does not intend to, nor does it believe that it
will, incur debts beyond its ability to pay them as they mature.
SECTION 7.12. DEFAULTS. No Possible Default exists hereunder, nor will
any begin to exist immediately after the execution and delivery hereof.
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ARTICLE VIII. EVENTS OF DEFAULT
Each of the following shall constitute an event of default hereunder:
SECTION 8.1. PAYMENTS. If the principal of or interest on any Note or
any facility fee shall not be paid in full punctually when due and payable
and shall remain unpaid for a period of three (3) consecutive Cleveland
banking days.
SECTION 8.2. COVENANTS. If Borrower shall fail or omit to perform and
observe any agreement or other provision (other than those referred to in
Section 8.1 hereof) contained or referred to in this credit agreement or any
Related Writing that is on Borrower's part to be complied with, and that
Possible Default shall not have been fully corrected within thirty (30) days
after the giving of written notice thereof to Borrower by Agent or any Bank
that the specified Possible Default is to be remedied.
SECTION 8.3. WARRANTIES. If any representation, warranty or statement
made in or pursuant to this credit agreement or any Related Writing or any
other material information furnished by Borrower to the Banks or any thereof
or any other holder of any Note, shall be false or erroneous in any material
respect.
SECTION 8.4. CROSS DEFAULT. If Borrower or any of its Consolidated
Subsidiaries default in the payment of principal or interest due and owing
upon any other obligation for borrowed money beyond any period of grace
provided with respect thereto (including but not limited to obligations
incurred under the 1991 Credit Agreement) or in the performance of any other
agreement, term or condition contained in any agreement under which such
obligation is created, if the effect of such default is to accelerate the
maturity of such indebtedness or to permit the holder thereof to cause such
indebtedness to become due prior to its stated maturity.
SECTION 8.5. TERMINATION OF PLAN. If (a) any Reportable Event occurs
and the Banks, in their sole determination, deem such Reportable Event to
constitute grounds (i) for the termination of any Plan by the Pension Benefit
Guaranty Corporation or (ii) for the appointment by the appropriate United
States district court of a trustee to administer any Plan and such Reportable
Event shall not have been fully corrected or remedied to the full
satisfaction of the Banks within thirty (30) days after giving of written
notice of such determination to Borrower by the Banks or (b) any Plan shall
be terminated within the meaning of Title IV of the Employee Retirement
Income Security Act of 1974, as amended, or (c) a trustee shall be appointed
by the appropriate United States district court to administer any Plan, or
(d) the Pension Benefit Guaranty Corporation shall institute proceedings to
terminate any Plan or to appoint a trustee to administer any Plan.
SECTION 8.6. SOLVENCY. If Borrower or any Consolidated Subsidiary of
Borrower shall (a) discontinue business, (except as the result of a merger
into, or a transfer of its assets and business to, Borrower or another
Consolidated Subsidiary), or (b) generally not pay its debts as such debts
become due, or (c) make a general assignment for the benefit of creditors, or
(d) apply for or consent to the appointment of a receiver, a custodian, a
trustee, an interim trustee or liquidator of all or a substantial part of its
assets, or (e) be adjudicated a
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debtor or have entered against it an order for relief under Title 11 of the
United States Code, as the same may be amended from time to time, or (f) file
a voluntary petition in bankruptcy or file a petition or an answer seeking
reorganization or an arrangement with creditors or seeking to take advantage
of any other law (whether federal or state) relating to relief of debtors, or
admit (by answer, by default or otherwise) the material allegations of a
petition filed against it in any bankruptcy, reorganization, insolvency or
other proceeding (whether federal or state) relating to relief of debtors, or
(g) suffer or permit to continue unstayed and in effect for thirty (30)
consecutive days any judgment, decree or order entered by a court of
competent jurisdiction, which approves a petition seeking its reorganization
or appoints a receiver, custodian, trustee, interim trustee or liquidator of
all or a substantial part of its assets, or (h) take, or omit to take, any
action in order thereby to effect any of the foregoing.
ARTICLE IX. REMEDIES UPON DEFAULT
Notwithstanding any contrary provision or inference herein or elsewhere,
SECTION 9.1. OPTIONAL DEFAULTS. If any event of default referred to in
section 8.1, 8.2, 8.3, 8.4 or 8.5 hereof shall occur, the holders of
sixty-seven per cent (67%) (by amount) of the Commitments, or if there is any
borrowing hereunder, the holders of sixty-seven per cent (67%) (by amount) of
the Notes shall have the right in their discretion, by directing the Agent,
on behalf of the Banks, to give written notice to Borrower, to
(a) terminate the Commitments and the credits hereby established, if
not theretofore terminated, and forthwith upon such election the
obligations of Banks, and each thereof, to make any further loan or
loans hereunder immediately shall be terminated, and/or
(b) accelerate the maturity of all of Borrower's Debt to the Banks (if
it be not already due and payable), whereupon all of Borrower's Debt to
the Banks shall become and thereafter be immediately due and payable in
full without any presentment or demand and without any further or other
notice of any kind, all of which are hereby waived by Borrower.
SECTION 9.2. AUTOMATIC DEFAULTS. If any event of default referred to
in Section 8.6 hereof shall occur,
(a) all of the Commitments and the credits hereby established shall
automatically and forthwith terminate, if not theretofore terminated,
and no Bank thereafter shall be under any obligation to grant any
further loan or loans hereunder, and
(b) the principal of and interest on any Notes, then outstanding, and
all of Borrower's Debt to the Banks shall thereupon become and
thereafter be immediately due and payable in full (if it be not already
due and payable), all without any presentment, demand or notice of any
kind, which are hereby waived by Borrower.
SECTION 9.3. OFFSETS. If there shall occur or exist any Possible
Default referred to in Section 8.6 hereof or if the maturity of the Notes is
accelerated pursuant to Section 9.1 or
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9.2 hereof, each Bank shall have the right at any time and from time to time
to set off against, and to appropriate and apply toward the payment of, any
and all Debt then owing by Borrower to that Bank (including, without
limitation, any participation purchased or to be purchased pursuant to
Section 9.4 hereof), whether or not the same shall then have matured, any and
all deposit balances and all other indebtedness then held or owing by that
Bank to or for the credit or account of Borrower all without notice to or
demand upon Borrower or any other person, all such notices and demands being
hereby expressly waived by Borrower.
SECTION 9.4. EQUALIZATION PROVISION. Each Bank agrees with the other
Banks that if it at any time shall obtain any Advantage over the other Banks
or any thereof in respect of Borrower's Debt to the Banks (except under
Article III or Article IV hereof), it will purchase from the other Banks, for
cash and at par, such additional participation in Borrower's Debt to the
Banks as shall be necessary to nullify the Advantage. If any said Advantage
resulting in the purchase of an additional participation as aforesaid shall
be recovered in whole or in part from the Bank receiving the Advantage each
such purchase shall be rescinded, and the purchase price restored (but
without interest unless the Bank receiving the Advantage is required to pay
interest on the Advantage to the person recovering the Advantage from such
Bank) ratably to the extent of the recovery. Each Bank further agrees with
the other Banks that if it at any time shall receive any payment for or on
behalf of Borrower on any indebtedness owing by Borrower to that Bank by
reason of offset of any deposit or other indebtedness, it will apply such
payment first to any and all indebtedness owing by Borrower to that Bank
pursuant to this credit agreement (including, without limitation, any
participation purchased or to be purchased pursuant to this Section 9.4)
until Borrower's Debt has been paid in full.
ARTICLE X. CHANGE OF CONTROL
SECTION 10.1. CHANGE OF CONTROL OPTION. (A) In the event that there
shall occur any Change of Control (as defined below), any Bank shall have the
right, at its option exercisable at any time within six months following the
Change Date (as defined below), to require Borrower to purchase such Bank's
Notes (and to terminate in whole such Bank's Commitment) on the Purchase Date
(as defined below) at a purchase price which shall be equal to the sum of (i)
the respective principal amounts of such Notes then outstanding, plus (ii)
any and all accrued and unpaid interest on such Notes to the Purchase Date
(the Purchase Price), plus (iii) any applicable prepayment penalty or
penalties as prescribed in Section 2.4 hereof, plus (iv) any accrued and
unpaid fees incurred hereunder.
(B) Borrower shall give the Banks written notice of the occurrence of a
Change of Control within five (5) Cleveland banking days following the Change
Date. No failure of Borrower to give notice of a Change of Control shall
limit the right of any Bank to require Borrower to purchase its Notes (and to
terminate in whole such Bank's Commitment) pursuant to this Section 10.1.
(C) Any Bank may exercise its option hereunder to require Borrower to
purchase its Notes (and to terminate in whole such Bank's Commitment) by
delivering to Borrower at any time within six months after the Change Date
(i) written notice of such exercise specifying the Purchase Date and (ii)
such Bank's Notes duly endorsed.
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(D) In the event of the exercise by any Bank of its option under this
Section 10.1 in the manner provided herein, Borrower shall pay or cause to be
paid to such Bank on the Purchase Date the Purchase Price [determined in
accordance with Subsection 10.1(A)] in immediately available funds.
(E) As used in this Section 10.1, the term:
(1) "Change Date" means the date on which any Change of Control
shall be deemed to have occurred; provided, that, if Borrower shall fail to
give timely notice of the occurrence of a Change of Control to the Banks as
provided in Subsection 10.1(B) of this Section 10.1, for the purpose of
determining the duration of the option of the Banks granted under this
Section 10.1, Change Date shall mean the earlier of (i) the date on which
notice of a Change of Control is duly given by Borrower to the Banks or (ii)
the date on which the Banks obtain actual knowledge of the Change of Control.
(2) "Change of Control" means when, and shall be deemed to have
occurred at such time as, a person or group (within the meaning of Sections
13(d) and 14(d)(2) of the Exchange Act) becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act) of more than fifty per cent
(50%) of the then outstanding Voting Stock of Borrower.
(3) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and any successor federal statute.
(4) "Purchase Date" means the date on which Borrower shall purchase
a Note from a Bank pursuant to the exercise by such Bank of its option under
this Section 10.1 pursuant to a notice given to Borrower in accordance with
Subsection 10.1(C) of this Section 10.1, which date shall be a Cleveland
banking day not less than 90 nor more than 120 days after the date such Bank
gives Borrower written notice of such exercise.
(5) "Voting Stock" shall mean capital stock of Borrower of any
class or classes (however designated) the holders of which are ordinarily, in
the absence of contingencies, entitled to vote for the election of the Board
of Directors of Borrower, it being understood that, at the date of this
credit agreement, the Borrower's common stock is the only outstanding class
of capital stock of Borrower which constitutes Voting Stock.
ARTICLE XI. THE AGENT
The Banks authorize Society National Bank and Society National Bank
hereby agrees to act as Agent for the Banks in respect of this credit
agreement upon the terms and conditions set forth elsewhere in this credit
agreement, and upon the following terms and conditions:
SECTION 11.1. APPOINTMENT AND AUTHORIZATION. Each Bank hereby
irrevocably appoints and authorizes the Agent to take such action as Agent on
its behalf and to
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exercise such powers hereunder as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto.
Neither the Agent nor any of its directors, officers, attorneys or employees
shall be liable for any action taken or omitted to be taken by it or them
hereunder or in connection herewith, except for its or their own gross
negligence or willful misconduct.
SECTION 11.2. NOTE HOLDERS. The Agent may treat the payee of any Note
as the holder thereof until written notice of transfer shall have been filed
with it signed by such payee and in form satisfactory to the Agent.
SECTION 11.3. CONSULTATION WITH COUNSEL. The Agent may consult with
legal counsel selected by it and shall not be liable for any action taken or
suffered in good faith by it in accordance with the opinion of such counsel.
SECTION 11.4. DOCUMENTS. The Agent shall not be under a duty to
examine into or pass upon the validity, effectiveness, genuineness or value
of this credit agreement, the Notes, any Related Writing furnished pursuant
hereto or in connection herewith or the value of any collateral obtained
hereunder, and the Agent shall be entitled to assume that the same are valid,
effective and genuine and what they purport to be.
SECTION 11.5. AGENT AND AFFILIATES. With respect to the loans made
hereunder, the Agent shall have the same rights and powers hereunder as any
other Bank and may exercise the same as though it were not the Agent, and the
Agent and its affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower or any Subsidiary
or affiliate of the Borrower.
SECTION 11.6. KNOWLEDGE OF DEFAULT. It is expressly understood and
agreed that the Agent shall be entitled to assume that no Possible Default
has occurred and is continuing, unless the Agent has actual knowledge of such
fact or has been notified by a Bank that such Bank considers that a Possible
Default has occurred and is continuing and specifying the nature thereof.
SECTION 11.7. ACTION BY AGENT. So long as the Agent shall be entitled,
pursuant to Section 11.6 hereof, to assume that no Possible Default shall
have occurred and be continuing, the Agent shall be entitled to use its
discretion with respect to exercising or refraining from exercising any
rights which may be vested in it by, or with respect to taking or refraining
from taking any action or actions which it may be able to take under or in
respect of, this credit agreement. The Agent shall incur no liability under
or in respect of this credit agreement by acting upon any notice,
certificate, warranty or other paper or instrument believed by it to be
genuine or authentic or to be signed by the proper party or parties, or with
respect to anything which it may do or refrain from doing in the reasonable
exercise of its judgment, or which may seem to it to be necessary or
desirable in the premises.
SECTION 11.8. NOTICES, DEFAULT, ETC. In the event that the Agent shall
have acquired actual knowledge of any Possible Default, the Agent shall
promptly notify the Banks and will take such action and assert such rights
under this credit agreement as sixty-seven per cent (67%) (by amount) of the
Commitments, or if there is any borrowing hereunder, the
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holders of sixty-seven per cent (67%) (by amount) of the Notes shall direct
and the Agent shall inform the other Banks in writing of the action taken.
Except as limited by the immediately preceding sentence, the Agent may take
such action and assert such rights as it deems to be advisable, in its
discretion, for the protection of the interests of the holders of the Notes.
SECTION 11.9. INDEMNIFICATION. The Banks agree to indemnify the Agent
(to the extent not reimbursed by the Borrower), ratably according to the
respective principal amounts of their Commitments from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
which may be imposed on, incurred by or asserted against the Agent in its
capacity as agent in any way relating to or arising out of this credit
agreement or any action taken or omitted by the Agent with respect to this
credit agreement, provided that no Bank shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agent's
gross negligence, willful misconduct or from any action taken or omitted by
the Agent in any capacity other than as agent under this credit agreement.
ARTICLE XII. MISCELLANEOUS
SECTION 12.1. BANKS' INDEPENDENT INVESTIGATION. Each Bank by its
signature to this credit agreement acknowledges and agrees that the Agent has
made no representation or warranty, express or implied, with respect to the
creditworthiness, financial condition, or any other condition of Borrower or
any Subsidiary or with respect to the statements contained in any information
memorandum furnished in connection herewith or in any other oral or written
communication between the Agent and such Bank. Each Bank represents that it
has made and shall continue to make its own independent investigation of the
creditworthiness, financial condition and affairs of Borrower and any
Subsidiary in connection with the extension of credit hereunder, and agrees
that the Agent has no duty or responsibility, either initially or on a
continuing basis, to provide any Bank with any credit or other information
with respect thereto (other than such notices as may be expressly required to
be given by Agent to the Banks hereunder), whether coming into its possession
before the granting of the first loans or at any time or times thereafter.
SECTION 12.2. NO WAIVER; CUMULATIVE REMEDIES. No omission or course of
dealing on the part of Agent, any Bank or the holder of any Note in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy hereunder. The remedies herein provided are
cumulative and in addition to any other rights, powers or privileges held by
operation of law, by contract or otherwise.
SECTION 12.3. AMENDMENTS, CONSENTS. No amendment, modification,
termination, or waiver of any provision of this credit agreement or of the
Notes nor consent to any variance therefrom, shall be effective unless the
same shall be in writing and signed by the holders of sixty- seven per cent
(67%) (by amount) of Borrower's Debt to the Banks or if there is no borrowing
hereunder, sixty-seven per cent (67%) (by amount) of the Commitments and then
such waiver or consent shall be effective only in the specific instance and
for the specific
25
<PAGE>
purpose for which given. Unanimous consent of the Commitments, or if there
is any borrowing hereunder, the holders of one hundred per cent (100%) (by
amount) of the Notes shall be required with respect to (i) the extension of
maturity of the Notes, or the payment date of interest thereunder, (ii) any
reduction in the rate of interest on the Notes, or in any amount of principal
or interest due on any Note, or in any fees incurred hereunder, or in the
manner of pro rata application of any payments made by Borrower to the Banks
hereunder, (iii) any change in any percentage voting requirement in this
credit agreement or (iv) any increase in the Commitments of the Banks or
subjecting the Banks to any additional obligations. Notice of amendments or
consents ratified by the Banks hereunder shall immediately be forwarded by
Borrower to all Banks. Each Bank or other holder of a Note shall be bound by
any amendment, waiver or consent obtained as authorized by this section,
regardless of its failure to agree thereto.
SECTION 12.4. NOTICES. All notices, requests, demands and other
communications provided for hereunder shall be in writing and, if to
Borrower, mailed or delivered to it, addressed to it at the address specified
on the signature pages of this credit agreement, if to a Bank, mailed or
delivered to it, addressed to the address of such Bank specified on the
signature pages of this credit agreement. All notices, statements, requests,
demands and other communications provided for hereunder shall be deemed to be
given or made when delivered or forty- eight (48) hours after being deposited
in the mails with postage prepaid by registered or certified mail or
delivered to a telegraph company, addressed as aforesaid, except that notices
from Borrower to Agent or the Banks pursuant to any of the provisions hereof
shall not be effective until received by Agent or the Banks.
SECTION 12.5. COSTS, EXPENSES AND TAXES. Borrower agrees to pay on
demand all costs and expenses of the Agent and certain costs and expenses of
the Banks, including the following: (i) any expenses incurred by the Agent
in connection with the preparation of this credit agreement and any Related
Writings, (ii) out-of-pocket expenses of Agent in connection with the
administration of this credit agreement, the Notes, the collection and
disbursement of all funds hereunder and the other instruments and documents
to be delivered hereunder, (iii) extraordinary expenses of Agent or the Banks
in connection with the administration of this credit agreement, the Notes and
the other instruments and documents to be delivered hereunder (including,
without limitation, expenses resulting from or related to governmental or
judicial investigations, actions or proceedings, or subpoenas), (iv) the
reasonable fees and out-of-pocket expenses of special counsel (if any) for
the Banks, with respect thereto and of local counsel, if any, who may be
retained by said special counsel with respect thereto, and (v) all costs and
expenses, if any, in connection with the enforcement of this credit agreement
or the Notes. In addition, Borrower shall pay any and all stamp and other
taxes and fees payable or determined to be payable in connection with the
execution and delivery of this credit agreement or the Notes, and the other
instruments and documents to be delivered hereunder, and agrees to save Agent
and each Bank harmless from and against any and all liabilities with respect
to or resulting from any delay in paying or omission to pay such taxes or
fees.
SECTION 12.6. OBLIGATIONS SEVERAL. The obligations of the Banks
hereunder are several and not joint. Nothing contained in this credit
agreement and no action taken by Agent or the Banks pursuant hereto shall be
deemed to constitute the Banks a partnership,
26
<PAGE>
association, joint venture or other entity. No default by any Bank hereunder
shall excuse the other Banks from any obligation under this credit agreement;
but no Bank shall have or acquire any additional obligation of any kind by
reason of such default.
SECTION 12.7. EXECUTION IN COUNTERPARTS. This credit agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement.
SECTION 12.8. BINDING EFFECT; ASSIGNMENT; PARTICIPATIONS. This credit
agreement shall become effective when it shall have been executed by
Borrower, Agent and by each Bank and thereafter shall be binding upon and
inure to the benefit of Borrower and each of the Banks and their respective
successors and assigns, except that Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of all of the Banks. No person, other than the Banks, shall have or
acquire any obligation to grant Borrower any loans hereunder.
Notwithstanding any other provision herein contained, however, any Bank may
at any time sell, assign, transfer, grant participations in, or otherwise
dispose of all or any portion of its loans or any Note or of its right, title
and interest therein or in or to this credit agreement (collectively,
Participations) to any other lending office of such Bank or to any other
banks or other entities (Participants). Any Bank which creates a
Participation (pursuant to the immediately preceding sentence) will use its
best efforts to notify Borrower of the creation by such Bank of such
Participation, and the identity of the Participant(s), as promptly thereafter
as possible. Without in any way limiting the rights of a Participant, the
Borrower agrees that the Participants shall in any event be entitled to
benefits under Section 2.6 and Articles III and IV of this credit agreement
to the extent of their respective Participations. No Participant, however,
shall have any right by virtue of that status to vote along with or to be
consulted by any of the Banks on any of those matters described or referred
to in Section 12.3 hereof which require the written consent of sixty-seven
per cent (67%) (by amount) of Borrower's Debt to the Banks or sixty-seven per
cent (67%) (by amount) of the Commitments, as the case may be. A Participant
may, however, have conferred on it by the Bank granting to such Participant
the Participation, the right to vote on and be consulted with respect to any
of those matters described in Section 12.3 hereof which require unanimous
consent of the Commitments or one hundred per cent (by amount) consent of the
holders of the Notes. Anything in this Section 12.8 to the contrary
notwithstanding, any Bank may assign and pledge all or any portion of its
loans and its Notes to any Federal Reserve Bank (and its transferees) as
collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any Operating Circular issued by such Federal
Reserve Bank. No such assignment shall release the assigning Bank from its
obligations hereunder.
SECTION 12.9. GOVERNING LAW. This credit agreement, each of the Notes
and any Related Writing shall be governed by and construed in accordance with
the laws of the State of Ohio and the respective rights and obligations of
Borrower and the Banks shall be governed by Ohio law.
SECTION 12.10. SEVERABILITY OF PROVISIONS; CAPTIONS. Any provision of
this credit agreement which is prohibited or unenforceable in any
jurisdiction shall, as to
27
<PAGE>
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction. The several captions to sections and subsections herein are
inserted for convenience only and shall be ignored in interpreting the
provisions of this credit agreement.
SECTION 12.11. JURY TRIAL WAIVER. BORROWER AND EACH OF THE BANKS WAIVE
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG BORROWER AND THE BANKS, OR ANY
THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS CREDIT AGREEMENT
OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.
Address: 1835 Dueber Avenue THE TIMKEN COMPANY
Canton, Ohio 44706
By:/s/G. E. Little
________________________________
Title: Vice President - Finance
____________________________
and:_________________________________
Title:_______________________________
Address: 127 Public Square SOCIETY NATIONAL BANK,
Cleveland, Ohio 44114 individually and as Agent
By:/s/J. Roderick MacDonald
_________________________________
Title: Vice President
_____________________________
28
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MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By: /s/Timothy S. Broadbent
________________________________________________
Title: Vice President
________________________________________________
Borrowing Advices:
_________________
Address: Morgan Guaranty Trust Company of New York
60 Wall Street
New York, NY 10260
Attention: Multi-Option Unit
11/150 Wm
Telex: 177615
Telecopy: 212-619-2156
Answer: MGT UT
All other information:
_____________________
Address: Morgan Guaranty Trust Company of New York
60 Wall Street
New York, New York 10015
Attention: Timothy S. Broadbent, Vice President
Telephone: 212-648-7059
Telex: 232194
Answer: MGTUR
Telecopy: 212-837-5010
29
<PAGE>
THE BANK OF NEW YORK
By: /s/John M. Lokay, Jr.
_______________________________________________
Title: Vice President
_______________________________________________
All info:
Address: 1 Wall Street/22nd floor
New York, NY 10286
Attention: Mr. John M. Lokay, Jr.
Vice President
Telephone: 212-635-1238
Telex: 12304
Answer: BONY
Telecopy: 212-635- 6434
30
<PAGE>
THE BANK OF NOVA SCOTIA
By: /s/F.C.H. Ashby
_______________________________________________
Title: Senior Manager Loan Operations
_______________________________________________
Borrowing Advices:
_________________
Address: The Bank of Nova Scotia
Suite 2700
600 Peachtree St., N.E.
Atlanta, GA 30308
Telex: 000542319
Phone: 404-877-1561
Telecopy: 404-888-8998
Shannon Law
Loan Administration Officer
Documents, etc.
Address: 181 W. Madison
Suite 3700
Chicago, IL 60602
Phone: 312-201-4100
Keith Niebrugge, Representative
31
<PAGE>
BANK ONE, AKRON, N.A.
By: /s/Bernard McRae, Jr.
________________________________________________
Title: Assistant Vice President
________________________________________________
All info:
Address: 101 Central Plaza South
P. O. Box 9280
Canton, OH 44702
Attention: Mr. Bernard McRae, Jr.
Assistant Vice President
Telephone: 216-438-8338
Telex: None
Answer: None
Telecopy: 216-438-8312
32
<PAGE>
CREDIT SUISSE
By: /s/Christopher Elden
________________________________________________
Title: Member of Senior Management
________________________________________________
By: /s/Daniela E. Hess
________________________________________________
Title: Associate
________________________________________________
All info:
Address: Tower 49
12 East 49th Street
New York, New York 10017
Attention: Mr. Christopher Eldin
Member of Senior Management
Telephone: 212-238-5455
Telex: 222491
Answer: None
Telecopy: 212-238-5389
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<PAGE>
MELLON BANK, N.A.
By: /s/Dwayne R. Finney
________________________________________________
Title: Assistant Vice President
________________________________________________
Borrowings:
__________
Address: Three Mellon Bank Center, Rm. 2303
Pittsburgh, PA 15259
Attention: Loan Administration
Telephone: 412-234-7367
Telex: 812357
Answer: MEL BANK PGH
Telecopy: 412-234-5049
All other information:
_____________________
Address: Global Corporate Banking
Mellon Bank, N.A.
Room 151-4401
One Mellon Bank Center
Pittsburgh, PA 15258-0001
Attention: Mr. Dwayne R. Finney
Vice President
Telephone: 412-234-1913
Telecopy: 412-234-6375
34
<PAGE>
NATIONSBANK OF NORTH CAROLINA, N.A.
By: /s/Jay Johnston
________________________________________________
Title: Assistant Vice President
________________________________________________
Borrowings:
__________
Address: One NationsBank Plaza T-18-7
Charlotte, NC 28255
Attention: Missy Thompson
Telephone: 704-386-8388
Telex: 669959
Telecopy: 704-386-8694
Answer: NCNB INTL CHA
All other information:
_____________________
Address: NationsBank Corp. Center
NC1-007-08-04
100 N. Tryon
Charlotte, NC 28202
Attention: Mr. Jay Johnston, Vice President
Telephone: 704-386-8335
Telex: 669959
Answer: NCNB INTL CHA
Telecopy: 704-386-3271
35
<PAGE>
NBD BANK, N.A.
By: /s/Lisa A. Ferris
________________________________________________
Title: Vice President
________________________________________________
All info:
Address: 611 Woodward
Detroit, MI 48226
Attention: Ms. Lisa A. Ferris
Vice President
Telephone: 313-225-2520
Telex: 230729
Answer: NAT BANK DET
Telecopy: 313-225-3269
36
<PAGE>
THE NORTHERN TRUST COMPANY
By: /s/Pete Sinelli
________________________________________________
Title: Commercial Banking Officer
________________________________________________
All info:
Address: 50 South LaSalle Street
Chicago, IL 60675
Attention: Mr. Pete Sinelli
Commercial Banking Officer
Telephone: 312-444-4575
Telex: 254419
Answer: NTCI CGO
Telecopy: 312-444-5244
37
<PAGE>
MIDLAND BANK, PLC
By: /s/David Phillips
___________________________________
Title: Corporate Banking Manager
___________________________________
By: ___________________________________
Title: ___________________________________
All info:
Address: Midland Bank plc
Motors & Components
Corporate and Institutions
Poultry 1st Floor
London England, EC2P2BX
Attention Mr. David Phillips
Corporate Banking Manager
Phone: 011 44 71 260-5339
Telex: 8954744
Telecopy: 011 44 71 260 5448
Alternate U.S. Contact:
Address: Midland Montagu Tower
156 W. 56th Street
New York, N.Y. 10019
Attention: Ms. Catherine M. Ball
Associate
Phone: 212-969-7045
Telecopy: 212-969-7008/9
38
<PAGE>
ANNEX A
Banking Institutions Parties to the
Revolving Credit Agreement
Dated as of November 15, 1994, with
The Timken Company; Commitments and Percentages
Name of Bank Maximum Amount Percentages
____________ ______________ ___________
SOCIETY NATIONAL BANK $ 14,968,667 14.969
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK 12,275,333 12.2753333
THE BANK OF NEW YORK 8,084,000 8.084
THE BANK OF NOVA SCOTIA 8,084,000 8.084
BANK ONE, AKRON, N.A. 8,084,000 8.084
CREDIT SUISSE 8,084,000 8.084
MELLON BANK, N.A. 8,084,000 8.084
NBD BANK, N.A. 8,084,000 8.084
THE NORTHERN TRUST COMPANY 8,084,000 8.084
NATIONSBANK OF NORTH
CAROLINA, N.A. 8,084,000 8.084
MIDLAND BANK, PLC 8,084,000 8.084
___________ _____
TOTALS $100,000,000 100.000
39
<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
(Prime Rate Loans and Domestic Fixed Rate Loans)
$________________ Canton, Ohio
November 15, l994
FOR VALUE RECEIVED, the undersigned, THE TIMKEN COMPANY, an Ohio
corporation (the "Borrower"), promises to pay on the Commitment Termination
Date, to the order of _____________________________________________ (the
"Bank") at the Main Office of Society National Bank, Agent, 127 Public
Square, Cleveland, Ohio 44114-1306, the principal sum of
_______________________________________________ DOLLARS or the aggregate
unpaid principal amount of all Prime Rate Loans and all Domestic Fixed Rate
Loans evidenced by this note made by the Bank to the Borrower pursuant to
Section 2.1 of the credit agreement hereinafter referred to, whichever is
less, in lawful money of the United States of America. Capitalized terms
used herein shall have the meanings ascribed to them in said credit
agreement.
The Borrower promises also to pay interest on the unpaid principal
amount of each such loan from time to time outstanding from the date of such
loan until the payment in full thereof at the rates per annum which shall be
determined in accordance with the provisions of Section 2.1 of the credit
agreement. Said interest shall be payable on each date provided for in said
Section 2.1; provided, however, that interest on any principal portion which
is not paid when due shall be payable on demand.
The portions of the principal sum hereof from time to time representing
Prime Rate Loans and Domestic Fixed Rate Loans, and payments of principal of
either thereof, will be shown on the grid(s) attached hereto and made a part
hereof. All loans by the Bank to the Borrower pursuant to the credit
agreement (except LIBOR Loans) and all payments on account of principal
hereof shall be recorded by the Bank prior to transfer hereof and endorsed on
such grid(s).
If this note shall not be paid at maturity, whether such maturity occurs
by reason of lapse of time or by operation of any provision for acceleration
of maturity contained in the credit agreement hereinafter referred to, the
principal hereof and the unpaid interest thereon shall bear interest, until
paid, for Prime Rate Loans and Domestic Fixed Rate Loans at a rate per annum
which shall be two per cent (2%) above the Prime Rate from time to time in
effect. All payments of principal of and interest on this note shall be made
in immediately available funds.
This note is one of the Revolving Credit Notes referred to in the credit
agreement dated as of November 15, l994 between the Borrower, the banks named
therein and Society
40
<PAGE>
National Bank, as Agent, as may be amended from time to time. Reference is
made to such credit agreement for a description of the right of the
undersigned to anticipate payments hereof, the right of the holder hereof to
declare this note due prior to its stated maturity, and other terms and
conditions upon which this note is issued.
Address: 1835 Dueber Avenue THE TIMKEN COMPANY
Canton, Ohio 44706
By:____________________________
and____________________________
41
<PAGE>
EXHIBIT A-1
REVOLVING CREDIT NOTE
(LIBOR Loans)
$________________ Canton, Ohio
November 15, l994
FOR VALUE RECEIVED, the undersigned, THE TIMKEN COMPANY, an Ohio
corporation (the "Borrower"), promises to pay on the Commitment Termination
Date, to the order of _____________________________________________________
(the "Bank") at the Main Office of Society National Bank, Agent, 127 Public
Square, Cleveland, Ohio 44114-1306 the principal sum of ____________________
DOLLARS or the aggregate unpaid principal amount of all LIBOR Loans evidenced
by this note made by the Bank to the Borrower pursuant to Section 2.1 of the
credit agreement hereinafter referred to, whichever is less, in lawful money
of the United States of America. Capitalized terms used herein shall have
the meanings ascribed to them in said credit agreement.
The Borrower promises also to pay interest on the unpaid principal
amount of each such loan from time to time outstanding from the date of such
loan until the payment in full thereof at the rates per annum which shall be
determined in accordance with the provisions of Section 2.1 of the credit
agreement. Said interest shall be payable on each date provided for in said
Section 2.1; provided, however, that interest on any principal portion which
is not paid when due shall be payable on demand.
The portions of the principal sum hereof from time to time representing
LIBOR Loans, and payments of principal thereof, will be shown on the grid(s)
attached hereto and made a part hereof. All LIBOR Loans by the Bank to the
Borrower pursuant to the credit agreement and all payments on account of
principal hereof shall be recorded by the Bank prior to transfer hereof and
endorsed on such grid(s).
If this note shall not be paid at maturity, whether such maturity occurs
by reason of lapse of time or by operation of any provision for acceleration
of maturity contained in the credit agreement hereinafter referred to, the
principal hereof and the unpaid interest thereon shall bear interest, until
paid, for LIBOR Loans at a rate per annum which shall be two per cent (2%)
above the Prime Rate from time to time in effect. All payments of principal
of and interest on this note shall be made in immediately available funds.
This note is one of the Revolving Credit Notes referred to in the credit
agreement dated as of November 15, l994 between the Borrower, the banks named
therein and Society National Bank, as Agent, as may be amended from time to
time. Reference is made to such
42
<PAGE>
credit agreement for a description of the right of the undersigned to
anticipate payments hereof, the right of the holder hereof to declare this
note due prior to its stated maturity, and other terms and conditions upon
which this note is issued.
Address: 1835 Dueber Avenue THE TIMKEN COMPANY
Canton, Ohio 44706
By:________________________
and________________________
43
<PAGE>
EXHIBIT 4.1
THIRD AMENDMENT AGREEMENT
TO THE AMENDED AND RESTATED CREDIT AGREEMENT
Third amendment agreement ("Amendment Agreement") made as of the 15th day of
November, 1994, by and among THE TIMKEN COMPANY, an Ohio corporation
("Borrower"), SOCIETY NATIONAL BANK ("Society"), successor by merger to
Ameritrust Company National Association, the various other commercial banking
institutions signatories hereto, together with Society (the "Banks"), and
Society, as Agent (the "Agent") for the Banks.
WHEREAS, Borrower, Banks and Agent are parties to a certain Amended and
Restated Credit Agreement dated as of December 31, 1991, as amended, which
provides, among other things, for a revolving credit in the aggregate
principal amount of Three Hundred Million Dollars ($300,000,000) at any one
time outstanding, all upon certain terms and conditions (the "Credit
Agreement");
WHEREAS, Borrower, Banks and Agent desire to further amend the Credit
Agreement by reducing the amount of the revolving credit to Two Hundred
Million Dollars ($200,000,000), by extending the Commitment Period to August
31, 1999, by amending Annex A to the Credit Agreement and by making certain
other amendments thereto;
WHEREAS, each term used herein shall be defined in accordance with the Credit
Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
herein and for other valuable considerations, Borrower, Banks and Agent agree
as follows:
1. The Credit Agreement is hereby amended by deleting the definition of
"Commitment Period" in Article I in its entirety, and substituting the
following in place thereof:
"'Commitment Period' shall mean the period from the date hereof to
August 31, 1999."
2. The Credit Agreement is hereby amended by deleting the definition of
"Domestic Interest Period" and "Domestic Margin" in Article I in its
entirety, and substituting the following in place thereof:
"Domestic Interest Period" shall mean a period of 30, 60, 90 or 180 days
(or 270 or 360 days if offered by the Banks) (as selected by the
Borrower) commencing on the applicable borrowing date of each Domestic
Fixed Rate Loan and on each Interest Adjustment Date with respect
thereto; provided, however, that if any such period would be affected by
a reduction in Commitment as provided in Section 2.5 hereof, prepayment
or conversion rights as provided in Section 4.3 hereof or maturity of
-1-
<PAGE>
Domestic Fixed Rate Loans as provided in Section 2.1 hereof, such period
shall be shortened to end on such date. If the Borrower fails to select
a new Domestic Interest Period with respect to an outstanding Domestic
Fixed Rate Loan at least three Cleveland banking days prior to any
Interest Adjustment Date, the Borrower shall be deemed to have selected
a Domestic Interest Period of the same duration as the immediately
preceding Domestic Interest Period (subject to the proviso of the
preceding sentence).
"Domestic Margin" shall mean Fifty (50) Basis Points so long as Moodys
Investors Service, Inc. ('Moody's') or Standard & Poor's Corporation
('S&P') accords to Borrower's bonds or debentures (or any thereof) a
rating of A3 or higher (in the case of Moody's), or a rating of A- or
higher (in the case of S&P); provided, however, that if at any time
both Moody's and S&P shall have lowered the ratings which they accord to
any of Borrower's bonds or debentures to ratings the higher of which (in
the case of Moody's) is Baa1, Baa2 or Baa3 or (in the case of S&P) is
BBB+, BBB or BBB-, then during any such period and for so long as both
of such lowered ratings are in effect, the 'Domestic Margin' shall be
increased to Sixty-Two and One-Half (62.5) Basis Points; and further
provided, however, that if at any time both Moody's and S&P shall have
lowered the ratings which they accord to any of Borrower's bonds or
debentures to ratings the higher of which (in the case of Moody's) is
Ba (or some lower rating assigned by Moody's) or (in the case of S&P)
is BB+ (or some lower rating assigned by S&P) then during any such
period and for so long as both of such lowered ratings are in effect,
the 'Domestic Margin' shall be increased to Seventy-Five (75) Basis
Points.
3. The Credit Agreement is hereby amended by deleting the definition of
"LIBOR Margin" in Article I in its entirety, and substituting the following
in place thereof:
"'LIBOR Margin' shall mean Thirty-Seven and One-Half (37.5) Basis Points
so long as Moody's Investors Service, Inc. ('Moody's') or Standard &
Poor's Corporation ('S&P') accords to Borrower's bonds or debentures (or
any thereof) a rating of A3 or higher (in the case of Moody's), or a
rating of A- or higher (in the case of S&P); provided, however, that if
at any time both Moody's and S&P shall have lowered the ratings which
they accord any of to Borrower's bonds or debentures to ratings the
higher of which (in the case of Moody's) is Baa1, Baa2 or Baa3 or (in
the case of S&P) is BBB+, BBB or BBB-, then during any such period and
for so long as both of such lowered ratings are in effect, the 'LIBOR
Margin' shall be increased to Fifty (50) Basis Points; and further
provided, however, that if at any time both Moody's and S&P shall have
lowered the ratings which they accord to any of Borrower's bonds or
debentures to ratings the higher of which (in the case of Moody's) is Ba
(or some lower rating assigned by Moody's) or (in the case of S&P) is
BB+ (or some lower rating assigned by S&P) then during any such period
and for so long as both of such lowered ratings are in effect, the
'LIBOR Margin' shall be increased to Sixty-Two and One-Half (62.5) Basis
Points."
-2-
<PAGE>
4. The Credit Agreement is hereby amended by deleting the amount "Three
Hundred Million and 00/100 Dollars ($300,000,000)" from the first paragraph
of Section 2.1, and substituting in place thereof, the amount "Two Hundred
Million and 00/100 Dollars ($200,000,000)".
5. The Credit Agreement is hereby amended by deleting the date "August 31,
1997" wherever it appears in Section 2.1, and substituting for that deleted
date, the date "August 31, 1999".
6. The Credit Agreement is hereby amended by deleting Section 2.5 in its
entirety and substituting the following in place thereof:
"SECTION 2.5. COMMITMENT FEES; TERMINATION OR REDUCTION OF COMMITMENTS.
Borrower agrees to pay to Agent, for the ratable account of each Bank,
as a consideration for its Commitment hereunder, a commitment fee
calculated at a rate or rates as hereinafter provided in this Section
2.5 (based on a year having 360 days and calculated for the actual
number of days elapsed) from the date hereof to and including the last
day of the Commitment Period, on the average daily unborrowed amount of
such Bank's Commitment hereunder, payable on the 31st day of December,
l994, and quarter-annually thereafter. The commitment fee shall be
calculated at a rate expressed in terms of Basis Points per annum as
follows: The applicable commitment fee shall be at a rate of fifteen
(15) Basis Points per annum so long as Moody's Investors Service, Inc.
('Moody's') or Standard & Poor's Corporation ('S&P') accords to
Borrower's bonds or debentures (or any thereof) a rating of A3 or higher
(in the case of Moody's), or a rating of A- or higher (in the case of
S&P); provided, however, that if at any time both Moody's and S&P shall
have lowered the ratings which they accord to any of Borrower's bonds or
debentures to ratings the higher of which (in the case of Moody's) is
Baa1, Baa2 or Baa3 or (in the case of S&P) is BBB+, BBB or BBB-, then
during any such period and for so long as both of such lowered ratings
are in effect, the applicable commitment fee shall be increased to a
rate of Twenty (20) Basis Points per annum; and further provided,
however, that if at any time both Moody's and S&P shall have lowered the
ratings which they accord to any of Borrower's bonds or debentures to
ratings the higher of which (in the case of Moody's) is Ba (or some
lower rating assigned by Moody's) or (in the case of S&P) is BB+ (or
some lower rating assigned by S&P), then during any such period and for
so long as both of such lowered ratings are in effect, the applicable
commitment fee shall be increased to a rate of Twenty-Five (25) Basis
Points per annum. Borrower may at any time or from time to time
terminate in whole or ratably in part the Commitments of the Banks
hereunder to an amount not less than the aggregate principal amount of
the loans then outstanding, by giving Agent not less than two (2)
Cleveland banking days' notice, provided that any such partial
termination shall be in an aggregate amount for all the Banks of Ten
Million Dollars ($10,000,000) or any integral multiple thereof. The
Agent shall promptly notify each Bank of its proportionate amount and
the date of each such termination. After each such termination, the
commitment fees payable hereunder shall be calculated upon the
Commitments of the Banks as so reduced. If the Borrower terminates in
whole the
-3-<PAGE>
Commitments of the Banks, on the effective date of such termination (the
Borrower having prepaid in full the unpaid principal balance, if any, of
the Notes outstanding together with all interest (if any) and commitment
fees accrued and unpaid) all of the Notes outstanding shall be delivered
to the Agent marked 'Cancelled' and redelivered to the Borrower. Any
partial reduction in the Commitments of the Banks shall be effective
during the remainder of the Commitment Period."
7. The Credit Agreement is hereby amended by deleting Section 6.7 in its
entirety, and substituting the following in place thereof:
"SECTION 6.7. DEBT TO CAPITAL RATIO. Borrower will not suffer or
permit the ratio of (a) its total indebtedness for borrowed money
(calculated on a consolidated basis) to (b) the aggregate of (i) its
total indebtedness for borrowed money (calculated on a consolidated
basis) plus (ii) its stockholders equity, as reflected on its most
recent consolidated financial statements furnished the Banks, to at any
time exceed .45 to 1.00."
8. The Credit Agreement is hereby amended by adding the following at the
end of Section 10.1: ",plus (iv) any accrued and unpaid fees incurred
hereunder."
9. The Credit Agreement is hereby amended by deleting clause (ii) in
Section 12.3 in its entirety, and substituting the following in place of:
"(ii) any reduction in the rate of interest on the Notes, or in any amount of
principal or interest due on any Note, or in any fees incurred hereunder, or
in the manner of pro rata application of any payments made by Borrower to the
Banks hereunder,".
10. The Credit Agreement is hereby amended by deleting Annex A, and
substituting in place thereof, a new Annex A in the form of Annex A attached
hereto.
11. The Credit Agreement is hereby amended by deleting Exhibit A and Exhibit
A-1 and substituting in place thereof, new Exhibit A and new Exhibit A-1 in
the form of Exhibit A and Exhibit A-1 attached hereto.
12. Concurrently with the execution of this Amendment Agreement, Borrower
shall execute and deliver to each Bank a Revolving Credit Note (Prime Rate
Loans and Domestic Fixed Rate Loans) and a Revolving Credit Note (LIBOR
Loans), of even date herewith, and being in the form and substance of Exhibit
A and Exhibit A-1 attached hereto with the blanks appropriate filled. After
receipt of such new promissory notes, each Bank will mark the promissory
notes being replaced hereby "Replaced" and return the same to Borrower.
13. Borrower hereby represents and warrants to the Agent and the Banks that
(a) Borrower has the legal power and authority to execute and deliver this
Amendment Agreement; (b) the officials executing this Amendment Agreement
have been duly authorized to execute and deliver the same and bind Borrower
with respect to the provisions hereof; (c) the execution and delivery hereof
by Borrower and the performance and observance by Borrower of the
-4-
<PAGE>
provisions hereof do not violate or conflict with the organizational
agreements of Borrower or any law applicable to Borrower or result in a
breach of any provision of or constitute a default under any other agreement,
instrument or document binding upon or enforceable against Borrower; (d) as
of the date of this Amendment Agreement, the representations and warranties
contained in Article VII of the Credit Agreement are true and correct, and
(e) this Amendment Agreement constitutes a valid and binding obligation of
Borrower in every respect, enforceable in accordance with its terms.
14. Borrower hereby represents and warrants to the Agent and the Banks that
no Possible Default exists under the Credit Agreement, nor will any occur
immediately after the execution and delivery of this Amendment Agreement by
the performance or observance of any provision hereof.
15. Each reference to the Credit Agreement that is made in the Credit
Agreement or any other writing shall hereafter be construed as a reference to
the Credit Agreement as amended hereby. Except as herein otherwise
specifically provided, all provisions of the Credit Agreement shall remain in
full force and effect and be unaffected hereby.
16. The rights and obligations of all parties hereto shall be governed by
the laws of the State of Ohio.
17. This Amendment Agreement may be executed in any number of counterparts
each of which, when so executed and delivered, shall be an original, but such
counterparts shall together constitute one and the same instrument. After
execution of this Amendment Agreement by all the parties hereto, this
Amendment Agreement shall be effective as of November 15, 1994.
THE TIMKEN COMPANY SOCIETY NATIONAL BANK,
individually and as Agent
By: /s/G. E. Little
__________________________
By: /s/J. Roderick MacDonald
____________________________
and __________________________
MORGAN GUARANTY TRUST COMPANY THE BANK OF NEW YORK
OF NEW YORK
By: /s/Timothy S. Broadbent By: /s/John M. Lokay, Jr.
__________________________ ____________________________
THE BANK OF NOVA SCOTIA BANK ONE, AKRON, N.A.
By: /s/F.C.H. Ashby By: /s/Bernard McRae, Jr.
___________________________ _____________________________
CREDIT SUISSE MELLON BANK, N.A.
By: /s/Christopher Eldin By: /s/Dwayne R. Finney
___________________________ ____________________________
-5-<PAGE>
NATIONSBANK OF NORTH NBD BANK, N.A.
CAROLINA, N.A.
By: /s/Jay Johnston By: /s/Lisa A. Ferris
___________________________ ____________________________
THE NORTHERN TRUST COMPANY MIDLAND BANK, PLC
By: /s/Pete Sinelli By: /s/David Phillips
___________________________ ____________________________
-6-
<PAGE>
ANNEX A
Banking Institutions Parties to the
Amended and Restated Credit Agreement
Dated as of December 31, 1991, as amended, with
The Timken Company; Commitments and Percentages
Name of Bank Maximum Amount Percentages
____________ ______________ ___________
SOCIETY NATIONAL BANK $ 29,937,333 14.969
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK 24,550,667 12.2753333
THE BANK OF NEW YORK 16,168,000 8.084
THE BANK OF NOVA SCOTIA 16,168,000 8.084
BANK ONE, AKRON, N.A. 16,168,000 8.084
CREDIT SUISSE 16,168,000 8.084
MELLON BANK, N.A. 16,168,000 8.084
NBD BANK, N.A. 16,168,000 8.084
THE NORTHERN TRUST COMPANY 16,168,000 8.084
NATIONSBANK OF NORTH
CAROLINA, N.A. 16,168,000 8.084
MIDLAND BANK, PLC 16,168,000 8.084
____________ _______
TOTALS $200,000,000 100.00
-7-
<PAGE>
EXHIBIT A
REVOLVING CREDIT NOTE
(Prime Rate Loans and Domestic Fixed Rate Loans)
$_________________ Canton, Ohio
________________, 1994
FOR VALUE RECEIVED, the undersigned, THE TIMKEN COMPANY, an Ohio
corporation (the "Borrower"), promises to pay on August 31, 1999, to the
order of _____________________________________________ (the "Bank") at the
Main Office of Society National Bank, Agent, 127 Public Square, Cleveland,
Ohio 44114-1306, the principal sum of
_______________________________________________________________ DOLLARS
or the aggregate unpaid principal amount of all Prime Rate Loans and all
Domestic Fixed Rate Loans evidenced by this note made by the Bank to the
Borrower pursuant to Section 2.1 of the credit agreement hereinafter referred
to, whichever is less, in lawful money of the United States of America.
Capitalized terms used herein shall have the meanings ascribed to them in
said credit agreement.
The Borrower promises also to pay interest on the unpaid principal
amount of each such loan from time to time outstanding from the date of such
loan until the payment in full thereof at the rates per annum which shall be
determined in accordance with the provisions of Section 2.1 of the credit
agreement. Said interest shall be payable on each date provided for in said
Section 2.1; provided, however, that interest on any principal portion which
is not paid when due shall be payable on demand.
The portions of the principal sum hereof from time to time representing
Prime Rate Loans and Domestic Fixed Rate Loans, and payments of principal of
either thereof, will be shown on the grid(s) attached hereto and made a part
hereof. All loans by the Bank to the Borrower pursuant to the credit
agreement (except LIBOR Loans) and all payments on account of principal
hereof shall be recorded by the Bank prior to transfer hereof and endorsed on
such grid(s).
If this note shall not be paid at maturity, whether such maturity occurs
by reason of lapse of time or by operation of any provision for acceleration
of maturity contained in the credit agreement hereinafter referred to, the
principal hereof and the unpaid interest thereon shall bear interest, until
paid, for Prime Rate Loans and Domestic Fixed Rate Loans at a rate per annum
which shall be two per cent (2%) above the Prime Rate from time to time in
effect. All payments of principal of and interest on this note shall be made
in immediately available funds.
-8-
<PAGE>
This note is one of the Revolving Credit Notes referred to in the
amended and restated credit agreement dated as of December 31, 1991, between
the Borrower, the banks named therein and Society National Bank, as Agent, as
may be amended from time to time. Reference is made to such credit agreement
for a description of the right of the undersigned to anticipate payments
hereof, the right of the holder hereof to declare this note due prior to its
stated maturity, and other terms and conditions upon which this note is
issued.
Address: 1835 Dueber Avenue THE TIMKEN COMPANY
Canton, Ohio 44706
By:____________________________
and____________________________
-9-
<PAGE>
EXHIBIT A-1
REVOLVING CREDIT NOTE
(LIBOR Loans)
$_______________ Canton, Ohio
_____________________, 1994
FOR VALUE RECEIVED, the undersigned, THE TIMKEN COMPANY, an Ohio
corporation (the "Borrower"), promises to pay on August 31, 1999, to the
order of _______________________________________________________________
(the "Bank") at the Main Office of Society National Bank, 127 Public Square,
Cleveland, Ohio 44114-1306 the principal sum of
______________________________________________________________ DOLLARS
or the aggregate unpaid principal amount of all LIBOR Loans evidenced by this
note made by the Bank to the Borrower pursuant to Section 2.1 of the credit
agreement hereinafter referred to, whichever is less, in lawful money of the
United States of America. Capitalized terms used herein shall have the
meanings ascribed to them in said credit agreement.
The Borrower promises also to pay interest on the unpaid principal
amount of each such loan from time to time outstanding from the date of such
loan until the payment in full thereof at the rates per annum which shall be
determined in accordance with the provisions of Section 2.1 of the credit
agreement. Said interest shall be payable on each date provided for in said
Section 2.1; provided, however, that interest on any principal portion which
is not paid when due shall be payable on demand.
The portions of the principal sum hereof from time to time representing
LIBOR Loans, and payments of principal thereof, will be shown on the grid(s)
attached hereto and made a part hereof. All LIBOR Loans by the Bank to the
Borrower pursuant to the credit agreement and all payments on account of
principal hereof shall be recorded by the Bank prior to transfer hereof and
endorsed on such grid(s).
If this note shall not be paid at maturity, whether such maturity occurs
by reason of lapse of time or by operation of any provision for acceleration
of maturity contained in the credit agreement hereinafter referred to, the
principal hereof and the unpaid interest thereon shall bear interest, until
paid, for LIBOR Loans at a rate per annum which shall be two per cent (2%)
above the Prime Rate from time to time in effect. All payments of principal
of and interest on this note shall be made in immediately available funds.
-10-
<PAGE>
This note is one of the Revolving Credit Notes referred to in the
amended and restated credit agreement dated as of December 31, 1991, between
the Borrower, the banks named therein and Society National Bank, as Agent, as
may be amended from time to time. Reference is made to such credit agreement
for a description of the right of the undersigned to anticipate payments
hereof, the right of the holder hereof to declare this note due prior to its
stated maturity, and other terms and conditions upon which this note is
issued.
Address: 1835 Dueber Avenue THE TIMKEN COMPANY
Canton, Ohio 44706
By:________________________
and________________________
-11-
<PAGE>
COMPUTATION OF PER SHARE EARNINGS
Year Ended December 31
1994 1993 1992
________________________________________
(Thousands of dollars
except per share data)
PRIMARY
Average shares outstanding 30,949,625 30,680,372 30,196,346
Net effect of dilutive stock
options -- based on the treasury
stock method using average
market price (1) (1) (1)
__________ __________ __________
TOTAL 30,949,625 30,680,372 30,196,346
========== ========== ==========
Net income (loss) $68,464 ($271,932) $4,452
======== ========== ======
Per-share amount $2.21 ($8.86) $0.15
===== ======= =====
FULLY DILUTED
Average shares outstanding 30,949,625 30,680,372 30,196,346
Net effect of dilutive stock
options -- based on the treasury
stock method using the year-end
market price, if higher than
exercise price 152,471 80,001 13,251
__________ __________ __________
TOTAL 31,102,096 30,760,373 30,209,597
========== ========== ==========
Net income (loss) $68,464 ($271,932) $4,452
======= ========== ======
Per share amount $2.20 $(8.84) $0.15
===== ======= =====
(1) Incremental number of shares excluded from calculation since they do not
have a dilutive effect.
EXHIBIT 11<PAGE>
EXHIBIT 13
Financial Summary
1994 1993
_____________________________________________________________________________
(Thousands of dollars, except per share data)
Net sales $1,930,351 $1,708,761
Income (loss) before income taxes and
cumulative effect of accounting changes 111,323 (20,919)
Provision (credit) for income taxes 42,859 (3,250)
Income (loss) before cumulative effect of
accounting changes 68,464 (17,669)
Cumulative effect of accounting changes on
prior years (net of income tax benefit of
$132,971) -0- (254,263)
Net income (loss) $ 68,464 $ (271,932)
Net income (loss) per share $2.21 $(8.86)
Dividends paid per share $1.00 $ 1.00
The 1993 loss includes an impairment and restructuring charge of $48,000,000;
$33,126,000 net of tax, as described in Note 2 to the Consolidated Financial
Statements as well as an after-tax charge described in footnote (1) at the
bottom of this page.
In 1994, The Timken Company achieved record sales and a strong earnings
gain. Net sales grew 13%. Net income increased to $68.5 million compared to
a 1993 loss of $271.9 million which, except for restructuring charges and
accounting changes, would have been income of $15.5 million. The year ended
strong with record fourth quarter sales topping $500 million for the first
time.
To further improve performance, the company has opened new plants and
introduced new products and services. Companywide initiatives to reduce
costs as well as improve quality and service to customers continue to
strengthen our competitiveness.
The following pages reveal how associates at The Timken Company have been
picking up the pace of continuous improvement, increasing both value to
shareholders and quality and service to customers.
<TABLE>
<PAGE>
Quarterly Financial Data
(Thousands of dollars, except per share data)
<CAPTION>
Net
Income
Net (Loss) Dividends
Net Gross Income per per Stock Prices
1994 Sales Profit (Loss) Share Share High Low
<F1><F2> <F1><F2><F3>
__________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
First Quarter $ 466,482 $ 91,442 $ 7,746 $ .25 $ .25 $37 1/2 $32
Second Quarter 494,046 112,887 20,634 .67 .25 35 3/8 31 1/4
Third Quarter 466,344 100,616 14,292 .46 .25 39 1/4 32 3/8
Fourth Quarter 503,479 116,059 25,792 .83 .25 39 31 1/2
___________________________________________________________________________
$1,930,351 $421,004 $ 68,464 $ 2.21 $1.00
___________________________________________________________________________
1993
__________________________________________________________________________________________________
First Quarter $ 422,477 $ 87,312 $(251,081) $(8.22) $ .25 $30 5/8 $26 1/2
Second Quarter 441,241 99,350 9,556 .31 .25 34 3/8 29 1/2
Third Quarter 405,538 75,557 (446) (.01) .25 34 7/8 29 3/4
Fourth Quarter 439,505 80,378 (29,961) (.97) .25 34 5/8 29 7/8
___________________________________________________________________________
$1,708,761 $342,597 $(271,932) $(8.86) $1.00
___________________________________________________________________________
<FN>
<F1>As described in Notes 7 and 9 to the Consolidated Financial Statements, effective January 1,
1993, the company recorded a one-time charge of $254,263,000 or $8.29 per share related
primarily to a change in accounting for retiree medical benefits. 1993 income (loss) before
the cumulative effect of accounting changes was $(17,669,000), or $(.75) per share.
<F2>Fourth quarter 1993 includes an impairment and restucturing charge of $48,000,000, $33,126,000
net of tax.
<F3>Annual net income (loss) per share does not equal the sum of the individual quarters due to
differences in the average number of shares outstanding during the respective periods.
1
</TABLE>
<PAGE>
Management's Discussion and Analysis - Summary
_____________________________________________________________________________
In 1994, The Timken Company achieved its best financial performance in
several years. The company established sales records in 1994 for both the
year and fourth quarter when quarterly sales exceeded $500 million for the
first time. These records topped previous highs set in 1993 - an indicator
of steady progress. The company increased sales in virtually all of its
product lines, with the greatest gains occurring in steel and in automotive,
railroad and U.S. export bearing markets. Increases in bearing sales volume
in Europe and Japan were also achieved, due in part to economic recovery in
those areas. The Bearing and Steel Businesses also experienced some modest
price gains. Efforts to accelerate profitable growth have paid off in both
the Bearing and Steel Businesses. Despite higher steel scrap prices, higher
employment costs resulting from increased product demand and increased
benefits costs, both businesses increased their gross profit for the year.
Improvements in manufacturing efficiencies, higher capacity utilization
and focused initiatives to reduce manufacturing costs strengthened the
company's performance in 1994. These as well as new product development have
significantly improved earnings potential.
An initiative launched in December 1993 to accelerate improvements in
our manufacturing operations continues, with 65% of the company's facilities
now involved at various stages in the process. The initiative is aimed at
substantially reducing costs and significantly improving service and product
quality. Initial results suggest that savings will be greater than
originally anticipated. The first appreciable savings are expected in 1995,
with additional savings coming through 1997.
The start-up of three new facilities and the consolidation of two plants
in 1994 helped increase efficiency and competitiveness in our manufacturing
operations. The new facilities were completed either on time or ahead of
schedule, and were completed under budget.
During the second quarter of 1994, the company's subsidiary, Latrobe
Steel Company, began operating its Sandycreek Service Center for bar products
near Franklin, Pennsylvania. The plant, with its state-of-the-art
distribution systems, will serve Latrobe's tool and die steel customers.
During the third quarter, the company started operations at its
Asheboro, North Carolina, Plant. The plant incorporates advanced
technologies, processes and work practices that will enable the company to
produce specialized bearings at mass production speed. The start-up of this
plant greatly enhances the company's ability to deliver quality bearings
tailored to customers' individual requirements at competitive prices.
In the fourth quarter, the company's subsidiary, MPB Corporation,
announced the beginning of operations at a new plant in Singapore. MPB
established this facility in the Pacific Rim to serve customers in the
computer disk drive market.
In the United Kingdom, the company combined its Daventry bearing
manufacturing operations with those of its Duston Bearing Plant. In Brazil,
the company's Santa Barbara facility was merged successfully with the Sao
Paulo Plant.
Also during 1994, the Altavista, Virginia, Bearing Plant doubled its
capacity and began large-scale production of SENSOR-PACTM bearings,
principally for the growing light truck market.
In June 1994, the company's Steel Business announced a new product line
called DynametalTM Performance Steels. The company's associates developed
this new, environmentally friendly replacement for medium carbon leaded
steels and cast iron components. No capital investment was required. The
Steel Business' aggressive move into this market represents part of its
continuing strategy to improve financial performance by focusing its energies
and production on higher-value engineered steel bars and tubes.
17
<PAGE>
Consolidated Statements of Income
_____________________________________________________________________________
The Timken Company and Subsidiaries
Year Ended December 31
_____________________________________________________________________________
1994 1993 1992
_____________________________________________________________________________
(Thousands of dollars, except per share data)
Net sales $ 1,930,351 $1,708,761 $1,642,310
Cost of products sold 1,509,347 1,366,164 1,296,511
____________________________________________________________________________
Gross Profit 421,004 342,597 345,799
Selling, administrative and
general expenses 282,429 274,141 296,826
Impairment and restructuring
charges -0- 48,000 -0-
____________________________________________________________________________
Operating Income 138,575 20,456 48,973
Interest expense (24,872) (29,619) (28,660)
Other-net (2,380) (11,756) (6,882)
____________________________________________________________________________
Other Income (Expense) (27,252) (41,375) (35,542)
____________________________________________________________________________
Income (Loss) Before Income
Taxes and Cumulative Effect
of Accounting Changes 111,323 (20,919) 13,431
Provision (credit) for income taxes 42,859 (3,250) 8,979
____________________________________________________________________________
Income (Loss) Before Cumulative
Effect of Accounting Changes 68,464 (17,669) 4,452
Cumulative effect of accounting
changes on prior years (net of
income tax benefit of $132,971) -0- (254,263) -0-
____________________________________________________________________________
Net Income (Loss) $ 68,464 $ (271,932) $ 4,452
____________________________________________________________________________
Earnings Per Share:
Income (loss) before cumulative
effect of accounting changes $ 2.21 $ (0.57) $ 0.15
Cumulative effect of accounting
changes -0- (8.29) -0-
____________________________________________________________________________
Net Income (Loss) Per Share $ 2.21 $ (8.86) $ 0.15
____________________________________________________________________________
Average number of common shares
outstanding 30,949,625 30,680,372 30,196,346
____________________________________________________________________________
See accompanying Notes to Consolidated Financial Statements on pages 25
through 33.
Management's Discussion and Analysis of the Statements of Income
1994 compared to 1993
Net sales increased by 13% in 1994. Gross profit for 1994 was $421 million
(21.8% of net sales), or 22.9% higher than 1993's $342.6 million (20% of net
sales). Higher sales volume, a more favorable product mix in the company's
Steel Business, along with improved capacity utilization and plant
productivity contributed to the higher margin. Higher costs for steel scrap
and increased employment and benefits costs partially offset the improvement.
LIFO income credits in 1994 did not have a significant impact on earnings.
In 1993, inventory reductions generated LIFO income credits of $18.5 million.
Consistent with the rise in gross profit, operating income increased
significantly to $138.6 million versus $20.5 million in 1993. Selling,
administrative and general expenses were $282.4 million (14.6% of net
sales) for 1994 compared to $274.1 million (16% of net sales) a year
earlier. This increase related in part to certain performance
compensation plans that are based on the company's profitability.
Savings resulting from the company's efforts to streamline
administrative activities continue to exceed expectations. Operating income
in 1993 reflected a $48 million impairment and restructuring charge, as
described below and in Note 2 to the Consolidated Financial Statements.
In December 1993, the company initiated a program to accelerate
significantly continuous improvement in its manufacturing plants worldwide
and increase its long-term competitive position. The program seeks to reduce
the company's manufacturing cost structure by about 15% based on 1993 levels,
which equals about $200 million on an annual basis. The majority of the
savings will occur in the company's U.S. operations. Incremental costs for
engineering, employee training and other manufacturing-related activities are
expected to exceed $50 million during the implementation phase of the
program. Such costs will be recognized in the company's financial statements
as incurred and will be paid from operations. Incremental capital
expenditures relating to program implementation will be about $100 million
and will result in increased depreciation in future years. Certain costs to
implement the program, approximately $28 million, were charged to operations
in 1993 as part of $48 million of impairment and restructuring charges. The
remaining $20 million of the impairment and restructuring charges relate to a
$3 million charge - for planned layoff (approximately 65 associates) and
associate relocation costs of administrative personnel - and a $17 million
writedown of certain impaired assets. The administrative program charge and
impaired asset writedown were made in accordance with the company's
accounting policy (see Note 1 to the Consolidated Financial Statements) and
are not related to the manufacturing restructuring program. Details of the
impairment and restructuring charges are discussed in Note 2 to the
Consolidated Financial Statements. The restructuring
18
<PAGE>
____________________________________________________________________________
program is expected to result in reduced employment of approximately 2,200
positions by the end of 1997. Of this number, approximately 865 associates
are expected to be laid off, with the remaining 1,335 position reductions
coming from normal retirements and attrition. Because of its global nature
and the implementation timing required, the total program is expected to
extend until late 1997.
During 1994, excellent progress was made on the program as work
commenced at 65% of the company's manufacturing facilities, and program
savings of $12 million were realized. Significant layoffs in 1994 were
not anticipated in the original restructuring plan. During 1994, 23
associates in plant operations were laid off as a result of the program,
and separation costs of $0.4 million were paid. In addition, 24
salaried associates were laid off relating to the administrative
streamlining program at a cost of $0.4 million. Associate relocation
costs of $1 million relating to the administrative program were also
incurred in 1994. Projected future layoffs for both the restructuring
and administrative streamlining programs by business segment and year
are as follows:
1995 1996 1997
_________________________________________________
Bearing
Restructuring 70 245 260
Administrative 20 20 -0-
Steel
Restructuring 85 135 50
Administrative -0- -0- -0-
_________________________________________________
175 400 310
_________________________________________________
The company had cash outlays in 1994 of $12 million for consulting fees,
separation costs and relocation costs. These cash outlays, along with
non-cash charges of $3.3 million, reduced the $31 million of restructuring
provision to $16 million at December 31, 1994. The remaining $16 million
will require cash expenditures which are anticipated to be $5.5 million in
1995, $4.1 million in 1996 and $6.4 million in 1997. Cash expenditures in
1995 primarily relate to consulting fees and separation costs, and
expenditures in 1996 and 1997 primarily relate to separation costs.
Management believes that the remaining reserve is sufficient to cover future
cash expenditures for employee separation costs and consulting fees.
During the fourth quarter of 1991, the company initiated a program to
consolidate manufacturing operations in the United Kingdom, streamline its
administrative cost structure, and write-off certain non-strategic assets.
As a result of this program, the company recorded $41 million of impairment
and restructuring charges. Of this amount, $27.9 million represented
non-cash charges that did not require additional cash expenditures. In
addition, during the second quarter of 1992, the company increased the
restructuring reserves by $5.6 million, as the response to its 1992 severance
assisted retirement program for salaried associates was greater than
anticipated. Cash expenditures under the program amounted to $13.1 million
in 1992, $2.4 million in 1993 and $3.2 million in 1994. The program was
successful in reducing excess manufacturing capacity, which aided the
increased capacity utilization in 1994. Also, excluding the effects of
currency, inflation and costs relating to new initiatives, the company
remains on track to achieve its goal of reducing the 1991 administrative cost
structure by $60 million.
Net sales in the Bearing Business were $1.312 billion, reflecting an
increase of 13.7% over 1993. This increase resulted from growth in virtually
all product lines, with the greatest gains occurring in the automotive,
railroad and U.S. export markets. Sales volume increased in nearly all of
the company's locations throughout the world. Bearing Business gross profit
was 17.7% higher in 1994 compared to 1993. The increase in sales volume,
modest price gains and higher plant productivity contributed positively to
1994's gross profit. These gains were offset in part by a less favorable
product mix. In addition, the business experienced higher employment costs
related primarily to the higher level of production activity, which in turn
has increased overtime and caused the shift of some products to less
efficient processes. The Bearing Business also incurred some costs
associated with the third quarter 1994 start-up of its 21st century bearing
plant in Asheboro, North Carolina.
Steel Business net sales increased to $618 million in 1994, an 11.4%
gain over 1993. The Steel Business experienced strong demand for its
products during 1994 and continued to set production records. Steel Business
gross profit showed significant improvement in 1994, increasing 38.3% over
1993. This increase resulted primarily from the higher sales volume, a
favorable shift in product mix, improved manufacturing efficiencies and
modest price increases during the year. Gains were offset in part by higher
raw material costs related to the purchase of steel scrap and higher
employment costs.
Interest expense was lower in 1994 compared to 1993 primarily due to a
lower average level of borrowing throughout the year, and the lower
inflationary impact on interest for loans outstanding at the company's
subsidiary in Brazil.
Other income and expense for the year 1994 reflected $9.4 million lower
expense than 1993. This reduction resulted from a more favorable currency
translation adjustment related to the company's subsidiary in Brazil, lower
costs associated with its foreign joint venture, Tata Timken Ltd., and a
lower write-off of uncollectible customer accounts.
Income taxes represent about 39% of income before income taxes. This
rate exceeded the U.S. federal statutory rate primarily due to increased
state and local taxes resulting from the company's higher earnings. Taxable
income in 1994 is estimated to approximate pre-tax income for financial
reporting purposes. In 1993, the company had taxable income but a pre-tax
loss for financial reporting purposes. The difference was primarily the
result of the impairment and restructuring charges and certain accrued
expenses for associate benefits which were not deductible in 1993 but will be
when incurred.
1993 compared to 1992
Net sales increased slightly from 1992, primarily due to higher Steel
Business alloy bar sales. Bearing Business sales were relatively unchanged
in 1993 compared to 1992. Gross profit was $342.6 million in 1993 (20% of
net sales), slightly lower than the $345.8 million (21.1% of net sales)
reported in 1992. A less favorable product mix, poor business conditions in
Europe, higher costs for steel scrap and additional annual expense resulting
from the adoption of FAS No. 106 contributed to the profit decline.
Offsetting these effects were benefits resulting from more efficient
manufacturing, better on-time delivery and lower inventory levels. Inventory
reductions in 1993 resulted in LIFO income credits of $18.5 million.
Operating income for 1993 declined to 1.2% of net sales compared to 3% in
1992. The company recorded a $48 million impairment and restructuring charge
in 1993. Excluding this charge, 1993 operating income would have increased
to 4% of net sales. The major contributor to 1993's operating income was
reduced selling, administrative and general expenses resulting from
aggressive administrative streamlining activities.
19
<PAGE>
Consolidated Balance Sheets
____________________________________________________________________________
The Timken Company and Subsidiaries
December 31
____________________________________________________________________________
1994 1993
____________________________________________________________________________
(Thousands of dollars)
Assets
Current Assets
Cash and cash equivalents $ 12,121 $ 5,284
Accounts receivable, less allowances,
1994-$6,268; 1993-$6,292 263,533 223,097
Deferred income taxes 49,222 58,220
Inventories:
Manufacturing supplies 39,981 39,392
Work in process and raw materials 198,161 175,920
Finished products 94,162 84,471
____________________________________________________________________________
332,304 299,783
____________________________________________________________________________
Total Current Assets 657,180 586,384
Property, Plant and Equipment
Land and buildings 368,093 347,757
Machinery and equipment 1,861,911 1,799,892
____________________________________________________________________________
2,230,004 2,147,649
Less allowances for depreciation 1,199,553 1,122,985
____________________________________________________________________________
1,030,451 1,024,664
Other Assets
Costs in excess of net assets of acquired
business, net of amortization, 1994-$11,818;
1993-$9,242 91,249 93,825
Deferred income taxes 45,395 52,902
Miscellaneous receivables and other assets 26,762 21,401
Deferred charges and prepaid expenses 7,697 10,543
____________________________________________________________________________
171,103 178,671
____________________________________________________________________________
Total Assets $1,858,734 $1,789,719
____________________________________________________________________________
Management's Discussion and Analysis of the Balance Sheets
The consolidated balance sheets continue to reflect the company's emphasis on
maintaining its solid financial position.
Total assets increased by $69 million from December 31, 1993, primarily
as a result of increased accounts receivable and inventory. The $40.4
million increase in accounts receivable relates primarily to the
increase in sales. The number of days' sales in receivables at year-end
1994 was slightly higher compared to year-end 1993. Inventories
increased by $32.5 million during 1994; however, the number of days'
supply in inventory at December 31, 1994, decreased compared to year-end
1993.
Deferred tax assets declined in 1994, reflecting the use of alternative
minimum tax credit carryforwards as well as impairment and restructuring
expenditures and disposals. Management has evaluated the $94.6 million
of net deferred tax assets using the "more likely than not" criterion
established by FAS No. 109 and believes that sufficient taxable income
will be generated to realize the asset.
The company uses the LIFO method of accounting for about 75% of its
inventories. Under this method, the cost of products sold approximates
current cost and, therefore, reduces distortion in reporting income due
to inflation. Depreciation charged to operations is based on historical
cost and is significantly less than were it based on replacement value.
20
<PAGE>
____________________________________________________________________________
December 31
____________________________________________________________________________
1994 1993
____________________________________________________________________________
(Thousands of dollars)
Liabilities and Shareholders' Equity
Current Liabilities
Commercial paper $ 57,759 $ 62,907
Short-term debt 40,630 32,129
Accounts payable and other liabilities 216,568 221,265
Accrued pension contributions 29,502 11,377
Accrued postretirement benefits cost 21,932 24,330
Salaries, wages and payroll taxes 68,812 60,680
Income taxes 13,198 19,443
Current portion of long-term debt 30,223 282
____________________________________________________________________________
Total Current Liabilities 478,624 432,413
Non-Current Liabilities
Long-term debt 150,907 181,158
Accrued pension cost 109,644 117,396
Accrued postretirement benefits cost 386,668 373,440
____________________________________________________________________________
647,219 671,994
Shareholders' Equity
Class I and II Serial Preferred Stock without
par value:
Authorized-10,000,000 shares each class, none
issued -0- -0-
Common stock without par value:
Authorized-100,000,000 shares
Issued (including shares in treasury) 31,061,538
shares in 1994; 30,842,952 shares in 1993
Stated capital 53,064 53,064
Other paid-in capital 254,002 247,699
Earnings invested in the business 440,083 402,566
Foreign currency translation adjustment (14,252) (18,016)
Treasury shares, at cost (1994-180 shares;
1993-40 shares) (6) (1)
____________________________________________________________________________
Total Shareholders' Equity 732,891 685,312
____________________________________________________________________________
Total Liabilities and Shareholders' Equity $1,858,734 $1,789,719
____________________________________________________________________________
See accompanying Notes to Consolidated Financial Statements on pages 25
through 33.
Accounts payable and other liabilities decreased as a result of charges
against the impairment and restructuring reserves established in December
1993, as detailed in Note 2 to the Consolidated Financial Statements. The
increase in accrued expenses during 1994 resulted primarily from an increase
in the company's planned 1995 pension contribution.
Debt of $279.5 million was basically unchanged from the $276.5 million
at December 31, 1993. The ratio of debt to total capital of 27.6% at
December 31, 1994, decreased from 28.7% at year-end 1993.
To take advantage of changing market prices, the company made further
modifications to its unsecured, $300 million revolving credit agreement
effective November 15, 1994. The credit consists of a $200 million five-
year term portion and a $100 million 364-day term portion which may be
rolled over annually at prevailing market prices. In addition, the
modified agreement includes the replacement of the net worth covenant
with a more flexible debt to total capital ratio. At December 31, 1994,
the company had $220 million available through this unsecured credit
agreement.
21
<PAGE>
Consolidated Statements of Cash Flows
____________________________________________________________________________
The Timken Company and Subsidiaries
Year Ended December 31
____________________________________________________________________________
1994 1993 1992
____________________________________________________________________________
(Thousands of dollars)
Cash Provided (Used)
Operating Activities
Net income (loss) $ 68,464 $(271,932) $ 4,452
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Cumulative effect of accounting
changes -0- 254,263 -0-
Depreciation and amortization 119,255 118,403 114,433
Impairment and restructuring
charges -0- 48,000 -0-
Deferred income tax provision
(credit) 13,902 (28,733) (2,104)
Common stock issued in lieu of
cash to benefit plans 1,517 3,924 8,184
Changes in operating assets and
liabilities:
Accounts receivable (37,964) (27,233) (16,177)
Inventories and other assets (35,056) 10,685 (1,732)
Accounts payable and accrued
expenses 16,079 45,944 9,235
Foreign currency translation
(gain) loss 477 399 (790)
____________________________________________________________________________
Net Cash Provided by
Operating Activities 146,674 153,720 115,501
Investing Activities
Purchases of property, plant and
equipment-net (114,221) (89,049) (136,122)
Financing Activities
Cash dividends paid to shareholders (26,166) (25,202) (22,435)
Proceeds from issuance of long-term
debt -0- -0- 50,000
Payments on long-term debt (365) (2,847) (3,543)
Commercial paper activity-net (5,148) (8,824) 864
Short-term debt activity-net 5,735 (30,134) 2,215
____________________________________________________________________________
Net Cash Provided (Used)
by Financing Activities (25,944) (67,007) 27,101
Effect of exchange rate changes on cash 328 (243) (890)
____________________________________________________________________________
Increase (Decrease) In Cash
and Cash Equivalents 6,837 (2,579) 5,590
Cash and cash equivalents at beginning of
year 5,284 7,863 2,273
____________________________________________________________________________
Cash and Cash Equivalents
at End of Year $ 12,121 $ 5,284 $ 7,863
____________________________________________________________________________
See accompanying Notes to Consolidated Financial Statements on pages 25
through 33.
Management's Discussion and Analysis of the Statements of Cash Flows
1994 compared to 1993
Net cash provided by operating activities decreased slightly to $146.7
million in 1994 compared to $153.7 million in 1993. The cash generated from
higher 1994 net income was more than offset by the additional cash required
for working capital. Accounts receivable increased during 1994 by $38
million primarily as a result of the higher level of sales. Inventories and
other assets increased by $35.1 million in 1994 primarily due to the higher
level of production activity.
During 1994, sufficient cash was generated by operating activities to
support the purchases of property, plant and equipment-net which were $114.2
million, compared to $89 million in 1993.
The company's debt remained basically unchanged from 1993. Although at the
end of 1993 the company expected debt to decrease during 1994, the higher
level of customer demand required increased working capital. The company's
current expectations are that debt will be reduced during 1995.
1993 compared to 1992
Net cash provided from operations increased 33% to $153.7 million in 1993 due
to changes in operating assets and liabilities. Cash generated from net
income, excluding the cumulative effect of accounting changes, was basically
unchanged from 1992. Accounts payable and income
22
<PAGE>
____________________________________________________________________________
taxes payable were higher in 1993. Inventories and other assets were reduced
by $10.7 million resulting primarily from improved manufacturing and
scheduling practices. The company's 1993 purchases of property, plant and
equipment-net were $89 million compared to $136.1 million in 1992.
Expenditures in 1993 included spending for construction of the company's 21st
century bearing plant in Asheboro, North Carolina. The company reduced its
debt by $42 million during 1993 and extended $8 million of Ohio Water
Development Bonds from 1993 to 2007, replacing the fixed interest rate of
8.95% with a floating rate, which averaged 2.31% during 1993.
Management's Discussion and Analysis of Other Information
The company recognized foreign currency exchange losses of $1.4 million in
1994, $7.2 million in 1993, and $4.9 million in 1992. Because of a
hyperinflationary economy in Brazil, the company's Brazilian subsidiary
accounted for exchange losses of $3.4 million in 1994, $7.9 million in 1993
and $5 million in 1992. In July 1994, the Brazilian government revalued its
currency and converted it to the Real. Brazil's currency stabilized at that
time, resulting in the lower 1994 exchange loss. The significant devaluation
of the Mexican peso against the dollar in December 1994 did not have an
important effect on the 1994 Consolidated Financial Statements.
As part of the company's risk management strategies, various financial
instruments are used in the normal course of business. With regard to
derivative transactions, the company has established a formal policy and
maintains a standard operating procedure followed by management
responsible for hedging activities. During the three-year period ended
December 31, 1994, these financial instruments consisted primarily of
interest rate swap agreements and foreign exchange contracts. The final
interest rate swap agreement, covering $50 million of short-term
borrowings, matured on November 15, 1994, and was not replaced. Under this
agreement, the company paid a fixed interest rate and received a variable
rate based on the London Interbank Offered Rate (LIBOR). The effect of
interest rate swaps was to increase interest expense by about $3.6 million
in 1994, $3.0 million in 1993 and $2.9 million in 1992. Foreign exchange
contracts are an integral tool used to manage exposure to currency rate
fluctuations primarily related to purchases of inventory and equipment. As
these contracts qualify for accounting as designated hedges, the realized and
unrealized gains and losses are deferred and included in inventory or
property, plant and equipment, depending on the transaction. More
information regarding the company's activities in foreign exchange contracts
is in Note 3 to the Consolidated Financial Statements. Deferred gains and
losses on foreign exchange contracts in 1992-1994 were not significant. By
nature, all financial instruments involve both credit and market risks. The
company addresses these risks by limiting the duration of its derivative
contracts to three years for interest rate swaps and one year for foreign
exchange contracts and by doing business only with major commercial banks.
The company continues to focus on protecting the environment and meeting
compliance with environmental protection laws. In doing so, the company has
invested in pollution control equipment and updated plant operational
practices. To the extent that the company's non-U.S. competitors are not
subject to similar laws and regulations in their home countries, the company
is placed at a competitive disadvantage.
It is very difficult to assess the possible effect of compliance with
future requirements that may differ from existing ones. The company believes
that the effect of amendments to the Clean Air Act of 1990 on its utility
suppliers will increase its costs of electricity by $4 million to $5 million
annually beginning in the second quarter of 1995. Furthermore, regulations
related to these amendments have been proposed that, if adopted, would
mandate significant changes in the way the company monitors air emissions.
This would require capital expenditures in excess of $1 million and the
addition of personnel. A large cross section of industries has expressed
opposition to the proposed regulations for a variety of reasons. The U.S.
Environmental Protection Agency (EPA) is considering amending the regulations
before they are adopted in a fashion that would lessen substantially their
impact on the company and delay the timing of the anticipated expenditures.
The company and certain of its U.S. subsidiaries have been designated as
potentially responsible parties (PRPs) by the United States Environmental
Protection Agency for site investigation and remediation at certain sites
under the Comprehensive Environmental Response, Compensation and Liability
Act (Superfund). Such designations are made regardless of the company's
limited involvement at each site. The claims for remediation have been
asserted against numerous other entities, which are believed to be
financially solvent and are expected to fulfill their proportionate share of
the obligation. Additionally, the company and its Latrobe Steel subsidiary
have been notified by the EPA regarding possible participation at two
additional superfund sites. Neither the company nor Latrobe has been named a
PRP at the sites at this time. Management believes that any ultimate
liability with respect to these actions will not materially affect the
company's operations or consolidated financial position.
The company's MPB Corporation subsidiary is engaged in environmental
projects at its manufacturing locations in New Hampshire. The costs for
these projects, estimated at slightly more than $3 million, were
recorded previously. A portion of these costs will be recovered from a
former owner of the property. MPB also has filed suit against its
insurance companies for reimbursement of clean-up costs. The full extent
of reimbursement cannot be estimated. In late 1993, MPB was notified by the
city of Keene, New Hampshire, that city officials were looking to MPB to
contribute to the costs of cleaning up alleged soil and groundwater
contamination of a city dump, which allegedly had been used by MPB along with
many others for industrial waste disposal. This is not a superfund site. No
specific monetary request has been made.
Additionally, the company will begin work in 1995 on an environmental
project at its Canton, Ohio, location. The cost of this project, estimated
to be in the range of $1 million to $1.5 million, was recorded previously.
23
<TABLE>
<PAGE>
Consolidated Statements of Shareholders' Equity
_____________________________________________________________________________________________________
The Timken Company and Subsidiaries
<CAPTION>
Common Stock
________________ Earnings Foreign
Other Invested Currency
Stated Paid-In in the Translation Treasury
Capital Capital Business Adjustment Stock Total
_____________________________________________________________________________________________________
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1992
Balance at January 1, 1992 $53,064 $242,407 $730,931 $12,634 $(20,065) $1,018,971
Net income 4,452 4,452
Dividends paid-$1.00 per share (30,207) (30,207)
Treasury share activity-net (1,139) 17,095 15,956
Foreign currency translation
adjustments (net of income
tax benefit of $4,170) (24,109) (24,109)
_____________________________________________________________________________________________________
Balance at December 31, 1992 53,064 241,268 705,176 (11,475) (2,970) 985,063
Year Ended December 31, 1993
Net loss (271,932) (271,932)
Dividends paid-$1.00 per share (30,678) (30,678)
Treasury share activity-net 125 2,969 3,094
Issuance of common stock 6,306 6,306
Foreign currency translation
adjustments (net of income
tax benefit of $2,112) (6,541) (6,541)
_____________________________________________________________________________________________________
Balance at December 31, 1993 53,064 247,699 402,566 (18,016) (1) 685,312
Year Ended December 31, 1994
Net income 68,464 68,464
Dividends paid-$1.00 per share (30,947) (30,947)
Treasury share activity-net 215 (5) 210
Issuance of common stock 6,088 6,088
Foreign currency translation
adjustments (net of income
taxes of $2,603) 3,764 3,764
_____________________________________________________________________________________________________
Balance at December 31, 1994 $53,064 $254,002 $440,083 $(14,252) $ (6) $ 732,891
_____________________________________________________________________________________________________
See accompanying Notes to Consolidated Financial Statements on pages 25 through 33.
</TABLE>
24
<PAGE>
Notes to Consolidated Financial Statements
____________________________________________________________________________
The Timken Company and Subsidiaries
1. Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include
the accounts and operations of the company and its subsidiaries. All
significant intercompany accounts and transactions are eliminated upon
consolidation.
Cash Equivalents: The company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents. The carrying amount reported in the balance sheet for cash and
cash equivalents approximates fair value.
Inventories: Inventories are valued at the lower of cost or market,
principally by the last-in, first-out (LIFO) method. If all inventories had
been valued at current costs, inventories would have been $155,842,000 and
$159,867,000 greater at December 31, 1994 and 1993, respectively.
In 1993, inventory quantities were reduced, resulting in a liquidation
of LIFO inventory quantities carried at lower costs prevailing in prior
years. The effect of the liquidation was to decrease the net loss by
approximately $11,600,000 or $.38 per share.
Property, Plant and Equipment: Property, plant and equipment is valued at
cost less accumulated depreciation. Provision for depreciation is computed
principally by the straight-line method based upon the estimated useful lives
of the assets.
Costs in Excess of Net Assets of Acquired Business: Costs in excess of net
assets of acquired business ("goodwill") are amortized on the straight-line
method over 40 years. The carrying value of goodwill is reviewed on a
quarterly basis for recoverability based on the undiscounted cash flows of
the business acquired over the remaining amortization period. Should the
review indicate that goodwill is not recoverable, the company's carrying
value of the goodwill would be reduced by the estimated shortfall of the cash
flows. No reduction of goodwill for impairment was necessary in 1994 or in
previous years.
Income Taxes: Deferred income taxes are provided for the temporary
differences between the financial reporting basis and tax basis of the
company's assets and liabilities.
The company plans to continue to finance expansion of its operations
outside the United States by reinvesting undistributed earnings of its
non-U.S. subsidiaries. The amount of undistributed earnings that is
considered to be indefinitely reinvested for this purpose was
approximately $58,000,000 at December 31, 1994. Accordingly, U.S.
income taxes have not been provided on such earnings. While the amount
of any U.S. income taxes on these reinvested earnings, if distributed in
the future, is not presently determinable, it is anticipated that they
would be reduced substantially by the utilization of tax credits or
deductions. Such distributions would be subject to withholding taxes.
Foreign Currency Translation: Assets and liabilities of subsidiaries, other
than those located in highly inflationary countries, 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 year. The
related translation adjustments are reflected as a separate component of
shareholders' equity. Foreign currency gains and losses resulting from
transactions and the translation of financial statements of subsidiaries in
highly inflationary countries are included in results of operations.
Impairment and Restructuring Charges: Prior to 1994, it was the company's
policy to recognize restructuring and related costs when they were reasonably
estimable, probable to be paid and management and the Board of Directors
approved a formal plan of action to restructure. At that time, incremental
costs directly associated with the restructuring plan were charged to
operations and accrued. In the future, restructuring and related costs will
be recognized in accordance with Emerging Issues Task Force Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). Impairment charges are recognized to write down assets to
their net realizable value when assets are identified that have a history of
negative operating results or cash flows, have limited or no future strategic
use, or when it is probable that the undiscounted cash flows of an asset are
less than the current net book value.
Earnings Per Share: Earnings per share are computed by dividing net
income by the average number of common shares outstanding during the
year. Dilutive common stock equivalents are not material and, therefore, are
not included in the computation of primary earnings per share.
25
<PAGE>
Notes to Consolidated Financial Statements
____________________________________________________________________________
2. Impairment and Restructuring Charges
In December 1993, the company initiated a restructuring program aimed at
significantly increasing continuous improvement in its manufacturing
plants worldwide. In addition, certain charges for additional
administrative streamlining and to write off impaired assets were also
recorded. Key elements of the charges by industry segment were as
follows (in thousands of dollars):
Bearing Steel Total
____________________________________________________________________________
Restructuring:
Separation costs - operations $ 8,155 $ 2,645 $10,800
Consulting fees 9,400 3,400 12,800
Separation and associate relocation
costs - administrative 2,750 250 3,000
Other 4,050 350 4,400
____________________________________________________________________________
24,355 6,645 31,000
Impaired assets:
Property, plant and equipment 6,150 3,550 9,700
Investment in foreign joint venture 4,000 -0- 4,000
Inventories and supplies 2,100 1,200 3,300
____________________________________________________________________________
12,250 4,750 17,000
____________________________________________________________________________
$36,605 $11,395 $48,000
____________________________________________________________________________
The restructuring program is a global program designed to improve
productivity and increase manufacturing efficiencies. The program is
anticipated to reduce plant employment by approximately 2,200 positions
by the end of 1997. Of this number, approximately 865 associates are
expected to be laid off with the remaining separations coming from
retirements and attrition. The separation costs for operations included
in the restructuring charge represent the incremental costs of
unemployment insurance and health care continuation associated with these
layoffs. Consulting fees represent negotiated fees payable to a third party
for their cost reduction methodology and specialized expertise in this area.
Separation and associate relocation costs for administrative associates were
provided for the reduction of approximately 65 salaried associates in Europe,
South America and the United States and for relocation costs of certain
salaried associates in the United States. Other costs include equipment
which will become excess as manufacturing processes are reconfigured, as well
as certain travel and rearrangement costs between plants.
Impaired property, plant and equipment consists primarily of an idle
bearing plant in Columbus, Ohio, certain leasehold improvements and equipment
at the company's subsidiary in Brazil and steel mill assets which became
excess as a result of the installation of a new continuous caster in 1993.
The writedown of the investment in the company's foreign joint venture, Tata
Timken Limited, represents the excess of the carrying value of the asset over
its net realizable value based on an undiscounted cash flow analysis. Excess
or obsolete inventories and supplies were written down to scrap value.
During 1994, excellent progress has been made on the program as work has
commenced at 65% of the company's manufacturing plants. Activity against the
restructuring provision was as follows (in thousands of dollars):
Separation and
Separation Costs- Consulting Relocation Costs-
Operations Fees Administrative Other Total
_____________________________________________________________________________
Restructuring
provision $10,800 $12,800 $3,000 $4,400 $31,000
Non-cash charges (3,336) (3,336)
Cash expenditures (412) (9,702) (1,354) (501) (11,969)
Exchange gain 96 80 145 15 336
_____________________________________________________________________________
Balance at December
31, 1994 $10,484 $ 3,178 $1,791 $ 578 $16,031
____________________________________________________________________________
3. Foreign Exchange Contracts
The company and certain subsidiaries enter into forward exchange contracts to
manage exposure to currency rate fluctuations primarily related to the
purchases of inventory and equipment. The purpose of the company's foreign
currency hedging activities is to minimize the effect of exchange rate
fluctuations on business decisions and the resulting uncertainty on future
financial results. At December 31, 1994 and 1993, the company had forward
exchange contracts, all having maturities of less than one year, in amounts
of $8,944,000 and $29,038,000, respectively, which approximates their fair
value. The forward exchange contracts were primarily entered into by the
company's German subsidiary and exchanged deutsche marks for U.S. dollars.
As these exchange contracts qualify for accounting as designated hedges, the
realized and unrealized gains and losses are deferred and included in
inventory or property, plant and equipment depending on the transaction.
These deferred gains and losses are recognized in earnings when the future
sales occur or through depreciation expense.
26
<PAGE>
_____________________________________________________________________________
4. Financing Arrangements
Long-term debt at December 31, 1994, and 1993 was as follows:
1994 1993
____________________________________________________________________________
(Thousands of dollars)
Fixed Rate Medium-Term Notes, Series A, due at
various dates through September 2002, with
interest rates ranging from 7.20% to 9.25% $133,000 $133,000
7.50%, State of Ohio Pollution Control Revenue
Refunding Bonds, maturing on January 1, 2002 17,000 17,000
Variable rate State of Ohio Water Development
Revenue Refunding Bonds, maturing May 1, 2007
(5.75% at December 31, 1994) 8,000 8,000
Variable rate State of Ohio Air Quality and Water
Development Revenue Refunding Bonds, maturing on
June 1, 2001 (5.75% at December 31, 1994) 21,700 21,700
Other 1,430 1,740
____________________________________________________________________________
181,130 181,440
Less current maturities 30,223 282
___________________________________________________________________________
$150,907 $181,158
___________________________________________________________________________
At December 31, 1994, the carrying value of the company's debt
instruments approximated the estimated fair value based on discounted cash
flow analysis. The aggregate maturities of long-term debt for the five years
subsequent to December 31, 1994, are as follows: 1995-$30,223,000;
1996-$235,000; 1997-$30,239,000; 1998-$23,209,000; 1999-$15,060,000.
Interest paid in 1994, 1993 and 1992 approximated $28,950,000,
$31,290,000, and $31,137,000, respectively. This differs from interest
expense due to timing of payments and interest capitalized of $3,145,000 in
1994, $1,700,000 in 1993 and $2,229,000 in 1992 as a part of major capital
additions. The weighted average interest rate on commercial paper borrowings
during the year was 9.9% in 1994, 7.8% in 1993 and 8.4% in 1992. The
weighted average interest rate on short-term debt during the year was 6.4% in
1994, 7.7% in 1993 and 8.2% in 1992.
At December 31, 1994, the company had available $220,000,000 through an
unsecured $300,000,000 revolving credit agreement with a group of banks. The
agreement bears interest based upon any one of three rates at the company's
option--prime, London Interbank Offered Rate (LIBOR) or the adjusted
certificate of deposit rate. The agreement contains certain restrictions
relating to other borrowings by the company and its subsidiaries and
restricts borrowing on assets other than accounts receivable.
5. Stock Compensation Plans
Under the company's stock option plans, shares of common stock have been made
available to grant at the discretion of the Compensation Committee of the
Board of Directors to officers and key associates in the form of stock
options, stock appreciation rights, restricted shares and deferred shares.
In addition, shares can be awarded to directors not employed by the company.
The share price of each option granted is equal to the market price at the
date of the grant.
At December 31, 1994, a total of 41,200 restricted stock rights,
restricted shares or deferred shares have been awarded and are not vested.
The company distributed 20,750 and 19,711 common shares in 1994 and 1993,
respectively, as a result of awards of restricted stock rights, restricted
shares and deferred shares.
The following table summarizes certain information relative to stock
options:
1994 1993
____________________________________________________________________________
Number Number
of Option Price of Option Price
Shares Per Share Shares Per Share
____________________________________________________________________________
Outstanding at beginning
of year 1,232,053 $21.12-$35.75 1,043,593 $21.12-$35.75
Granted 262,200 $34.50 219,800 $31.25
Exercised (89,060) $22.25-$35.25 (18,015) $25.00-$28.88
Cancelled or expired -0- -0- (13,325) $25.75-$35.75
____________________________________________________________________________
Outstanding at end of year 1,405,193 $21.12-$35.75 1,232,053 $21.12-$35.75
____________________________________________________________________________
Options exercisable 814,193 737,703
Reserved for future use 719,865 991,915
27
<PAGE>
Notes to Consolidated Financial Statements
____________________________________________________________________________
6. Retirement Plans
The company and its subsidiaries sponsor a number of defined benefit pension
plans, which cover substantially all of their associates except those at
certain non-U.S. locations who are covered by government plans. These plans
provide benefits primarily based on associates' compensation. In general,
the company's funding policy is to contribute amounts to the plans sufficient
to meet the minimum funding requirements set forth by regulations of each
country, such as the Employee Retirement Income Security Act of 1974, plus
such additional amounts as the company may determine to be appropriate.
In arriving at the pension obligation and net periodic pension costs for
the company's plans covering most of its associates, the consulting actuary
used certain assumptions as follows:
1994 1993 1992
____________________________________________________________________________
Discount rate 8.25% 7.5% 9.5%
Future compensation assumption 3% to 4% 3% to 4% 3% to 5%
Expected long-term return on
plans' assets 9.5% 9.5% 9.5%
____________________________________________________________________________
A summary of the components of net periodic pension costs for the defined
benefit plans follows (in thousands of dollars):
1994 1993 1992
____________________________________________________________________________
Service cost-benefits earned during
the period $ 23,960 $ 19,351 $ 19,454
Interest cost on projected benefit
obligation 73,640 73,380 69,062
Actual return on plan assets 774 (99,202) (43,607)
Net amortization and deferral (65,498) 30,279 (27,292)
____________________________________________________________________________
Total pension expense $ 32,876 $ 23,808 $ 17,617
____________________________________________________________________________
Pension expense increased in 1994 due to the reduction of the discount
rate assumption for U.S.-based pension plans in 1993 and certain plan
changes.
The following table sets forth the funded status and amounts recognized
in the consolidated balance sheets at December 31, 1994, and 1993, for the
company's defined benefit plans (in thousands of dollars):
1994 1993
____________________________________________________________________________
Plans Where Plans Where Plans Where Plans Where
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
____________________________________________________________________________
Actuarial present
value of benefit
obligations:
Vested benefit
obligation $(388,564) $(334,558) $(294,531) $(440,405)
____________________________________________________________________________
Accumulated benefit
obligation $(427,920) $(398,158) $(335,973) $(506,239)
Projected benefit
obligation $(498,438) $(442,737) $(397,910) $(561,088)
Plan assets at fair
value(1) 470,500 308,271 402,724 414,727
____________________________________________________________________________
Projected benefit
obligation (in excess
of) or less than plan
assets (27,938) (134,466) 4,814 (146,361)
Unrecognized net gain (2,938) (45,230) (18,508) (23,739)
Prior service cost
(credit) not yet
recognized in net
periodic pension cost 15,226 78,973 (9,299) 90,846
Unrecognized net asset
at transition dates,
net of amortization (18,307) (4,466) (14,268) (12,258)
____________________________________________________________________________
Net pension liability
recognized in the
balance sheet $ (33,957) $(105,189) $ (37,261) $ (91,512)
____________________________________________________________________________
(1) The plans' assets are primarily invested in listed stocks and bonds and
cash equivalents.
The company also sponsors defined contribution retirement and savings
plans covering substantially all associates in the United States. The
company contributes Timken Company common stock to certain plans based on
formulas established in the respective plan agreements. At December 31,
1994, the plans had net assets of $169,170,000, including 3,096,748 shares of
Timken Company common stock. Company contributions to the plans amounted to
$6,299,000 in 1994, $5,936,000 in 1993 and $5,881,000 in 1992.
28
<PAGE>
____________________________________________________________________________
7. Postretirement Benefits
Effective January 1, 1993, the company and its subsidiaries adopted FAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
FAS No. 106 requires the projected cost of providing postretirement health
care and life insurance benefits be recognized as an expense as associates
render service instead of when benefits are paid, as the company had
historically done. In doing so, the company elected immediate recognition of
the transition obligation.
The company and its subsidiaries sponsor several unfunded postretirement
plans that provide health care and life insurance benefits for eligible
retirees and dependents. Depending on retirement date and associate
classification, certain health care plans contain contributions and cost-
sharing features such as deductibles and coinsurance. The remaining health
care plans and the life insurance plans are noncontributory.
The postretirement benefit obligation and net periodic postretirement
benefits cost were determined by application of the terms of the current
medical and life insurance plans, including established deductibles,
coinsurance and maximums, together with relevant actuarial assumptions.
For measurement purposes, the company assumed a weighted-average annual
rate of increase in the per capita cost of health care benefits (health
care cost trend rate) of 10% declining gradually to 5.5% in 2003 and
thereafter. The weighted average discount rate used was 8.25% in 1994
and 7.5% in 1993.
Net periodic postretirement benefits cost included the following
components (in thousands of dollars):
1994 1993
____________________________________________________________________________
Service cost $ 4,408 $ 4,039
Interest cost on accumulated postretirement
benefits obligation 29,514 35,046
Net amortization and deferral (777) -0-
___________________________________________________________________________
Net periodic postretirement benefits cost $ 33,145 $ 39,085
___________________________________________________________________________
The company paid postretirement benefits of $22,315,000 in 1994;
$19,622,000 in 1993 and $21,355,000 in 1992.
The following table sets forth the components of the accumulated
postretirement benefits obligation recognized in the balance sheet at
December 31, 1994 and 1993 (in thousands of dollars):
1994 1993
___________________________________________________________________________
Accumulated postretirement benefits obligation:
Retirees $(255,891) $(276,499)
Fully eligible active plan participants (55,104) (75,366)
Other active plan participants (74,377) (94,985)
____________________________________________________________________________
(385,372) (446,850)
Unrecognized net (gain) loss (23,228) 49,080
____________________________________________________________________________
Postretirement obligation recognized in the
balance sheet $(408,600) $(397,770)
____________________________________________________________________________
Increasing the assumed health care cost trend rate by one percentage
point in each year would increase the accumulated postretirement benefits
obligation as of December 31, 1994 by approximately $36,000,000 and the net
periodic postretirement benefits cost for 1994 by approximately $3,200,000.
In addition to providing the above postretirement benefits, the company
also provides certain benefits to former or inactive associates after
employment but before retirement. Effective January 1, 1993, the
company and its subsidiaries adopted FAS No. 112, "Employers' Accounting for
Postemployment Benefits," which requires accrual accounting for these
benefits, rather than the previous pay-as-you-go method. The adoption of FAS
No. 112 did not materially affect the cumulative effect adjustment or 1993
operations.
8. Research and Development
Expenditures committed to research and development amounted to approximately
$36,000,000 in 1994; $37,000,000 in 1993 and $42,000,000 in 1992. Such
expenditures fluctuate from year to year depending on special projects and
needs.
29
<PAGE>
Notes to Consolidated Financial Statements
____________________________________________________________________________
9. Income Taxes
Effective January 1, 1993, the company and its subsidiaries adopted FAS No.
109, "Accounting for Income Taxes." Under FAS No. 109, deferred tax assets
and liabilities are recognized for the differences between the financial
statement carrying amounts of assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
marginal tax rates and laws. Prior to 1993, income tax expense was
determined under the provisions of Accounting Principles Board Opinion No. 11
using the deferred method. Deferred tax expense was based on items of income
and expense that were reported in different years in the financial statements
and tax returns and were measured at the tax rate in effect in the year the
difference originated. In adopting FAS No. 109, no prior periods were
restated, and the cumulative effect of the accounting change was not material
to the company's financial condition or to operations.
The provision (credit) for income taxes consisted of the following:
1994 1993 1992
____________________________________________________________________________
Current Deferred Current Deferred Current Deferred
____________________________________________________________________________
(Thousands of dollars)
United States:
Federal $17,426 $13,395 $16,835 $(24,047) $ 4,600 $ (616)
State and local 3,550 (58) 2,778 (1,843) (21) -0-
Foreign 7,981 565 5,870 (2,843) 6,504 (1,488)
____________________________________________________________________________
$28,957 $13,902 $25,483 $(28,733) $11,083 $(2,104)
____________________________________________________________________________
The company made income tax payments of approximately $33,400,000 in
1994, $20,000,000 in 1993 and $2,500,000 in 1992. Taxes paid differ from
current taxes provided, primarily due to the timing of payments.
The effect of temporary differences giving rise to deferred tax assets
and liabilities at December 31, 1994, and 1993 was as follows:
1994 1993
___________________________________________________________________________
(Thousands of dollars)
Deferred tax assets:
Accrued postretirement benefits cost $152,618 $148,886
Accrued pension cost 43,905 44,845
Benefit accruals 20,446 22,025
Impairment and restructuring charges 6,212 16,405
Foreign tax loss and credit carryforwards 19,901 20,224
Alternative minimum tax credit carryforwards 6,080 12,205
Other-net 21,818 19,896
Valuation allowance (19,901) (20,224)
___________________________________________________________________________
251,079 264,262
Deferred tax liability-depreciation (156,462) (153,140)
____________________________________________________________________________
Net deferred tax asset $ 94,617 $111,122
____________________________________________________________________________
FAS No. 109 specifies that deferred tax assets are to be reduced by a
valuation allowance if it is more likely than not that some portion or all of
the deferred tax assets will not be realized. As of December 31, 1994, the
company has deferred tax assets attributable to foreign tax loss and credit
carryforwards. Realization of these carryforwards is considered uncertain
and a valuation allowance has been recorded. The items generating the
remaining deferred tax assets, except for accrued postretirement benefits
cost, are expected to reverse over the same general period as depreciation
and are therefore likely to be realized. The deferred tax asset relative to
accrued postretirement benefits cost, which has a very long reversal period,
is deemed realizable based on the company's anticipated future earnings.
30
<PAGE>
____________________________________________________________________________
The reasons for the difference between the provision (credit) for income
taxes and the amount computed by applying the statutory U.S. federal
income tax rate (35% in 1994 and 1993 and 34% in 1992) to income (loss)
before taxes were as follows:
1994 1993 1992
____________________________________________________________________________
(Thousands of dollars)
Income tax (credit) at the statutory federal
rate $38,963 $(7,322) $4,567
Adjustments:
State and local income taxes, net of
federal tax benefit 2,270 608 -0-
Tax on foreign remittances 755 1,021 405
Amortization of costs in excess of net
assets of acquired business 902 902 876
Losses without current tax benefits -0- 3,668 2,065
Higher tax rates outside the United States -0- -0- 963
Change in deferred tax rate upon enactment
of new tax law -0- (1,981) -0-
Other items (31) (146) 103
____________________________________________________________________________
Total income taxes (credit) $42,859 $(3,250) $8,979
____________________________________________________________________________
Effective income tax rate 39% (16)% 67%
____________________________________________________________________________
10. Common Stock
A summary of activity in shares and dollar amounts of common stock,
other paid-in capital and treasury stock is as follows:
Common Stock Treasury Stock
__________________________ ________________
Amount
_______________
Number Other Number
of Stated Paid-In of
Shares Capital Capital Shares Amount
____________________________________________________________________________
(Thousands of dollars, except share data)
Year Ended December 31, 1992
Balance at January 1, 1992 30,625,858 $53,064 $242,407 732,066 $(20,065)
Shares issued in connection
with various benefit plans (725) (325,233) 8,909
Shares issued in connection
with dividend reinvestment
plan (414) (298,526) 8,186
_____________________________________________________________________________
Balance at December 31, 1992 30,625,858 $53,064 $241,268 108,307 $(2,970)
Year Ended December 31, 1993
Shares issued in connection
with various benefit plans 85,415 2,362 (56,955) 1,562
Shares issued in connection
with dividend reinvestment
plan 131,679 4,069 (51,312) 1,407
_____________________________________________________________________________
Balance at December 31, 1993 30,842,952 $53,064 $247,699 40 $ (1)
Year Ended December 31, 1994
Shares issued/acquired in
connection with various
benefit plans 74,129 1,522 140 (5)
Shares issued in connection
with dividend reinvestment
plan 144,457 4,781
_____________________________________________________________________________
Balance at December 31, 1994 31,061,538 $53,064 $254,002 180 $ (6)
_____________________________________________________________________________
31
<PAGE>
Notes to Consolidated Financial Statements
____________________________________________________________________________
11. Contingencies
The company and certain of its U.S. subsidiaries have been designated as
potentially responsible parties (PRPs) by the United States Environmental
Protection Agency for site investigation and remediation under the
Comprehensive Environmental Response, Compensation and Liability Act
(Superfund) with respect to certain sites. Such designations are made
regardless of the company's limited involvement at each site. The claims for
remediation have been asserted against numerous other entities which are
believed to be financially solvent and are expected to fulfill their
proportionate share of the obligation. In addition, the company is subject
to various lawsuits, claims and proceedings which arise in the ordinary
course of its business. The company accrues costs associated with
environmental and legal matters when they become probable and reasonably
estimable. Accruals are established based on the estimated undiscounted cash
flows to settle the obligations and are not reduced by any potential
recoveries from insurance or other indemnification claims. Management
believes that any ultimate liability with respect to these actions, in excess
of amounts provided, will not materially affect the company's operations or
consolidated financial position.
12. Segment Information
The company manufactures products that fall into two major classifications.
The first includes anti-friction bearings used in a multitude of applications
to reduce friction and conserve energy. The second classification is steel
products of alloy, intermediate alloy and carbon grades. Sales of these
products are made predominantly to manufacturers in the automotive,
machinery, railroad, aerospace and agricultural industries, and to service
replacement markets following normal credit practices.
Net sales by segment include sales to both unaffiliated customers and
intersegment sales. Intersegment sales and transfers between geographic
areas are accounted for at values based on market prices.
Information by Industry
Bearing Steel Consolidated
____________________________________________________________________________
(Thousands of dollars)
1994
Net sales (1) $1,312,323 $618,028 $1,930,351
Operating income 84,924 53,651 138,575
Assets employed at year-end 1,117,762 740,972 1,858,734
Depreciation and amortization 64,487 54,768 119,255
Capital expenditures 88,585 31,071 119,656
____________________________________________________________________________
1993
Net sales (1) $1,153,987 $554,774 $1,708,761
Operating income (2) 12,821 7,635 20,456
Assets employed at year-end 996,549 793,170 1,789,719
Depreciation and amortization 62,965 55,438 118,403
Capital expenditures 72,915 20,025 92,940
____________________________________________________________________________
1992
Net sales (1) $1,169,035 $473,275 $1,642,310
Operating income (loss) 60,062 (11,089) 48,973
Assets employed at year-end 986,617 751,833 1,738,450
Depreciation and amortization 63,125 51,308 114,433
Capital expenditures 73,292 65,804 139,096
____________________________________________________________________________
(1) Intersegment steel sales to the bearing business of $211,201,000 in 1994,
$162,133,000 in 1993 and $156,525,000 in 1992 are eliminated on consolidation
and are not included in the figures presented.
(2) The 1993 impairment and restructuring charges of $48,000,000 by industry
segments follow (in thousands of dollars):
Bearing Steel Consolidated
__________________________________________________________________
Impairment charges $12,250 $4,750 $17,000
Restructuring charges 24,355 6,645 31,000
__________________________________________________________________
$36,605 $11,395 $48,000
__________________________________________________________________
There were no significant changes to the program in 1994.
32
<PAGE>
_____________________________________________________________________________
Information by Geographic Area
United Other
States Europe Countries Consolidated
____________________________________________________________________________
(Thousands of dollars)
1994
Net sales $1,524,897 $237,521 $167,933 $1,930,351
Operating income 108,808 2,877 26,890 138,575
Income before income taxes 85,187 1,805 24,331 111,323
Assets employed at year-end 1,575,351 201,118 82,265 1,858,734
____________________________________________________________________________
1993
Net sales $1,351,565 $209,688 $147,508 $1,708,761
Operating income (loss) (1) 20,440 (12,074) 12,090 20,456
Income (loss) before income
taxes (11,232) (14,485) 4,798 (20,919)
Assets employed at year-end 1,533,882 188,376 67,461 1,789,719
____________________________________________________________________________
1992
Net sales $1,242,602 $255,625 $144,083 $1,642,310
Operating income 32,145 520 16,308 48,973
Income (loss) before income
taxes 5,603 (1,722) 9,550 13,431
Assets employed at year-end 1,454,961 204,468 79,021 1,738,450
____________________________________________________________________________
(1) The 1993 impairment and restructuring charges of $48,000,000 by
geographic segments follow (in thousands of dollars):
U.S. Europe Other Consolidated
_______________________________________________________________
Impairment charges $13,800 $1,800 $1,400 $17,000
Restructuring charges 23,900 5,000 2,100 31,000
_______________________________________________________________
$37,700 $6,800 $3,500 $48,000
_______________________________________________________________
There were no significant changes to the program in 1994.
Note: Foreign currency exchange losses were $1,440,000 in 1994, $7,246,000 in
1993 and $4,853,000 in 1992.
Report of Independent Auditors
____________________________________________________________________________
To the Board of Directors and Shareholders of The Timken Company
We have audited the accompanying consolidated balance sheets of The Timken
Company and subsidiaries as of December 31, 1994, and 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Timken
Company and subsidiaries at December 31, 1994, and 1993, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As described in Notes 7 and 9 to the financial statements, in 1993 the
company changed its methods of accounting for postretirement benefits,
postemployment benefits and income taxes.
Canton, Ohio
February 2, 1995
Ernst & Young LLP
33
<PAGE>
Summary of Operations and Other Comparative Data
____________________________________________________________________________
The Timken Company and Subsidiaries
1994 1993 1992
____________________________________________________________________________
Statements of Income
Net sales:
Bearing $1,312,323 $1,153,987 $1,169,035
Steel 618,028 554,774 473,275
____________________________________________________________________________
Total net sales 1,930,351 1,708,761 1,642,310
Cost of products sold 1,509,347 1,366,164 1,296,511
Selling, administrative and
general expenses 282,429 274,141 296,826
Impairment and restructuring charges -0- 48,000 -0-
Operating income (loss) 138,575 20,456 48,973
Earnings before interest and taxes
(EBIT) 136,195 8,700 42,091
Interest expense 24,872 29,619 28,660
Income (loss) before income taxes 111,323 (20,919) 13,431
Provision for income taxes (credit) 42,859 (3,250) 8,979
Income (loss) before extraordinary
item and cumulative effect of
accounting changes 68,464 (17,669) 4,452
Net income (loss) $ 68,464 $ (271,932) $ 4,452
Balance Sheets
Inventory $ 332,304 $ 299,783 $ 310,947
Current assets 657,180 586,384 556,017
Working capital 178,556 153,971 165,553
Property, plant and equipment
(less depreciation) 1,030,451 1,024,664 1,049,004
Total assets 1,858,734 1,789,719 1,738,450
Total debt 279,519 276,476 320,515
Total liabilities 1,125,843 1,104,407 753,387
Shareholders' equity $ 732,891 $ 685,312 $ 985,063
Other Comparative Data
Net income (loss)/Total assets 3.7% (15.2)% 0.3%
Net income (loss)/Net sales 3.5% (15.9)% 0.3%
EBIT/Beginning invested capital 9.1% 0.5% 2.6%
Inventory days (FIFO) 118.4 122.8 138.3
Net sales per associate $ 119,143 $ 106,898 $ 98,171
Capital expenditures $ 119,656 $ 92,940 $ 139,096
Depreciation and amortization $ 119,255 $ 118,403 $ 114,433
Capital expenditures/Depreciation 102.6% 80.2% 124.4%
Dividends paid per share (Note 2) $ 1.00 $ 1.00 $ 1.00
Income (loss) before extraordinary
item and cumulative effect of
accounting changes per share
(Notes 1 and 2) $ 2.21 $ (0.57) $ 0.15
Debt to total capital 27.6% 28.7% 24.5%
Number of associates 16,202 15,985 16,729
Number of shareholders (Note 3) 49,968 28,767 31,395
Notes
(1) Excludes the cumulative effect of accounting changes in 1993, which
related to the adoption of FAS No. 106, 109 and 112, and the cumulative
effect of accounting changes in 1986, which related to the adoption of
FAS No. 87 and a change in the method of accounting for depreciation.
Also excluded is the extraordinary item recorded in 1985, which resulted
from the utilization of foreign tax credit carryforwards.
(2) Based on the average number of shares outstanding during each year.
(3) Includes an estimated count of shareholders having common stock held for
their accounts by banks, brokers and trustees for benefit plans. In
1994, the methodology used to estimate the number of shareholders was
refined, resulting in the revision of 1993 and 1992 counts.
34
<PAGE>
_____________________________________________________________________________
1991 1990* 1989 1988 1987 1986 1985
_____________________________________________________________________________
(Thousands of dollars, except per share data)
$1,128,972 $1,173,056 $1,042,122 $1,002,412 $ 826,383 $ 762,903 $ 774,922
518,453 527,955 490,840 551,731 403,875 295,152 315,752
____________________________________________________________________________
1,647,425 1,701,011 1,532,962 1,554,143 1,230,258 1,058,055 1,090,674
1,309,893 1,284,232 1,157,125 1,178,839 959,847 875,006 883,590
297,660 286,427 250,676 235,072 222,207 219,654 233,131
41,000 -0- -0- -0- -0- 80,000 -0-
(1,128) 130,352 125,161 140,232 48,204 (116,605) (26,047)
(15,277) 125,155 113,710 132,745 47,891 (118,902) (32,797)
26,673 26,339 17,217 20,879 25,037 25,069 1,748
(41,950) 98,816 96,493 111,866 22,854 (143,971) (34,545)
(6,263) 43,574 41,148 45,954 12,535 (61,233) (27,579)
(35,687) 55,242 55,345 65,912 10,319 (82,738) (6,966)
$ (35,687)$ 55,242 $ 55,345 $ 65,912 $ 10,319 $ 2,736 $ (3,903)
$ 320,076 $ 379,543 $ 344,135 $ 350,410 $ 278,567 $ 247,615 $ 242,562
562,496 657,865 608,224 619,456 485,163 406,206 415,511
148,950 238,486 359,773 348,322 255,910 100,716 151,915
1,058,872 1,025,565 932,828 941,121 957,641 976,600 935,673
1,759,139 1,814,909 1,565,961 1,593,031 1,466,634 1,403,529 1,375,419
273,104 266,392 80,647 182,341 180,805 263,219 218,530
740,168 740,208 501,157 619,315 543,541 596,907 586,138
$1,018,971 $1,074,701 $1,064,804 $ 973,716 $ 923,093 $ 806,622 $ 789,281
(2.0)% 3.0% 3.5% 4.1% 0.7% 0.2% (0.3)%
(2.2)% 3.2% 3.6% 4.2% 0.8% 0.3% (0.4)%
(0.9)% 8.3% 7.6% 9.6% 3.6% (9.2)% (2.6)%
140.5 163.2 167.5 161.0 162.9 165.7 164.8
$ 92,865 $ 90,191 $ 88,878 $ 86,102 $ 73,576 $ 63,873 $ 62,108
$ 144,678 $ 120,090 $ 91,536 $ 78,943 $ 52,119 $ 55,175 $ 195,288
$ 109,252 $ 101,260 $ 91,070 $ 88,756 $ 84,649 $ 87,646 $ 77,682
135.6% 120.4% 100.5% 88.9% 61.6% 63.0% 251.4%
$ 1.00 $ 0.98 $ 0.92 $ 0.70 $ 0.50 $ 0.50 $ 0.90
$ (1.21) $ 1.85 $ 1.88 $ 2.34 $ 0.39 $ (3.35)$ (0.29)
21.1% 19.9% 7.0% 15.8% 16.4% 24.6% 21.7%
17,740 18,860 17,248 18,050 16,721 16,565 17,561
26,048 25,090 22,445 21,184 22,470 23,186 26,136
*Includes MPB Corporation operations for seven months.
35
<PAGE>
APPENDIX TO EXHIBIT 13
On page 34 of the printed document, two bar charts were shown that contain
the following information:
(1) Total Net Sales (in Billions of Dollars)
Bearings Steel
________ _____
1985 $0.775 $0.316
1986 0.763 0.295
1987 0.826 0.404
1988 1.002 0.552
1989 1.042 0.491
1990 1.173 0.528
1991 1.129 0.518
1992 1.169 0.473
1993 1.154 0.555
1994 1.312 0.618
(2) Return on Net Sales (before extraordinary items and cumulative effect of
accounting changes):
Operating Income (Loss) Income (Loss)
_______________________ _____________
1985 -2.4% -.6%
1986 -11.0% -7.8%
1987 3.9% .8%
1988 9.0% 4.2%
1989 8.2% 3.6%
1990 7.7% 3.2%
1991 -.1% -2.2%
1992 3.0% .3%
1993 1.2% -1.0%
1994 7.2% 3.5%
On page 35 of the printed document, two bar charts were shown that contain
the following information:
(1) Earnings (before extraordinary items and cumulative effect of accounting
changes) and Dividends per Share:
Earnings Dividends
________ _________
1985 $ -.29 $0.90
1986 -3.35 0.50
1987 .39 0.50
1988 2.34 0.70
1989 1.88 0.92
1990 1.85 0.98
1991 -1.21 1.00
1992 .15 1.00
1993 -.57 1.00
1994 2.21 1.00
(2) Total Assets (in Billions of Dollars)
Bearings Steel
________ _____
1985 $0.639 $0.737
1986 0.662 0.741
1987 0.717 0.750
1988 0.803 0.790
1989 0.823 0.743
1990 1.046 0.769
1991 1.023 0.736
1992 0.987 0.752
1993 0.997 0.793
1994 1.118 0.741
Exhibit 21. Subsidiaries of the Registrant
___________________________________________
The Timken Company has no parents.
The active subsidiaries of the Company (all of which are included in the
consolidated financial statements of the Company and its subsidiaries) are
as follows:
State or sovereign Percentage of
power under laws voting securities
Name of which organized owned directly or
indirectly by
Company
____________________________________________________________________________
Timken Communications Company Ohio 100%
Timken do Brasil State of Sao Paulo, 100%
Commercio e Industria, Ltda. Brazil
Timken de Mexico S.A. de C.V. Mexico 100%
Australian Timken Proprietary, State of Victoria, 100%
Limited Australia
Timken Europa GmbH West Germany 100%
Timken South Africa (Pty.) South Africa 100%
Limited
Canadian Timken, Limited Province of Ontario, 100%
Canada
Nihon Timken K.K. Japan 100%
Latrobe Steel Company Pennsylvania 100%
The Timken Service & Sales Co. Ohio 100%
Timken Italia, S.R.L. Italy 100%
EDC, Inc. Ohio 100%
M.P.B. Corporation Delaware 100%
Timken Espana, S.L. Spain 100%
Rail Bearing Service Corporation Virginia 100%
____________________
The Company also has a number of inactive subsidiaries which were
incorporated for name-holding purposes and a foreign sales corporation
subsidiary.
EXHIBIT 21
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference of our report dated February 2,
1995, with respect to the consolidated financial statements and schedule of
The Timken Company included in this Annual Report (Form 10-K) for the year
ended December 31, 1994, in the following Registration Statements and in the
related Prospectuses:
Registration Filing
Number Description of Registration Statement Date
____________ ____________________________________________ _________________
33-35773 $250,000,000 Medium-Term Notes, Series A - July 19, 1990
Form S-3
2-97340 1985 Incentive Plan of The Timken Company - November 19, 1990
Post-effective Amendment No. 1 to Form S-8
33-36839 Voluntary Investment Program for Hourly November 19, 1990
Employees of Latrobe Steel Company - Post-
effective Amendment No. 1 to Form S-8
33-47185 The Timken Company Long-Term Incentive Plan April 20, 1992
- Form S-8
33-50872 The Timken Company Savings and Investment August 10, 1992
Pension Plan - Form S-8
33-54360 The MPB Corporation Employees Savings Plan - November 6, 1992
Form S-8
33-54362 The Carolina Pension Investment Plan - November 6, 1992
Form S-8
33-62904 The Timken Company Dividend Reinvestment May 18, 1993
Plan - Form S-3
33-50609 The Ohio Hourly Pension Investment Plan - October 15, 1993
Form S-8
33-50613 The Koncor Investment Pension Plan - Form October 15, 1993
S-8
33-55121 Voluntary Investment Pension Plan for Hourly August 18, 1994
Employees of The Timken Company - Form S-8
ERNST & YOUNG LLP
Canton, Ohio
March 22, 1995
EXHIBIT 24
POWER OF ATTORNEY
The undersigned Directors and Officers of The Timken Company, an Ohio
corporation (the "Company"), hereby constitute and appoint W. R. Timken, Jr.,
Joseph F. Toot, Jr., Gene E. Little and Larry R. Brown, and each of them,
their true and lawful attorney or attorneys-in-fact, with full power of
substitution and resubstitution, for them and in their name, place and stead,
to sign on their behalf as a Director and/or Officer of the Company, an
Annual Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act
of 1934 on Form 10-K for the fiscal year ended December 31, 1994 and to sign
any and all amendments to such Annual Report, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney or
attorney-in-fact, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection with the foregoing, as fully to all intents and purposes as they
might or could do in person, hereby ratifying and confirming all that said
attorney or attorneys-in-fact or any of them or their substitutes, may
lawfully do or cause to be done by virtue thereof.
EXECUTED this 2nd day of February, 1995.
/s/ Robert Anderson /s/ Ward J. Timken
__________________________________ _____________________________________
Robert Anderson, Director Ward J. Timken, Director; Vice President
/s/ Peter J. Ashton /s/ W. R. Timken, Jr.
__________________________________ _____________________________________
Peter J. Ashton, Director; W. R. Timken, Jr., Director;
Executive Vice President and Chairman - Board of Directors
President - Bearings
/s/ Stanley C. Gault /s/ Joseph F. Toot, Jr.
__________________________________ _____________________________________
Stanley C. Gault, Director Joseph F. Toot, Jr., Director;
President and Chief Executive Officer
/s/ J. Clayburn La Force, Jr. /s/ Charles H. West
__________________________________ _____________________________________
J. Clayburn La Force, Jr., Director Charles H. West, Director;
Executive Vice President and
President - Steel
/s/ Robert W. Mahoney /s/ Alton W. Whitehouse
__________________________________ _____________________________________
Robert W. Mahoney, Director Alton W. Whitehouse, Director
/s/ James W. Pilz /s/ Gene E. Little
__________________________________ __________________________________
James W. Pilz, Director Gene E. Little, Vice President -
Finance (Principal Financial
/s/ John M. Timken, Jr. Accounting Officer)
__________________________________
John M. Timken, Jr., Director
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
company's 1994 audited Consolidated Financial Statements and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 12,121
<SECURITIES> 0
<RECEIVABLES> 269,801
<ALLOWANCES> 6,268
<INVENTORY> 332,304
<CURRENT-ASSETS> 657,180
<PP&E> 2,230,004
<DEPRECIATION> 1,199,553
<TOTAL-ASSETS> 1,858,734
<CURRENT-LIABILITIES> 478,624
<BONDS> 150,907
<COMMON> 307,060
0
0
<OTHER-SE> 425,831
<TOTAL-LIABILITY-AND-EQUITY> 1,858,734
<SALES> 1,930,351
<TOTAL-REVENUES> 1,930,351
<CGS> 1,509,347
<TOTAL-COSTS> 1,509,347
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,872
<INCOME-PRETAX> 111,323
<INCOME-TAX> 42,859
<INCOME-CONTINUING> 68,464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,464
<EPS-PRIMARY> 2.21
<EPS-DILUTED> 2.20
</TABLE>
