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, 1996
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 (or for such shorter period
that the registrant was required to file such reports), 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. [ ].
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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 21, 1997, was $1,399,918,752 (representing 26,105,711 shares).
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of February 21, 1997.
Common Stock without par value --31,173,585 shares (representing a market
value of $1,671,683,496)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
December 31, 1996, 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 15, 1997, are incorporated by reference into parts III
and IV.
Exhibit Index may be found on Pages 20 through 24.
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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 tolerance, 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 drives 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. During 1996, Timken
announced plans to expand its production capacity for super precision
products through a $5 million investment at its New Philadelphia, Ohio,
plant. The expansion, which is expected to be completed in the second
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Products (cont.)
________________
quarter of 1997, will include advanced equipment to improve production
of precision bearings for machine tool customers and a new cell to
produce customized printing press bearings.
Other bearing products manufactured by Timken include cylindrical
bearings for the rolling mill market. These bearings feature straight
versus tapered rollers. In addition, Timken produces 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.
With the company's 1996 acquisition of Prema Milmet S.A. in Sosnoweic,
Poland, its early 1997 acquisition of Gnutti Carlo S.p.A. in Cogozzo,
Italy, and the company's 1996 Yantai Timken joint venture in China,
Timken has added focus to the production of products used in the
automotive, industrial and agricultural markets in Central Europe
and China.
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.
In the third quarter of 1996, Timken announced a $55 million investment
to build a rolling mill and install advanced bar processing equipment at
its Harrison Steel Plant in Canton, Ohio. This investment will position
the company as a cost and quality leader in continuous cast,
intermediate-sized alloy steel bars. The new rolling mill is expected
to be operational by mid-1998.
The company's steel products also include a product line called
Dynametal(TM) Performance Steels. Timken's associates developed this
environmentally friendly replacement for medium carbon leaded steels and
cast iron components. 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.
During 1996, Timken strengthened its tool steel distribution and
customer service capabilities by acquiring Ohio Alloy Steels, a tool
steel service center based in Youngstown, Ohio. The company will
function as a subsidiary of Latrobe Steel Company, a Timken Company
subsidiary. Growth of the tool steel distribution business continued
with the acquisition of Houghton & Richards (H&R) in the third quarter.
Based in Marlborough, Massachusetts, H&R expands the scope of products
and services to tool steel customers with a focus on flat products. It
will also operate as a Latrobe Steel subsidiary. A third addition to
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Products (cont.)
________________
Timken's tool steel distribution business was finalized in the fourth
quarter. The company acquired the tool steel finishing and distribution
businesses of Sanderson Kayser Ltd., a United Kingdom steelmaker, from
its British parent GEI International PLC. Now called Sanderson Special
Steels Limited, the operation will function as a Latrobe Steel
subsidiary.
Timken has been increasing the marketing to major customers of high volume,
semifinished components produced from its own steel. This value-
added activity is a growing portion of the business.
The company's Steel Business produces sub-components for automotive
and industrial customers at its St. Clair Precision Tubing
Components Plant in Eaton, Ohio, and its Tryon Peak Plant in
Columbus, North Carolina. The development of the precision parts
business has provided the company with the opportunity to
further expand its market for tubing and capture more higher-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 cost
less than those they now use.
In the fourth quarter of 1996, Timken announced plans to invest
$30 million in new technology to expand its steel parts manufacturing
capabilities and increase its product lines. Plans include a $15
million profile ring mill, employing proprietary manufacturing processes
and advanced process control technology, to be built at the company's
Tryon Peak Plant in Columbus, North Carolina; and a $15 million hot-
forming facility to be opened in Winchester, Kentucky. These
initiatives extend core competencies and position Timken as a prime
supplier of a variety of shaped rings.
Sales and Distribution
______________________
Timken's products in the bearing industry segment are sold principally
by its own sales organization. A major portion of the shipments are
made directly from Timken's plants and the balance from warehouses
located in a number of cities in the United States, Canada, England,
France, Germany, Mexico and Argentina. These warehouse inventories are
augmented by authorized distributor and jobber inventories throughout
the world which provide local availability when service is required.
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Sales and Distribution (cont.)
______________________________
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.
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 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 single contract.
Industry Segments
_________________
Segment information in Note 12 of the Notes to Consolidated Financial
Statements and Information by Industry and Geographic Area on pages 32
and 33 of the Annual Report to Shareholders for the year ended
December 31, 1996, 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
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Industry Segments (cont.)
_________________________
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 manufactures an anti-friction bearing known as the tapered roller
bearing. The tapered principle of bearings made by Timken permits ready
absorption of both radial and axial loads in combination. For this
reason, they are particularly well adapted to reducing friction where
shafts, gears, or wheels are used. Timken also produces super precision
ball and straight roller bearings at its MPB subsidiary. However, since
the invention of the tapered roller bearing by its founder, Timken has
maintained primary focus in its product and process technology on the
tapered roller bearing segment. This has been important to its ability
to remain a leader in the world's bearing industry. This contrasts with
the majority of its major competitors who offer a wider variety of bearing
types such as ball, straight roller, spherical roller and needle for the
general industrial and automotive markets and are, therefore, less
specialized in the tapered roller bearing segment. Timken competes with
domestic manufacturers and many foreign manufacturers of anti-friction
bearings.
The anti-friction bearing business is intensely competitive in every
country in which Timken competes. With the collapse of the former
Soviet Union and the modernization of existing capacity in many
countries, there remain substantial downward pricing pressures in the
United States and other countries even during periods of significant
demand in these markets. Moreover, international price discrimination
by certain of Timken's foreign competitors and the continued
absorption of antidumping duties by companies related to the
foreign producers in the United States create additional pricing
pressures in the United States. Imports of tapered roller bearings into
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Competition (cont.)
___________________
the United States in 1996 were $220 million, or approximately 17 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 $185 million in 1996.
To address the problem of injurious dumping by various foreign
competitors, the company has pursued its legal rights in the United
States and in other parts of the world for many years. In the United
States, antidumping orders are outstanding from cases brought by the
company in the early 1970s and in 1986. The antidumping finding issued
in 1976 pertains to tapered roller bearings from Japan that have an
outside diameter of 4 inches or less, but excluding unfinished components
or parts. The finding does not apply to one major Japanese producer.
In August 1986, the company filed an antidumping petition on behalf of
the U.S. tapered roller bearing industry with both the U.S.
International Trade Commission and the U.S. Department of Commerce
alleging that imports of tapered roller bearings (including unfinished
parts and components from six countries (China, Romania, Yugoslavia,
Italy, Hungary and Japan (to the extent not covered by the 1976
finding)) were being sold at less than fair value in the United States
and were causing material injury to the domestic industry. The U.S.
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 U.S. International Trade Commission found such imports were causing
injury to the domestic industry. The Commerce Department's notice also
identified the amount by which selling prices of the foreign producers
were less than fair value. This amount is expressed as a weighted
average percentage for each company investigated and is often referred
to as the "final margin" for a particular time period. The final
margins for Japanese producers as originally calculated in 1986-87 were
approximately 36 percent for the major producers. Final margins for
producers in other countries varied but were above 100% for one foreign
producer. If requested by foreign producers, importers, or domestic
producers, the dumping margins (if any) will be examined for a more
recent time period.
Substantial dumping margins have been found for most or all of the major
producers in Japan for most years since the antidumping orders were
issued. On March 6, 1997, the U.S. Department of Commerce issued final
margins for companies investigated for the 1994-95 time period, finding
a dumping margin for the major producer examined of over 21 percent.
Margins for certain resellers/exporters were as high as 47 percent.
Significant dumping margins continue to be found for certain producers
from other countries covered by orders. For some countries covered by
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Competition (cont.)
___________________
the orders, imports have declined or ceased. Some foreign producers and
exporters / resellers have ceased dumping. The orders were revoked for
Yugoslavia in 1995 and for Italy in 1996 as well as for selected
individual producers in the other orders over time. Importers
are required to post a cash deposit with the U.S. Customs Service equal
to the final margin from the most recent period that has been published
for a particular foreign producer from a country where an order remains
outstanding. If no dumping is found or the amount of dumping is less
than the cash deposit, the importer receives a refund with interest. If
the dumping found in the review is greater than the amount posted as a
cash deposit, the difference must be paid to the U.S. Customs Service
with interest.
Timken has remained deeply concerned about the persistence of unfair
trade practices in its major markets and has participated in the
administrative review process in the United States and elsewhere to
assure that conditions of fair trade are restored, if possible. The
company has pursued and continues to pursue legislative changes to
neutralize the price depressing effect of duty absorption that has
continued in the United States for more than 20 years in some cases.
The existence of the orders reduces the commercial harm that would
otherwise be experienced by the company from the continued dumping
practices of certain foreign competitors.
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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Backlog
_______
The backlog of orders of Timken's domestic and overseas operations is
estimated to have been $1.05 billion at December 31, 1996, and $1
billion at December 31, 1995. 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 $41,000,000 in 1996,
$35,000,000 in 1995 and $36,000,000 in 1994. 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 believes it has established adequate
reserves to cover its environmental expenses. The company has a well-
established environmental compliance audit program which was recently
expanded to include international locations.
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Environmental Issues (cont.)
____________________________
It is difficult to assess the possible effect of compliance with future
requirements that differ from existing ones. As previously reported,
the company is uncertain whether additional emission monitoring will be
required or what the cost will be when proposed emission monitoring
regulations pursuant to the Clean Air Act of 1990 are issued. The
company is also unsure of the ultimate future financial impact to the
company that could result if the United States Environmental Protection
Agency's (EPA) proposed rules to tighten the National Ambient Air
Quality Standards for fine particulate and ozone are issued without
change. These proposals could prove damaging to all manufacturing
industries.
The company and certain of its U.S. subsidiaries have been designated
as potentially responsible parties (PRPs) by the United States 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. In 1996, the company and its Latrobe Steel
subsidiary received two additional notifications from the EPA and
the company has been named a PRP at a site, but Latrobe has not, as
yet. Management believes any ultimate liability with respect to all
pending actions will not materially affect the company's operations,
cash flows or consolidated financial position.
The company's MPB Corporation subsidiary completed installation of the
second of two environmental projects at its manufacturing locations in
New Hampshire. The company had provided for the costs of these
projects, which to date have been $3 million, recognizing a portion of
these costs are being recovered from a former owner of the property.
Future operating and maintenance costs are expected to be $2.2 million.
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.
The company continued work in 1996 on an environmental project at its
Canton, Ohio, location and started one at the company's Columbus, Ohio,
location. Costs for these projects are estimated to be about
$1.25 million each.
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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, 1996, Timken had 19,130 associates. Approximately
thirty-five percent of Timken's U.S. associates are covered under a
collective bargaining agreement that expires within one year.
The company's contract with the United Steelworkers covering a portion
of its U. S. workforce expires on September 22, 1997. The company's
revenues and income could be materially reduced if a new agreement
is not reached sufficiently early.
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 21, 1997, are as follows:
Current Position and Previous
Name Age Positions During Last Five Years
____ ___ ____________________________________________
W. R. Timken, Jr. 58 1991 Chairman - Board of Directors;
Director; Officer since 1968.
J. F. Toot, Jr. 61 1991 President;
1992 President and Chief Executive Officer;
Director; Officer since 1967.
R. L. Leibensperger 58 1991 Vice President - Technology;
1995 Executive Vice President and President
- Bearings; Officer since 1986.
B. J. Bowling 55 1991 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.
L. R. Brown 61 1991 Vice President and General Counsel;
Secretary; Officer since 1990.
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Current Position and Previous
Name Age Positions During Last Five Years
____ ___ ____________________________________________
J. T. Elasser 44 1991 Director-President-Timken do Brasil;
1991 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 43 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.
G. E. Little 53 1991 Director Finance and Assistant
Treasurer;
1991 Treasurer;
1992 Vice President - Finance; Treasurer;
Officer since 1990.
S. J. Miraglia, Jr. 46 1991 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 51 1991 Director - Purchasing and Logistics;
1993 Vice President - Human Resources and
Logistics; Officer since 1993.
J. J. Schubach 60 1991 Vice President - Strategic Management;
1996 Vice President - Strategic Management
and Continuous Improvement; Officer
since 1984.
T. W. Strouble 58 1991 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.
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Current Position and Previous
Name Age Positions During Last Five Years
____ ___ ____________________________________________
W. J. Timken 54 1991 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
13,004,000 square feet, all of which, except for approximately 547,000
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 facilities in the United States are
located in Ashland, Bucyrus, Canton, Columbus and New Philadelphia,
Ohio; Altavista and Richmond, Virginia; Asheboro and Lincolnton, North
Carolina; Carlyle, Illinois; Gaffney, South Carolina; Keene and Lebanon,
New Hampshire; Knoxville, Tennessee; Lenexa, Kansas; North Little Rock,
Arkansas; and Ogden, Utah. These facilities, including the research
facility in Canton, Ohio, and warehouses at plant locations, have an
aggregate floor area of approximately 4,629,000 square feet.
Timken's bearing manufacturing plants outside the United States are
located in Ballarat, Australia; Benoni, South Africa; Cogozzo, Italy;
Colmar, France; Duston, England; Medemblik, The Netherlands; Sao Paulo,
Brazil; Singapore; Sosnowiec, Poland; St. Thomas, Canada; and Yantai,
China. The facilities, including warehouses at plant locations, have an
aggregate floor area of approximately 3,016,000 square feet.
Timken's steel manufacturing facilities in the United States are located
in Canton, Eaton, Wauseon and Wooster, Ohio; Columbus, North Carolina;
and Franklin and Latrobe, Pennsylvania. These facilities have an
aggregate floor area of approximately 5,102,000 square feet.
Timken also has a tool steel finishing and distribution facility in
Sheffield, England. This facility has an aggregate floor area of
approximately 257,000 square feet.
In addition to the manufacturing and distribution facilities discussed
above, Timken owns warehouses and steel distribution facilities in the
United States, Canada, England, France, Scotland, Germany, Mexico and
Argentina, and leases several relatively small warehouse facilities in
cities throughout the world.
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Properties (cont.)
__________________
The company is a forty percent shareholder in Tata Timken Limited, a
joint venture with The Tata Iron and Steel Company Limited. The joint
venture consists of a manufacturing facility in Jamshedpur, India,
completed in March of 1992, and four sales offices, also located in
India.
During 1996, Timken's Bearing and Steel Businesses continued to
experience high plant utilization as a result of increased sales in
most industries and geographic areas.
Timken's properties expanded significantly during 1996 and early 1997 as
a result of its five most recent acquisitions and its joint venture in
China. The company also announced plans for plant expansions in several
of its U.S. plants.
In the first quarter of 1996, Timken acquired the bearing assets of FLT
Prema Milmet S.A. in Sosnowiec, Poland. This subsidiary is now Timken
Polska Sp.z.o.o. and serves mainly the automotive, agricultural and
industrial machinery markets in Central Europe. The facility includes
floor space of approximately 835,000 square feet and employs some 800
associates.
In March, Timken joined with Yantai Bearing Factory to form the Yantai
Timken joint venture. Located in Shandong Province near the Yellow
Sea, Yantai Timken Company Limited serves mainly the Chinese automotive
and agricultural markets. The Timken Company owns 60% of the joint
venture. This facility consists of 484,000 square feet of
manufacturing space and employs about 1,400 people.
During the second quarter, Timken acquired Ohio Alloy Steels
Corporation, a tool steel service center based in Youngstown, Ohio.
The company employs about 70 people and will function as a subsidiary
of Latrobe Steel Company, a Timken Company subsidiary.
Growth of the tool steel distribution business continued with the
acquisition of Houghton & Richards Corporation (H & R) in the third
quarter. Headquartered in Marlborough, Massachusetts, H & R serves
customers from a wide base of facilities in White House, Tennessee;
Northborough, Massachusetts; Walton Hills, Ohio, Forest Park, Illinois;
and Greenville, South Carolina. The company employs about 80 people
and also will operate as a Latrobe Steel subsidiary.
In the fourth quarter, Timken finalized its acquisition of the tool
steel finishing and distribution businesses of Sanderson Kayser Ltd., a
United Kingdom steelmaker, from its British parent GEI International
PLC. Now called Sanderson Special Steels Limited, the operation
contains 257,000 square feet of manufacturing and plant warehouse space
at its tool steel finishing operations in Sheffield, England, in
addition to steel distribution sites in Birmingham, London and Wigan,
England; and Glasgow, Scotland. Sanderson Special Steels employs 145
people and will function as a Latrobe Steel subsidiary.
<PAGE>
16
Properties (cont.)
__________________
The company announced in the third quarter a $5 million investment in
its New Philadelphia Precision Tapered Bearing Business to meet
continuing high demand for its precision products. The expansion will
increase the plant's floor space by 14,000 square feet and production
capacity by 50 percent and is expected to be completed in the second
quarter of 1997.
Also in the third quarter, Timken announced plans to expand its
Canton, Ohio Harrison Steel Plant to house a new rolling mill and bar
processing equipment. The expansion, which is expected to be fully
operational by mid-1998, will result in about 119,000 square feet of
additional manufacturing space.
In February 1997, Timken announced plans to open a hot-forming facility
in Winchester, Kentucky. The Winchester Plant will be a 75,000 square
foot facility and will initially employ 30 people. The plant will begin
producing forged bearing components from Timken steel bars in May 1997.
In February 1997, Timken completed the acquisition of the tapered
roller bearing business of Gnutti Carlo S.p.A., a leading European
manufacturer located near Brescia in northern Italy. This acquisition
resulted in a 163,300 square foot increase in Timken's manufacturing
space and will strengthen the company's European presence and promote
continuing synergies among the company's other plants in Europe. This
facility employs about 120 people.
Item 3. Legal Proceedings
__________________________
The company is currently involved in negotiations with the Ohio Attorney
General's office regarding alleged violations of the company's NPDES
water discharge permits at its Canton, Ohio, location. The company
believes it has substantial defenses to the violations alleged by the
Attorney General, and that the matter will ultimately be settled for an
amount that will not be material to its financial condition or results
of operations.
In August 1994, the company's Latrobe Steel Company subsidiary was
served with a complaint filed by seven former employees in the U. S.
District Court, Western District of Pennsylvania. Each of the
employees had been terminated from employment in late 1993 as part of
the company's administrative streamlining efforts. The plaintiffs'
<PAGE>
17
Item 3. Legal Proceedings (cont.)
_________________________________
original claims of wrongful termination in violation of public policy,
breach of contract and promissory estoppel were dismissed. 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. In December 1996,
the company settled all claims for an amount not 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, 1996.
<PAGE>
18
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 number of record holders of the company's common stock
at December 31, 1996, was 9,606. The estimated number of shareholders
at December 31, 1996 was 31,813.
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, 1996, 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,
1996, 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 17-24 of the Annual Report to Shareholders for
the year ended December 31, 1996, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
____________________________________________________
The Quarterly Financial Data schedule included on Page 1, the
consolidated financial statements of the registrant and its subsidiaries
on Pages 18-24, the notes to consolidated financial statements on Pages
25-33, and the Report of Independent Auditors on Page 33 of the Annual
Report to Shareholders for the year ended December 31, 1996, are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants
______________________________________________________
on Accounting and Financial Disclosure
______________________________________
Not applicable.
<PAGE>
19
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 15, 1997, 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 15, 1997, 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 15, 1997, 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 15, 1997, and is
incorporated herein by reference.
<PAGE>
20
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 April 16, 1996) were filed with Form S-8
dated April 16, 1996 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) Fifth Amendment Agreement dated August 31, 1996, to the
amended and restated credit agreement as amended
February 23, 1993, May 31, 1994, November 15, 1994, and
August 15, 1995, between Timken and certain banks was
filed with Form 10-Q for the period ended September 30,
1996, 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-Q for the period
ended September 30, 1995, and is incorporated herein by
reference.
<PAGE>
21
Listing of Exhibits (cont.)
___________________________
(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.
(4.6) Indenture dated as of July 1, 1990, between Timken and
Ameritrust Company of New York, which was filed with
Timken's Form S-3 registration statement dated July 12,
1990, and is incorporated herein by reference.
(4.7) First Supplemental Indenture, dated as of July 24,
1996, by and between The Timken Company and Mellon
Bank, N.A. was filed with Form 10-Q for the period
ended September 30, 1996, 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 was filed
with Form 10-K for the period ended December 31, 1995,
and is incorporated herein by reference.
(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.
<PAGE>
22
Listing of Exhibits (cont.)
___________________________
(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 Timken Company Long-Term Incentive Plan for
officers and other key employees as amended and
restated as of December 20, 1995, and approved by
shareholders April 16, 1996, was filed as Appendix A to
Proxy Statement dated March 6, 1996, 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.
(10.5) The form of Severance Agreement entered into with all
Executive Officers of the company. Each differs
only as to name and date executed.
(10.6) 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.
(10.7) 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.
(10.8) 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.
<PAGE>
23
Listing of Exhibits (cont.)
___________________________
(10.9) 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.
(10.10) 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.
(10.11) The Amended and Restated Supplemental Pension Plan of
The Timken Company was filed with Form 10-K for the
period ended December 31, 1995, and is incorporated
herein by reference.
(10.12) Amendment No. 1 to the Amended and Restated
Supplemental Pension Plan of The Timken Company was
filed with Form 10-K for the period ended December 31,
1995, and is incorporated herein by reference.
(10.13) The form of The Timken Company Nonqualified Stock
Option Agreement for nontransferable options as adopted
on April 16, 1996, was filed with Form 10-Q for the
period ended March 31, 1996, and is incorporated herein
by reference.
(10.14) The form of The Timken Company Nonqualified Stock
Option Agreement for transferable options as adopted on
April 16, 1996, was filed with Form 10-Q for the period
ended March 31, 1996, and is incorporated herein by
reference.
(11) Computation of Per Share Earnings.
(13) Annual Report to Shareholders for the year ended
December 31, 1996, (only to the extent expressly
incorporated herein by reference).
(21) A list of subsidiaries of the registrant.
(23) Consent of Independent Auditors.
<PAGE>
24
Listing of Exhibits (cont.)
___________________________
(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>
25
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/ Joseph F. Toot, Jr. By /s/ G. E. Little
________________________________ _____________________________
Joseph F. Toot, Jr., Director; G. E. Little
President and Chief Executive Vice President - Finance
Officer (Principal Financial and
Accounting Officer)
Date March 27, 1997 Date March 27, 1997
________________________________ _____________________________
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 27, 1997 Date March 27, 1997
______________________________ _______________________________
By /s/ Martin D. Walker* By /s/ W. J. Timken*
______________________________ _______________________________
Martin D. Walker Director W. J. Timken Director
Date March 27, 1997 Date March 27, 1997
______________________________ _______________________________
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 27, 1997 Date March 27, 1997
______________________________ _______________________________
By /s/ J. Clayburn La Force, Jr.* By /s/ Charles H. West*
______________________________ _______________________________
J. Clayburn La Force, Jr. Director Charles H. West Director
Date March 27, 1997 Date March 27, 1997
______________________________ _______________________________
<PAGE>
26
By /s/ Robert W. Mahoney* By /s/ Alton W. Whitehouse*
______________________________ _______________________________
Robert W. Mahoney Director Alton W. Whitehouse Director
Date March 27, 1997 Date March 27, 1997
______________________________ _______________________________
By /s/ Jay A. Precourt*
______________________________ By: /s/ G. E. Little
Jay A. Precourt Director ______________________________
Date March 27, 1997 G. E. Little,attorney-in-fact
______________________________ by authority of Power of
Attorney filed as Exhibit 24
hereto
Exhibit 10.5
SEVERANCE AGREEMENT
This Severance Agreement (the "Agreement") is dated as
of the ___ day of ________, 1997, between The Timken Company, an
Ohio corporation, and ___________________ (the "Employee").
Recitals
The Employee is a key employee of The Timken Company
(the "Company") and has made and is expected to continue to make
major contributions to the profitability, growth and financial
strength of the Company.
The Company wishes to induce its key employees to
remain in the employment of the Company and to assure itself of
continuity of management in the event of any threatened or actual
change in control of the Company. The Company recognizes that a
termination of employment may occur following a change in control
in circumstances where the Employee should receive additional
compensation for services theretofore rendered and for other good
reasons, the appropriate amount of which would be difficult to
ascertain. Hence, the Company has agreed to provide as severance
benefits the amounts set forth herein.
The Company and the Employee were parties to a
Severance Agreement, as amended (the "Prior Agreement"),
providing certain benefits in the event of a Change in Control
and the Company and the Employee desire to amend and restate the
Prior Agreement.
NOW, THEREFORE, in consideration of the premises,
including the Release provided for in Section 6 hereof, the
Company and the Employee hereby agree as follows:
1. Definitions:
1.1 Limited Period: The term "Limited Period"
shall mean that period of time commencing on the date of a Change
in Control and continuing for a period of three years.
1.2 Notice of Termination: The term "Notice of
Termination" shall mean a written notice delivered to the
Employee in the manner specified in Section 8 of this Agreement,
which notice indicates the specific termination provision in this
Agreement relied upon and sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of the Employee's employment.
1.3 Change in Control: The term "Change in
Control" shall mean the occurrence of any of the following
events:
(a) All or substantially all of the assets
of the Company are sold or transferred to another
corporation or entity, or the Company is merged,
consolidated or reorganized into or with another
corporation or entity, with the result that upon
conclusion of the transaction less than 51% of the
outstanding securities entitled to vote generally
in the election of Directors ("Voting Stock") or
other capital interests of the acquiring
corporation or entity are owned, directly or
indirectly, by the holders of Voting Stock of the
Company generally prior to the transaction; or
(b) There is a report filed on Schedule 13D
or Schedule 14D-1 (or any successor schedule, form
or report), each as promulgated pursuant to the
Securities Exchange Act of 1934 (the "Exchange
Act"), disclosing that any person (as the term
"person" is used in Section 13(d)(3) or Section
14(d)(2) of the Exchange Act) has become the
beneficial owner (as the term "beneficial owner"
is defined under Rule 13d-3 or any successor rule
or regulation promulgated under the Exchange Act)
of securities representing 30% or more of the
combined voting power of the then-outstanding
Voting Stock of the Company; or
(c) The Company shall file a report or proxy
statement with the Securities and Exchange
Commission pursuant to the Exchange Act disclosing
in response to Item 1 of Form 8-K thereunder or
Item 6(e) of Schedule 14A thereunder (or any
successor schedule, form or report or item
therein) that a change in control of the Company
has or may have occurred or will or may occur in
the future pursuant to any then-existing contract
or transaction; or
(d) The individuals who, at the beginning of
any period of two consecutive calendar years,
constituted the Directors of the Company cease for
any reason to constitute at least a majority
thereof unless the nomination for election by the
Company's stockholders of each new Director of the
Company was approved by a vote of at least two-
thirds of the Directors of the Company still in
office who were Directors of the Company at the
beginning of any such period.
Notwithstanding the foregoing provisions of Section 1.3(b) or
1.3(c) hereof, unless otherwise determined in a specific case by
majority vote of the Board of Directors of the Company (the
"Board"), a "Change in Control" shall not be deemed to have
occurred for purposes of this Agreement solely because (x) the
Company, (y) an entity in which the Company directly or
indirectly beneficially owns more than 50% of the outstanding
Voting Stock (a "Subsidiary") or (z) any Company-sponsored
employee stock ownership plan or any other employee benefit plan
of the Company or any Subsidiary, or any entity holding shares of
Voting Stock for or pursuant to the terms of any such plan,
either files or becomes obligated to file a report or a proxy
statement under or in response to Schedule 13D, Schedule 14D-1,
Item 1 of Form 8-K or Item 6(e) of Schedule 14A (or any successor
schedule, form or report or item therein) under the Exchange Act,
disclosing beneficial ownership by it of shares of Voting Stock
of the Company, whether in excess of 30% or otherwise, or because
the Company reports that a change in control of the Company has
or may have occurred or will or may occur in the future by reason
of such beneficial ownership by the entities described in clauses
(x), (y) and (z) of this paragraph. The Company shall give the
Employee written notice, delivered to the Employee in the manner
specified in Section 8 hereof, of the occurrence of any event
constituting a Change in Control as promptly as practical, and in
no case later than 10 calendar days, after the occurrence of such
event.
1.4 Company Termination Event: The term "Company
Termination Event" shall mean the termination, prior to any
Employee Termination Event, of the employment of the Employee by
the Company in any of the following events:
(a) The Employee's death during the Limited Period;
(b) If the Employee shall become eligible
during the Limited Period to receive and begins
actually to receive long-term disability benefits
under The Long Term Disability Program of The
Timken Company or any successor plan as in effect
immediately prior to the date the Change in
Control occurred in an amount not less than the
benefits provided by such plans as in effect as of
such date; or
(c) For Cause. Termination shall be deemed
to have been for "Cause" only if based on the fact
that the Employee has done any of the following
acts during the Limited Period and such is
materially harmful to the Company:
(i) An intentional act
of fraud, embezzlement or theft in
connection with his duties with the
Company and resulting or intended to
result directly or indirectly in
substantial personal gain to the
Employee at the expense of the Company;
(ii) Intentional wrongful
disclosure of secret processes or
confidential information of the Company
or a Subsidiary; or
(iii) Intentional wrongful
engagement in any Competitive Activity
which would constitute a material breach
of the Employee's duty of loyalty to the
Company.
For purposes of this Agreement, the term "Competitive Activity"
shall mean the Employee's participation, without the written
consent of an officer of the Company, in the management of any
business enterprise if such enterprise engages in substantial and
direct competition with the Company and such enterprise's sales
of any product or service competitive with any product or service
of the Company amounted to 25% of such enterprise's net sales for
its most recently completed fiscal year and if the Company's net
sales of said product or service amounted to 25% of the Company's
net sales for its most recently completed fiscal year.
"Competitive Activity" shall not include (y) the mere ownership
of securities in any enterprise and exercise of rights
appurtenant thereto or (z) participation in management of any
enterprise or business operation thereof other than in connection
with the competitive operation of such enterprise.
For purposes of this Agreement, no act, or failure to act, on the
part of the Employee shall be deemed "intentional" unless done,
or omitted to be done, by the Employee not in good faith and
without reasonable belief that his action or omission was in or
not opposed to the best interest of the Company. Notwithstanding
the foregoing, the Employee shall not be deemed to have been
terminated for "Cause" hereunder unless and until there shall
have been delivered to the Employee a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters
of the Directors then in office at a meeting of the Directors
called and held for such purpose (after reasonable notice to the
Employee and an opportunity for the Employee, together with his
counsel, to be heard before the Directors), finding that, in the
good faith opinion of the Directors, the Employee had committed
an act set forth in paragraph (c) of this Section and specifying
the particulars thereof in detail. Nothing herein shall limit
the right of the Employee or his beneficiaries to contest the
validity or propriety of any such determination.
1.5 Employee Termination Event: The term
"Employee Termination Event" shall mean the termination of the
employment of the Employee (including a decision to retire if
eligible under The 1984 Retirement Plan for Salaried Employees of
The Timken Company, or any successor plan (the "Retirement
Plan")), by the Employee in any of the following events:
(a) A determination by the Employee made in
good faith that upon or after the occurrence of a
Change in Control: (i) a significant reduction or
other adverse change has occurred in the nature or
scope of the responsibilities, authorities,
duties, powers or functions of the Employee
attached to the Employee's position held
immediately prior to the Change in Control; (ii) a
change of more than 60 miles has occurred in the
location of the Employee's principal office
immediately prior to the Change in Control; or
(iii) the Employee shall be required to travel
away from his office in the course of discharging
his responsibilities or duties of his employment
more than 14 consecutive calendar days or an
aggregate of more than 90 calendar days in any
consecutive 365 calendar-day period without in
either case his approval;
(b) A failure to elect, reelect or otherwise
maintain the Employee in the office or position in
the Company or any Subsidiary which the Employee
held immediately prior to a Change in Control, or
removal of the Employee as a Director of the
Company (or a successor thereto) or a Subsidiary,
if the Employee shall have been a Director of the
Company or such Subsidiary immediately prior to
the Change in Control;
(c) A reduction by the Company in the annual
base salary payable to the Employee as in effect
on the date this Agreement becomes operative, as
the same may be increased from time to time ("Base
Salary").
For purposes of this Agreement, the
amount of any reduction in annual base salary
elected by the Employee pursuant to any qualified
or non-qualified salary reduction arrangement
maintained by the Company, including, without
limitation, The Timken Company Savings and
Investment Pension Plan (the "SIP Plan") and The
Timken Company 1996 Deferred Compensation Plan
(the "Deferred Compensation Plan"), shall be
included in the determination of Base Salary;
(d) If in any calendar year, or portion of a
calendar year, during the Limited Period in or for
which the Company pays to any employee any cash
incentive compensation (whether pursuant to the
Company's Management Performance Plan or any
successor similar plan or through any other means
(together, "Incentive Payments")), the amount of
Incentive Payments received by or awarded to the
Employee is less than an amount equal to the
Employee's Incentive Pay.
For purposes of this Agreement,
"Incentive Pay" shall mean an annual amount equal
to not less than the highest aggregate annual
amount of Incentive Payments received by or
payable to the Employee, without regard to any
reduction thereof elected by the Employee pursuant
to any qualified or non-qualified salary reduction
arrangement maintained by the Company, including,
without limitation, the SIP Plan and the Deferred
Compensation Plan, in any calendar year during the
three most recent calendar years preceding the
Termination Date in which the Company has made
Incentive Payments or in which the Company has
considered and declined to make Incentive
Payments;
(e) The failure by the Company to continue
in effect without substantial change any
compensation or benefit plan in which the Employee
participates, or the failure by the Company to
continue the Employee's participation therein, or
the taking of any action by the Company or its
Subsidiaries which would directly or indirectly
materially reduce any of the benefits of such
plans enjoyed by the Employee at the time of the
Change in Control, or the failure by the Company
or its Subsidiaries to provide the Employee with
the number of paid vacation days to which the
Employee is entitled on the basis of years of
service with the Company or its Subsidiaries in
accordance with the normal vacation policy of the
Company or of the Subsidiary by which the Employee
is employed as in effect at the time of the Change
in Control, or the taking of any other action by
the Company or its Subsidiaries which materially
adversely changes the conditions or perquisites of
the Employee's employment;
(f) The purported termination of the
Employee's employment which is not effected
pursuant to a Notice of Termination satisfying the
requirements of Section 1.2 of this Agreement,
which purported termination shall not be effective
for purposes of this Agreement; or
(g) A failure of any successor company to
execute the Agreement required by Section 7.1 of
this Agreement.
1.6 Severance Amount: The term "Severance
Amount" shall mean a lump sum amount equal to the sum of:
(a) Three times the Employee's Base Salary
for the year in which the Employee's employment is
terminated;
(b) Three times the Employee's Incentive
Pay;
(c) The Supplemental Pension Benefit;
(d) The Supplemental SIP Plan Benefit; and
(e) The Post-Tax SIP Plan Benefit.
1.7 Code: The term "Code" shall mean the
Internal Revenue Code of 1986, as amended.
1.8 Supplemental Pension Benefit: The term
"Supplemental Pension Benefit" shall mean (a) less (b), where:
(a) is the sum of the future pension
benefits (converted to a lump sum of actuarial
equivalence as of the Termination Date) which the
Employee would have been entitled to receive at or
after the Termination Date under (i) the
Retirement Plan, (ii) any annuity distributed to
the Employee as a result of the termination on
October 31, 1984 of the Retirement Plan for
Salaried Employees of The Timken Company (the
"Terminated Pension Plan"), (iii) any Employee
Excess Benefits Agreement ("Excess Agreement"),
and (iv) the Supplemental Pension Plan of The
Timken Company ("Supplemental Plan"), assuming for
purposes of this calculation that (A) the
Employee's benefits under the Retirement Plan, the
Excess Agreement and the Supplemental Plan were
vested and non-forfeitable, (B) the Employee
satisfied any other condition under the Retirement
Plan, the Excess Agreement and the Supplemental
Plan to his receipt of benefits thereunder, (C)
the Employee's compensation for purposes of the
Retirement Plan, the Excess Agreement and the
Supplemental Plan was determined without regard to
any reduction in compensation elected by the
Employee pursuant to any qualified or non-
qualified salary reduction arrangement maintained
by the Company, including, without limitation, the
SIP Plan and the Deferred Compensation Plan, (D)
the Employee was credited with additional service
with the Company equal to the period of time
between the Termination Date and the end of the
Limited Period, (E) solely for purposes of
determining the time at which the Employee would
receive benefits under the Retirement Plan, the
Terminated Pension Plan, the Excess Agreement and
the Supplemental Plan, the Employee had continued
his employment with the Company until such time,
(F) the Employee's compensation for purposes of
benefit calculations under the Retirement Plan,
the Excess Agreement and the Supplemental Plan
included a period of the Employee's full-time
employment with the Company equal to the period of
time between the Termination Date and the end of
the Limited Period during which the Employee had
Base Salary equal to his Base Salary for the
calendar year in which the Employee's employment
is terminated and Incentive Pay equal to the
Employee's Incentive Pay and (G) the Employee
commenced receiving benefits from the Retirement
Plan, the Terminated Pension Plan, the Excess
Agreement and the Supplemental Plan at the point
in time when the total of the lump sums of
actuarial equivalence under the Retirement Plan,
the Terminated Pension Plan, the Excess Agreement
and the Supplemental Plan is the greatest; and
(b) is the sum of the future pension
benefits (converted to a lump sum of actuarial
equivalence as of the Termination Date) which the
Employee is entitled to receive at or after the
Termination Date under (i) the Retirement Plan,
and (ii) any annuity distributed to the Employee
as a result of the termination on October 31, 1984
of the Terminated Pension Plan.
The calculations of the Supplemental Pension Benefit (and its
actuarial equivalence) shall be made, as of the Termination Date,
by Watson Wyatt & Company or such other independent actuary
appointed by the administrator of the Retirement Plan and
acceptable to the Employee. The lump sum of actuarial
equivalence shall be calculated using the applicable mortality
table promulgated by the Internal Revenue Service ("IRS") under
Section 417(e)(3) of the Code as in effect on the Termination
Date and the applicable interest rate promulgated by the IRS
under Section 417(e)(3) of the Code for the month third preceding
the month in which the Termination Date occurs, and if the IRS
ceases to promulgate such interest rates, an interest rate
determined by Watson Wyatt & Company or such other independent
actuary appointed by the administrator of the Retirement Plan and
acceptable to the Employee.
1.9 Supplemental SIP Plan Benefit: The
"Supplemental SIP Plan Benefit" shall mean:
(a) The amount of the matching contributions
that would have been made to the SIP Plan by the
Company and allocated to the Employee's account
thereunder as of the end of the Limited Period if
the Employee had remained in the full-time
employment of the Company until the end of the
Limited Period at his Base Salary for the calendar
year in which the Employee's employment is
terminated, at the Employee's Incentive Pay, and
assuming the Employee's salary deferral was at the
maximum permissible level; less
(b) The amount of the matching contributions
made to the SIP Plan by the Company and allocated
to the Employee's account thereunder at the
Termination Date.
1.10 Post-Tax SIP Plan Benefit: The "Post-Tax
SIP Plan Benefit" shall mean the sum of:
(a) The amount credited to the Employee's
account under the Timken Company-Latrobe Steel
Company Post-Tax SIP Plan (the "Post-Tax SIP
Plan") as of the Termination Date; plus
(b) The amount of Company contributions that
would have been credited to the Employee's account
under the Post-Tax SIP Plan from the Termination
Date to the end of the Limited Period if the
Employee had remained in the full-time employment
of the Company until the end of the Limited Period
at his Base Salary for the calendar year in which
the Employee's employment is terminated and at the
Employee's Incentive Pay, and assuming the
Employee's contributions to the Post-Tax SIP Plan
following the Termination Date had been at the
highest rate at which such contributions had been
made at any time during the three-year period
ending on the Termination Date.
1.11 Termination Date: The term "Termination
Date" shall mean the effective date on which the Employee's
employment with the Company is terminated.
2. Operation of Agreement: This Agreement shall be
effective immediately upon its execution, but anything in this
Agreement to the contrary notwithstanding, neither this Agreement
nor any of its provisions shall be operative unless and until a
Change in Control has occurred. Upon the occurrence of a Change
in Control, this Agreement and all of its provisions shall become
operative immediately.
3. Severance Compensation:
3.1 Severance Compensation: (a) If the Company
shall terminate the Employee's employment during the Limited
Period other than pursuant to a Company Termination Event, or if
the Employee shall voluntarily terminate his employment during
the Limited Period pursuant to an Employee Termination Event,
then the Company shall pay as severance compensation to the
Employee a lump sum cash payment in the amount of the Severance
Amount.
(b) Notwithstanding anything contained in this
Agreement to the contrary, in the event of a Change in Control,
the Employee may terminate his employment with the Company for
any reason, or without reason, during the 30-day period
immediately following the first anniversary of the first
occurrence of a Change in Control, with the right to severance
compensation and other benefits as provided in Section 3 hereof.
If the Employee shall so terminate his employment during such 30-
day period, then the Company shall pay as severance compensation
to the Employee a lump sum cash payment in the amount of the
Severance Amount.
(c) The payment of the Severance Amount required
by this Section 3.1 and any Gross-Up Payment initially determined
to be required by Section 3.5 shall, subject to execution and
delivery by the Employee of the Release described in Section 6
hereof, and the expiration of all applicable rights of the
Employee to revoke the Release or any provision thereof, be made
to the Employee within 30 calendar days after the Termination
Date. Upon receipt of the Severance Amount and because the
Severance Amount includes a supplemental pension benefit that the
parties intend to be paid pursuant to this Agreement in lieu of
any benefits to which the Employee is entitled under the Excess
Agreement and the Supplemental Plan, the Employee hereby
retroactively waives, upon his receipt of the Severance Amount,
participation in any non-qualified pension plan of, or benefits
under any employee excess benefits agreement with, the Company
providing for benefits in excess of those permitted by the Code
to be paid under the Retirement Plan, and which measures service
and compensation under such plan or agreement as a basis for
benefits, including, without limitation, the Excess Agreement and
the Supplemental Plan.
3.2 Compensation through Termination: The
Company shall pay the Employee (a) his full Base Salary through
the Termination Date; and (b) an amount equivalent to the
Incentive Pay multiplied by a fraction, the numerator of which is
the number of days in the current calendar year that have expired
prior to the Termination Date and the denominator of which is
three hundred sixty-five.
3.3 Set-off: There shall be no right of set-off
or counterclaim against, or delay in, any payment of the
Severance Amount or the Gross-Up Payment by the Company to the
Employee provided for in this Agreement in respect of any claim
against or debt or obligation of the Employee, whether arising
hereunder or otherwise.
3.4 Interest on Overdue Payments: Without
limiting the rights of the Employee at law or in equity, if the
Company fails to make any payment required to be made under this
Agreement on a timely basis, the Company shall pay interest on
the amount thereof at an annualized rate of interest equal to
eighteen percent (18%).
3.5 Indemnification: (a) Anything in this
Agreement to the contrary notwithstanding, in the event that this
Agreement shall become operative and it shall be determined (as
hereafter provided) that any payment or distribution by the
Company to or for the benefit of the Employee, whether paid
hereunder or paid or payable or distributed or distributable
pursuant to or by reason of any other agreement, policy, plan,
program or arrangement, including without limitation any stock
option, stock appreciation right or similar right, or the lapse
or termination of any of the foregoing (individually and
collectively a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code (or any successor provision
thereto) by reason of being considered "contingent on a change in
ownership or control" of the Company, within the meaning of
Section 280G of the Code (or any successor provision thereto), or
to any similar tax imposed by state or local law, or to any
interest or penalties with respect to such taxes (such taxes,
together with any such interest and penalties, being hereafter
collectively referred to as the "Excise Tax"), then the Employee
shall be entitled to receive an additional payment or payments
(individually and collectively, a "Gross-Up Payment"). The Gross-
Up Payment shall be in an amount such that, after payment by the
Employee of all taxes (including any interest or penalties
imposed with respect to such taxes), including any Excise Tax
imposed upon the Gross-Up Payment, the Employee retains a portion
of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payment.
(b) Subject to the provisions of paragraph (e) of
this Section 3.5, all determinations required to be made under
this Section 3.5, including whether an Excise Tax is payable by
the Employee and the amount of such Excise Tax and whether a
Gross-Up Payment is required to be paid by the Company to the
Employee and the amount of such Gross-Up Payment, if any, shall
be made by a nationally recognized accounting firm (the
"Accounting Firm") selected by the Employee in his sole
discretion. The Employee shall direct the Accounting Firm to
submit its determination and detailed supporting calculations to
both the Company and the Employee within 30 calendar days after
the Termination Date, if applicable, and any such other time or
times as may be requested by the Company or the Employee. If the
Accounting Firm determines that any Excise Tax is payable by the
Employee, the Company shall pay the required Gross-Up Payment to
the Employee within five business days after receipt of such
determination and calculations with respect to any Payment to the
Employee. If the Accounting Firm determines that no Excise Tax
is payable by the Employee, it shall, at the same time as it
makes such determination, furnish the Company and the Employee an
opinion that the Employee has substantial authority not to report
any Excise Tax on his federal income tax return. As a result of
the uncertainty in the application of Section 4999 of the Code
(or any successor provision thereto) and the possibility of
similar uncertainty regarding applicable state or local tax law
at the time of any determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made (an
"Underpayment"), consistent with the calculations required to be
made hereunder. In the event that the Company exhausts or fails
to pursue its remedies pursuant to paragraph (e) of this Section
3.5 and the Employee thereafter is required to make a payment of
the Excise Tax, the Employee shall direct the Accounting Firm to
determine the amount of the Underpayment that has occurred and to
submit its determination and detailed supporting calculations to
both the Company and the Employee as promptly as possible. Any
such Underpayment shall be promptly paid by the Company to, or
for the benefit of, the Employee within five business days after
receipt of such determination and calculations.
(c) The Company and the Employee shall each
provide the Accounting Firm access to and copies of any books,
records and documents in the possession of the Company or the
Employee, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm
in connection with the preparation and issuance of the
determinations and calculations contemplated by paragraph (b) of
this Section 3.5. Any determination by the Accounting Firm as to
the amount of the Gross-Up Payment or the Underpayment shall be
binding upon the Company and the Employee.
(d) The fees and expenses of the Accounting Firm
for its services in connection with the determinations and
calculations contemplated by paragraph (b) of this Section 3.5
shall be borne by the Company. If such fees and expenses are
initially paid by the Employee, the Company shall reimburse the
Employee the full amount of such fees and expenses within five
business days after receipt from the Employee of a statement
therefor and reasonable evidence of his payment thereof.
(e) The Employee shall notify the Company in
writing of any claim by the IRS or any other taxing authority
that, if successful, would require the payment by the Company of
a Gross-Up Payment. Such notification shall be given as promptly
as practicable but no later than 10 business days after the
Employee actually receives notice of such claim and the Employee
shall further apprise the Company of the nature of such claim and
the date on which such claim is requested to be paid (in each
case, to the extent known by the Employee). The Employee shall
not pay such claim prior to the earlier of (y) the expiration of
the 30-calendar-day period following the date on which he gives
such notice to the Company and (z) the date that any payment of
an amount with respect to such claim is due. If the Company
notifies the Employee in writing prior to the expiration of such
period that it desires to contest such claim, the Employee shall:
(i) provide the Company with any written records
or documents in his possession relating to such claim
reasonably requested by the Company;
(ii) take such action in connection with
contesting such claim as the Company shall reasonably
request in writing from time to time, including without
limitation accepting legal representation with respect to
such claim by an attorney competent in respect of the
subject matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly
all costs and expenses (including interest and penalties)
incurred in connection with such contest and shall indemnify and
hold harmless the Employee, on an after-tax basis, for and
against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without
limiting the foregoing provisions of paragraph (e), the Company
shall control all proceedings taken in connection with the
contest of any claim contemplated by paragraph (e) and, at its
sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim (provided, however, that the
Employee may participate therein at his own cost and expense) and
may, at its option, either direct the Employee to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner, and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that
if the Company directs the Employee to pay the tax claimed and
sue for a refund, the Company shall advance the amount of such
payment to the Employee on an interest-free basis and shall
indemnify and hold the Employee harmless, on an after-tax basis,
from any Excise Tax or income or other tax, including interest or
penalties with respect thereto, imposed with respect to such
advance; and provided further, however, that any extension of the
statute of limitations relating to payment of taxes for the
taxable year of the Employee with respect to which the contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of any such contested
claim shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Employee shall be
entitled to settle or contest, as the case may be, any other
issue raised by the IRS or any other taxing authority.
(f) If, after the receipt by the Employee of an
amount advanced by the Company pursuant to paragraph (e) of this
Section 3.5, the Employee receives any refund with respect to
such claim, the Employee shall (subject to the Company's
complying with the requirements of paragraph (e) of this Section
3.5) promptly pay to the Company the amount of such refund
(together with any interest paid or credited thereon after any
taxes applicable thereto). If, after the receipt by the Employee
of an amount advanced by the Company pursuant to paragraph (e) of
this Section 3.5, a determination is made that the Employee shall
not be entitled to any refund with respect to such claim and the
Company does not notify the Employee in writing of its intent to
contest such denial or refund prior to the expiration of 30
calendar days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount
of any such advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid by the Company to
the Employee pursuant to this Section 3.5.
(g) The federal, state and local income or other
tax returns filed by the Employee shall be prepared and filed on
a basis consistent with the determination of the Accounting Firm
with respect to the Excise Tax payable by the Employee. The
Employee shall make proper payment of the amount of any Excise
Tax, and at the request of the Company, provide to the Company
true and correct copies (with any amendments) of his federal
income tax return as filed with the IRS and corresponding state
and local tax returns, if relevant, as filed with the applicable
taxing authority, and such other documents reasonably requested
by the Company, evidencing such payment. If prior to the filing
of the Employee's federal income tax return, or corresponding
state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be
reduced, the Employee shall within five business days pay to the
Company the amount of such reduction.
4. No Obligation to Mitigate Damages; No Effect on
Other Contractual Rights:
4.1 The Employee shall not be required to
mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for under this Agreement
be reduced by any compensation earned by the Employee as the
result of employment by another employer after the Termination
Date, or otherwise.
4.2 The provisions of this Agreement, and any
payment provided for hereunder, shall not reduce any amounts
otherwise payable, or in any way diminish the Employee's existing
rights, or rights which would accrue solely as a result of the
passage of time, under any other employment agreement or other
contract, plan or arrangement with the Company.
5. Confidential Information; Covenant Not To Compete:
5.l The Employee acknowledges that all trade
secrets, customer lists and other confidential business
information are the exclusive property of the Company. The
Employee shall not (following the execution of this Agreement,
during the Limited Period, or at any time thereafter) disclose
such trade secrets, customer lists, or confidential business
information without the prior written consent of the Company.
The Employee also shall not (following the execution of this
Agreement, during the Limited Period, or at any time thereafter)
directly or indirectly, or by act in concert with others, employ
or attempt to employ or solicit for any employment competitive
with the Company any person(s) employed by the Company. The
Employee recognizes that any violation of this Section 5 is
likely to result in immediate and irreparable harm to the Company
for which money damages are likely to be inadequate.
Accordingly, the Employee consents to the entry of injunctive and
other appropriate equitable relief by a court of competent
jurisdiction, after notice and hearing and the court's finding of
irreparable harm and the likelihood of prevailing on a claim
alleging violation of this Section 5, in order to protect the
Company's rights under this Section. Such relief shall be in
addition to any other relief to which the Company may be entitled
at law or in equity. The Employee agrees that the state and
federal courts located in the State of Ohio shall have
jurisdiction in any action, suit or proceeding against Employee
based on or arising out of this Agreement and Employee hereby:
(a) submits to the personal jurisdiction of such courts; (b)
consents to service of process in connection with any action,
suit or proceeding against Employee; and (c) waives any other
requirement (whether imposed by statute, rule of court or
otherwise) with respect to personal jurisdiction, venue or
service of process.
5.2 For a period of time beginning upon the
Termination Date and ending upon the first anniversary of the
Termination Date, the Employee shall not (a) engage or
participate, directly or indirectly, in any Competitive Activity,
as defined in Section 1.4, or (b) solicit or cause to be
solicited on behalf of a competitor any person or entity which
was a customer of the Company during the term of this Agreement,
if the Employee had any direct responsibility for such customer
while employed by the Company.
6. Release:
Payment of the severance payments set forth in Section
3 hereof is conditioned upon the Employee executing and
delivering a release satisfactory to the Company releasing the
Company from any and all claims, demands, damages, actions and/or
causes of action whatsoever, which he may have had on account of
the termination of his employment, and including, but not limited
to claims of discrimination, including on the basis of sex, race,
age, national origin, religion, or handicapped status (with all
applicable periods during which the Employee may revoke the
Release or any provision thereof having expired), and any and all
claims, demands and causes of action for retirement benefits
(other than under the Retirement Plan, the Terminated Pension
Plan or any Company medical or life insurance plan with respect
to claims thereunder), severance or other termination pay, or
benefits under the Post-Tax SIP Plan. Such Release shall not,
however, apply to the obligations of the Company arising under
this Agreement, under any Indemnification Agreement between the
Employee and the Company, or rights of indemnification the
Employee may have under the Company's Regulations or by statute.
7. Successors and Binding Agreement:
7.1 Successors: The Company shall require any
successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business or assets of the Company by agreement in form and
substance satisfactory to the Employee, to assume and agree to
perform this Agreement.
7.2 Binding Agreement: This Agreement shall
inure to the benefit of and be enforceable by the Employee's
personal or legal representative, executor, administrators,
successors, heirs, distributees and legatees. This Agreement
shall be binding upon and inure to the benefit of the Company and
any successor of or to the Company, including, without
limitation, any person acquiring directly or indirectly all or
substantially all of the assets of the Company whether by merger,
consolidation, sale or otherwise (and such successor shall
thereafter be deemed "the Company" for the purposes of this
Agreement), but shall not otherwise be assignable by the Company.
8. Notices: For the purpose of this Agreement, all
communications provided for herein shall be in writing and shall
be deemed to have been duly given when delivered or mailed by
United States registered or certified mail, return receipt
requested, postage prepaid, addressed as indicated below, or to
such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
If to the Company: The Timken Company
1835 Dueber Avenue, S.W.
Canton, Ohio 44706
If to the Employee:
9. Governing Law: The validity, interpretation,
construction and performance of this Agreement shall be governed
by the laws of the State of Ohio, without giving effect to the
principles of conflict of laws of such State.
10. Miscellaneous: No provisions of this Agreement
may be amended, modified, waived or discharged unless such
amendment, waiver, modification or discharge is agreed to in
writing signed by the Employee and the Company. No waiver by
either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, expressed or implied with
respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement.
11. Validity: The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement which
shall remain in full force and effect.
12. Counterparts: This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same Agreement.
13. Employment Rights: Nothing expressed or implied
in this Agreement shall create any right or duty on the part of
the Company or the Employee to have the Employee remain in the
employment of the Company; provided, however, that any
termination of the employment of the Employee or removal of the
Employee as an elected officer or Director of the Company or a
Subsidiary following the commencement of any discussion with or
communication from a third party that ultimately results in a
Change in Control shall be deemed to be a termination or removal
of the Employee after a Change in Control for purposes of this
Agreement. In the event the Employee is entitled to the benefits
under this Agreement as contemplated by the preceding sentence,
then (x) the 30-calendar-day periods specified in Section 3.1(c)
hereof and Section 3.5(b) hereof shall be deemed to commence on
the date on which the Employee receives the notice contemplated
by the last sentence of Section 1.3 hereof, and (y) any
employment or consulting arrangement that the Employee has
established or entered into, and the Employee's performance
pursuant thereto, prior to receiving such notice shall not be
deemed a violation of Section 5.2 hereof, and the Employee may
continue such employment or consulting arrangement following
receipt of such notice.
14. Withholding of Taxes: The Company may withhold
from any amount payable under this Agreement all federal, state,
city or other taxes as shall be required pursuant to any law or
government regulation or ruling.
15. Nonassignability: This Agreement is personal in
nature and neither of the parties hereto shall, without the
consent of the other, assign or transfer this Agreement or any
rights or obligations hereunder, except as provided in Sections
7.1 and 7.2 above. Without limiting the foregoing, the
Employee's right to receive payments hereunder shall not be
assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than by a transfer by his
will or by the laws of descent and distribution and in the event
of any attempted assignment or transfer contrary to this Section
the Company shall have no liability to pay any amounts so
attempted to be assigned or transferred.
16. Termination of Agreement: The term of this
Agreement (the "Term") shall commence as of the date hereof and
shall expire as of the later of the close of business on December
31, 1999 and the expiration of the Limited Period; provided,
however, that (a) the Term shall automatically be extended for an
additional year unless, not later than September 30 of the
immediately preceding year, the Company or the Employee shall
have given notice that it or he, as the case may be, does not
wish to have the Term extended, and (b) subject to Section 13
hereof, if prior to a Change in Control, the Employee ceases for
any reason to be an employee of the Company, thereupon the Term
shall be deemed to have expired and this Agreement shall
immediately terminate and be of no further effect; and provided
further, however, that notwithstanding any notice by the Company
to terminate, if a Change in Control shall have occurred during
the Term, this Agreement shall continue in effect for a period of
three years from the date of the occurrence of the Change in
Control; and provided further, however, that the provisions of
Section 5.1 hereof which by their terms extend beyond the Term
shall survive beyond the Term.
17. Indemnification of Legal Fees and Expenses;
Security for Payment:
(a) Indemnification of Legal Fees. It is the intent
of the Company that the Employee not be required to incur the
expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action because the cost
and expense thereof would substantially detract from the benefits
intended to be extended to the Employee hereunder. Accordingly,
if it should appear to the Employee that the Company has failed
to comply with any of its obligations under this Agreement or in
the event that the Company or any other person takes any action
to declare this Agreement void or unenforceable, or institutes
any litigation designed to deny, or to recover from, the Employee
the benefits intended to be provided to the Employee hereunder,
the Company irrevocably authorizes the Employee from time to time
to retain counsel of his choice, at the expense of the Company as
hereafter provided, to represent the Employee in connection with
the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director,
officer, stockholder or other person affiliated with the Company,
in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such
counsel, the Company irrevocably consents to the Employee's
entering into an attorney-client relationship with such counsel,
and in that connection the Company and the Employee agree that a
confidential relationship shall exist between the Employee and
such counsel. The Company shall pay or cause to be paid and
shall be solely responsible for any and all attorneys' and
related fees and expenses incurred by the Employee as a result of
the Company's failure to perform this Agreement or any provision
hereof or as a result of the Company or any person contesting the
validity or enforceability of this Agreement or any provision
hereof as aforesaid.
(b) Trust Agreements. To ensure that the provisions
of this Agreement can be enforced by the Employee, two agreements
("Amended and Restated Trust Agreement" and "Amended and Restated
Trust Agreement No. 2") each dated as of March 26, 1991, as they
may have been or may be amended, have been established between a
Trustee selected by the members of the Compensation Committee or
any officer (the "Trustee") and the Company. The Amended and
Restated Trust Agreement sets forth the terms and conditions
relating to payment pursuant to the Amended and Restated Trust
Agreement of the Severance Amount, the Gross-Up Payment and other
payments provided for in Section 3.5 hereof pursuant to this
Agreement owed by the Company, and Amended and Restated Trust
Agreement No. 2 sets forth the terms and conditions relating to
payment pursuant to Amended and Restated Trust Agreement No. 2 of
attorneys' and related fees and expenses pursuant to paragraph
(a) of this Section owed by the Company. Employee shall make
demand on the Company for any payments due Employee pursuant to
paragraph (a) of this Section prior to making demand therefor on
the Trustee under Amended and Restated Trust Agreement No. 2.
Payments by such Trustee shall discharge the Company's liability
under paragraph (a) of this Section only to the extent that trust
assets are used to satisfy such liability.
(c) Obligation of the Company to Fund Trusts. Upon
the earlier to occur of (x) a Change in Control that involves a
transaction that was not approved by the Board, and was not
recommended to the Company's shareholders by the Board, (y) a
declaration by the Board that the trusts under the Amended and
Restated Trust Agreement and Amended and Restated Trust Agreement
No. 2 should be funded in connection with a Change in Control
that involves a transaction that was approved by the Board, or
was recommended to shareholders by the Board, or (z) a
declaration by the Board that a Change in Control is imminent,
the Company shall promptly to the extent it has not previously
done so, and in any event within five business days:
(i) transfer to the Trustee to be added to the
principal of the trust under the Amended and Restated Trust
Agreement a sum equal to the aggregate value on the date of
the Change in Control of the Severance Amount and Gross-Up
Payment which could become payable to the Employee under the
provisions of Section 3.1 and Section 3.5 hereof. The
payment of any Severance Amount, Gross-Up Payment or other
payment by the Trustee pursuant to the Amended and Restated
Trust Agreement shall, to the extent thereof, discharge the
Company's obligation to pay the Severance Amount, Gross-Up
Payment or other payment hereunder, it being the intent of
the Company that assets in such Amended and Restated Trust
Agreement be held as security for the Company's obligation
to pay the Severance Amount, Gross-Up Payment and other
payments under this Agreement; and
(ii) transfer to the Trustee to be added to the
principal of the trust under Amended and Restated Trust
Agreement No. 2 the sum authorized by the members of the
Compensation Committee from time to time. Any payments of
attorneys' and related fees and expenses, which are the
obligation of the Company under paragraph (a) of this
Section, by the Trustee pursuant to Amended and Restated
Trust Agreement No. 2 shall, to the extent thereof,
discharge the Company's obligation hereunder, it being the
intent of the Company that such assets in such Amended and
Restated Trust Agreement No. 2 be held as security for the
Company's obligation under paragraph (a) of this Section.
18. Prior Agreement: This Agreement amends and
restates in its entirety the Severance Agreement, dated
___________________, as amended, between the Company and the
Employee.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed and delivered as of the date first set
forth above.
_____________________________
THE TIMKEN COMPANY
By: _________________________
Name: W. R. Timken, Jr.
Title: Chairman -- Board of
Directors
<TABLE>
Exhibit 11 - COMPUTATION OF PER SHARE EARNINGS
(Thousands of dollars, except per share data)
Twelve Months Ended December 31
1996 1995 1994
PRIMARY --------------------------------------------
<S> <C> <C> <C>
Average shares outstanding 31,388,066 31,194,368 30,949,625
Net effect of stock
options - based on the
treasury stock method using
average market price (1) (1) (1)
--------------------------------------------
31,388,066 31,194,368 30,949,625
Net income (loss) $138,937 $112,350 $68,464
Per-share amount $4.43 $3.60 $2.21
===== ===== =====
FULLY DILUTED
Average shares outstanding 31,388,066 31,194,368 30,949,625
Net effect of dilutive stock
options - based on the
treasury stock method using
the year-end market price
if higher than exercise price 366,785 300,637 152,471
--------------------------------------------
31,754,851 31,495,005 31,102,096
Net income (loss) $138,937 $112,350 $68,464
Per-share amount $4.38 $3.57 $2.20
===== ===== =====
(1) Incremental number of shares excluded from calculation since they
do not have a dilutive effect.
</TABLE>
EXHIBIT 13
FINANCIAL SUMMARY
1996 1995
(Thousands of dollars, except per share data)
Net Sales $ 2,394,757 $ 2,230,504
Income before income taxes 225,259 180,174
Provision for income taxes 86,322 67,824
Net income $ 138,937 $ 112,350
Net income per share $ 4.43 $ 3.60
Dividends paid per share $ 1.20 $ 1.11
The Timken Company achieved record sales and earnings in 1996. Net
sales grew 7.4 percent to $2.395 billion. Net income increased
23.7 percent to $138.9 million. The year ended strong, with record
fourth quarter sales and earnings.
Both the Bearing and Steel Businesses improved performance in 1996.
<TABLE>
QUARTERLY FINANCIAL DATA
Net
Income Dividends
Net Gross Net per per Stock Prices
1996 Sales Profit Income Share Share High Low
(Thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
First Quarter $ 595,954 $ 139,215 $ 33,598 $ 1.07 $ .30 $ 47 5/8 $ 37 3/8
Second Quarter 601,553 142,389 34,524 1.10 .30 46 3/4 38
Third Quarter 581,417 137,650 31,785 1.01 .30 40 1/2 36 1/2
Fourth Quarter 615,833 154,518 39,030 1.25 .30 47 3/8 39
$2,394,757 $ 573,772 $ 138,937 $ 4.43 $ 1.20
1995
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
1
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - SUMMARY
For the last five years, The Timken Company has
emphasized growth, through both affiliations and expansion
of existing businesses, and continuous improvement in
productivity, cost reduction and customer service. In that
period the company's financial performance has been moving
upward. Sales have increased by 45%, and total shareholder
return has averaged 17.5%.
Once again in 1996, the company achieved record sales
and earnings. Net sales increased 7.4% to $2.395 billion.
Net income rose 23.7% to $138.9 million. Increased
profitability resulted from higher sales volume and a
favorable sales mix, as well as improved productivity and
cost savings from the accelerated continuous improvement
program. New product development and several acquisitions
in 1996 will promote further strategic growth worldwide.
In the Bearing Business, higher volume, a favorable
sales mix and increased productivity contributed to improved
results. Strong performance in exports and in the super
precision, automotive and industrial aftermarket segments
was also a factor.
In the Steel Business, strong demand, along with
improved productivity and cost reductions resulting from
accelerated continuous improvement efforts, improved
profitability. Higher labor and other manufacturing costs
only partially offset the savings.
The company completed four acquisitions, announced a
fifth, and inaugurated a joint venture in 1996. In the
first quarter, the company acquired the bearing assets of
FLT Prema Milmet S.A. in Sosnowiec, Poland. This subsidiary
is now Timken Polska Sp.z.o.o. and serves mainly the
automotive, agricultural and industrial machinery markets in
Central Europe. In March, the company joined with Yantai
Bearing Factory to form the Yantai Timken joint venture.
Located in Shandong Province near the Yellow Sea, Yantai
Timken Company Limited serves mainly the Chinese automotive
and agricultural markets. The Timken Company owns 60% of the
joint venture.
During the second quarter, the company strengthened
its tool steel distribution and customer service
capabilities by acquiring Ohio Alloy Steels, a tool steel
service center based in Youngstown, Ohio. The company will
function as a subsidiary of Latrobe Steel Company, a Timken
Company subsidiary.
Growth of the tool steel distribution business
continued with the acquisition of Houghton & Richards
(H & R) in the third quarter. Based in Marlborough,
Massachusetts, H & R expands the scope of products and
services to tool steel customers with a focus on flat
products. It also will operate as a Latrobe Steel
subsidiary.
Also in the third quarter, the company announced a
$55 million investment to build a rolling mill and install
advanced bar processing equipment at its Harrison Steel
Plant in Canton, Ohio. This investment will position the
company as a cost and quality leader in continuous cast,
intermediate-sized alloy steel bars. The new rolling mill
is expected to be operational by mid-1998.
The company announced in the third quarter a
$5 million investment in its New Philadelphia Precision
Tapered Bearing Business to meet continuing high
demand for its precision products. The expansion
will include advanced equipment to improve production
of precision bearings for machine tool customers and
a new cell to produce customized printing press bearings.
In the fourth quarter, the company announced plans to
invest $30 million in new technology to expand its steel parts
manufacturing capabilities and increase its product lines.
Plans include a $15 million profile ring mill, employing
proprietary manufacturing processes and advanced process
control technology, to be built at the company's Tryon
Peak Plant in Columbus, North Carolina; and a
$15 million hot-forming facility to be opened in Winchester,
Kentucky. These initiatives extend core competencies
and position the company as a prime supplier of a variety of
shaped rings.
A third addition to the company's tool steel distribution
business was finalized in the fourth quarter. The company
acquired the tool steel finishing and distribution
businesses of Sanderson Kayser Ltd., a United Kingdom
steelmaker, from its British parent GEI International PLC.
Now called Sanderson Special Steels Limited, the operation
will function as a Latrobe Steel subsidiary.
In December, the company signed a definitive agreement to
acquire the tapered roller bearing business of Gnutti Carlo S.p.A.,
a leading European manufacturer located near Brescia in northern
Italy. This acquisition, which is expected to close in 1997's
first quarter, will strengthen the company's European presence and
promote continuing synergies among the company's other plants in
Europe.
In 1996, the company made significant leadership changes.
Bill J. Bowling, Jon T. Elsasser, James W. Griffith and Salvatore J.
Miraglia, Jr., were elected officers of the company. Mr. Bowling
is executive vice president and president - steel. Mr. Elsasser
is vice president - bearings - Europe, Africa and West Asia; Mr.
Griffith is vice president - bearings - North American automotive,
rail, Asia Pacific and Latin America; and Mr. Miraglia is vice
president - bearings - North American industrial and super precision.
These changes resulted from the retirements of Charles H. West from
the Steel Business, and Maurice Amiel and Donald L. Hart from the
Bearing Business.
At the 1996 Annual Meeting of Shareholders, Jay A. Precourt was
elected to the board of directors. Mr. Precourt is vice chairman,
president and chief executive officer of Tejas Gas Corporation
headquartered in Houston, Texas.
17
<PAGE>
<TABLE>
The Timken Company CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
1996 1995 1994
(Thousands of dollars, except per share data)
<S> <C> <C> <C>
Net sales $ 2,394,757 $ 2,230,504 $ 1,930,351
Cost of products sold 1,820,985 1,717,700 1,509,347
Gross Profit 573,772 512,804 421,004
Selling, administrative and general expenses 316,515 302,588 282,429
Operating Income 257,257 210,216 138,575
Interest expense (17,899) (19,813) (24,872)
Other-net (14,099) (10,229) (2,380)
Other Income (Expense) (31,998) (30,042) (27,252)
Income Before Income Taxes 225,259 180,174 111,323
Provision for income taxes 86,322 67,824 42,859
Net Income $ 138,937 $ 112,350 $ 68,464
Net Income Per Share $ 4.43 $ 3.60 $ 2.21
Average number of common shares outstanding 31,388,066 31,194,368 30,949,625
</TABLE>
See accompanying Notes to Consolidated Financial Statements on pages 25
through 33.
Management's Discussion and Analysis of the Statements of Income
1996 compared to 1995
Net sales for 1996 increased over 1995 by 7.4% to $2.395
billion. The company achieved sales gains in the U.S. automotive,
aftermarket, super precision bearing, and specialty alloy steel
markets. Certain markets were weaker in 1996, including heavy
trucks, freight cars and locomotives in the U.S. Abroad, the
company achieved sales growth in Australia, South Africa, Mexico
and Argentina. The company's 1996 acquisitions also contributed
to the sales increase. Sales in Europe were lower in 1996
compared to 1995 due in part to weakness in the European heavy
truck, construction and agricultural equipment markets.
Gross profit for 1996 increased to $573.8 million (24% of net
sales), an 11.9% increase over 1995's gross profit of $512.8
million (23% of net sales). Improvements in productivity and the
company's efforts to accelerate continuous improvement in its
manufacturing plants contributed to this growth.
Operating income increased to $257.3 million in 1996, up from
$210.2 million in 1995. Selling, administrative, and general
expenses were $316.5 million (13.2% of net sales) in 1996 compared
to $302.6 million (13.6% of net sales) in 1995. The higher dollar
figure resulted in part from recent acquisitions; the development
and implementation of improved scheduling and product / process
costing systems; and the company's pay-for-performance plan for
salaried associates that was implemented in the fourth quarter of
1995.
The company continues to succeed in accelerating continuous
improvement in its manufacturing plants worldwide. Overall, the
company expects to achieve the anticipated $200 million reduction
in total annual manufacturing costs based on 1993 volume levels.
This improvement has been offset somewhat by inflation,
incremental costs required to implement the program and new
production initiatives. At this point, the Steel Business is
somewhat ahead of the Bearing Business in attaining savings.
18
<PAGE>
Note 10 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. To date, 417 manufacturing-
related layoffs worldwide have resulted from the program, and 49
layoffs have resulted from the administrative streamlining
effort. With the manufacturing cost reduction program
entering its final year in 1997, the company assessed the
remaining reserves during the fourth quarter of 1996. As a
result, the company reversed $5.9 million of the reserve
for separation costs-operations established in 1993 which
added to 1996's gross profit. Actual separation costs were lower
than estimated. Reasons were separated associates' having less
seniority, and volume levels' consistently exceeding the
1993 assumptions. Worldwide, the company is projecting 300
layoffs in 1997 related to the manufacturing cost reduction
program and 16 layoffs due to administrative streamlining.
Management believes that the remaining reserves are
sufficient to cover the cash outlays for the projected
layoffs.
Bearing Business net sales increased by 4.8% from
$1.525 billion in 1995 to $1.598 billion in 1996. During
1996, the Bearing Business achieved growth in several
segments, including U.S. automotive, super precision,
industrial aftermarket and exports. Sales in Australia,
South Africa, Mexico and Argentina also grew. The
acquisition in Poland and the joint venture in China, both
of which were completed in 1996, also contributed to the
sales increase. During 1996, sales in Europe were lower
compared to 1995, as were sales in Brazil where economic
problems continue to constrain business.
Bearing Business operating income grew to $155.2
million in 1996, an increase of 14% over the $136.2 million
achieved in 1995. Higher sales volume, a more favorable
sales mix, improved productivity and manufacturing cost
reductions resulting from efforts to accelerate continuous
improvement helped to increase profits. Despite a higher
per hour cost of labor, total labor costs were lower in
1996 because of less overtime and a reduction in the
business' contingency workforce as it focused more on
production schedules and manufacturing output in order to
more effectively manage inventories. Profitability at the
company's European and MPB operations also improved. To
manage inventory effectively, the company cut back
operations at selected plants in the fourth quarter, which
resulted in higher fixed manufacturing costs and reduced
operating income.
Steel Business net sales totaled $796.7 million, up
12.9% from $705.8 million in 1995. The increase was due
primarily to improved sales of large bars, steel parts and
automotive tubing, along with specialty steel at the
company's Latrobe Steel subsidiary. Modest price
improvement along with sales from new acquisitions - Ohio
Alloy Steels and Houghton & Richards - also contributed to
the higher sales.
Operating income was $102 million in 1996, up 37.8% from
the $74 million reported in 1995. Higher sales volume
combined with modest price increases contributed to the
increase in income. Improvements in productivity and cost
reductions related to accelerated continuous improvement
efforts exceeded the higher cost of labor and other
manufacturing expenses.
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
1996 is estimated to approximate pre-tax income for
financial reporting purposes.
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.
Increased sales were achieved in all industries and in
virtually all of the company's markets except Mexico.
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. Costs resulting from
capacity constraints which reduced operating
flexibility partially offset some of the profit gains.
Higher overtime and training costs incurred to meet
increased customer demand also slowed earnings growth
during the year. Operating income increased to $210.2
million and was in line with the increase in gross profit
as the company continued to manage effectively its
administrative costs. The company contained its 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 which
contributed to 1995's expense.
19
<PAGE>
The Timken Company CONSOLIDATED BALANCE SHEETS
December 31
1996 1995
(Thousands of dollars)
ASSETS
Current Assets
Cash and cash equivalents $ 5,342 $ 7,262
Accounts receivable, less allowances, 1996-$7,062;
1995-$6,632 313,932 284,924
Deferred income taxes 54,852 50,183
Inventories:
Manufacturing supplies 40,150 41,869
Work in process and raw materials 241,691 195,126
Finished products 137,666 130,894
Total Inventories 419,507 367,889
Total Current Assets 793,633 710,258
Property, Plant and Equipment
Land and buildings 397,895 373,785
Machinery and equipment 2,085,305 1,963,665
2,483,200 2,337,450
Less allowances for depreciation 1,388,871 1,298,068
Property, Plant and Equipment - Net 1,094,329 1,039,382
Other Assets
Costs in excess of net assets of acquired
businesses, net of amortization,
1996-$18,670; 1995-$14,985 125,018 102,854
Deferred income taxes 3,803 31,176
Miscellaneous receivables and other assets 32,175 27,231
Deferred charges and prepaid expenses 22,380 15,024
Total Other Assets 183,376 176,285
Total Assets $2,071,338 $1,925,925
Management's Discussion and Analysis of the Balance Sheets
The consolidated balance sheets reflect the company's
commitment to maintain its strong capital structure through
effective debt management.
Total assets increased by $145.4 million from December 31,
1995, primarily due to assets of acquired companies, higher
accounts receivable and an increase in inventories. The higher
accounts receivable balance relates primarily to the sales
increase. The number of days' sales in receivables at
December 31, 1996, was actually lower than the year-end 1995
level. The increase in inventories and other assets relates
primarily to the higher level of activity. In 1996, the
company continued to emphasize more effective management of
its inventories, but the timing of the company's recent
acquisitions raised the number of days' supply in inventory
at the end of 1996 to 118 days compared to 112.6 days
at the end of 1995.
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 if it were based on replacement value.
20
<PAGE>
December 31
1996 1995
(Thousands of dollars)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Commercial paper $ 46,977 $ 5,037
Short-term debt 59,457 54,727
Accounts payable and other liabilities 237,020 229,096
Accrued pension contributions 18,724 43,241
Accrued postretirement benefits cost 19,746 22,765
Salaries, wages and payroll taxes 86,556 76,460
Income taxes 29,072 30,723
Current portion of long-term debt 30,396 314
Total Current Liabilities 527,948 462,363
Non-Current Liabilities
Long-term debt 165,835 151,154
Accrued pension cost 56,568 97,524
Accrued postretirement benefits cost 398,759 393,706
Total Non-Current Liabilities 621,162 642,384
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-200,000,000 shares
Issued (including shares in treasury) 31,525,201
shares in 1996; 31,354,307 shares in 1995
Stated capital 53,064 53,064
Other paid-in capital 270,840 264,567
Earnings invested in the business 619,061 517,802
Foreign currency translation adjustment (12,799) (14,079)
Treasury shares at cost (1996-201,756 shares;
1995-4,444 shares) (7,938) (176)
Total Shareholders' Equity 922,228 821,178
Total Liabilities and Shareholders' Equity $ 2,071,338 $ 1,925,925
See accompanying Notes to Consolidated Financial Statements on
pages 25 through 33.
Accrued pension liabilities decreased as a result of additional
contributed funds to the company's pension plans during the third
quarter of 1996.
Debt of $302.7 million at December 31, 1996, exceeded the
$211.2 million at year-end 1995. In addition to funding the
pension plans, cash was required for the purchase of property,
plant and equipment, to finance the company's acquisitions and
other growth initiatives and to buy back shares of the company's
stock. The 24.7% debt to total capital ratio was higher than the
20.5% at year-end 1995. While debt increased by $91.5 million in
1996, total shareholders' equity increased by $101.1 million.
On August 31, 1996, the company revised its unsecured,
$300 million revolving credit agreement. A pricing change
reduced the company's borrowing costs, and the term of the
agreement was extended from August 31, 2000, to August 31, 2001.
21
<PAGE>
<TABLE>
The Timken Company CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31
1996 1995 1994
(Thousands of dollars)
CASH PROVIDED (USED)
Operating Activities
<S> <C> <C> <C>
Net income $ 138,937 $ 112,350 $ 68,464
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 126,457 123,409 119,255
Deferred income tax provision 23,216 14,390 13,902
Common stock issued in lieu of cash to
benefit plans 4,862 4,317 1,517
Changes in operating assets and liabilities:
Accounts receivable (18,348) (20,228) (37,964)
Inventories and other assets (25,398) (57,821) (35,056)
Accounts payable and accrued expenses (63,100) 47,568 16,079
Foreign currency translation (gain) loss (215) 27 477
Net Cash Provided by Operating Activities 186,411 224,012 146,674
Investing Activities
Purchases of property, plant and equipment-net (150,728) (128,824) (114,221)
Acquisitions (85,459) -0- -0-
Net Cash Used by Investing Activities (236,187) (128,824) (114,221)
Financing Activities
Cash dividends paid to shareholders (30,244) (28,383) (26,161)
Purchases of treasury shares (13,786) (170) (5)
Proceeds from issuance of long-term debt 45,000 -0- -0-
Payment on long-term debt (288) (30,168) (365)
Commercial paper activity-net 41,940 (52,722) (5,148)
Short-term debt activity-net 5,521 11,792 5,735
Net Cash Provided (Used) by Financing
Activities 48,143 (99,651) (25,944)
Effect of exchange rate changes on cash (287) (396) 328
Increase (Decrease) In Cash and Cash
Equivalents (1,920) (4,859) 6,837
Cash and cash equivalents at beginning of year 7,262 12,121 5,284
Cash and Cash Equivalents at End of Year $ 5,342 $ 7,262 $ 12,121
</TABLE>
See accompanying Notes to Consolidated Financial Statements on
pages 25 through 33.
Management's Discussion and Analysis of the Statements of Cash Flows
1996 compared to 1995
Net cash provided by operating activities was $186.4 million
in 1996, compared to $224 million in 1995. The cash generated
from income in 1996 was more than sufficient to cover the
additional cash required for working capital. "Accounts
receivable" and "inventories and other assets" increased during
1996 by $18.3 million and $25.4 million, respectively, as a result
of higher sales and production activity.
Purchases of property, plant and equipment-net during the
twelve months ended December 31, 1996, were $150.7 million
compared to $128.8 million one year earlier. The company also
invested $85.5 million in acquisitions. The company continues to
invest in activities consistent with its strategy to strengthen
its core bearing and alloy steel leadership position. Recent
acquisitions, along with capital investments in the company's
existing operations worldwide and planned research and
development expenditures, are serving to accelerate growth and
strengthen positions in new and existing markets.
The company's debt increased in 1996. Cash was required to
fund the company's pension plans, to purchase property, plant
and equipment, to finance acquisitions and other growth
22
<PAGE>
initiatives and to buy back shares of the company's stock.
The company expects that cash generated from income during
1997 will be sufficient to cover working capital, pay
dividends, fund capital expenditures and pay interest. Any
further cash needs will be met by added short-term borrowing and
issuance of notes.
1995 compared to 1994
Net cash provided by operating activities increased to
$224 million in 1995 compared to $146.7 million in 1994. Cash
generated from higher 1995 income was more than sufficient to
cover the additional cash required for working capital.
"Accounts receivable" and "inventories and other assets"
increased during 1995 by $20.2 million and $57.8 million,
respectively, as a result of higher sales and production activity.
The company's 1995 purchases of property, plant and equipment-net
were $128.8 million compared to $114.2 million in 1994. Debt at
year-end 1995 was lower than 1994's level as a result of higher
higher net cash provided by operating activities.
Management's Discussion and Analysis of Other Information
The company recognized foreign currency exchange losses of
$1.4 million in 1996, $3.8 million in 1995 and $1.4 million in
1994. The 1995 loss was greater due to exchange losses relating
to the effect of Brazil's hyperinflationary economy and the
devaluation of the Mexican peso.
The company's contract with the United Steelworkers covering
a portion of its U.S. workforce expires on September 22, 1997.
If an agreement is not reached sufficiently early, sales and
income could be reduced.
As part of the company's risk management strategies, various
financial instruments are used in the normal course of business.
With regard to derivative transactions, the company has
established a formal policy and maintains a management operating
procedure for hedging activities. During the three-year period
ended December 31, 1996, these financial instruments consisted
primarily of foreign exchange contracts. Foreign exchange
contracts are an integral tool used to manage exposure to
currency rate fluctuations primarily related to purchases of
inventory and equipment. Because these contracts qualify for
accounting as designated hedges, the realized and unrealized
gains and losses are deferred and included in inventory or
property, plant and equipment, depending on the transaction.
More information regarding foreign exchange contracts is in Note
11 to the Consolidated Financial Statements. Deferred gains and
losses on foreign exchange contracts in 1994 - 1996 were not
significant. 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 by
dealing only with major financial institutions.
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 believes it has
established adequate reserves to cover its environmental
expenses. The company has a well-established environmental
compliance audit program which was recently expanded to include
international locations.
It is difficult to assess the possible effect of compliance
with future requirements that differ from existing ones. As
previously reported, the company is uncertain whether additional
emission monitoring will be required or what the cost will
be when proposed emission monitoring regulations pursuant to the
Clean Air Act of 1990 are issued. The company is also unsure of the
ultimate future financial impact to the company that could result
if the United States Environmental Protection Agency's (EPA)
proposed rules to tighten the National Ambient Air Quality
Standards for fine particulate and ozone are issued without
change. Unless based soundly on scientific data, these proposals
could prove damaging to all manufacturing industries.
The company and certain of its U.S. subsidiaries have been
designated as potentially responsible parties (PRPs) by the
United States 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. In 1996, the company and its Latrobe Steel
subsidiary have received two additional notifications from the
EPA and the company has been named a PRP at a site, but Latrobe
has not, as yet. Management believes any ultimate liability
with respect to all pending actions will not materially affect
the company's operations, cash flows or consolidated financial
position.
The company's MPB Corporation subsidiary completed
installation of the second of two environmental projects at its
manufacturing locations in New Hampshire. The company had
provided for the costs of these projects, which to date have been
$3 million, recognizing a portion of these costs are being
recovered from a former owner of the property. Future operating
and maintenance costs are expected to be $2.2 million. 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.
The company continued work in 1996 on an environmental
project at its Canton, Ohio, location and started one at the
company's Columbus, Ohio, location. Costs for these projects
are estimated to be about $1.25 million each.
23
<PAGE>
<TABLE>
The Timken Company CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
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, 1994
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 53,064 $ 247,699 $ 402,566 $ (18,016) $ (1) $ 685,312
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 (5) (5)
Foreign currency translation
adjustments (net 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 (170) (170)
Foreign currency translation
adjustments (net income
tax benefit of $1,473) 173 173
Balance at December 31, 1995 53,064 264,567 517,802 (14,079) (176) 821,178
Year Ended December 31, 1996
Net income 138,937 138,937
Dividends paid-$1.20 per share (37,678) (37,678)
Issuance of 170,894 shares of
common stock(1) 6,273 6,273
Purchase of 362,300 shares for
treasury (13,786) (13,786)
Issuance of 164,988 shares from
treasury(1) 6,024 6,024
Foreign currency translation
adjustments (net income
tax benefit of $958) 1,280 1,280
Balance at December 31, 1996 $ 53,064 $ 270,840 $ 619,061 $ (12,799) $ (7,938) $ 922,228
</TABLE>
(1) Share activity was in conjunction with various benefit and
dividend reinvestment plans.
See accompanying Notes to Consolidated Financial Statements on
pages 25 through 33.
Management's Discussion and Analysis of Other Information
(Continued)
The statements set forth in this annual report that are not
historical in nature are forward-looking statements. The company
cautions readers that actual results may differ materially from
those projected or implied in forward-looking statements made by or
on behalf of the company due to a variety of important factors, such
as:
a) changes in world economic conditions. This includes, but is
not limited to, the potential instability of governments and
legal systems in countries in which the company conducts
business, and significant changes in currency valuations.
b) changes in customer demand as they affect sales and product
mix. This includes the effect of customer strikes and the
impact of changes in industrial business cycles.
c) competitive factors, including changes in market penetration
and the introduction of new products by existing and new
competitors.
d) changes in operating costs. This includes the effect of
changes in the company's manufacturing processes; changes in
costs associated with varying levels of operations; changes
resulting from inventory management initiatives and different
levels of customer demands; the effects of unplanned work
stoppages; changes in the cost of labor and benefits; and the
cost and availability of raw materials and energy.
e) the success of the company's operating plans, including its
ability to achieve the total planned benefits of its continuous
improvement programs, its ability to integrate acquisitions
into company operations, the ability of recently acquired
companies to meet satisfactory operating results and the
company's ability to conclude timely collective bargaining
agreements without loss of customer orders.
f) unanticipated litigation, claims or assessments. This
includes, but is not limited to, claims or problems related
to product warranty and environmental issues.
24
<PAGE>
The Timken Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $166,818,000 and $160,293,000 greater at December 31, 1996
and 1995, respectively.
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. The useful
lives are approximately 30 years for buildings and range from 3
to 20 years for machinery and equipment.
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 1996 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 $67,000,000 at December 31, 1996.
Accordingly, U.S. income taxes have not be 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 $1,358,000 in 1996, $3,807,000 in 1995 and $1,440,000
in 1994.
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.
Environmental Costs: The company will adopt the American
Institute of Certified Public Accountants Statement of Position
96-1, "Environmental Remediation Liabilities," in the first quarter of
1997 and does not believe the effect of adoption will be material.
SOP 96-1 was issued in October 1996, and provides authoritative
guidance on the recognition, measurement, display and disclosure of
environmental remediation liabilities.
Stock Compensation: The company has elected to follow
Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in
accounting for its stock options to key associates and directors.
Under APB Opinion No. 25, because the exercise price of the
company's stock options equals the market price of the underlying
common stock on the date of grant, no compensation expense is
recognized.
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>
The Timken Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.Acquisitions
During 1996, the company made the following acquisitions, each of
which was accounted for as a purchase:
April 1996 - The bearing manufacturing operations of FLT
Prema Milmet S. A., a Polish company engaged in the
manufacture of automotive, agricultural and industrial
machinery bearings, serving primarily the Central European
market.
May 1996 - Ohio Alloy Steels, Inc. (OAS), a specialty tool
steel service center located in Youngstown, Ohio
August 1996 - Houghton & Richards, Inc. (H&R), a tool steel
distributor headquartered in Marlborough, Massachusetts.
December 1996 - The assets relating to the steel tool
finishing and distribution businesses of Sanderson Kayser Ltd.
(SK), of Sheffield, England.
The OAS, H&R and SK acquisitions will operate as subsidiaries of
Latrobe Steel Company, a wholly owned subsidiary. The
consolidated financial statements include the results of operations
of each of these businesses from the date of acquisition. Pro forma
results of operations have not been presented because the effects of
these acquisitions were not significant.
Total cost of the acquisitions in 1996 amounted to $85,459,000. A
portion of the purchase price has been allocated to the assets
and liabilities acquired based on their fair values at the dates of
acquisition. The fair value of these assets and liabilities,
subject to finalization of the purchase price allocation for H&R
and SK, was $68,709,000 and $11,843,000, respectively. The excess
of the purchase price over the fair value of net assets acquired
has been allocated to the intangible asset, "costs in excess of
net assets of acquired businesses."
In March 1996, the company joined with Yantai Bearing Factory to
form the Yantai Timken Company Limited joint venture. The
company holds a 60% interest in the joint venture, which will
provide tapered roller bearings to the Chinese automotive and
agricultural markets.
In December 1996, the company signed a definitive agreement to
acquire certain assets of Gnutti Carlo, S.p.A., a manufacturer
of medium-sized industrial bearings located near Brescia,
Italy. The acquisition is expected to be completed in the first
quarter of 1997 and will not be significant.
3.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.
Under these plans, the price of stock options granted equals
the market price of the company's common stock at the date of grant.
The options have a ten-year term and vest in 25% increments annually
beginning twelve months after the date of grant.
A summary of activity related to stock options for the above
plan is as follows for the years ended December 31:
<TABLE>
1996 1995 1994
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning of year 1,456,708 $33.03 1,405,193 $31.54 1,232,053 $30.64
Granted 327,000 44.13 281,900 37.38 262,200 34.50
Exercised (218,936) 31.12 (217,685) 28.97 (89,060) 27.87
Canceled or expired (18,775) 36.25 (12,700) 33.69 -0- -0-
Outstanding - end of year 1,545,997 $35.61 1,456,708 $33.03 1,405,193 $31.54
Options execisable 891,022 847,558 814,193
Reserved for future use 45,615 401,083 719,865
</TABLE>
Exercise prices for options outstanding as of December 31, 1996
range from $22.25 to $44.13 and the weighted-average remaining
contractual life of these options is seven years. At December
31, 1996, a total of 106,851 restricted stock rights, restricted
shares or deferred shares have been awarded under both of the
above plans and are not vested. The company distributed
20,503 and 10,671 common shares in 1996 and 1995, respectively,
as a result of awards of restricted stock rights, restricted
shares and deferred shares.
Application of the fair value method of accounting for the
company's stock compensation plans in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation," results in net income and
earnings per share that are not materially different from amounts
reported.
26
<PAGE>
4.Retirement Plans
The company and its subsidiaries sponsor a number of defined
benefit pension plans, which cover substantially all of their
associates except those at certain non-U.S. locations who are
covered by government plans. These plans provide benefits
primarily based on associates' compensation. In general, the
company's funding policy is to contribute amounts to the plans
sufficient to meet the minimum funding requirements set forth
by regulations of each country, such as the Employee Retirement
Income Security Act of 1974, plus such additional amounts as the
company may determine to be appropriate.
In arriving at the pension obligation and net periodic pension
costs for the company's plans, the consulting actuary used
certain assumptions as follows:
1996 1995 1994
Discount rate 7.5% 7.25% 8.25%
Future compensation assumption 3 % to 4% 3% to 4% 3% to 4%
Expected long-term return on plan assets 9.25% 9.25% 9.5%
A summary of the components of net periodic pension cost for the
defined benefit plans follows:
1996 1995 1994
(Thousands of dollars)
Service cost-benefits
earned during the period $ 27,319 $ 22,511 $ 23,960
Interest cost on projected benefit
obligation 84,195 80,272 73,640
Actual return on plan assets (110,773) (178,085) 774
Net amortization and deferral 40,569 112,521 (65,498)
Total pension expense $ 41,310 $ 37,219 $ 32,876
The following table sets forth the funded status and amounts
recognized in the consolidated balance sheets at December 31,
1996 and 1995, for the company's defined benefit plans:
<TABLE>
1996 1995
Plans Where Plans Where Plans Where
Assets Assets Accumulated
Exceed Exceed Benefits
Accumulated Accumulated Exceed
Benefits Benefits Assets
(Thousands of dollars)
Actuarial present value of benefit
obligations:
<S> <C> <C> <C>
Vested benefit obligation $ (892,535) $ (331,965) $ (523,414)
Accumulated benefit obligation $ (1,017,239) $ (352,567) $ (622,300)
Projected benefit obligation $ (1,145,852) $ (393,506) $ (723,420)
Plan assets at fair value(1) 1,099,576 410,075 521,853
Projected benefit obligation
(in excess of) or less than plan assets (46,276) 16,569 (201,567)
Unrecognized net gain (loss) (95,047) (32,008) 8,738
Prior service cost not yet recognized
in net periodic pension cost 81,927 26,765 59,424
Unrecognized net asset at transition dates,
net of amortization (15,896) (15,200) (3,486)
Net pension liability recognized
in the balance sheets $ (75,292) $ (3,874) $ (136,891)
</TABLE>
(1) Plan assets are primarily invested in listed stocks
and bonds and cash equivalents.
The company also sponsors defined contribution retirement and
savings plans covering substantially all associates in the United
States. The company contributes Timken Company common stock to
certain plans based on formulas established in the respective plan
agreements. At December 31, 1996, the plans had net assets of
$355,513,000, including 3,358,528 shares of Timken Company common
stock. Company contributions to the plans amounted to $9,652,000
in 1996, $8,066,000 in 1995 and $6,299,000 in 1994.
27
<PAGE>
The Timken Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Postretirement Benefits
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 9.0% declining gradually to 5.25% in
2003 and thereafter. The weighted-average discount rate used was
7.5% in 1996 and 7.25% in 1995.
Net periodic postretirement benefits cost included the
following components:
1996 1995 1994
(Thousands of dollars)
Service cost $ 4,332 $ 3,750 $ 4,408
Interest cost on accumulated
postretirement benefits obligation 28,299 30,217 29,514
Net amortization and deferral (4,610) (3,190) (777)
Net periodic postretirement benefits cost $ 28,021 $ 30,777 $ 33,145
The company paid postretirement benefits of $25,987,000 in
1996; $22,906,000 in 1995; and $22,315,000 in 1994.
The following table sets forth the components of the
accumulated postretirement benefits obligation recognized in the
balance sheets at December 31, 1996 and 1995:
1996 1995
(Thousands of dollars)
Accumulated postretirement benefits obligation:
Retirees $ (253,234) $ (255,476)
Fully eligible active plan participants (65,040) (58,729)
Other active plan participants (79,683) (79,086)
(397,957) (393,291)
Unrecognized net loss 29,230 33,031
Unrecognized prior service cost (49,778) (56,211)
Postretirement benefits obligation recognized
in the balance sheets $ (418,505) $ (416,471)
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, 1996, by
approximately $36,000,000 and the net periodic postretirement
benefits cost for 1996 by approximately $2,850,000.
6.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, cash flows or
consolidated financial position.
28
<PAGE>
7.Financing Arrangements
Long-term debt at December 31, 1996 and 1995 was as follows:
1996 1995
(Thousands of dollars)
Fixed Rate Medium - Term Notes, Series A, due at
various dates through October 2026, with
interest rates ranging from 6.78% to 9.25% $ 148,000 $ 103,000
Variable rate State of Ohio Air Quality and Water
Development Revenue Refunding Bonds, maturing
on June 1, 2001 (4.10% at December 31, 1996) 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
(4.10% at December 31, 1996) 8,000 8,000
Other 1,531 1,768
196,231 151,468
Less current maturities 30,396 314
$ 165,835 $ 151,154
The aggregate maturities of long-term debt for the five years
subsequent to December 31, 1996, are as follows:
1997-$30,396,000; 1998-$23,331,000; 1999-$14,152,000; 2000-$142,000;
and 2001-$21,851,000.
Interest paid in 1996, 1995 and 1994 approximated
$18,500,000, $26,000,000 and $28,950,000, respectively. This
differs from interest expense due to timing of payments and
interest capitalized of $1,800,000 in 1996, $1,900,000 in 1995,
and $3,145,000 in 1994 as a part of major capital additions. The
weighted-average interest rate on commercial paper borrowings
during the year was 5.5% in 1996, 7.5% in 1995 and 9.9% in 1994.
The weighted-average interest rate on short-term debt during the
year was 6.3% in 1996, 8.4% in 1995 and 6.4% in 1994.
At December 31, 1996, the company had available $253,000,000
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 company and its subsidiaries lease a variety of real
property and equipment. Rent expense under operating leases
amounted to $14,580,000, $14,673,000 and $14,078,000 in 1996, 1995
and 1994, respectively. At December 31, 1996, future minimum lease
payments for noncancelable operating leases totaled $44,609,000
and are payable as follows: 1997-$13,438,000; 1998-$10,433,000;
1999-$6,339,000; 2000-$4,589,000; 2001-$3,255,000; and $6,555,000,
thereafter.
8.Research and Development
Expenditures committed to research and development amounted
to approximately $41,000,000 in 1996; $35,000,000 in 1995;
and $36,000,000 in 1994. Such expenditures may fluctuate from
year to year depending on special projects and needs.
29
<PAGE>
<TABLE>
The Timken Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Income Taxes
The provision (credit) for income taxes consisted of the following:
1996 1995 1994
Current Deferred Current Deferred Current Deferred
(Thousands of dollars)
United Sates:
<S> <C> <C> <C> <C> <C> <C>
Federal $ 47,120 $ 20,596 $ 38,321 $ 14,104 $ 17,426 $ 13,395
State and local 6,271 2,573 4,120 1,841 3,550 (58)
Foreign 9,715 47 10,993 (1,555) 7,981 565
$ 63,106 $ 23,216 $ 53,434 $ 14,390 $ 28,957 $ 13,902
</TABLE>
The company made income tax payments of approximately $54,100,000 in
1996, $38,000,000 in 1995 and $33,400,000 in 1994. 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 DecemberE31, 1996 and 1995 was as follows:
1996 1995
(Thousands of dollars)
Deferred tax assets:
Accrued postretirement benefits cost $ 156,178 $ 154,928
Accrued pension cost 25,565 44,964
Benefit accruals 22,803 20,130
Foreign tax loss and credit carryforwards 10,734 15,588
Other-net 23,016 23,393
Valuation allowance (10,734) (15,588)
227,562 243,415
Deferred tax liability-depreciation (168,907) (162,056)
Net deferred tax asset $ 58,655 $ 81,359
Following is the reconciliation between the provision for income
taxes and the amount computed by applying the statutory U.S.
federal income tax rate of 35% to income before income taxes:
1996 1995 1994
(Thousands of dollars)
Income tax at the statutory federal rate $ 78,841 $ 63,061 $ 38,963
Adjustments:
State and local income taxes,
net of federal tax benefit 5,749 3,876 2,270
Tax on foreign remittances 944 1,363 755
Other items 788 (476) 871
Provision for income taxes $ 86,322 $ 67,824 $ 42,859
Effective income tax rate 38% 38% 39%
30
<PAGE>
10.Impairment and Restructuring Charges
In December 1993, the company initiated a restructuring program
aimed at significantly increasing continuous improvement in its
manufacturing plants worldwide. In addition, 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. A reserve was established
in 1993 for separation costs associated with the reduction of 865
plant associates worldwide by the end of 1997. To date, 417
associates have been laid off. Separation and relocation costs for
administrative associates were provided for the reduction of 65
salaried associates in Europe, South America and the United States
and for relocation costs of certain salaried associates in the
United States. As of December 31, 1996, 49 salaried associates
have been laid off as a result of the program.
Activity against the restructuring provision is summarized as follows:
<TABLE>
Separation and
Separation Costs - Consulting Relocation Costs-
Operations Fees Administrative Other Total
(Thousands of dollars)
<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 (1) (76) (3,178) (558) (578) (4,390)
1996 activity (2) (7,430) -0- (593) -0- (8,023)
Balance at
December 31, 1996 $ 2,978 $ -0- $ 640 $ -0- $ 3,618
</TABLE>
(1) 1994 and 1995 activity consisted primarily of cash expenditures.
No adjustments to the reserves were made in 1994 and 1995.
(2) 1996 activity consisted of cash expenditures of $2,121,000. With
the restructuring program entering its final year in 1997, the
company assessed its remaining reserves. It was determined that
actual separation costs will continue to be lower than estimated
because (1) separated associates, as a rule, have less seniority,
and (2) 148 fewer associates will be laid off due to volume
levels consistently exceeding the 1993 assumptions. Accordingly,
based on the assessment performed, the company reversed
$5,902,000 of the reserve for separation costs - operations into
income in the fourth quarter of 1996. This reversal has been
classified with cost of sales in the statement of income.
11.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, 1996 and
1995, the company had forward exchange contracts, all having
maturities of less than one year, in amounts of $24,171,000
and $24,787,000, 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 and British pounds. 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 debt, based on discounted cash flow analysis,
was $170,000,000 and $129,000,000 at December 31, 1996 and 1995,
respectively. The carrying value of this debt was $165,000,000 and
$120,000,000.
31
<PAGE>
The Timken Company NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12.Segment Information
The Timken Company is a worldwide leader in the manufacture of
antifriction bearings and specialty 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, aircraft wheels, 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. Tool steels increasingly are being sold through newly
acquired distribution facilities.
<TABLE>
Information by Industry (1) Bearing Steel Consolidated
(Thousands of dollars)
1996
<S> <C> <C> <C>
Net sales $ 1,598,040 $ 796,717 $ 2,394,757
Operating income 155,224 102,033 257,257
Assets employed at year-end 1,287,509 783,829 2,071,338
Depreciation and amortization 72,396 54,061 126,457
Capital expenditures 106,616 49,309 155,925
1995
Net sales $ 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 $ 1,312,323 $ 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
</TABLE>
(1) Intersegment sales are accounted for at values based on market
prices. Intersegment steel sales to the bearing business of
$185,677,000 in 1996, $214,808,000 in 1995 and $211,201,000 in
1994 are eliminated on consolidation and are not included in the
figures presented. Operating income relating to these sales is
also eliminated.
32
<PAGE>
<TABLE>
Information by Geographic Area (1) United Other
States Europe Countries Consolidated
(Thousands of dollars)
1996
<S> <C> <C> <C> <C>
Net sales $ 1,885,347 $ 315,474 $ 193,936 $ 2,394,757
Operating income 219,423 17,250 20,584 257,257
Income before income taxes 192,250 14,428 18,581 225,259
Assets employed at year-end 1,683,742 276,521 111,075 2,071,338
1995
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
</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, 1996 and 1995,
and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the
period ended December 31, 1996. 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, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Canton, Ohio
February 6, 1997
33
<PAGE>
<TABLE>
The Timken Company
SUMMARY OF OPERATIONS AND OTHER COMPARATIVE DATA
(Thousands of dollars, except per share data)
______________________________________________________________________________________
1996 1995 1994 1993
______________________________________________________________________________________
Statements of Income
Net sales:
<S> <C> <C> <C> <C>
Bearing $ 1,598,040 $ 1,524,728 $ 1,312,323 $ 1,153,987
Steel 796,717 705,776 618,028 554,774
_______________________________________________________________________________________
Total net sales 2,394,757 2,230,504 1,930,351 1,708,761
Cost of products sold 1,820,985 1,717,700 1,509,347 1,366,164
Selling, administrative and
general expenses 316,515 302,588 282,429 274,141
Impairment and restructuring charges -0- -0- -0- 48,000
Operating income (loss) 257,257 210,216 138,575 20,456
Earnings before interest and taxes
(EBIT) 243,158 199,987 136,195 8,700
Interest expense 17,899 19,813 24,872 29,619
Income (loss) before income taxes 225,259 180,174 111,323 (20,919)
Provision for income taxes (credit) 86,322 67,824 42,859 (3,250)
Income (loss) before cumulative
effect of accounting changes 138,937 112,350 68,464 (17,669)
Net income (loss) $ 138,937 $ 112,350 $ 68,464 $ (271,932)
Balance Sheets
Inventory $ 419,507 $ 367,889 $ 332,304 $ 299,783
Current assets 793,633 710,258 657,180 586,384
Working capital 265,685 247,895 178,556 153,971
Property, plant and equipment
(less depreciation) 1,094,329 1,039,382 1,030,451 1,024,664
Total assets 2,071,338 1,925,925 1,858,734 1,789,719
Total debt 302,665 211,232 279,519 276,476
Total liabilities 1,149,110 1,104,747 1,125,843 1,104,407
Shareholders' equity $ 922,228 $ 821,178 $ 732,891 $ 685,312
Other Comparative Data
Net income (loss)/Total assets 6.7% 5.8% 3.7% (15.2%)
Net income (loss)/Net sales 5.8% 5.0% 3.5% (15.9%)
EBIT/Beginning invested capital(1) 15.2% 12.7% 9.1% 0.5%
Net cash provided by operating
activities $ 186,411 $ 224,012 $ 146,674 $ 153,720
Inventory days (FIFO) 118.0 112.6 118.4 122.8
Net sales per associate(2) $ 132.4 $ 130.9 $ 119.1 $ 104.5
Capital expenditures $ 155,925 $ 131,188 $ 119,656 $ 92,940
Depreciation and amortization $ 126,457 $ 123,409 $ 119,255 $ 118,403
Capital expenditures/Depreciation 127.0% 109.1% 102.6% 80.2%
Dividends paid per share $ 1.20 $ 1.11 $ 1.00 $ 1.00
Income (loss) before cumulative
effect of accounting changes
per share(3) $ 4.43 $ 3.60 $ 2.21 $ (0.57)
Debt to total capital 24.7% 20.5% 27.6% 28.7%
Number of asociates at year end 19,130 17,034 16,202 15,985
Number of shareholders(4) 31,813 26,792 49,968 28,767
</TABLE>
(1) EBIT/Beginning invested capital, a type of return on asset
ratio, is used internally to measure the company's performance.
In broad terms, invested capital is total assets minus
non-interest-bearing current liabilities.
(2) Based on the average number of associates employed during
the year.
(3) Based on the average number of shares outstanding during
the year and excludes the cumulative effect of accounting
changes in 1993, which related to the adoption of FAS No.
106, 109 and 112.
34
<PAGE>
<TABLE>
_______________________________________________________________________
1992 1991 1990(5) 1989 1988 1987
________________________________________________________________________
<C> <C> <C> <C> <C> <C>
$ 1,169,035 $ 1,128,972 $ 1,173,056 $ 1,042,122 $ 1,002,412 $ 826,383
473,275 518,453 527,955 490,840 551,731 403,875
_________________________________________________________________________
1,642,310 1,647,425 1,701,011 1,532,962 1,554,143 1,230,258
1,296,511 1,309,893 1,284,232 1,157,125 1,178,839 959,847
296,826 297,660 286,427 250,676 235,072 222,207
-0- 41,000 -0- -0- -0- -0-
48,973 (1,128) 130,352 125,161 140,232 48,204
42,091 (15,277) 125,155 113,710 132,745 47,891
28,660 26,673 26,339 17,217 20,879 25,037
13,431 (41,950) 98,816 96,493 111,866 22,854
8,979 (6,263) 43,574 41,148 45,954 12,535
4,452 (35,687) 55,242 55,345 65,912 10,319
$ 4,452 $ (35,687) $ 55,242 $ 55,345 $ 65,912 $ 10,319
$ 310,947 $ 320,076 $ 379,543 $ 344,135 $ 350,410 $ 278,567
556,017 562,496 657,865 608,224 619,456 485,163
165,553 148,950 238,486 359,773 348,322 255,910
1,049,004 1,058,872 1,025,565 932,828 941,121 957,641
1,738,450 1,759,139 1,814,909 1,565,961 1,593,031 1,466,634
320,515 273,104 266,392 80,647 182,341 180,805
753,387 740,168 740,208 501,157 619,315 543,541
$ 985,063 $ 1,018,971 $ 1,074,701 $ 1,064,804 $ 973,716 $ 923,093
0.3% (2.0)% 3.0% 3.5% 4.1% 0.7%
0.3% (2.2)% 3.2% 3.6% 4.2% 0.8%
2.6% (0.9)% 8.3% 7.6% 9.6% 3.6%
$ 115,501 $ 140,419 $ 181,852 $ 165,144 $ 106,652 $ 77,657
138.3 140.5 163.2 167.5 161.0 162.9
$ 95.3 $ 90.0 $ 94.2 $ 86.9 $ 89.4 $ 73.9
$ 139,096 $ 144,678 $ 120,090 $ 91,536 $ 78,943 $ 52,119
$ 114,433 $ 109,252 $ 101,260 $ 91,070 $ 88,756 $ 84,649
124.4% 135.6% 120.4% 100.5% 88.9% 61.6%
$ 1.00 $ 1.00 $ 0.98 $ 0.92 $ 0.70 $ 0.50
$ 0.15 $ (1.21) $ 1.85 $ 1.88 $ 2.34 $ 0.39
24.5% 21.1% 19.9% 7.0% 15.8% 16.4%
16,729 17,740 18,860 17,248 18,050 16,721
31,395 26,048 25,090 22,445 21,184 22,470
</TABLE>
(4) Includes an estimated count of shareholders having common
stock held for their accounts by banks, brokers and trustees
for benefit plans. The higher count for 1994 relates to
shareholders in wrap accounts at brokers.
(5) Includes MPB Corporation for seven months.
35
<PAGE>
APPENDIX TO EXHIBIT 13
On page 1 of the printed document, three bar charts were shown
that contain the following information:
(1) Net Sales ($Millions)
1992 $1,642
1993 1,709
1994 1,930
1995 2,231
1996 2,395
(2) Total Annual Return To Shareholders
1992 15.8%
1993 30.7%
1994 7.8%
1995 11.7%
1996 23.1%
(3) Productivity (Net Sales/Total Compensation)
1992 100%
1993 104%
1994 112%
1995 118%
1996 125%
On Page 32 of the printed document, three pie charts were
shown that contain the following information:
(1) The Timken Company Net Sales to Customers
Bearings 67%
Steel 33%
(2) The Steel Business Net Sales - Total
Customers 81%
Intersegment 19%
(3) The Bearing Business Net Sales by Georgraphic Area
United States 68%
Europe 20%
Other 12%
On page 34 of the printed document, two bar charts were shown
that contain the following information:
(1) Total Net Sales (Billions of Dollars)
Bearings Steel
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
1996 1.598 0.797
(2) Return on Net Sales (before cumulative effect of
accounting changes):
Operating Income (Loss) Income (Loss)
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%
1996 10.7% 5.8%
On page 35 of the printed document, two bar charts were shown
that contain the following information:
(1) Earnings* and Dividends per Share (*before cumulative
effect of accounting changes):
Earnings Dividends
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
1996 4.43 1.20
(2) EBIT/Beginning Invested Capital
1987 3.6%
1988 9.6%
1989 7.6%
1990 8.3%
1991 -0.9%
1992 2.6%
1993 0.5%
1994 9.1%
1995 12.7%
1996 15.2%
Exhibit 21. Subsidiaries of the Registrant
___________________________________________
The Timken Company has no parent company.
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
__________________________________________________________________________
Australian Timken Proprietary, State of Victoria, 100%
Limited Australia
Timken do Brasil State of Sao Paulo, 100%
Commercio e Industria, Ltda. Brazil
Canadian Timken, Limited Province of Ontario, 100%
Canada
Timken Communications Company Ohio 100%
EDC, Inc. Ohio 100%
Timken Espana, S.L. Spain 100%
Timken Europa GmbH West Germany 100%
Gnutti Cuscinetti S.r.l. Italy 100%
Houghton & Richards Massachusetts 100%
Timken Italia, S.R.L. Italy 100%
Latrobe Steel Company Pennsylvania 100%
Timken de Mexico S.A. de C.V. Mexico 100%
M.P.B. Corporation Delaware 100%
Nihon Timken K.K. Japan 100%
Ohio Alloy Steels Ohio 100%
Timken Polska Sp.z.o.o. Poland 100%
Rail Bearing Service Corporation Virginia 100%
Sanderson Special Steels Limited England 100%
The Timken Service & Sales Co. Ohio 100%
Timken South Africa (Pty.) South Africa 100%
Limited
Yantai Timken Company Limited China 60%
____________________
The Company also has a number of inactive subsidiaries which were
incorporated for name-holding purposes and a foreign sales
corporation subsidiary.
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference of our report
dated February 6, 1997, 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, 1996, 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
33-55121 Voluntary Investment Pension Plan for August 18, 1994
Hourly Employees of The Timken Company -
Form S-8
33-50609 The Ohio Hourly Pension Investment October 15, 1993
Plan - Form S-8
333-02553 The Timken Company Long-Term Incentive April 16, 1996
Plan - Form S-8
333-16465 The MPB Corporation Employees' Savings November 20, 1996
Plan - Form S-8
333-17509 The Timken Company Savings and Investment December 9, 1996
Pension Plan - Form S-8
333-17503 The Timken Company Dividend Reinvestment December 9, 1996
Plan - Form S-3
ERNST & YOUNG LLP
Canton, Ohio
March 24, 1997
POWER OF ATTORNEY
Each of the undersigned Directors and/or Officers of The
Timken Company, an Ohio corporation (the "Company"), hereby
constitutes and appoints W. R. Timken, Jr., Joseph F. Toot, Jr., Gene
E. Little and Larry R. Brown, and each of them, his true and lawful
attorney-in-fact, with full power of substitution and resubstitution,
for him and in his name, place and stead, to sign on his 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, as
amended, on Form 10-K for the fiscal year ended December 31, 1996 and
to sign any and all amendments to such Annual Report, and to file the
same, with all exhibits thereto, and any other documents in
connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact full power and authority to do
and perform any and all other acts and deeds whatsoever that may be
necessary or required in connection with the foregoing, as fully to
all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact may lawfully
do or cause to be done by virtue thereof.
EXECUTED this 7th day of February, 1997.
/s/ R. Anderson /s/ Ward J. Timken
_____________________________ _______________________________
Robert Anderson, Director Ward J. Timken, Director and
Vice President
/s/ Stanley C. Gault /s/ W. R. Timken, Jr.
_____________________________ _______________________________
Stanley C. Gault, Director W. R. Timken, Jr., Director and
Chairman - Board of Directors
/s/ J. Clayburn LaForce, Jr. /s/ Joseph F. Toot, Jr.
_______________________________ _______________________________
J. Clayburn La Force, Jr., Director Joseph F. Toot, Jr., Director and
President and Chief Executive Officer
/s/ Gene E. Little /s/ M. D. Walker
_________________________________ ________________________________
Gene E. Little, Vice President - Finance Martin D. Walker, Director
(Principal Financial Accounting Officer)
/s/ Robert W. Mahoney /s/ Charles H. West
_________________________________ ________________________________
Robert W. Mahoney, Director Charles H. West, Director
/s/ Jay A. Precourt /s/ A. W. Whitehouse
_________________________________ ________________________________
Jay A. Precourt, Director Alton W. Whitehouse, Director
/s/ John M. Timken, Jr.
_________________________________
John M. Timken, Jr., Director
<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-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,342
<SECURITIES> 0
<RECEIVABLES> 320,994
<ALLOWANCES> 7,062
<INVENTORY> 419,507
<CURRENT-ASSETS> 793,633
<PP&E> 2,483,200
<DEPRECIATION> 1,388,871
<TOTAL-ASSETS> 2,071,338
<CURRENT-LIABILITIES> 527,948
<BONDS> 165,835
0
0
<COMMON> 315,966
<OTHER-SE> 606,262
<TOTAL-LIABILITY-AND-EQUITY> 2,071,338
<SALES> 2,394,757
<TOTAL-REVENUES> 2,394,757
<CGS> 1,820,985
<TOTAL-COSTS> 1,820,985
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,899
<INCOME-PRETAX> 225,259
<INCOME-TAX> 86,322
<INCOME-CONTINUING> 138,937
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 138,937
<EPS-PRIMARY> 4.43
<EPS-DILUTED> 4.38
</TABLE>
