<PAGE>
1.
SECURITIES AND EXCHANGE COMMISSION
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, 1995
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 (330)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
16,1996 was $1,212,484,049 (representing 26,430,170 shares).
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of February 16, 1996.
Common Stock without par value --31,396,956 shares (representing a market
___________________________________________________ value of $1,440,335,357)
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2.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1995, 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 16, 1996, are incorporated by reference into parts III and IV.
Exhibit Index may be found on Pages 16 thru 19.
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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.
Timken also produces super precision ball and roller bearings for use in
aerospace, defense, computer disk drive and other markets having high
precision applications. These bearings are mostly produced at the
company's MPB Corporation subsidiary. They utilize ball and straight
rolling elements and are in 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 specialized materials and coatings for use
in applications that subject the bearings to extreme operating conditions
of speed and temperature.
In January 1995, Timken acquired Rail Bearing Service (RBS). The Virginia-
based company remanufactures and reconditions bearings for the railroad
industry. This purchase has allowed the company to increase sales and
expand its presence in existing railroad markets.
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
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.
During the third quarter, the company's Bearing Business introduced a new
family of custom-designed products called SpexxTM Performance Bearings.
The product line includes both tapered and cylindrical roller bearings and
provides cost-effective solutions for selective applications.
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4.
Products (cont.)
_________________
Steel products include steels of intermediate alloy, low alloy and carbon
grades, vacuum processed alloys, tool steel and other custom-made steel
products including parts made from specialty steel. 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 this precision parts business has provided the company with
the opportunity to further expand its market for tubing and capture more
high-value steel sales. This also enables the company's traditional
tubing customers in the automotive and bearing industries to take
advantage of higher-performing components that generally cost less than
those they now use. During 1995, The Timken Company expanded its steel
parts manufacturing capabilities with the opening of a new plant in
Columbus, North Carolina. The plant uses 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. Shipments are made directly from Timken's
plants and 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 that 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, missile guidance systems, computer
peripherals, and medical instruments.
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 and truck, construction,
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.
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5.
Sales and Distribution (Cont.)
______________________________
Timken has 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 11 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,
1995 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.
Timken primarily manufactures an anti-friction bearing known as the
tapered roller bearing. However, in recent years the company expanded
its bearing product line to include super precision ball and straight
roller bearings. 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 produce 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.
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6.
Competition (Cont.)
___________________
The anti-friction bearing business is intensely competitive in every
country in which Timken competes. Demand for capacity worldwide became
even more intense in 1995 as economies around the world continued to
strengthen. The U. S. Dollar remained weak against the Japanese Yen and
German Mark causing demand for U. S. imports to increase. The influx of
tapered roller bearings into the United States market from foreign
producers reported by the United States Department of Commerce
was $230 million in 1995 or approximately 20 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 $180 million in 1995.
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, 1994 or 1995. The Department of Commerce revoked
the order covering Yugoslavia in September, 1995. 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.
Timken manufactures carbon and alloy seamless tubing, carbon and alloy
steel solid bars, 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. In early 1996, the Court issued a decision affirming
the determination of the ITC. No further appeals were taken.
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7.
Backlog
_______
The backlog of orders of Timken's domestic and overseas operations is
estimated to have been $1 billion at December 31, 1995, and $880 million
at December 31, 1994. 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 $35,000,000 in 1995, $36,000,000 in
1994 and $37,000,000 in 1993. 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
complying with environmental protection laws. In doing so, the company
has invested in pollution control equipment and updated plant operational
practices. The company has established adequate reserves to cover its
environmental expenses.
It is difficult to assess the possible effect of compliance with future
requirements that may differ from existing ones. The company previously
reported it expected the effect of amendments to the Clean Air Act of
1990 on its utility suppliers would increase its costs of electricity by
$4 million to $5 million annually. Through negotiations with the
utilities, the company has limited this annual cost increase to
$1.5 million. Further, proposed regulations related to those amendments
concerning air emissions monitoring, which would have required capital
expenditures in excess of $1 million, now have been changed. If the
currently proposed regulations become final, no significant costs to
comply would be incurred by the company.
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8.
Environmental Matters (Cont.)
_____________________________
The company and certain of its U.S. subsidiaries have been designated as
potentially responsible parties (PRP's) 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 Company subsidiary have been notified by the EPA regarding
possible participation at two additional superfund sites. Currently,
neither the company nor Latrobe has been named a PRP at the sites.
Management believes 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 company
has provided for the costs of these projects, which are estimated to be
$3 million, recognizing a portion of these costs are being recovered from
a former owner of the property. MPB also filed suit against its
insurance companies for reimbursement of clean-up costs. Settlements
have been reached with two insurers and suits remain outstanding against
two companies. The full extent of reimbursement cannot be estimated. In
late 1993, MPB was notified that Keene, New Hampshire, city officials
were looking to MPB to contribute to the costs of cleaning up alleged
soil and groundwater contamination of a city dump. This is not a
superfund site and allegedly had been used by MPB along with many others
for industrial waste disposal. No specific monetary request has been
made. City officials recently estimated the total cost to clean up the
site to be approximately $500,000.
The company initiated work in 1995 on an environmental project at its
Canton, Ohio, location. In 1996, an environmental project will be
started at the company's Columbus, Ohio, location. Costs for these
projects are estimated to be about $1.25 million each.
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, 1995, Timken had 17,034 associates of which approximately
50% are covered by collective bargaining agreements. Less than 3% of the
company's labor force is covered by a collective bargaining agreement that
will expire within one year.
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9.
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 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
16, 1996, are as follows:
Current Position and Previous
Name Age Positions During Last Five Years
____ ___ ______________________________________________
W. R. Timken, Jr. 57 1990 Chairman - Board of Directors; Director;
Officer since 1968.
J. F. Toot, Jr. 60 1990 President;
1992 President and Chief Executive Officer;
Director; Officer since 1967.
R. L. Leibensperger 57 1990 Vice President - Technology;
1995 Executive Vice President and President -
Bearings; Officer since 1986.
C. H. West 61 1990 Executive Vice President - Steel;
1992 Executive Vice President and President -
Steel; Director; Officer since 1982.
(Retires March 31, 1996, but remains
as a Director).
B. J. Bowling 54 1990 Vice President - Human Resources and
Logistics;
1993 Executive Vice President-Latrobe Steel
Company;
1995 President-Latrobe Steel Company;
1996 Executive Vice President and President -
Steel; Officer since 1996 (Effective
April 1, 1996).
M. J. Amiel 64 1990 Vice President - Bearings - Europe,
Africa, and West Asia;
1995 Vice President and Chairman - Bearings -
Europe, Africa and West Asia;
Officer since 1989.
L. R. Brown 60 1990 Vice President and General Counsel;
Secretary; Officer since
1990.
J. T. Elsasser 43 1990 Director-President-Timken do Brasil;
1990 Director-21st Century Business Project;
1993 Deputy Managing Director-Bearings-
Europe, Africa and West Asia;
1995 Managing Director-Bearings-Europe,
Africa and West Asia;
1996 Vice President-Bearings-Europe, Africa
and West Asia; Officer since 1996.
J. W. Griffith 42 1990 Managing Director-Australian Timken
Proprietary Limited;
1991 Director-Purchasing and Logistics;
1993 Director-Manufacturing-Bearings-North
and South America;
1993 Vice President-Manufacturing-Bearings-
North America;
1996 Vice President-Bearings-North American
Automotive, Rail, Asia Pacific and
Latin America; Officer since 1996.
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10.
Current Position and Previous
Name Age Positions During Last Five Years
____ ___ ______________________________________________
G. E. Little 52 1990 Director Finance and Assistant
Treasurer;
1990 Treasurer;
1992 Vice President - Finance; Treasurer;
Officer since 1990.
S. J. Miraglia 45 1990 Director-Manufacturing-Steel;
1993 Vice President-Manufacturing-Steel;
1994 Director-Manufacturing-Europe, Africa
and West Asia;
1996 Vice President-Bearings-North American
Industrial and Super Precision;
Officer since 1996.
S. A. Perry 50 1990 Director - Purchasing and Logistics;
1993 Vice President - Human Resources and
Logistics; Officer since 1993.
J. J. Schubach 59 1990 Vice President - Strategic Management;
Officer since 1984.
T. W. Strouble 57 1990 Director - Manufacturing - Bearings
North and South America;
1992 Director - Marketing - Bearings -
North and South America;
1993 Vice President - Sales and Marketing -
Bearings - North and South America;
1995 Vice President - Technology;
Officer since 1995.
W. J. Timken 53 1990 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 10,800,000 square feet, all of
which, except for approximately 337,000 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 4,471,000 square
feet. Timken's steel manufacturing and distribution facilities in the
United States are located in Canton, Eaton, Wauseon and Wooster, Ohio;
Franklin and Latrobe, Pennsylvania; and Columbus, North Carolina. These
facilities have an aggregate floor area of approximately 4,814,000 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 Paulo, Brazil; Ballarat, Australia; Medemblik, The
Netherlands; and Singapore. The facilities have an aggregate floor area
of approximately 1,415,000 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.
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11.
Properties (cont.)
__________________
During 1995, the company's Bearing and Steel Businesses experienced
increased plant utilization compared to 1994 as a result of increased
sales in all industries and most geographic areas.
In January, 1995, the company completed its acquisition of Rail Bearing
Service (RBS). The Virginia-based company provides bearing reconditioning
services for the railroad industry. The RBS Manufacturing facilities
consist of 156,280 square feet of manufacturing space and RBS employs some
300 people in the United States.
During 1995's first quarter, The Timken Company announced the expansion of
its steel parts manufacturing capabilities with the opening of its new
Tyron Peak Steel Parts plant in Columbus, North Carolina. The plant uses
seamless tubing produced in the company's Ohio plants to manufacture steel
rings primarily for the bearing industry. The plant consists of 30,000
square feet of manufacturing and warehouse space and employs about a dozen
associates.
Also in the first quarter of 1995, the company's Bearing Business broke
ground for an expansion of its Altavista, Virginia plant, where SENSOR-
PACTM bearings for anti-lock braking systems are produced. The expansion
will double the size of the facility.
In January, 1996, the company announced it entered into a definitive
agreement with FLT Prema Milmet S.A. to acquire the assets of a tapered
roller bearing business in Sosnowiec, Poland. The company expects to
complete the transaction in early 1996.
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.
On March 27, 1996 the company announced that it entered into a joint
venture to produce bearings in China. Timken and Shandong Yantai Bearing
Factory, which manufactures tapered roller bearings, will form a new
company, Yantai Timken Company Limited, located in Yantai, Shandong
Province, on the northeast coast of China. Company officials expect
Yantai Timken to begin operations by the third quarter of 1996, pending
completion of the business transaction.
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.
<PAGE>
12.
Legal Proceedings (Cont.)
_________________________
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. Discovery in this
matter has been completed. In April 1995, the company filed a motion to
sever the trials of each of the individual plaintiffs. The motion was
granted, and the cases will be tried seriatim. The trials are scheduled
to commence in March 1996. 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, 1995.
<PAGE>
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, 1995, was 26,792.
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, 1995, 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, 1995, 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, 1995, is incorporated herein by reference.
Some of the statements set forth in this document that are not historical
in nature are forward-looking statements. The Timken Company (the
company) cautions readers that actual results may differ materially from
those projected or implied in forward-looking statements made by or on
behalf of the company due to a variety of important factors, such as:
- changes in world economic conditions, including the potential
instability of governments and legal systems in countries in
which the company conducts business, significant changes in
currency valuations, and the impact of industrial business cycles.
- changes in customer demand on sales and product mix, including
the impact of customer strikes.
- competitive factors, including changes in market penetration and
the introduction of new products by existing and new competitors.
- changes in operating costs as they relate to changes in the
company's manufacturing processes; higher cost associated with
increasing output to meet higher customer demands; the effects of
weather; unplanned work stoppages; and changes in the cost of
labor, health care and retirements benefits, raw material, and
energy.
- the success of the company's operating plans, including its
ability to achieve the total benefits of its accelerated
continuous improvement program.
- unanticipated product warranty and environmental claims or problems.
<PAGE>
14.
Management's Discussion and Analysis of Financial Condition and Results
of Operation (Cont.)
_______________________________________________________________________
On March 27, 1996 the company announced that it entered into a joint
venture to produce bearings in China. Timken and Shandong Yantai
Bearing Factory, which manufactures tapered roller bearings, will form
a new company, Yantai Timken Company Limited, located in Yantai,
Shandong Province, on the northeast coast of China. Company officials
expect Yantai Timken to begin operations by the third quarter of 1996,
pending completion of the business transaction.
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, 1995, are incorporated herein
by reference.
Item 9. Changes in and Disagreements with Accountants
______________________________________________________
on Accounting and Financial Disclosure
______________________________________
Not applicable.
<PAGE>
15.
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 16, 1996, 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 10-19 of the proxy statement issued in connection
with the annual meeting of shareholders to be held April 16, 1996, 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 16, 1996, 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 16, 1996, and is
incorporated herein by reference.
<PAGE>
16.
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, was
filed with Form 10-K for the period ended December 31,
1994, and is incorporated herein by reference.
(4.1) Fourth Amended Agreement dated August 15, 1995, to the
amended and restated credit agreement as amended February
23, 1993, May 31,1994, and November 15, 1994, between
Timken and certain banks, was filed with Form 10-Q for
the period ended September 30, 1995, and is
incorporated herein by reference.
(4.2) 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,
was filed with Form 10-K for the period ended December
31, 1994, and is incorporated herein by reference.
(4.3) 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.
(4.4) 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.
(4.5) 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.
<PAGE>
17.
Exhibit (Cont.)
_______________
(4.6) 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.
(4.7) 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.
(4.8) 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.
(10.1) The form of Deferred Compensation Agreement entered into
with Joseph F. Toot, Jr. and W. R. Timken, Jr., was filed
with Form 10-Q for the period ended September 30, 1995,
and is incorporated herein by reference.
(10.2) The Timken Company 1996 Deferred Compensation Plan for
officers and other key employees, was filed with Form
10-Q for the period ended September 30, 1995, and is
incorporated herein by reference.
(10.3) 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.
(10.4) 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.
(10.4a) 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.
(10.4b) 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.
(10.4c) 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.
<PAGE>
18.
Exhibit (Cont.)
_______________
(10.4d) The form of Severance 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.
(10.5) 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.
(10.6) 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.
(10.7) 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.
(10.8) 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.
(10.9) 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.
(10.10) The Amended and Restated Supplemental Pension Plan of The
Timken Company.
(10.11) Amendment No. 1 to the Amended and Restated Supplemental
Pension Plan of The Timken Company.
<PAGE>
19.
Exhibit (Cont.)
_______________
(11) Computation of Per Share Earnings.
(13) Annual Report to Shareholders for the year ended
December 31, 1995, (only to the extent expressly
incorporated herein by reference).
(21) A list of subsidiaries of the registrant.
(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>
20.
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 28, 1996
________________________________ Date March 28,1996
_____________________________
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 28, 1996 Date March 28, 1996
__________________________________ _______________________________
By /s/ Martin D. Walker* By /s/ W. J. Timken*
__________________________________ _______________________________
Martin D. Walker Director W. J. Timken Director
Date March 28, 1996 Date March 28, 1996
__________________________________ _______________________________
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 28, 1996 Date March 28, 1996
__________________________________ _______________________________
By /s/ J. Clayburn La Force, Jr.* By /s/ Charles H. West*
__________________________________ _______________________________
J. Clayburn La Force, Jr. Director Charles H. West Director
Date March 28, 1996 Date March 28, 1996
__________________________________ _______________________________
By /s/ Robert W. Mahoney* By /s/ Alton W. Whitehouse*
__________________________________ _______________________________
Robert W. Mahoney Director Alton W. Whitehouse Director
Date March 28, 1996 Date March 28, 1996
__________________________________ _______________________________
By /s/ James W. Pilz*
__________________________________ By: /s/ G. E. Little
James W. Pilz Director _______________________________
Date March 28, 1996 G. E. Little, attorney-in-fact
__________________________________ by authority of Power of
Attorney filed as Exhibit 24
hereto
January 2, 1996
EXHIBIT-10
THE TIMKEN COMPANY
MANAGEMENT PERFORMANCE PLAN
Purpose
The purpose of The Timken Company (the "Company") Management
Performance Plan (the "Plan") is to promote the profitable
growth of the Company by:
Providing rewards for achieving increasing levels of
return on capital.
Recognizing corporate, business unit and individual
performance achievement.
Attracting, motivating and retaining superior executive
talent.
Administration
It is the responsibility of senior management of the Company
to execute the provisions of the Plan. Based on senior
management recommendations, the Compensation Committee (the
"Committee") approves financial goals, participation, target
bonus awards, actual bonus awards, timing of payment and
other actions necessary to the administration of the Plan.
Participation
The participant group includes Company executive officers
and other key employees of the Company and its subsidiaries
in positions having a point value in excess of 1000 points
based on the Company's job evaluation process.
Performance Targets
The primary Corporate performance measure is Return on
Invested Capital, one measure of which is Earnings Before
Interest and Taxes (EBIT) divided by Beginning Invested
Capital (BIC). A positive Return on Invested Capital will
be required to generate a Total Corporate Fund ("Total
Fund") automatically.
At the beginning of each year, corporate targets for Return
on Invested Capital as it relates to the Cost of Capital
will be set. The degree of achievement of these targets
will determine the size of the Total Fund.
Business unit targets will be set using EBIT/BIC and other
measures developed by senior management. Achievement of
these targets will affect the adjustment to the Business
Unit Funds used to arrive at the Final Corporate Fund
("Final Fund").
<PAGE>
Page 2
In addition, at the beginning of each year, the Committee
will specify any other financial or non-financial measures
that will be used to evaluate Corporate and/or Business Unit
performance for the coming year. When Corporate financial
performance results are not achieved, the Committee, at its
discretion, can approve payment of up to 25% of the target
amount for the achievement of performance results that
position the Company strategically for the future in such
areas as:
Sales growth (customer value)
Earnings growth
Productivity growth
Improvement of shareholder return
Reduction of fixed costs
Cash generation
Debt reduction
Quality
Financial performance exceeding that of peer/competitor
companies
Successful start-up of new facility
Successful acquisition/divestiture
Recruitment and development of excellent associates
with emphasis on diversity
Bonus Opportunity
Each position is assigned a target bonus expressed as a
percentage of annual base salary.
The target bonus amounts are as follows:
Position Target Bonus
CEO, Chairman 60%
Executive Grades:
E-25, E-26 50%
E-24 45%
E-23 40%
E-21 35%
Point Values:
Above 1700 35%
1400 to 1700 30%
1000 to 1400 25%
<PAGE>
Page 3
The full target bonus opportunity represents an appropriate
bonus award if performance standards are met in the
following areas:
Corporate return on invested capital
Business unit return on invested capital
Individual performance against preset goals
The actual bonus payment will reflect a mix of these
components as appropriate for each position:
Chairman, CEO and Vice President & Officer -- 100%
Corporate
Presidents of Bearing and Steel Businesses -- 50%
Corporate and 50% their respective Business.
Vice Presidents-Bearings -- 30% Corporate and 70% their
respective Business Units.
President - MPB -- 30% Corporate and 70% MPB.
President - Latrobe -- 30% Corporate and 70% Latrobe.
Other Business Unit participants -- 25% Corporate and
75% Business Unit.
Vice Presidents of Corporate Centers and other
Corporate Center participants -- 50% Corporate, 25%
Worldwide Bearing Business and 25% Steel Business. (Some
positions in Technology Center are 50% Corporate and 50%
Bearing or Steel).
Any exceptions to these allocations will be determined by
senior management.
Bonus Fund
The Total Corporate Target Fund ("Target Fund") is derived
by multiplying the annual salary of each approved
participant as of November 1 of the Plan year times the
Target Bonus percentage and summing.
The Target Fund is adjusted as follows for the achievement
of corporate financial and non-financial performance goals
to arrive at the Total Fund:
Reflect corporate financial goals by reference to a
table relating corporate financial achievement and a
multiplier, not to exceed 130%, to be applied to the Target
Fund.
<PAGE>
Page 4
Reflect corporate non-financial goals with an
additional adjustment of plus or minus 25% based on a
mixture of objective and subjective factors.
The Total Fund will not exceed 150% of the Target Fund.
If threshold levels of performance are not achieved, the
Committee can establish, at its discretion, a Total Fund up
to 25% of the Target Fund for achievement of results that
successfully position the Company strategically for the
future.
The Total Fund is allocated to Corporate and Business Unit
Funds using the allocations established for each approved
participant. The Business Unit Funds are adjusted by plus
or minus 25% to reflect the achievement of Business Unit
EBIT/BIC goals and other non-financial goals to arrive at
the Final Fund.
Individual bonus amounts are adjusted for achievement of
individual performance goals as follows:
Outstanding performance 120%
All expectations met and some exceeded 110%
All expectations met 100%
Most expectations met 90% or less
Most expectations not met 0%
Bonus Payments
At the end of the year, senior management will determine
whether Corporate performance has exceeded the threshold for
creating a bonus fund. Senior management will recommend to
the Committee the Total Fund and Final Fund based on it
assessment of performance achievement at Corporate, Business
Unit and individual levels. The Committee may make further
adjustments to the fund or any individual bonus amount based
on its assessment of financial and non-financial
performance.
Awards under the Plan will be paid in cash or stock.
One hundred percent of awards under the Plan will be
included in pension earnings and earnings for the purpose of
calculating 401(k) plan benefits. Awards will not be
included for purposes of any other employee benefits plans.
mpp.doc
EXHIBIT 10.10
AMENDED AND RESTATED
SUPPLEMENTAL PENSION PLAN
OF THE TIMKEN COMPANY
The Timken Company, 1835 Dueber Avenue, S. W., Canton, Ohio
44706, EIN 34-0577130, and its wholly-owned subsidiaries Latrobe
Steel Company and MPB Corporation (collectively the "Company")
hereby amend and restate the Supplemental Pension Plan of The
Timken Company (the "Supplemental Plan") originally effective May
14, 1979, for the following purpose and in accordance with the
provisions as set forth below. This Amended and Restated
Supplemental Plan is effective January 1, 1994.
1. Purpose
The purpose of the Supplemental Plan is to provide for, on
or after the effective date hereof, the payment of supplemental
retirement benefits:
(a) to those participants of the qualified defined
benefit plans of the Company whose benefits payable under
such qualified defined benefit plans of the Company and
related companies are subject to certain benefit limitations
(collectively referred to as "Code Limitations") imposed by
the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 401 and Section 415 of the
Internal Revenue Code of 1986, as amended (the "Code");
(b) to certain employees of the Company's
international operations with whom the Company has special
retirement agreements; and
(c) to certain employees of the Company who have
Employee Excess Benefits Agreements ("Excess Agreements") in
effect with the Company.
2. Eligibility
The following individuals shall be eligible for benefits
under the Supplemental Plan and shall be known as participants:
(a) Members of or Participants in (i) The Timken
Company Retirement Plan for Salaried Employees, (ii) the
1984 Retirement Plan for Salaried Employees of The Timken
Company, and (iii) those provisions of the Timken-Latrobe-
MPB Retirement Plan incorporating the Restated Pension Plan
for Salaried Employees of Latrobe Steel Company, and the MPB
Corporation Retirement Plan (the plans identified in clauses
(i), (ii) and (iii) being collectively the "Qualified
Plan"), other than participants described in paragraph 2(d),
who are eligible for a retirement benefit other than a
deferred vested pension and whose retirement benefits under
the Qualified Plan are limited pursuant to the Code Limitations,
or because the participants are "highly compensated
employees" within the meaning of Section 414(q)(1)(A) or (B)
of the Code;
(b) Certain employees of the Company's international
operations with whom the Company has special agreements
concerning retirement benefits to be paid by the
Supplemental Plan;
(c) (i) Former employees of the Company who separated
from the service of the Company, and (ii) current employees
of the Company who separate from the service of the Company
under circumstances which the Company, in its sole
discretion, deems to be for mutually satisfactory reasons,
in each case with eligibility for a deferred vested pension
and whose retirement benefits under the Qualified Plan are
limited by the Code Limitations; and
(d) Employees of the Company who have Excess
Agreements currently in effect with the Company.
3. Incorporation of the Qualified Plan
The Qualified Plan, with any amendments thereto in effect on
the effective date of the Supplemental Plan, shall be attached
hereto as Exhibit I, and is hereby incorporated by reference into
and shall be a part of the Supplemental Plan as fully as if set
forth herein. Any amendment made to the Qualified Plan shall be
also incorporated by reference into and form a part of the
Supplemental Plan, effective as of the effective date of such
amendment. The Qualified Plan, whenever referred to in the
Supplemental Plan, shall mean such Qualified Plan as it exists as
of the date any determination is made of benefits payable under
the Supplemental Plan. All terms used herein shall have the
meanings assigned to them under the provisions of the Qualified
Plan unless otherwise qualified by the context of the
Supplemental Plan.
4. Amount of Benefit
(a) The benefit payable to a participant described in
paragraphs 2(a) or (c) under the Supplemental Plan shall be
the actuarial equivalent of the excess, if any, of:
(i) The benefit which would have been
payable to such participant under the Qualified
Plan, if the provisions of the Qualified Plan were
administered without regard to the Code
Limitations, over
(ii) The benefit which is in fact payable to
such participant under the Qualified Plan. Such
benefits payable under the Supplemental Plan to
any participant shall be computed in accordance
with the foregoing and with the objective that
such participant should receive under the
Supplemental Plan and the Qualified Plan the total
amount which would otherwise have been payable to
that participant solely under the Qualified Plan
had not the Code Limitations been applicable
thereto. The provisions of paragraphs 4(d), (e)
and (f) will be applicable to the participant's
benefit and that of a surviving spouse or other
beneficiary.
(b) For participants described in paragraph 2(b), the
Supplemental Plan will pay the amount that is the difference
between the participant's benefit calculated under the
Qualified Plan, as if he had been a member of the Qualified
Plan (and the participant's primary Social Security amount
is the amount the participant will receive upon retirement
or thereafter from any state-mandated pension programs
assuming no earnings after retirement), over the amount the
participant will actually receive from any private pension
benefit of the international operation. The provisions of
paragraphs 4(d), (e) and (f) will be applicable to the
participant's benefit and that of his surviving spouse or
other beneficiary.
(c) The benefit payable to a participant described in
paragraph 2(d) under the Supplemental Plan shall be the
benefit described in such participant's Excess Agreement.
(d) If a married participant dies prior to retirement,
the Supplemental Plan shall pay to the participant's spouse
an amount equal to the difference between the monthly
pension said spouse would be entitled to receive under the
Qualified Plan, were it not for the Code Limitations, and
the monthly pension said spouse will actually receive under
the Qualified Plan, such monthly payments to continue until
said spouse's death.
(e) If a married participant who was receiving the
normal form of pension benefit (as defined in the Qualified
Plan) dies after retirement (whether at normal retirement
age or early retirement age), the Supplemental Plan shall
pay to the participant's spouse an amount equal to the
difference between the monthly pension said spouse would be
entitled to under the Qualified Plan, were it not for the
Code Limitations, and the monthly payment said spouse will
actually receive under the Qualified Plan, such monthly
payments to continue until said spouse's death.
(f) If a participant, who was receiving an optional
form of pension benefit (as defined in the Qualified Plan),
dies after retirement (whether at normal retirement age or
early retirement age), and, if the terms of the optional
form of pension benefit provide for a benefit for a
designated beneficiary, the Supplemental Plan shall pay to
said beneficiary, an amount equal to the difference between
the monthly pension the said beneficiary would be entitled
to under the Qualified Plan, were it not for the Code
Limitations, and the monthly pension the said beneficiary
will actually receive under the Qualified Plan, such monthly
payments to continue until such time as they would otherwise
cease under the terms of the optional form of pension
benefit.
5. Payment of Benefits
(a) The benefits payable to participants described in
paragraphs 2(a), (c) or (d) under the Supplemental Plan
shall be paid in the same form as, and coincident with, the
payment of pension benefits from the Qualified Plan.
Designations of beneficiaries and elections relating to
optional forms of payment, made by the participant for
purposes of the Qualified Plan, shall be equally applicable
to the Supplemental Plan. Benefits payable to a participant,
spouse, or beneficiary under the Supplemental Plan shall
cease to be payable, at the same time as benefits payable
from the Qualified Plan to such participant or beneficiary
shall cease, or at such earlier time as the relevant Code
Limitations are no longer applicable.
(b) The benefits payable to participants described in
paragraph 2(b) under the Supplemental Plan (or to their bene
ficiaries) shall be paid as if the participants were partici
pants in the Qualified Plan. Such participants shall make
designations of beneficiaries and elections relating to op
tional forms of payment for purposes of the Supplemental
Plan according to the terms of the Qualified Plan.
6. General
(a) The entire cost of the Supplemental Plan shall be
paid from the general assets of the Company. It is the
intent of the Company to so pay benefits under the
Supplemental Plan as they become due; provided, however,
that the Company may, in its sole discretion, establish or
cause to be established a trust account for any or each
participant pursuant to an agreement, or agreements, with a
bank and direct that some or all of a participant's benefits
under the Supplemental Plan be paid from the general assets
of the Company which are transferred to the custody of such
bank to be held by it in such trust account as property of
the Company subject to the claims of its creditors until
such time as benefit payments pursuant to the Supplemental
Plan are made from such assets in accordance with such
agreement; and until any such payment is made, neither the
Plan nor any participant or beneficiary shall have any
preferred claim on, or any beneficial ownership interest in,
such assets. No liability for the payment of benefits under
the Supplemental Plan shall (i) be imposed upon any officer,
director, employee, or stockholder of the Company, (ii) be
imposed upon the Trust Fund under the Qualified Plan, (iii)
be paid from the Trust Fund under the Qualified Plan, or
(iv) have any effect whatsoever upon the Qualified Plan or
the payment of benefits from the Trust Fund under the
Qualified Plan.
(b) No right or interest of a participant or
beneficiary under the Supplemental Plan shall be
anticipated, assigned (either at law or in equity), or
alienated by the participant or beneficiary, nor shall any
such right or interest be subject to attachment,
garnishment, levy, execution, or other legal or equitable
process or in any manner be liable for or subject to the
debts of any participant or beneficiary. If any participant
or beneficiary (other than the surviving spouse of any
deceased participant) shall attempt to or shall alienate,
sell, transfer, assign, pledge, or otherwise encumber his or
her benefits under the Supplemental Plan or any part
thereof, or if by reason of his or her bankruptcy or other
event happening at any time such benefits would devolve upon
anyone else or would not be enjoyed by him or her, then the
Company may terminate his or her interest in any such
benefit and hold or apply it to or for his or her benefit or
the benefit of his or her spouse, children, or other person
or persons in fact dependent upon him or her, or any of
them, in such a manner as the Company may deem proper. The
Company shall not recognize any attempt by any participant
or beneficiary to alienate, sell, transfer, assign, pledge,
or otherwise encumber his or her benefits under the
Supplemental Plan or any part thereof.
(c) Employment rights shall not be enlarged or affected
hereby. The Company shall continue to have the right to
discharge or retire a participant, with or without cause.
7. Miscellaneous
(a) The Company shall interpret where necessary, in
its reasonable and good faith judgment, the provisions of
the Supplemental Plan and, except as otherwise provided in
the Supplemental Plan, shall determine the rights and status
of participants and beneficiaries hereunder (including,
without limitation, the amount of any benefit to which a
participant or beneficiary may be entitled under the
Supplemental Plan). Except to the extent federal law
controls, all questions pertaining to the construction,
validity, and effect of the provisions hereof shall be
determined in accordance with the laws of the State of Ohio.
(b) The Company may, from time to time, delegate all
or part of the administrative powers, duties, and
authorities delegated to it under the Supplemental Plan to
such person or persons, office or committee as it shall
select. For the purposes of ERISA, the Company shall be the
plan sponsor and the plan administrator.
(c) Whenever there is denied, whether in whole or in
part, a claim for benefits under the Supplemental Plan filed
by any person (herein referred to as the "Claimant"), the
plan administrator shall transmit a written notice of such
decision to the Claimant, which notice shall be written in a
manner calculated to be understood by the Claimant and shall
contain a statement of the specific reasons for the denial
of the claim and statement advising the Claimant that,
within 60 days of the date on which he or she receives such
notice, he or she may obtain review of such decision in
accordance with the procedures hereinafter set forth.
Within such 60-day period, the Claimant or the Claimant's
authorized representative may request that the claim denial
be reviewed by filing with the plan administrator a written
request therefor, which request shall contain the following
information:
(i) the date on which the Claimant's request was filed
with the plan administrator; provided, however, that
the date on which the Claimant's request for review was
in fact filed with the plan administrator shall control
in the event that the date of the actual filing is
later than the date stated by the Claimant pursuant to
this paragraph;
(ii) the specific portions of the denial of the claim
which the Claimant requests the plan administrator to
review;
(iii) a statement by the Claimant setting forth the basis
upon which the Claimant believes the plan administrator
should reverse the previous denial of the Claimant's claim
for benefits and accept the claim as made; and
(iv) any written material (offered as exhibits) which
the Claimant desires the plan administrator to examine
in its consideration of the Claimant's position as
stated pursuant to clause (iii) above. Within 60 days
of the date determined pursuant to clause (i) above,
the plan administrator shall conduct a full and fair
review of the decision denying the Claimant's claim for
benefits. Within 60 days of the date of such hearing,
the plan administrator shall render its written
decision on review, written in a manner calculated to
be understood by the Claimant, specifying the reasons
and Plan provisions upon which its decision was based.
8. Amendment and Termination
(a) The Company has reserved and does hereby reserve
the right to amend or terminate, at any time, any or all of
the provisions of the Supplemental Plan, without the consent
of any participant, beneficiary, or any other person. The
Board of Directors of the Company has authorized and
instructed its Vice President - Human Resources and
Logistics (or any other officer or delegate of an officer)
to amend or terminate the Plan. Any amendment or
termination of the Plan shall be expressed in an instrument
executed in the name of the Company. Any such amendment or
termination shall become effective as of the date designated
in such instrument or, if no such date is specified, on the
date of its execution.
(b) Notwithstanding the foregoing provisions hereof,
no amendment or termination of the Supplemental Plan shall,
without the consent of the participant (or, in the case of
his or her death, his or her beneficiary), adversely affect
(i) the benefit under the Supplemental Plan of any
participant or beneficiary then entitled to receive a
benefit under the Supplemental Plan or (ii) the right of any
participant to receive upon termination of employment with
the Company (or the right of the participant's beneficiary
to receive upon the participant's death) that benefit which
would have been received under the Supplemental Plan if such
employment of the participant had terminated immediately
prior to the amendment or termination of the Supplemental
Plan. Upon any termination of the Supplemental Plan, each
affected participant's Supplemental Plan Benefit shall be
determined and distributed to such participant in the case
of such participant's death, to his beneficiary as provided
in paragraphs 4(d), 4(e) and 4(f) as if the employment of
the participant with the Company had terminated immediately
prior to the termination of the Supplemental Plan.
9. Restriction on Competition
Following retirement a participant shall not, directly or
indirectly, undertake the planning for or organization of any
business activity competitive with the work performed by such
participant for the Company, including engaging in, owning,
managing, operating, controlling, or participating in the owner
ship, management, operation or control of any firm, corporation,
partnership or business that engages in any business of the type
conducted by the Company. If a participant engages in activity
prohibited by this section, then in addition to all other
remedies available to the Company, the Company shall be released
of any obligation under the Supplemental Plan to pay benefits to
such participant or to such participant's spouse or beneficiary
under the Supplemental Plan.
IN WITNESS WHEREOF, The Company has executed this Plan at
Canton, Ohio, this ____ day of ___________ , 1994.
THE TIMKEN COMPANY
____________________________
Vice President -
Human Resources and Logistics
C:\SMM\2\PLANS\TIMKEN.AME[SMM:es]
JANUARY 25, 1996
EXHIBIT 10.11
AMENDMENT NO. 1
TO THE
AMENDED AND RESTATED
SUPPLEMENTAL PENSION PLAN
OF THE TIMKEN COMPANY
The Timken Company hereby amends the Amended and
Restated Supplemental Pension Plan of The Timken Company (which
was last amended and restated effective January 1, 1994) (the
"Supplemental Plan") as hereinafter set forth. Words and phrases
used herein with initial capital letters that are defined in the
Supplemental Plan are used herein as so defined.
I.
New paragraphs 5 (c) and 5 (d) are hereby added
immediately following paragraph 5(b) of the Supplemental Plan to
read as follows:
"(c) Notwithstanding the provisions of paragraphs 5 (a)
and 5 (b), but subject to the approval of the Compensation
Committee as described in paragraph 5 (d), a participant described
in paragraph 2 (d) may elect to receive the benefits payable to
him under the Supplemental Plan in the form of a single lump
sum payment. The lump sum payment described in the preceding
sentence shall be calculated by converting the benefits otherwise
payable to the participant at the time such benefits are to
commence into a lump sum amount of equivalent actuarial value when
computed using the actuarial factors set forth in Exhibit A to the
Supplemental Plan. A participant described in paragraph 2 (d)
who elects to receive a single lump sum payment pursuant to
the second preceding sentence may further elect that, in the
event that the participant dies before receiving the single lump
sum payment, benefits shall be paid to the participant's surviving
spouse or other beneficiary without taking into account the
election made under the second preceding sentence. Any
election by a participant described in paragraph 2 (d) to receive
Supplemental Plan benefits in a single lump sum payment pursuant
to this paragraph 5 (c) shall be in writing on a form provided by
the Company, which form shall be filed with the Company (i) prior
to the participant's termination of employment with the Company
because of involuntary termination of employment (including by
reason of disability) or death or (ii) at least one year prior to
the participant's voluntary retirement. Any such election may be
changed or revoked by the participant at any time and from
time to time without the consent of any other person by the filing
of a later written election with the Company; provided that any
election made less than one year prior to a participant's
voluntary retirement shall not be valid, and in such case, payment
shall be made in accordance with the latest valid election of the
participant. The payment by the Company of a lump sum amount
to a participant (or his beneficiary or estate in the event of his
death) pursuant to this paragraph 5 (c) shall discharge all
obligations of the Company to such participant (or his
beneficiary or estate) under the Supplemental Plan and such
participant's Excess Agreement.
"(d) Payment of benefits in the form of a single lump
sum payment pursuant to the election of a participant under
paragraph 5 (c) is subject to the approval of the Compensation
Committee, which may, in its discretion, determine at any time
prior to payment not to permit such single lump sum payment
but, instead, to require that benefits be paid in such other form
as is permitted by the Supplemental Plan.
II.
A new Exhibit A is hereby added to the Supplemental Plan
to read as set forth in the attached Exhibit A to this Amendment.
Executed at Canton, Ohio on this ____________ day of
_______________, 1996.
THE TIMKEN COMPANY
By:
________________________________
Title:
<PAGE>
Exhibit A to the
Amended and Restated
Supplemental Pension Plan
of The Timken Company
The following actuarial factors shall be used for
purposes of computing a lump sum amount pursuant to paragraph 5
(c) of the Supplemental Plan:
Interest: Average of the 30-year Treasury bonds for the
three month period ending with the second month prior to the month
of distribution.
Mortality: 1983 Group Annuity Mortality Table (male
rates) using age nearest birthday for the employee and
the 1983 Group Annuity Mortality Table (female rates) using age
nearest birthday for the spouse.
<TABLE>
STOCK OPTION CALCULATION - EARNINGS PER SHARE
Exhibit 11 - COMPUTATION OF PER SHARE EARNINGS
(Thousands of dollars, except per share data)
Twelve Months Three Months
Ended December 31 Ended December 31
1995 1994 1995 1994
PRIMARY ------------------------ ------------------------
<S> <C> <C> <C> <C>
Average shares outstanding 31,194,368 30,949,625 31,304,466 31,039,317
Net effect of stock
options - based on the
treasury stock method using
average market price (1) (1) (1) (1)
------------------------ ------------------------
31,194,368 30,949,625 31,304,466 31,039,317
Net income (loss) $112,350 $68,464 $27,803 $25,792
Per-share amount $3.60 $2.21 $0.89 $0.83
===== ===== ===== =====
FULLY DILUTED
Average shares outstanding 31,194,368 30,949,625 31,304,466 31,039,317
Net effect of dilutive stock
options - based on the
treasury stock method using
the average quarterly market
price, if higher than exercise
price 300,637 152,471 242,578 151,553
------------------------ ------------------------
31,495,005 31,102,096 31,547,044 31,190,870
Net income (loss) $112,350 $68,464 $27,803 $25,792
Per-share amount $3.57 $2.20 $0.88 $0.83
===== ===== ===== =====
(1) Incremental number of shares excluded from calculation since they
do not have a dilutive effect.
</TABLE>
EXHIBIT 13
Financial Summary
1995 1994
(Thousands of dollars, except per share data)
Net sales $2,230,504 $1,930,351
Income before income taxes 180,174 111,323
Provision for income taxes 67,824 42,859
Net income $ 112,350 $ 68,464
Net income per share $3.60 $2.21
Dividends paid per share $1.11 $1.00
During 1995, The Timken Company achieved record sales and earnings. Net
sales grew 15.5 percent, exceeding $2 billion for the first time. Net
income increased 64.1 percent to more than $112 million. The year ended
strong, with record fourth quarter sales.
Both the Bearing and Steel Businesses improved performance in 1995.
Associates' continuous improvements in productivity, quality and cost
reductions, along with strong demand and better pricing, contributed to a
banner year. New products, processes and plants promise continued growth
for 1996.
<TABLE>
Quarterly Financial Data
Net
Income Dividends
Net Gross Net per per Stock Prices
1995 Sales Profit Income Share Share
High Low
(Thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
First Quarter $ 568,899 $138,826 $ 34,276 $ 1.10 $ .27 $ 36 1/8 $ 32 1/2
Second Quarter 585,797 133,142 31,243 1.00 .27 46 5/8 35 5/8
Third Quarter 519,463 115,551 19,028 .61 .27 48 41 7/8
Fourth Quarter 556,345 125,285 27,803 .89 .30 42 7/8 37 1/8
$2,230,504 $512,804 $112,350 $ 3.60 $ 1.11
1994
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
</TABLE>
1
<PAGE>
Management's Discussion and Analysis - Summary
In 1995, The Timken Company achieved major financial milestones, setting
new records in sales and earnings. Sales exceeded $2 billion for the first
time. The company increased sales in all industries it serves and in most
geographic markets. Higher sales volume and improved pricing, along with
actions to reduce costs, increase productivity and improve capacity
utilization, contributed to the increase in profits. These factors as well
as new product development and recent acquisitions continue to lay the
foundation for increased earnings potential.
In the Bearing Business, strong volume, improved sales mix and better
pricing improved performance, which would have been greater but for
increased employment costs and temporary inefficiencies related to the
higher level of activity. The Steel Business, despite higher raw material
costs for steel scrap and certain alloys, improved its profitability with
continued strong demand, cost reductions and improved pricing.
A program begun in December 1993 to accelerate improvement in our
manufacturing operations continues, with virtually all facilities worldwide
having completed the first stage of the process and many now in the
implementation phase. The program is reducing costs substantially and
improving service and quality. Total annual savings are expected to be at
least $200 million based on 1993 volume levels. These improvements in
manufacturing costs will be offset somewhat by inflation and expenses
related to new production initiatives.
The company completed the acquisition of Rail Bearing Service (RBS) in
early 1995. RBS remanufactures and reconditions bearings for the railroad
industry. With this acquisition, the company enhanced overall customer
service to its railroad customers by combining strengths of the two
organizations. This purchase also has allowed the company to increase
sales and expand its presence in existing railroad markets.
Capital expenditures in 1995 totaled $131.2 million and emphasized
advanced and innovative technologies for the company's plants.
The company has used these investments to improve productivity,
introduce new products and increase capacity in order to meet higher
customer demand.
During 1995's first quarter, the Steel Business announced the opening
of its Tryon Peak steel parts plant in Columbus, North Carolina. The plant
uses seamless steel tubing produced in the company's Ohio operations to
manufacture steel rings primarily for the bearing industry.
Also in the first quarter of 1995, the company's Bearing Business
broke ground for an expansion of its Altavista, Virginia, plant, where
SENSOR-PACTM bearings for anti-lock braking systems are produced. The
expansion will double the size of the facility. In addition, captial
improvements in the business' Asheboro, North Carolina, plant resulted in
improved quality and output.
During the third quarter, the company's Bearing Business introduced a
new family of custom-designed products called SpexxTM Performance Bearings.
The product line includes both tapered and cylindrical roller bearings and
provides cost-effective solutions for selective applications.
In January 1996, the company announced it entered into a definitive
agreement with FLT Prema Milmet S.A. to acquire the assets of a tapered
roller bearing business in Sosnowiec, Poland. The company expects to
complete the transaction in early 1996. The transaction is subject to
final government approval.
In June 1995, Martin D. Walker was elected a director of The Timken
Company and in August was elected to the Audit Committee. Mr. Walker is
chairman and chief executive officer of M. A. Hanna Company which is based
in Cleveland.
New leadership will drive the company's efforts to continue growth and
expansion into new markets worldwide. With the retirement of Peter J.
Ashton as head of the Bearing Business, Robert L. Leibensperger became
executive vice president and president - bearings.
The company announced a new group of experienced executives who will
take on expanded Bearing Business leadership roles upon the retirement in
1996 of Maurice Amiel, who has led the Europe, Africa and West Asia
operation and Donald L. Hart, who has led the North and South American
bearing operations. Elected as officers of the company, Jon T. Elsasser is
vice president - bearings - Europe, Africa and West Asia; James W. Griffith
is vice president - bearings - North American automotive, rail, Asia Pacific
and Latin America; and Salvatore J. Miraglia is vice president - bearings -
North American industrial and super precision.
In the Steel Business, Charles H. West, executive vice president and
president - steel, will be retiring, effective March 31, 1996. Bill J.
Bowling will succeed Mr. West and was elected an officer of the company,
effective April 1.
17
<PAGE>
Consolidated Statements of Income THE TIMKEN COMPANY AND SUBSIDIARIES
Year Ended December 31
1995 1994 1993
(Thousands of dollars,
except per share data)
Net sales $2,230,504 $1,930,351 $1,708,761
Cost of products sold 1,717,700 1,509,347 1,366,164
Gross Profit 512,804 421,004 342,597
Selling, administrative and general expenses 302,588 282,429 274,141
Impairment and restructuring charges -0- -0- 48,000
Operating Income 210,216 138,575 20,456
Interest expense (19,813) (24,872) (29,619)
Other-net (10,229) (2,380) (11,756)
Other Income (Expense) (30,042) (27,252) (41,375)
Income (Loss) Before Income Taxes and
Cumulative Effect of Accounting Changes 180,174 111,323 (20,919)
Provision (credit) for income taxes 67,824 42,859 (3,250)
Income (Loss) Before Cumulative Effect
of Accounting Changes 112,350 68,464 (17,669)
Cumulative effect of accounting changes on
prior years (net of income tax benefit
of $132,971) -0- -0- (254,263)
Net Income (Loss) $112,350 $68,464 $ (271,932)
Earnings Per Share:
Income (loss) before cumulative effect of
accounting changes $ 3.60 $ 2.21 $ (0.57)
Cumulative effect of accounting changes -0- -0- (8.29)
Net Income (Loss) Per Share $ 3.60 $ 2.21 $ (8.86)
Average number of common shares outstanding 31,194,368 30,949,625 30,680,372
See accompanying Notes to Consolidated Financial Statements on pages 25
through 33.
Management's Discussion and Analysis of the Statements of Income
1995 compared to 1994
During 1995, net sales topped $2 billion for the first time in company history
and were 15.5% greater than 1994. Worldwide demand for the company's products
remained strong throughout the year. Increased sales were achieved in all
industries and in virtually all of the company's markets except Mexico. The
company's European sales were up considerably as Europe continued its strong
recovery from the 1993 recession. Orders for aerospace products rose for the
second straight year, which strengthened demand for bearings from MPB
Corporation, a Timken Company subsidiary.
Gross profit for 1995 was $512.8 million (23% of net sales), an increase
of 21.8% over 1994's $421 million (21.8% of net sales). Higher sales volume
and improved pricing, along with gains resulting from the company's
initiatives to reduce costs, increase productivity and improve capacity
utilization, contributed to the earnings increase. During 1995, the company
operated near capacity at most of its plants. Capacity constraints reduced
operating flexibility which partially offset some of the profit gains. In
addition, higher overtime and training costs incurred to meet increased
customer demand slowed earnings growth during the year. Although the company
expects overtime costs to continue in 1996 in order to meet anticipated
demand, increases in capacity from efficiency gains, capital spending and a
larger work force should reduce the amount of overtime.
The increase in 1995's operating income to $210.2 million was in line
with the increase in gross profit as the company continued to manage
effectively its administrative costs. Despite sharply higher sales, the
18
<PAGE>
company contained selling, administrative and general expenses to
$302.6 million (13.6% of net sales) in 1995 compared to $282.4 million (14.6%
of net sales) in 1994. In the fourth quarter of 1995 the company initiated a
variable pay program for 1995 and succeeding years for most salaried
associates. The purpose of this program is to increase the linkage between
performance and pay. Accordingly, compensation costs will vary to a greater
degree based on the company's performance. The company continues to make
improvements in its administrative functions with the intent of increasing
overall effectiveness and efficiency.
The company's efforts initiated in 1993 to accelerate significantly
continuous improvement in its manufacturing plants worldwide are
progressing according to plan. The total annual reduction in the company's
manufacturing cost structure is expected to be at least $200 million based
on 1993 volume levels. This improvement in manufacturing cost will be
offset somewhat by inflation and expenses related to new production
initiatives. Based on actual experience with implementing the program, the
company has revised its initial estimate for incremental manufacturing
costs required to implement the program, such as engineering support, from
$50 million to $40 million. Initial estimates for incremental capital
expenditures related to the program have been revised from $100 million to
$125 million.
Note 2 to the Consolidated Financial Statements summarizes the $31
million reserve established in 1993 for certain costs associated with this
manufacturing cost reduction program and an administrative streamlining
program. Management believes that the remaining reserve is sufficient to
cover the cash outlays for separation costs relating to the projected
layoffs. Layoffs projected for the manufacturing cost reduction program
are 350 for 1996 and 370 in 1997 for Bearing; and 55 in 1996 and 10 in 1997
for Steel. Layoffs projected for the administrative streamlining program
are 18 in 1996 and 5 in 1997 and relate only to the Bearing Business.
Bearing Business net sales increased by 16.2% to $1.525 billion compared
to $1.312 billion in 1994. Bearing sales were higher in all industries and in
most geographic areas except Mexico. The devaluation of the Mexican peso and
the resulting economic contraction there hurt sales during 1995. A slowdown in
the Brazilian economy during the last half of the year also affected sales;
however, the business redirected excess production capacity at its Brazilian
manufacturing facility to meet high demand elsewhere. In the last half of
1995, softening of the U.S. automotive market slowed demand for passenger car
bearings. Light truck sales, which represent a larger portion of the Bearing
Business' automotive sales, remained strong. Bearing Business operating income
rose to $136.2 million in 1995, up 60.4% over the $84.9 million achieved in
1994. Strong volume, an improved sales mix and better pricing contributed to
improved profitability. These gains were offset by higher employment costs
related to the increased level of activity, which continues to require greater
than normal training, overtime and the shift of some products to less
efficient processes due to full capacity levels.
Steel Business net sales of $705.8 million were 14.2% higher than 1994's
$618 million. The business increased sales in all product lines and in all
markets. Operating income for 1995 was $74 million, up from the $53.7 million
reported in 1994. Continued strong demand, cost reductions and improved
pricing all led to the increase in profitability. Gains were offset in part by
higher raw material costs related to the purchase of steel scrap and certain
alloys, as well as inventory adjustments.
Interest expense was lower in 1995 compared to 1994, primarily due to the
lower average level of borrowing throughout the year and lower interest on
loans outstanding at the company's subsidiary in Brazil.
Other expense - net for 1995 exceeded 1994, primarily due to a favorable
currency translation adjustment in 1994 that related to the company's
subsidiary in Brazil.
Income taxes represent about 38% of income before taxes. This rate
exceeded the U.S. federal statutory rate primarily due to state and local
taxes. Taxable income in 1995 is estimated to approximate pre-tax income for
financial reporting purposes.
1994 compared to 1993
Net sales increased 13% in 1994, primarily due to higher sales volume in the
Bearing and Steel Businesses in virtually all product lines. Gross profit was
$421 million (21.8% of net sales), about 23% higher than the $342.6 million
(20% of net sales) reported in 1993. 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. During
1994, the company also began to realize savings from its initiative to
accelerate continuous improvement in its manufacturing plants worldwide that
was begun in December 1993. Higher costs for steel scrap and increased
employment and benefits costs partially offset the improvements. 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 increase in gross profit, operating income increased
significantly in 1994 to $138.6 million versus $20.5 million in 1993. The
company held its selling, administrative and general expenses to $282.4 million
(14.6% of net sales) during 1994 compared to $274.1 million (16% of net sales)
in 1993. Savings from the company's efforts to streamline administrative
activities exceeded expectations. Operating income in 1993 reflected a $48
million impairment and restructuring charge.
19
<PAGE>
Consolidated Balance Sheets THE TIMKEN COMPANY AND SUBSIDIARIES
December 31
1995 1994
(Thousands of dollars)
Assets
Current Assets
Cash and cash equivalents $ 7,262 $ 12,121
Accounts receivable, less allowances,
1995-$6,632; 1994-$6,268 284,924 263,533
Deferred income taxes 50,183 49,222
Inventories:
Manufacturing supplies 41,869 39,981
Work in process and raw materials 195,126 198,161
Finished products 130,894 94,162
367,889 332,304
Total Current Assets 710,258 657,180
Property, Plant and Equipment
Land and buildings 373,785 368,093
Machinery and equipment 1,963,665 1,861,911
2,337,450 2,230,004
Less allowances for depreciation 1,298,068 1,199,553
1,039,382 1,030,451
Other Assets
Costs in excess of net assets of acquired businesses,
net of amortization, 1995-$14,985; 1994-$11,818 102,854 91,249
Deferred income taxes 31,176 45,395
Miscellaneous receivables and other assets 27,231 26,762
Deferred charges and prepaid expenses 15,024 7,697
176,285 171,103
Total Assets $1,925,925 $1,858,734
Management's Discussion and Analysis of the Balance Sheets
The consolidated balance sheets reflect the company's ongoing commitment to
maintain a strong financial position.
Total assets increased by $67.2 million from December 31, 1994, primarily
as a result of increased accounts receivable and inventories. The increase in
accounts receivable relates primarily to the increase in sales. The company
experienced a slight increase in the number of days' sales in receivables
outstanding at December 31, 1995, compared to the previous year end. The
increase in inventories and other assets relates primarily to the higher level
of production activity. The number of days' supply in inventory at year-end
1995 declined by about 5% compared to the previous year-end level. Total
assets, including accounts receivable and inventory, also increased as a result
of the acquisition of Rail Bearing Service.
Deferred tax assets declined in 1995, reflecting the use of alternative
minimum tax credit carryforwards as well as increases in accelerated tax
depreciation. Management has evaluated the $81.4 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 increase in costs in excess of acquired businesses relates to the
company's first quarter 1995 acquisition of Rail Bearing Service, which
remanufactures TimkenTM bearings used in the railroad industry.
The company uses the LIFO method of accounting for about 80% 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
1995 1994
(Thousands of dollars)
Liabilities and Shareholders' Equity
Current Liabilities
Commercial paper $ 5,037 $ 57,759
Short-term debt 54,727 40,630
Accounts payable and other liabilities 229,096 216,568
Accrued pension contributions 43,241 29,502
Accrued postretirement benefits cost 22,765 21,932
Salaries, wages and payroll taxes 76,460 68,812
Income taxes 30,723 13,198
Current portion of long-term debt 314 30,223
Total Current Liabilities 462,363 478,624
Non-Current Liabilities
Long-term debt 151,154 150,907
Accrued pension cost 97,524 109,644
Accrued postretirement benefits cost 393,706 386,668
642,384 647,219
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) 31,354,307 shares
in 1995; 31,061,538 shares in 1994
Stated capital 53,064 53,064
Other paid-in capital 264,567 254,002
Earnings invested in the business 517,802 440,083
Foreign currency translation adjustment (14,079) (14,252)
Treasury shares at cost (1995-4,444 shares; (176) (6)
1994-180 shares)
Total Shareholders' Equity 821,178 732,891
Total Liabilities and Shareholders' Equity $1,925,925 $1,858,734
See accompanying Notes to Consolidated Financial Statements on pages 25
through 33.
Accounts payable and other liabilities increased as a result of the higher
level of activity. The company's current liability for accrued pension
contributions is higher due to a planned increase in the company's 1996 pension
contribution. The increase in income taxes payable relates to the company's
increased profitability.
Debt decreased by $68.3 million to $211.2 million in 1995 compared to
$279.5 million at year-end 1994, in spite of higher working capital needs. The
ratio of debt to total capital of 20.5% at December 31, 1995, was lower than
the 27.6% at year-end 1994, due to the significantly lower year-end debt and
the increased equity that resulted from higher earnings.
The company revised its unsecured, $300 million revolving credit
agreement effective August 15, 1995. The modifications included a pricing
change that reduced the company's fees and borrowing rates. The term of
the credit agreement was extended from August 31, 1999, to August 31, 2000.
In addition, the existing $100 million 364-day term portion of the credit
agreement was terminated on August 31, 1995, and incorporated as part of
the five-year term portion of the revised $300 million agreement.
21
<PAGE>
Consolidated Statements of Cash Flows THE TIMKEN COMPANY AND SUBSIDIARIES
Year ended December 31
1995 1994 1993
(Thousands of dollars)
Cash Provided (Used)
Operating Activities
Net income (loss) $ 112,350 $ 68,464 $ (271,932)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 123,409 119,255 118,403
Deferred income tax provision (credit) 14,390 13,902 (28,733)
Common stock issued in lieu of cash to benefit 4,317 1,517 3,924
plans
Cumulative effect of accounting changes -0- -0- 254,263
Impairment and restructuring charges -0- -0- 48,000
Changes in operating assets and liabilities:
Accounts receivable (20,228) (37,964) (27,233)
Inventories and other assets (57,821) (35,056) 10,685
Accounts payable and accrued expenses 47,568 16,079 45,944
Foreign currency translation loss 27 477 399
Net Cash Provided by Operating Activities 224,012 146,674 153,720
Investing Activities
Purchases of property, plant and (128,824) (114,221) (89,049)
equipment-net
Financing Activities
Cash dividends paid to shareholders (28,553) (26,166) (25,202)
Payments on long-term debt (30,168) (365) (2,847)
Commercial paper activity-net (52,722) (5,148) (8,824)
Short-term debt activity-net 11,792 5,735 (30,134)
Net Cash Used by Financing Activities (99,651) (25,944) (67,007)
Effect of exchange rate changes on cash (396) 328 (243)
Increase (Decrease) In Cash and Cash
Equivalents (4,859) 6,837 (2,579)
Cash and cash equivalents at beginning of year 12,121 5,284 7,863
Cash and Cash Equivalents at End of Year $7,262 $12,121 $5,284
See accompanying Notes to Consolidated Financial Statements on pages 25
through 33.
Management's Discussion and Analysis of the Statements of Cash Flows
1995 compared to 1994
Net cash provided by operating activities increased to $224 million in 1995
compared to $146.7 million in 1994. The cash generated from higher 1995 net
income was more than sufficient to cover the additional cash required for
working capital. Accounts receivable and inventory increased during 1995 by
$20.2 million and $57.8 million, respectively, as a result of the higher levels
of sales and production activity.
During 1995, cash generated by operating activities was sufficient to
support the purchases of property, plant and equipment-net which amounted to
$128.8 million compared to $114.2 million in 1994. The company is continuing
to invest in advanced and innovative technologies in its plants. Capital
investments within existing plants have allowed the company to increase
capacity needed to meet higher customer demand. The company also made capital
expenditures related to the implementation of ideas associated with its
program to accelerate continuous improvements in its manufacturing plants.
The company's debt decreased in 1995 as a result of higher net cash
provided by operating activities. The company expects that cash generated
from operating activities during 1996 will be sufficient to cover working
capital, pay dividends, fund capital expenditures and pay interest.
22
<PAGE>
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. Cash generated
from higher 1994 net income was more than offset by additional cash
required for working capital. Accounts receivable increased in 1994 by
$38 million primarily due to 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. The company's 1994 purchases of
property, plant and equipment-net were $114.2 million, compared to
$89 million in 1993. Debt at year-end 1994 was basically unchanged from
1993's level.
Management's Discussion and Analysis of Other Information
The company recognized foreign currency exchange losses of $3.8 million in
1995, $1.4 million in 1994, and $7.2 million in 1993. Included in these
amounts are exchange losses relating to the effect of Brazil's
hyperinflationary economy and the devaluation of the Mexican peso.
In 1995, the company reduced its discount rate for U.S.-based pension
and postretirement benefit plans from 8.25% to 7.25%, and made other
actuarial assumption changes in its calculation of future pension and
postretirement medical expense. As a result of these revisions and other
plan changes, the combined expense for pension and postretirement benefits
is expected to increase by approximately $11 million in 1996.
As part of the company's risk management strategies, the company has
established a formal policy with regard to derivative transactions and
maintains a management operating procedure for hedging activities. During
the three-year period ended December 31, 1995, these financial instruments
consisted primarily of foreign exchange contracts and interest rate swap
agreements. Foreign exchange contracts are an integral tool used to manage
exposure to currency rate fluctuations primarily related to purchases of
inventory and equipment. The realized and unrealized gains and losses on
these contracts are deferred and included in inventory or property, plant
and equipment, depending on the transaction. More information regarding
foreign exchange contracts is in Note 10 to the Consolidated Financial
Statements. Deferred gains and losses on foreign exchange contracts in
1993 - 1995 were not significant. The company had no interest rate swap
agreements outstanding at any time during 1995. In 1994 and 1993, the
company had outstanding interest rate swap agreements where it paid a fixed
interest rate and received a variable rate. The effect of interest rate
swaps in those years was to increase interest expense by about $3.6 million
and $3.0 million respectively. All financial instruments involve both
credit and market risks. The company addresses these risks by limiting the
duration of its foreign exchange contracts to one year and interest rate
swap agreements to five years, dealing only with major financial
institutions.
In October 1995, the Financial Accounting Standards Board (FASB)
issued Statement No. 123, "Accounting for Stock-Based Compensation", as an
alternative to APB Opinion No. 25, "Accounting for Stock Issued to
Employees". The company will continue to account for stock-based
compensation under Opinion No. 25.
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". This requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amounts. The company will adopt Statement 121 in
the first quarter of 1996 and does not believe the effect of adoption will
be material.
The company continues to focus on protecting the environment and
complying with environmental protection laws. In doing so, the company has
invested in pollution control equipment and updated plant operational
practices. The company has established adequate reserves to cover its
environmental expenses.
It is difficult to assess the possible effect of compliance with
future requirements that may differ from existing ones. The company
previously reported it expected the effect of amendments to the Clean Air
Act of 1990 on its utility suppliers would increase its costs of
electricity by $4 million to $5 million annually. Through negotiations
with the utilities, the company has limited this annual cost increase to
$1.5 million. Further, proposed regulations related to those amendments
concerning air emissions monitoring, which would have required capital
expenditures in excess of $1 million, now have been changed. If the
currently proposed regulations become final, no significant costs to comply
would be incurred by the company.
The company and certain of its U.S. subsidiaries have been designated
as potentially responsible parties (PRP's) by the United States
Environmental Protection Agency (EPA) 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 Company subsidiary have been notified by the EPA
regarding possible participation at two additional superfund sites.
Currently, neither the company nor Latrobe has been named a PRP at the
sites. Management believes 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 company has
provided for the costs of these projects, which are estimated to be
$3 million, recognizing a portion of these costs are being recovered from a
former owner of the property. MPB also filed suit against its insurance
companies for reimbursement of clean-up costs. Settlements have been
reached with two insurers and suits remain outstanding against two
companies. The full extent of reimbursement cannot be estimated. In late
1993, MPB was notified that Keene, New Hampshire city officials were
looking to MPB to contribute to the costs of cleaning up alleged soil and
groundwater contamination of a city dump. This is not a superfund site and
allegedly had been used by MPB along with many others for industrial waste
disposal. No specific monetary request has been made. City officials
recently estimated the total cost to clean up the site to be approximately
$500,000.
The company initiated work in 1995 on an environmental project at its
Canton, Ohio, location. In 1996, an environmental project will be started
at the company's Columbus, Ohio, location. Costs for these projects are
estimated to be about $1.25 million each.
23
<PAGE>
<TABLE>
Consolidated Statements of Shareholders' Equity
THE TIMKEN COMPANY AND SUBSIDIARIES
Common Stock Earnings Foreign
Other Invested Currency
Stated Paid-in in the Translation Treasury
Capital Capital Business Adjustment Stock Total
(Thousands of dollars)
Year Ended December 31, 1993
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $53,064 $241,268 $ 705,176 $(11,475) $(2,970) $ 985,063
Net loss (271,932) (271,932)
Dividends paid-$1.00 per share (30,678) (30,678)
Issuance of 217,094 shares
of common stock (1) 6,431 6,431
Issuance of 108,267 shares from
treasury, net of shares
exchanged (1) 2,969 2,969
Foreign currency translation
adjustments (net of income
taxes 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)
Issuance of 218,586 shares of
common stock (1) 6,303 6,303
Purchase of 140 shares for
treasury (1) (5) (5)
Foreign currency translation
adjustments (net of income
tax benefit of $2,603) 3,764 3,764
Balance at December 31, 1994 53,064 254,002 440,083 (14,252) (6) 732,891
Year Ended December 31, 1995
Net income 112,350 112,350
Dividends paid-$1.11 per share (34,631) (34,631)
Issuance of 292,769 shares of
common stock (1) 10,565 10,565
Purchase of 4,264 shares
for treasury (1) (170) (170)
Foreign currency translation
adjustments (net of income
tax benefit of $1,473) 173 173
Balance at December 31, 1995 $53,064 $264,567 $517,802 $(14,079) $(176) $821,178
(1) Share activity was in conjunction with various benefit and dividend
reinvestment plans.
</TABLE>
See accompanying Notes to Consolidated Financial Statements on pages 25
through 33.
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.
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 $160,293,000
and $155,842,000 greater at December 31, 1995 and 1994, 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.
Impairment of Long-Lived Assets: In March 1995, the FASB issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of." This requires impairment losses to be
recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amounts. The
company will adopt Statement 121 in the first quarter of 1996 and does not
believe the effect of adoption will be material.
Costs in Excess of Net Assets of Acquired Businesses: Costs in excess of
net assets of acquired businesses (goodwill) are amortized on the straight-
line method over 25 or 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 1995 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
$53,000,000 at December 31, 1995. 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. Foreign currency exchange losses were $3,807,000 in 1995,
$1,440,000 in 1994 and $7,246,000 in 1993.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. These estimates and assumptions are
reviewed and updated regularly to reflect recent experience.
Stock Compensation: The company grants stock options for a fixed number of
shares to employees with an exercise price equal to the fair value of the
shares at the date of grant. The company accounts for stock option grants
in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and, accordingly, recognizes no compensation expense for the
stock option grants.
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 THE TIMKEN COMPANY AND SUBSIDIARIES
2. Impairment and Restructuring Charges
Prior to 1994, it was the company's policy to recognize restructuring
and related costs when they were reasonably estimable, payment was probable
and company management and the Board of Directors approved a formal plan of
action to restructure. At that time, costs directly associated with the
restructuring plan were charged to operations and accrued. In the future,
any restructuring and related costs would 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.
In December 1993, the company initiated a restructuring program aimed
at significantly increasing continuous improvement in its manufacturing
plants worldwide. In addition, the company recorded certain charges for
additional administrative streamlining and writing off impaired assets. In
total, $48,000,000 was charged to operations in 1993; $31,000,000 relating
to the restructuring program and $17,000,000 for impaired assets.
The worldwide restructuring program is designed to improve productivity
as well as increase manufacturing efficiencies and is on target to
accelerate annual cost reductions. By the end of 1997, the program is
anticipated to reduce plant employment from 1993 levels by approximately
2,200 positions. 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 associates included in the
restructuring charge represent the incremental costs of unemployment
insurance and health care continuation associated with these layoffs. To
date, 84 associates have been laid off as a result of the program.
Separation and 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. To date, 42 associates
have been laid off due to the program. Other costs included in the
restructuring charge relate to consulting fees paid to a third party for its
cost reduction methodology and expertise, equipment that will become excess
as manufacturing processes are reconfigured, and certain travel and
rearrangement costs among plants.
The charge for asset impairment included three components; property,
plant and equipment; investment in foreign joint venture; and inventories.
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, represented 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.
<PAGE>
<TABLE>
Activity against the restructuring provision is summarized as follows (in
thousands of dollars):
Separation and
Separation Costs Consulting Relocation Costs-
Operations Fees Administrative Other Total
<S> <C> <C> <C> <C> <C>
Restructuring provision $10,800 $12,800 $ 3,000 $4,400 $31,000
1994 activity (1) (316) (9,622) (1,209) (3,822) (14,969)
1995 activity (2) (76) (3,178) (558) (578) (4,390)
Balance at December 31, 1995 $10,408 $ -0- $ 1,233 $ -0- $11,641
(1) 1994 activity consisted of cash expenditures of $11,969,000, exchange
gains of $336,000 and noncash charges of $3,336,000. No adjustments
to the reserves were made during 1994.
(2) 1995 activity consisted of cash expenditures of $4,703,000 and exchange
gains of $313,000. No adjustments to the reserves were made during 1995.
</TABLE>
3.Research and Development
Expenditures committed to research and development amounted to
approximately $35,000,000 in 1995; $36,000,000 in 1994; and $37,000,000 in
1993. Such expenditures may fluctuate from year to year depending on
special projects and needs.
26
<PAGE>
4. Financing Arrangements
Long-term debt at December 31, 1995 and 1994 was as follows:
1995 1994
(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% $103,000 $133,000
Variable rate State of Ohio Air Quality and Water
Development Revenue Refunding Bonds, maturing on
June 1, 2001 (5.10% at December 31, 1995) 21,700 21,700
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 (5.10% at December
31, 1995) 8,000 8,000
Other 1,768 1,430
151,468 181,130
Less current maturities 314 30,223
$151,154 $150,907
The aggregate maturities of long-term debt for the five years subsequent
to December 31, 1995, are as follows: 1996-$314,000; 1997-$30,348,000;
1998-$23,319,000; 1999-$15,135,000; 2000-$141,000.
Interest paid in 1995, 1994 and 1993 approximated $26,000,000,
$28,950,000 and $31,290,000, respectively. This differs from interest
expense due to timing of payments and interest capitalized of $1,900,000 in
1995, $3,145,000 in 1994, $1,700,000 in 1993 as a part of major capital
additions. The weighted average interest rate on commercial paper
borrowings during the year was 7.5% in 1995, 9.9% in 1994 and 7.8% in
1993. The weighted average interest rate on short-term debt during the
year was 8.4% in 1995, 6.4% in 1994 and 7.7% in 1993.
At December 31, 1995, the company had available $290,000,000 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.
The company and its subsidiaries lease a variety of real property and
equipment. Rent expense under operating leases amounted to $14,673,000,
$14,078,000 and $15,249,000 in 1995, 1994 and 1993, respectively. At
December 31, 1995, future minimum lease payments for noncancelable
operating leases totaled $46,412,000 and are payable as follows:
1996-$13,025,000; 1997-$9,962,000; 1998-$8,022,000; 1999-$4,509,000;
2000-$2,664,000; and $8,230,000, thereafter.
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, 1995, a total of 80,111 restricted stock rights,
restricted shares or deferred shares have been awarded and are not vested.
The company distributed 10,671 and 20,750 common shares in 1995 and 1994,
respectively, as a result of awards of restricted stock rights, restricted
shares and deferred shares.
<TABLE>
The following table summarizes certain information relative to stock
options:
1995 1994
Number Number
of Option Price of Option Price
Shares Per Share Shares Per Share
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,405,193 $21.12-$35.75 1,232,053 $21.12-$35.75
Granted 281,900 $37.38 262,200 $34.50
Exercised (217,685) $21.12-$35.75 (89,060) $22.25-$35.25
Canceled or expired (12,700) $25.75-$37.38 -0- -0-
Outstanding at end of year 1,456,708 $21.12-$35.75 1,405,193 $21.12-$35.75
Options exercisable 847,558 814,193
Reserved for future use 401,083 719,865
</TABLE>
27
<PAGE>
Notes to Consolidated Financial Statements THE TIMKEN COMPANY AND SUBSIDIARIES
6. Retirement Plans
The company and its subsidiaries sponsor a number of defined benefit
pension plans, which cover substantially all 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:
1995 1994 1993
Discount rate 7.25% 8.25% 7.5%
Future compensation assumption 3% to 4% 3% to 4% 3% to 4%
Expected long-term return on plans' assets 9.25% 9.5% 9.5%
A summary of the components of net periodic pension cost for the defined
benefit plans follows (in thousands of dollars):
1995 1994 1993
Service cost-benefits earned during the period $22,511 $23,960 $19,351
Interest cost on projected benefit obligation 80,272 73,640 73,380
Actual return on plan assets (178,085) 774 (99,202)
Net amortization and deferral 112,521 (65,498) 30,279
Total pension expense $37,219 $32,876 $23,808
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.
<TABLE>
The following table sets forth the funded status and amounts recognized
in the consolidated balance sheets at December 31, 1995 and 1994, for the
company's defined benefit plans (in thousands of dollars):
1995 1994
Plans Where Plans Where Plans Where Plans Where
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(331,965) $(523,414) $(388,564) $(334,558)
Accumulated benefit obligation $(352,567) $(622,300) $(427,920) $(398,158)
Projected benefit obligation $(393,506) $(723,420) $(498,438) $(442,737)
Plan assets at fair value(1) 410,075 521,853 470,500 308,271
Projected benefit obligation
(in excess of) or less than plan assets 16,569 (201,567) (27,938) (134,466)
Unrecognized net (gain) loss (32,008) 8,738 (2,938) (45,230)
Prior service cost not yet recognized
in net periodic pension cost 26,765 59,424 15,226 78,973
Unrecognized net asset at transition
dates, net of amortization (15,200) (3,486) (18,307) (4,466)
Net pension liability recognized
in the balance sheet $ (3,874) $(136,891) $(33,957) $(105,189)
(1) The plans' assets are primarily invested in listed stocks and bonds
and cash equivalents.
</TABLE>
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,
1995, the plans had net assets of $238,292,000, including 3,199,724 shares
of Timken Company common stock. Company contributions to the plans
amounted to $8,066,000 in 1995, $6,299,000 in 1994, and $5,936,000 in 1993.
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 9.5% declining gradually to 5.0% in 2003 and
thereafter. The weighted-average discount rate used was 7.25% in 1995 and
8.25% in 1994.
Net periodic postretirement benefits cost included the following
components (in thousands of dollars):
1995 1994 1993
Service cost $ 3,750 $ 4,408 $ 4,039
Interest cost on accumulated postretirement
benefits obligation 30,217 29,514 35,046
Net amortization and deferral (3,190) (777) -0-
Net periodic postretirement benefits cost $30,777 $33,145 $39,085
The company paid postretirement benefits of $22,906,000 in 1995;
$22,315,000 in 1994; $19,622,000 in 1993.
The following table sets forth the components of the accumulated
postretirement benefits obligation recognized in the balance sheet at
December 31, 1995 and 1994 (in thousands of dollars):
1995 1994
Accumulated postretirement benefits obligation:
Retirees $(255,476) $(255,891)
Fully eligible active plan participants (58,729) (55,104)
Other active plan participants (79,086) (74,377)
(393,291) (385,372)
Unrecognized net gain (23,180) (23,228)
Postretirement benefits obligation recognized in the
balance sheet $(416,471) $(408,600)
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, 1995 by approximately $39,000,000 and the net
periodic postretirement benefits cost for 1995 by approximately $3,350,000.
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
1994 operations.
29
<PAGE>
Notes to Consolidated Financial Statements THE TIMKEN COMPANY AND SUBSIDIARIES
8. 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 APB 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.
<TABLE>
The provision (credit) for income taxes consisted of the following:
1995 1994 1993
Current Deferred Current Deferred Current Deferred
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
United States:
Federal $38,321 $14,104 $17,426 $13,395 $16,835 $(24,047)
State and local 4,120 1,841 3,550 (58) 2,778 (1,843)
Foreign 10,993 (1,555) 7,981 565 5,870 (2,843)
$53,434 $14,390 $28,957 $13,902 $25,483 $(28,733)
</TABLE>
The company made income tax payments of approximately $38,000,000 in
1995, $33,400,000 in 1994, and $20,000,000 in 1993. 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, 1995 and 1994 was as follows:
1995 1994
(Thousands of dollars)
Deferred tax assets:
Accrued postretirement benefits cost $154,928 $152,618
Accrued pension cost 44,964 43,905
Benefit accruals 20,130 20,446
Impairment and restructuring charges 4,656 6,212
Foreign tax loss and credit carryforwards 15,588 19,901
Alternative minimum tax credit carryforwards -0- 6,080
Other-net 18,737 21,818
Valuation allowance (15,588) (19,901)
243,415 251,079
Deferred tax liability-depreciation (162,056) (156,462)
Net deferred tax asset $81,359 $94,617
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, 1995,
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>
Following is the reconciliation between the provision (credit) for income
taxes and the amount computed by applying the statutory U.S. federal income
tax rate of 35% to income (loss) before taxes:
1995 1994 1993
(Thousands of dollars)
Income tax (credit) at the statutory federal rate $63,061 $38,963 $(7,322)
Adjustments:
State and local income taxes, net of federal tax
benefit 3,876 2,270 608
Tax on foreign remittances 1,363 755 1,021
Losses without current tax benefits -0- -0- 3,668
Change in deferred tax rate upon enactment of
new tax law -0- -0- (1,981)
Other items (476) 871 756
Total income taxes (credit) $67,824 $42,859 $(3,250)
Effective income tax rate 38% 39% (16)%
9. 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.
10. Financial Instruments
As a result of the company's worldwide operating activities, it is exposed
to changes in foreign currency exchange rates which affect its results of
operations and financial condition. 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 these 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, 1995
and 1994, the company had forward exchange contracts, all having maturities
of less than one year, in amounts of $24,787,000 and $8,944,000,
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. The realized and unrealized
gains and losses on these contracts 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.
The carrying value of cash and cash equivalents, accounts receivable,
commercial paper, short-term borrowings and accounts payable are a
reasonable estimate of their fair value due to the short-term nature of
these instruments. The fair value of the company's fixed rate long-term
debt, based on discounted cash flow analysis, was $129,000,000 and
$149,000,000 at December 31, 1995 and 1994, respectively. The carrying
value of this debt was $120,000,000 and $150,000,000.
31
<PAGE>
Notes to Consolidated Financial Statements THE TIMKEN COMPANY AND SUBSIDIARIES
11. Segment Information
The Timken Company is a worldwide leader in the manufacture of antifriction
bearings and specialty alloy steels, sold principally through its own sales
organization following normal credit practices.
Sales of the company's bearings are made predominantly to manufacturers in
the automotive, machinery, railroad, aerospace and agricultural industries,
and to service replacement markets. The company's tapered roller bearings
are used in wide variety of products including passenger cars, trucks,
railroad cars and locomotives, machine tools, rolling mills, and farm and
construction equipment. Super precision bearings, in the general ball and
straight roller bearing segment, are used in aircraft, missile guidance
systems, computer peripherals and medical instruments.
Steel products include steels of intermediate alloy, low alloy and carbon
grades, vacuum processed alloys, tool steel and other custom-made steel
products including parts made from specialty steel. These are available in
a wide range of solid and tubular sections with a variety of finishes. A
significant portion of the company's steel products is consumed in its
bearing operations. In addition, sales are made to other antifriction
bearing companies and to aircraft, automotive, forging, tooling and oil and
gas drilling industries. Sales are also made to steel service centers.
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)
1995
Net sales (1) $1,524,728 $ 705,776 $2,230,504
Operating income 136,233 73,983 210,216
Assets employed at year-end 1,223,623 702,302 1,925,925
Depreciation and amortization 69,539 53,870 123,409
Capital expenditures 91,676 39,512 131,188
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
(1)Intersegment steel sales to the bearing business of $214,808,000 in
1995, $211,201,000 in 1994 and $162,133,000 in 1993 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
32
<PAGE>
<TABLE>
Information by Geographic Area United Other
States Europe Countries Consolidated
(Thousands of dollars)
1995
<S> <C> <C> <C> <C>
Net sales $1,742,286 $316,223 $171,995 $2,230,504
Operating income 178,408 7,623 24,185 210,216
Income before income taxes 153,670 5,388 21,116 180,174
Assets employed at year-end 1,597,708 243,721 84,496 1,925,925
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
(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
</TABLE>
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, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995.
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, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As described in Notes 7 and 8 to the financial statements, in 1993 the
company changed its methods of accounting for postretirement benefits,
postemployment benefits and income taxes.
ERNST & YOUNG LLP
Canton, Ohio
February 1, 1996
33
<PAGE>
Summary of Operations and Other Comparative Data
The Timken Company and Subsidiaries
(Thousands of dollars, except per share data)
___________________________________________________________________________
1995 1994 1993
___________________________________________________________________________
Statements of Income
Net sales:
Bearing $1,524,728 $1,312,323 $1,153,987
Steel 705,776 618,028 554,774
___________________________________________________________________________
Total net sales 2,230,504 1,930,351 1,708,761
Cost of products sold 1,717,700 1,509,347 1,366,164
Selling, administrative and
general expenses 302,588 282,429 274,141
Impairment and restructuring charges -0- -0- 48,000
Operating income (loss) 210,216 138,575 20,456
Earnings before interest and taxes
(EBIT) 199,987 136,195 8,700
Interest expense 19,813 24,872 29,619
Income (loss) before income taxes 180,174 111,323 (20,919)
Provision for income taxes (credit) 67,824 42,859 (3,250)
Income (loss) before extraordinary
item and cumulative effect of
accounting changes 112,350 68,464 (17,669)
Net income (loss) $ 112,350 $ 68,464 $ (271,932)
Balance Sheets
Inventory $ 367,889 $ 332,304 $ 299,783
Current assets 710,258 657,180 586,384
Working capital 247,895 178,556 153,971
Property, plant and equipment
(less depreciation) 1,039,382 1,030,451 1,024,664
Total assets 1,925,925 1,858,734 1,789,719
Total debt 211,232 279,519 276,476
Total liabilities 1,104,747 1,125,843 1,104,407
Shareholders' equity $ 821,178 $ 732,891 $ 685,312
Other Comparative Data
Net income (loss)/Total assets 5.8% 3.7% (15.2)%
Net income (loss)/Net sales 5.0% 3.5% (15.9)%
EBIT/Beginning invested capital 12.7% 9.1% 0.5%
Inventory days (FIFO) 112.6 118.4 122.8
Net sales per associate $ 130.9 $ 119.1 $ 106.9
Capital expenditures $ 131,188 $ 119,656 $ 92,940
Depreciation and amortization $ 123,409 $ 119,255 $ 118,403
Capital expenditures/Depreciation 109.1% 102.6% 80.2%
Dividends paid per share $ 1.11 $ 1.00 $ 1.00
Income (loss) before extraordinary
item and cumulative effect of
accounting changes per
share (1) (2) $ 3.60 $ 2.21 $ (0.57)
Debt to total capital 20.5% 27.6% 28.7%
Number of associates 17,034 16,202 15,985
Number of shareholders (3) 26,792 49,968 28,767
(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 the 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. The higher
count for 1994 relates to shareholders in wrap accounts at brokers.
34
<PAGE>
__________________________________________________________________________
1992 1991 1990* 1989 1988 1987 1986
___________________________________________________________________________
$1,169,035 $1,128,972 $1,173,056 $1,042,122 $1,002,412 $ 826,383 $ 762,903
473,275 518,453 527,955 490,840 551,731 403,875 295,152
___________________________________________________________________________
1,642,310 1,647,425 1,701,011 1,532,962 1,554,143 1,230,258 1,058,055
1,296,511 1,309,893 1,284,232 1,157,125 1,178,839 959,847 875,006
296,826 297,660 286,427 250,676 235,072 222,207 219,654
-0- 41,000 -0- -0- -0- -0- 80,000
48,973 (1,128) 130,352 125,161 140,232 48,204 (116,605)
42,091 (15,277) 125,155 113,710 132,745 47,891 (118,902)
28,660 26,673 26,339 17,217 20,879 25,037 25,069
13,431 (41,950) 98,816 96,493 111,866 22,854 (143,971)
8,979 (6,263) 43,574 41,148 45,954 12,535 (61,233)
4,452 (35,687) 55,242 55,345 65,912 10,319 (82,738)
$ 4,452 $ (35,687)$ 55,242 $ 55,345 $ 65,912 $ 10,319 $ 2,736
$ 310,947 $ 320,076 $ 379,543 $ 344,135 $ 350,410 $ 278,567 $ 247,615
556,017 562,496 657,865 608,224 619,456 485,163 406,206
165,553 148,950 238,486 359,773 348,322 255,910 100,716
1,049,004 1,058,872 1,025,565 932,828 941,121 957,641 976,600
1,738,450 1,759,139 1,814,909 1,565,961 1,593,031 1,466,634 1,403,529
320,515 273,104 266,392 80,647 182,341 180,805 263,219
753,387 740,168 740,208 501,157 619,315 543,541 596,907
$ 985,063 $1,018,971 $1,074,701 $1,064,804 $ 973,716 $ 923,093 $ 806,622
0.3% (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%
2.6% (0.9)% 8.3% 7.6% 9.6% 3.6% (9.2)%
138.3 140.5 163.2 167.5 161.0 162.9 165.7
$ 98.2 $ 92.9 $ 90.2 $ 88.9 $ 86.1 $ 73.6 $ 63.9
$ 139,096 $ 144,678 $ 120,090 $ 91,536 $ 78,943 $ 52,119 $ 55,175
$ 114,433 $ 109,252 $ 101,260 $ 91,070 $ 88,756 $ 84,649 $ 87,646
124.4% 135.6% 120.4% 100.5% 88.9% 61.6% 63.0%
$ 1.00 $ 1.00 $ 0.98 $ 0.92 $ 0.70 $ 0.50 $ 0.50
$ 0.15 $ (1.21) $ 1.85 $ 1.88 $ 2.34 $ 0.39 $ (3.35)
24.5% 21.1% 19.9% 7.0% 15.8% 16.4% 24.6%
16,729 17,740 18,860 17,248 18,050 16,721 16,565
31,395 26,048 25,090 22,445 21,184 22,470 23,186
*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
________ _____
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
1995 1.525 0.706
(2) Return on Net Sales (before extraordinary items and cumulative effect
of accounting changes):
Operating Income (Loss) Income (Loss)
_______________________ _____________
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%
1995 9.4% 5.0%
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
________ _________
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
1995 3.60 1.11
(2) Total Assets (in Billions of Dollars)
Bearings Steel
________ _____
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
1995 1.224 0.702
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 1, 1996, 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, 1995, 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 July 19,1990
A - Form S-3
2-97340 1985 Incentive Plan of The Timken November 19,1990
Company - Post-effective Amendment
No. 1 to Form S-8
33-36839 Voluntary Investment Program for November 19,1990
Hourly Employees of Latrobe Steel
Company - Post-effective Amendment
No. 1 to Form S-8
33-47185 The Timken Company Long-Term Incentive April 20, 1992
Plan - Form S-8
33-50872 The Timken Company Savings and August 10, 1992
Investment Pension Plan - Form S-8
33-54360 The MPB Corporation Employees' Savings November 6, 1992
Plan - Form S-8
33-62904 The Timken Company Dividend Reinvestment May 18, 1993
Plan - Form S-3
33-50609 The Ohio Hourly Pension Investment October 15, 1993
Plan - Form S-8
33-55121 Voluntary Investment Pension Plan for August 18, 1994
Hourly Employees of The Timken Company
- Form S-8
ERNST & YOUNG LLP
Canton, Ohio
March 25, 1996
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, 1995 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, 1996.
/s/ Robert Anderson /s/ Ward J. Timken
____________________________ ____________________________
Robert Anderson, Director Ward J. Timken, Director;
Vice President
/s/ Stanley C. Gault /s/ W. R. Timken, Jr.
____________________________ ____________________________
Stanley C. Gault, Director W. R. Timken, Jr.,Director;
Chairman - Board of Directors
/s/ J. Clayburn LaForce, Jr. /s/Joseph F. Toot, Jr.
____________________________ ____________________________
J. Clayburn La Force, Jr., Joseph F. Toot, Jr., Director;
Director President and Chief
Executive Officer
/s/ Robert W. Mahoney /s/ Martin D. Walker
____________________________ ____________________________
Robert W. Mahoney, Director Martin D. Walker, Director
/s/ James W. Pilz /s/ Charles H. West
____________________________ ____________________________
James W. Pilz, Director Charles H. West, Director;
Executive Vice President
and President - Steel
/s/ John M. Timken, Jr. /s/ Alton W. Whitehouse
____________________________ ____________________________
John M. Timken, Jr., Director Alton W. Whitehouse, Director
/s/ Gene E. Little
____________________________
Gene E. Little, Vice President -
Finance (Principal Financial
a:2134.poa Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
company's consolidated Balance Sheet and Profit & Loss financial statements and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 7,262
<SECURITIES> 0
<RECEIVABLES> 291,556
<ALLOWANCES> 6,632
<INVENTORY> 367,889
<CURRENT-ASSETS> 710,258
<PP&E> 2,337,450
<DEPRECIATION> 1,298,068
<TOTAL-ASSETS> 1,925,925
<CURRENT-LIABILITIES> 462,363
<BONDS> 151,154
<COMMON> 317,455
0
0
<OTHER-SE> 503,723
<TOTAL-LIABILITY-AND-EQUITY> 1,925,925
<SALES> 2,230,504
<TOTAL-REVENUES> 2,230,504
<CGS> 1,717,700
<TOTAL-COSTS> 1,717,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,813
<INCOME-PRETAX> 180,174
<INCOME-TAX> 67,824
<INCOME-CONTINUING> 112,350
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112,350
<EPS-PRIMARY> $3.60
<EPS-DILUTED> $3.57
</TABLE>
