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, 1997
THE TIMKEN COMPANY
______________________________________________________
(Exact name of registrant as specified in its charter)
Ohio 34-0577130
________________________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1835 Dueber Avenue, S.W., Canton, Ohio 44706-2798
________________________________________ ___________________
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code (330)438-3000
___________________
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
______________________________ _______________________
Common Stock without par value New York Stock Exchange
Rights to Purchase Common Stock without par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
___ ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
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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 20, 1998, was $1,670,116,320 (representing 52,191,135 shares).
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of February 20, 1998.
Common Stock without par value --62,520,736 shares (representing a market
value of $2,000,663,552)
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
December 31, 1997 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 21, 1998, are incorporated by reference into parts III
and IV.
Exhibit Index may be found on Pages 20 through 23.
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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 or purchased and
are sold in a wide variety of configurations and sizes. Sensing
devices are added to the basic tapered roller bearing and sold to sport
utility vehicle and light truck markets.
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 and proprietary internal geometry and premium quality
material, provides a bearing with high load carrying capacity,
excellent friction-reducing qualities and long life.
Timken also produces super precision ball and roller bearings for use in
aerospace, medical / dental, 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.
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Products (cont.)
________________
Other bearing products manufactured by Timken include cylindrical,
spherical, straight and ball bearings for industrial markets. These
bearings feature non-tapered rolling elements. This broadening of
Timken's product line was achieved primarily through the 1997
acquisition of Rulmenti Grei S.A. in Ploesti, Romania. 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.
Steel products include steels of intermediate alloy, low alloy and some
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 April 1997, the company broke ground for its $55 million bar mill at
the Harrison Steel Plant in Canton, Ohio. The investment will position
the company as a cost and quality leader in continuous cast,
intermediate sized alloy steel bars. The project is on schedule with
full operation expected to begin in mid-1998.
The company strengthened its tool and alloy steel distribution business
in the fourth quarter of 1997 by opening a distribution facility in
Greer, South Carolina. This facility is part of the company's OH&R
distribution business, a wholly owned subsidiary of Timken's Latrobe
Steel Company.
Timken has been increasing the marketing of high volume semifinished
components to major customers produced from its own steel. This value
added activity is a 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, its Tryon Peak Plant in Columbus, North Carolina and its
newly constructed Winchester Parts Plant in Winchester, Kentucky. 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 1997, the company enhanced its parts business
production capabilities with the installation of its profile ring mill,
a $15 million investment at its Tryon Peak Plant which employs
proprietary manufacturing processes and advanced process control
technology. The Winchester Parts Plant began operations in May 1997 and
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Products (cont.)
________________
subsequently installed additional equipment to meet the demands for its
products.
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, Singapore and Argentina. These warehouse
inventories are augmented by authorized distributor and jobber
inventories throughout the world which provide local availability when
service is required.
The company operates an Export Service Center in Atlanta, Georgia, which
specializes in the export of tapered roller bearings for the replacement
markets in the Caribbean, Central and South America and other regions.
Timken's tapered roller bearings and other bearing types 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 / dental 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 bearing applications, and the
fact that its business is spread among a number of customers, both
foreign and domestic, in original equipment manufacturing and
aftermarket distribution, its relationship with the automotive industry
is well diversified.
Timken has entered into individually negotiated contracts with some of
its customers in both the bearing and steel segments. These contracts
may extend for one or more years and, if a price is fixed for any period
extending beyond current shipments, customarily include a commitment by
the customer to purchase a designated percentage of its requirements
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Sales and Distribution (cont.)
______________________________
from Timken. Contracts extending beyond one year that are not subject
to price adjustment provisions do not represent a material portion of
Timken's sales. Timken does not believe that there is any significant
loss of earnings risk associated with any given contract.
Industry Segments
_________________
Segment information in Note 13 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, 1997, are incorporated herein by reference. Export sales
from the U.S. and Canada are not separately stated since such sales
amount to less than 10% of revenue. The company's Bearing Business has
historically participated in the worldwide bearing markets while the
Steel Business has concentrated on U.S. markets.
Timken's non-U.S. operations are subject to normal international
business risks not generally applicable to domestic business. These
risks include currency fluctuation, changes in tariff restrictions, and
restrictive regulations by foreign governments including price and
exchange controls.
Competition
___________
Both the anti-friction bearing business and the steel business are
extremely competitive. The principal competitive factors involved, both
in the United States and in foreign markets, include price, product
quality, service, delivery, order lead times and technological
innovation.
Timken 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. With recent
acquisitions, the company has selectively expanded its product line to
include other bearing types. 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 one
of the leaders in the world's bearing industry. This contrasts with the
majority of Timken's major competitors who focus more heavily on other
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
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Competition (cont.)
___________________
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 the United States and other 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
the United States in 1997 were $240 million or approximately 18 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 $207 million in 1997.
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.
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Competition (cont.)
___________________
Substantial dumping margins have been found for most or all of the major
producers in Japan for most years since the antidumping orders issued.
On January 15, 1998, the U.S. Department of Commerce issued final
margins for companies investigated for the 1995-96 time period, finding
dumping margins that ranged from .34% to 29.02%. Margins for some of
the major producers were 9.6%, 27.8% and 29.02%.
Significant dumping margins continue to be found for certain producers
from other countries covered by orders. For some countries covered by
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. In accord with the
international treaty obligations of the United States, each existing
antidumping duty finding or order, including those covering tapered
roller bearings, will be subject to review by U.S. government agencies
to determine whether dumping and injury to the domestic industry are
likely to continue or recur if it is revoked. These reviews are
tentatively scheduled to commence for the finding and order covering
tapered roller bearings in mid-1999. The company intends to participate
actively in the proceedings.
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
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Competition (cont.)
___________________
compete in the specialty steel industry with domestic and foreign steel
manufacturers.
Backlog
_______
The backlog of orders of Timken's domestic and overseas operations is
estimated to have been $1.37 billion at December 31, 1997, and
$1.05 billion at December 31, 1996. 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 $43,000,000 in 1997,
$41,000,000 in 1996, and $35,000,000 in 1995. 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 emphasize 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 and has a well-established
environmental compliance audit program, which includes a proactive
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Environmental Matters (cont.)
_____________________
approach to bringing its domestic and international units to higher
standards of environmental performance. This program measures
performance against local laws as well as to standards that have been
established for all units worldwide.
It is difficult to assess the possible effect of compliance with future
requirements that differ from existing ones. As previously reported,
the company was uncertain whether additional emission monitoring would
be required or what the cost would be when proposed emission monitoring
regulations pursuant to the Clean Air Act of 1990 were issued. In 1997,
the regulations were issued in a modified form from those proposed and,
while some uncertainty remains, the financial impact on the company is
expected to be small, certainly less than anticipated under the proposed
regulations. The company also is unsure of the ultimate future
financial impact to the company that could result from the United States
Environmental Protection Agency's (EPA's) final rules to tighten the
National Ambient Air Quality Standards for fine particulate and ozone,
which were issued in July.
The company and certain of its U.S. subsidiaries have been designated as
potentially responsible parties (PRP's) by the United States EPA for
site investigation and remediation at certain sites under the
Comprehensive Environmental Response, Compensation and Liability Act
(Superfund). 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 1997, the company and its Latrobe Steel subsidiary were both named a
PRP at one additional site. 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 has two environmental projects
at its manufacturing locations in New Hampshire. Remediation at one
plant is nearing completion. In late 1996, the second system was
installed and remediation was begun at the other plant. The company had
provided for the costs of these projects, which to date have been
$3.5 million. A portion of these costs is being recovered from a former
owner of the property. Future operating and maintenance costs are
expected to be $1.7 million. MPB also filed suit against and settled
with four insurance companies for reimbursement of clean-up costs.
The company continued work in 1997 on environmental projects at its
locations in Canton and Columbus, Ohio. Costs for these two projects
are estimated to be about $2.1 million.
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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, 1997, Timken had 20,994 associates. Thirty-nine percent
of Timken's U.S. associates are covered under collective bargaining
agreements. Three percent of Timken's U.S. associates are covered under
collective bargaining agreements that expire within one year.
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 20, 1998, are as follows:
Current Position and Previous
Name Age Positions During Last Five Years
___________________ ___ ____________________________________________
W. R. Timken, Jr. 59 1992 Chairman - Board of Directors;
1997 Chairman, President and Chief
Executive Officer; Director;
Officer since 1968.
R. L. Leibensperger 59 1992 Vice President - Technology;
1995 Executive Vice President and President
- Bearings;
1997 Executive Vice President, Chief
Operating Officer and President
- Bearings; Officer since 1986.
B. J. Bowling 56 1992 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;
1997 Executive Vice President, Chief
Operating Officer and President
- Steel; Officer since 1996.
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Current Position and Previous
Name Age Positions During Last Five Years
___________________ ___ ____________________________________________
L. R. Brown 62 1992 Vice President and General Counsel;
Secretary;
1997 Senior Vice President and General
Counsel; Secretary; Officer
since 1990.
J. T. Elasser 45 1992 Director-President-Timken do Brasil;
1992 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;
1997 Group Vice President - Bearings -
Rail, Europe, Africa and West Asia;
Officer since 1996.
J. W. Griffith 44 1992 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;
1997 Group Vice President - Bearings -
North American Automotive, Asia
Pacific and Latin America; Officer
since 1996.
Karl P. Kimmerling 40 1992 General Manager - Primary Operations
and Engineering - Latrobe Steel
Company;
1995 President - Canadian Timken Ltd.;
1996 Vice President - Manufacturing -
Steel;
1997 Group Vice President - Alloy Steel;
Officer since 1998.
G. E. Little 54 1992 Vice President - Finance; Treasurer;
1997 Senior Vice President - Finance;
Treasurer; Officer since 1990.
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Current Position and Previous
Name Age Positions During Last Five Years
___________________ ___ ____________________________________________
S. J. Miraglia, Jr. 47 1992 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;
1997 Group Vice President - Bearings -
North American Industrial and Super
Precision; Officer since 1996.
S. A. Perry 52 1992 Director - Purchasing and Logistics;
1993 Vice President - Human Resources and
Logistics;
1997 Senior Vice President - Human
Resources, Purchasing and
Communications; Officer since 1993.
Hans J. Sack 43 1992 Project Manager - Parts Strategy -
Steel;
1993 General Manager - Parts Business -
Steel;
1994 Vice President - Manufacturing -
Steel;
1996 President - Latrobe Steel Company;
1997 Group Vice President - Specialty Steel
and President - Latrobe Steel
Company; Officer since 1998.
J. J. Schubach 61 1992 Vice President - Strategic Management;
1996 Vice President - Strategic Management
and Continuous Improvement;
1997 Senior Vice President - Strategic
Management and Continuous
Improvement; Officer since 1984.
T. W. Strouble 58 1992 Director - Marketing - Bearings -
North and South America;
1993 Vice President - Sales and Marketing -
Bearings - North and South America;
1995 Vice President - Technology;
1997 Senior Vice President - Technology
Officer since 1995.
W. J. Timken 55 1992 Vice President; Director; Officer
since 1992.
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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
13,519,000 square feet, all of which, except for approximately 405,000
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; Ogden, Utah; and Orange, California. These facilities,
including the research facility in Canton, Ohio, and warehouses at plant
locations, have an aggregate floor area of approximately 4,669,000
square feet.
Timken's bearing manufacturing plants outside the United States are
located in Ballarat, Australia; Benoni, South Africa; Cogozzo, Italy;
Colmar, France; Duston and Wolverhampton, England; Medemblik, The
Netherlands; Ploesti, Romania; 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 3,634,000 square feet.
Timken's steel manufacturing facilities in the United States are located
in Canton, Eaton, Wauseon and Wooster, Ohio; Columbus, North Carolina;
Franklin and Latrobe, Pennsylvania; and Winchester, Kentucky. These
facilities have an aggregate floor area of approximately 4,959,000
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, Singapore, Germany,
Mexico and Argentina, and leases several relatively small warehouse
facilities in cities throughout the world.
During 1997 Timken's Bearing and Steel Businesses continued to
experience high plant utilization as a result of increased sales in most
industries and geographic areas.
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Properties (cont.)
__________________
Timken's manufacturing facilities expanded significantly during 1997 as
a result of its four most recent acquisitions. The company also
announced plans for plant expansions in several of its U.S. plants.
In February 1997, Timken acquired the certain assets of Gnutti Carlo,
S.p.A. near Brescia, Italy. This subsidiary is now Timken Italia,
s.r.l. and serves primarily the European truck, railroad and industrial
markets. The facility includes floor space of approximately 163,300
square feet and employs some 120 associates.
Also in February, Timken announced plans to open a hot-forming facility
in Winchester, Kentucky. The Winchester Plant, which began operations
in May, is a 75,000 square foot facility and employs about 40 people.
The plant produces forged bearing components from Timken steel bars.
In April, the company broke ground for its $55 million bar mill at the
Harrison Steel Plant in Canton, Ohio. The 119,000 square foot expansion
will house a new rolling mill and bar processing equipment and is
expected to be fully operational by mid-1998.
In May the company announced its acquisition of the assets of Handpiece
Headquarters, Inc., in Orange, California. This company repairs and
rebuilds a variety of dental handpieces for dentists and other
customers in its 1,200 square foot facility.
In July the company acquired the aerospace bearing operations of the
Torrington Company Limited, located in Wolverhampton, England. The
business serves the European commercial and military aircraft industry.
The facility includes floor space of 54,000 square feet and employs
more than 100 people.
Also in July, the company announced a $20 million investment to expand
its Asheboro Plant. The expansion will increase the plant's square
footage by 50%.
In the fourth quarter, the company began work on its $51 million
investment in the Gaffney , South Carolina plant that was announced in
September 1997. The investment, which will be made over the next 5
years, will increase plant capacity by more than 25% in some areas.
Additionally in the fourth quarter, the company announced a $15 million
investment in new machining technology at its Bucyrus plant in Ohio.
Also in the fourth quarter, the company announced the opening of a tool
and alloy steel distribution facility in Greer, South Carolina. The new
operation will offer steel warehousing, cutting and machining services
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Properties (cont.)
__________________
to independent retail distributors as well as industrial customers in
the southeastern United States.
In December, the company acquired 70% of Rulmenti Grei S.A., a bearing
manufacturer in Ploesti, Romania. The company serves mainly the
industrial markets in Romania as well as in Eastern and Western Europe,
Asia and North America. The operation contains 498,000 square feet of
manufacturing space and employs some 1,000 people.
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.
Item 3. Legal Proceedings
__________________________
Not Applicable
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, 1997.
<PAGE>
17
PART II
_______
Item 5. Market for the Registrant's Common Equity and Related Stock
____________________________________________________________________
Holder Matters
______________
The company's common stock is traded on the New York Stock Exchange
(TKR). The estimated number of record holders of the company's common
stock at December 31, 1997, was 8,313. The estimated number of
shareholders at December 31, 1997, was 46,394.
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, 1997, and
is incorporated herein by reference.
Between October 1, 1996 and December 31, 1997, non-United States
fiduciaries of certain employee stock purchase and savings plans
established and administered in accordance with the laws of countries
other than the United States purchased 44,470 shares of the company's
common stock on the New York Stock Exchange on behalf of persons not
resident in the United States who are employed by subsidiaries of the
company. The purchases were made in reliance on Regulation S under the
Securities Act of 1933 for an aggregate consideration of $1,317,941.
The number of shares have been adjusted to reflect the impact of the two-
for-one stock split approved by the Board of Directors on April 15,
1997.
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,
1997, 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, 1997, 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
<PAGE>
18
Report to Shareholders for the year ended December 31, 1997, 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 21, 1998, 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 10-20 of the proxy statement issued in connection
with the annual meeting of shareholders to be held April 21, 1998, 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 21, 1998, 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 21, 1998, 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) Sixth Amendment Agreement dated August 31, 1997, to the
amended and restated credit agreement as amended
February 23, 1993, May 31, 1994, November 15, 1994, and
August 15, 1995, and August 31, 1996, between Timken
and certain banks was filed with Form 10-Q for the
period ended September 30, 1997, and is incorporated
herein by reference.
(4.1) 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.
(4.2) 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.
(4.3) 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.)
___________________________
(4.4) 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.
(4.5) 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.
(4.6) 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.
(4.7) Indenture dated as of July 1, 1990, between Timken and
Ameritrust Company of New York, which was filed with
Timken's Form S-3 registration statement dated July 12,
1990, and is incorporated herein by reference.
(4.8) 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.
(4.9) The company is also a party to agreements with respect
to other long-term debt in total amount less than 10%
of the registrant's consolidated total assets. The
registrant agrees to furnish a copy of such agreements
upon request.
Management Contracts and Compensation Plans
___________________________________________
(10) The Management Performance Plan of The Timken Company
for Officers and Certain Management Personnel.
(10.1) The form of Deferred Compensation Agreement entered
into with Joseph F. Toot, Jr., W. R. Timken, Jr., R. L.
Leibensperger and B. J. Bowling was filed with Form
10-Q for the period ended September 30, 1995, and is
incorporated herein by reference.
(10.2) The Timken Company 1996 Deferred Compensation Plan for
officers and other key employees, was filed with Form
10-Q for the period ended September 30, 1995, and is
incorporated herein by reference.
<PAGE>
22
Listing of Exhibits (cont.)
___________________________
(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
December 17, 1997.
(10.5) The form of Severance Agreement entered into with all
Executive Officers of the company was filed with
Form 10-K for the period ended December 31, 1996, and
is incorporated herein by reference. Each differs only
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.
(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.
<PAGE>
23
Listing of Exhibits (cont.)
___________________________
(10.11) The Amended and Restated Supplemental Pension Plan of
The Timken Company as adopted March 16, 1998.
(10.12) The form of The Timken Company Nonqualified Stock
Option Agreement for nontransferable options as adopted
on November 7, 1997.
(10.13) The form of The Timken Company Nonqualified Stock
Option Agreement for transferable options as adopted on
November 7, 1997.
(10.14) The Consulting Agreement entered into with Joseph F.
Toot, Jr.
(10.15) The form of The Timken Company Performance Share
Agreement entered into with W. R. Timken, Jr.,
R. L. Leibensperger and B. J. Bowling.
(13) Annual Report to Shareholders for the year ended
December 31, 1997, (only to the extent expressly
incorporated herein by reference).
(21) A list of subsidiaries of the registrant.
(23) Consent of Independent Auditors.
(24) Power of Attorney
(27) Financial Data Schedule
(b) Reports on Form 8-K:
On February 6, 1998, the company filed a Form 8-K to report
selected financial data.
(c) The exhibits are contained in a separate section of this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE TIMKEN COMPANY
By /s/ W. R. Timken, Jr. By /s/ G. E. Little
________________________________ _____________________________
W. R. Timken, Jr. G. E. Little
Director and Chairman; President Senior Vice President-Finance
and Chief Executive Officer Principal Financial and
Accounting Officer)
Date March 20, 1998 Date March 20, 1998
________________________________ _____________________________
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 20, 1998 Date March 20, 1998
______________________________ _______________________________
By /s/ Martin D. Walker* By /s/ W. J. Timken*
______________________________ _______________________________
Martin D. Walker Director W. J. Timken Director
Date March 20, 1998 Date March 20, 1998
______________________________ _______________________________
By /s/ Stanley C. Gault* By /s/ Joseph F. Toot, Jr.*
______________________________ _______________________________
Stanley C. Gault Director Joseph F. Toot, Jr. Director
Date March 20, 1998 Date March 20, 1998
______________________________ _______________________________
By /s/ J. Clayburn La Force, Jr.* By /s/ Charles H. West*
______________________________ _______________________________
J. Clayburn La Force, Jr. Director Charles H. West Director
Date March 20, 1998 Date March 20, 1998
______________________________ _______________________________
By /s/ Robert W. Mahoney* By /s/ Alton W. Whitehouse*
______________________________ _______________________________
Robert W. Mahoney Director Alton W. Whitehouse Director
Date March 20, 1998 Date March 20, 1998
______________________________ _______________________________
By /s/ Jay A. Precourt*
______________________________ *By: /s/ G. E. Little
Jay A. Precourt Director ______________________________
Date March 20, 1998 G. E. Little, attorney-in-fact
______________________________ by authority of Power of
Attorney filed as Exhibit 24
hereto
January 1, 1998
Exhibit 10
THE TIMKEN COMPANY
MANAGEMENT PERFORMANCE PLAN
Purpose
The purpose of The Timken Company (the "Company") Management
Performance Plan (the "Plan") is to promote the profitable
growth of the Company by:
- Providing rewards for achieving increasing levels of return on
capital.
- Recognizing corporate, business unit and individual performance
achievement.
- Attracting, motivating and retaining superior executive talent.
Administration
It is the responsibility of senior management of the Company to
execute the provisions of the Plan. Based on senior management
recommendations, the Compensation Committee (the "Committee")
approves financial goals, participation, target bonus awards,
actual bonus awards, timing of payment and other actions
necessary to the administration of the Plan.
Participation
The participant group includes Company executive officers and
other key employees of the Company and its subsidiaries in
positions having a point value in excess of 1000 points based on
the Company's job evaluation process.
Performance Targets
The primary Corporate performance measure is Return on Invested
Capital, one measure of which is Earnings Before Interest and
Taxes (EBIT) divided by Beginning Invested Capital (BIC). A
positive Return on Invested Capital will be required to generate
a Total Corporate Fund ("Total Fund") automatically.
At the beginning of each year, corporate targets for Return on
Invested Capital as it relates to the Cost of Capital will be
set. The degree of achievement of these targets will determine
the size of the Total Fund.
In addition, at the beginning of each year, the Committee will
specify any other financial or non-financial measures that will
be used to evaluate Corporate and/or Business Unit performance
for the coming year. When the Corporate threshold level of
Return on Invested Capital is not achieved, the Committee, at
its discretion, can approve payment of up to 25% of the target
amount for the achievement of performance results that position
the Company strategically for the future in such key areas as:
- Cash flow
- Continuous improvement
- Customer satisfaction
- Debt reduction
- Earnings growth
- Financial performance exceeding that of peer/competitor companies
- Improvement of shareholder return
- Inventory Management
- Productivity improvement
- Quality
- Recruitment and development of excellent associates with emphasis
on diversity
- Reduction of fixed costs
- Sales growth
- Successful start-up of new facility
- Successful acquisition/divestiture
Bonus Opportunity
Each position is assigned a target bonus expressed as a
percentage of annual base salary. The targets are based on
market data for companies that are similar for compensation
purposes including similar size and similar industries. The
targets are reviewed annually by management and all target
bonuses for officers will be approved by the Committee.
The full target bonus opportunity represents an appropriate
bonus award if performance standards are met in the following
areas:
- Corporate return on invested capital
- Business unit return on invested capital
- Individual performance against preset goals
Business unit targets will be set using EBIT/BIC and other
measures developed by senior management. Achievement of these
targets will affect the adjustment to the Business Unit Funds
used to arrive at the Final Corporate Fund ("Final Fund").
The actual bonus payment will reflect a mix of corporate,
business unit and individual performance as appropriate for each
position. The allocations to corporate and business unit
performance will be reviewed annually and changes to the
allocations will be determined by senior management.
Bonus Fund
The Total Corporate Target Fund ("Target Fund") is derived by
multiplying the annual salary of each approved participant as of
November 1 of the Plan year times the Target Bonus percentage
and summing.
The Target Fund is adjusted as follows for the achievement of
corporate financial and non-financial performance goals to
arrive at the Total Fund:
- Reflect corporate financial goals by reference to a table
relating corporate financial achievement and a multiplier, not to
exceed 140%, to be applied to the Target Fund.
- Reflect corporate non-financial goals with an additional
adjustment of plus or minus 25% based on a mixture of objective and
subjective factors.
If threshold levels of performance are not achieved, the
Committee can establish, at its discretion, a Total Fund up to
25% of the Target Fund for achievement of results that
successfully position the Company strategically for the future.
The Total Fund is allocated to Corporate and Business Unit Funds
using the allocations established for each approved participant.
The Business Unit Funds are adjusted by plus or minus 25% to
reflect the achievement of Business Unit EBIT/BIC goals and
other non-financial goals to arrive at the Final Fund.
Individual bonus amounts are adjusted for achievement of
individual performance goals as follows:
Outstanding performance 120%
All expectations met and some exceeded 110%
All expectations met 100%
Most expectations met 90% or less
Most expectations not met 0%
Bonus Payments
At the end of the year, senior management will determine whether
Corporate performance has exceeded the threshold for creating a
bonus fund. Senior management will recommend to the Committee
the Total Fund and Final Fund based on its assessment of
performance achievement at Corporate, Business Unit and
individual levels. The Committee may make further adjustments
to the fund or any individual bonus amount based on its
assessment of financial and non-financial performance.
Awards under the Plan will be paid in cash or stock.
One hundred percent of awards under the Plan will be included in
pension earnings and earnings for the purpose of calculating
401(k) plan benefits. Awards will not be included for purposes
of any other employee benefits plans except long term
disability.
<PAGE>
Exhibit 10.4
THE 1985 INCENTIVE PLAN
OF
THE TIMKEN COMPANY
1. Purpose. The purpose of The 1985 Incentive Plan (the
"Plan") is to provide a means by which certain officers and
other key employees of The Timken Company (the "Company"), or
employees who have high potential for becoming key employees,
may be given an opportunity to purchase or receive Common Stock
of the Company. The Plan is intended to advance the interests
of the Company by encouraging stock ownership among employees
most likely to contribute valuable services to the Company (or
subsidiaries thereof), to secure and retain the services of
highly qualified persons, and by providing such persons with an
additional incentive, through personal involvement with the
fortunes of the Company, to continue in the service of the
Company and to advance the Company's long-term success.
2. Awards Under the Plan. Awards under the Plan may be of two
types:
(1) "stock options" with rights to receive "dividend credits,"
and (2) "restricted stock rights."
a) "Stock options" are rights to purchase Common Stock of the
Company at the fair market value as of the date the option is
granted. Such options shall be nonqualified in form (options
not attempting to meet the requirements for Incentive Stock
Options as defined in Section 422A of the Internal Revenue
Code). Rights to receive "dividend credits" shall be included
with all stock options, providing for the crediting and payment
of Common Stock cash dividends in the form of "restricted stock
rights" subject to the terms, conditions, and restrictions set
forth in Section 7 herein.
b) "Restricted stock rights" consist of restricted stock units
that give the holder the right to receive, without payment of
any cash to the Company (other than required withholding taxes),
shares of Common Stock, subject to the terms, conditions, and
restrictions set forth in Section 8 herein. "Restricted stock
rights" may be granted alone, or in conjunction with stock
options as the form of payment for any dividends credited to
option holders.
3. Effective Date and Term of the Plan. The effective date of
this Plan is May 1, 1985 and the term of the Plan shall be from
May 1, 1985 to December 31, 1994. No new stock options or
restricted stock rights shall be granted after December 31,
1994, but stock options and restricted stock rights previously
granted may extend beyond that date, and any dividends credited
in conjunction with stock options so extending may continue to
be in the form of restricted stock rights until such stock
options either are exercised, are terminated, or expire.
4. Shares of Stock Subject to the Plan. The shares that may be
issued under this Plan shall not exceed in the aggregate
1,000,000 shares (as adjusted for a two-for-one stock split on
August 31, 1988) of the Common Stock of the Company, subject to
adjustment as may be provided in Section 11 herein. Shares
subject to the Plan may be authorized and unissued shares or
previously issued shares that have been acquired by the Company
and are held in its treasury. Shares subject to stock options
and restricted stock rights that terminate or expire prior to
exercise or vesting shall be available for further grants or
awards hereunder.
5. Administration of the Plan. The Plan shall be administered
by the Compensation Committee (the "Committee") of the Board of
Directors, which shall consist of not fewer than three directors
of the Company, none of whom is eligible for grants or awards
under this Plan in accordance with the requirements set forth in
Section 6 herein. Members of the Committee shall be designated
by the Board and shall serve at the pleasure of the Board.
Subject to the provisions of the Plan, the Committee shall have
full authority to interpret the Plan, to establish and amend
rules and regulations relating to the Plan, to determine the
criteria of eligibility for participation in the Plan (subject
to limitations set forth in Section 6), to select participants
in the Plan, to determine the size and term of awards to be
granted each participant, to determine the time when awards will
be granted, and to make all other determinations and to take all
other actions necessary or advisable for the administration of
the Plan. The Committee's interpretation of the Plan, and all
actions taken and determinations made by the Committee pursuant
to the powers vested in it hereunder, shall be conclusive and
binding on the Company, all employees of the Company and its
subsidiaries, and the shareholders of the Company.
6. Eligibility for Participation. Eligibility for
participation in the Plan shall be limited to officers and other
key employees of the Company and its subsidiaries, and to
employees judged by the Committee to have high potential to
become key employees. The Committee may establish from time to
time a minimum salary grade assignment or equivalent salary
level in determining eligibility for participation, and in its
sole discretion shall select the Plan participants, provided
however that:
a) No director of the Company who is not also. a full-time
salaried employee shall be eligible for participation.
b) No officer serving as Chairman of the Board or President who
owns, directly or indirectly, or could own as a result of an
award under the Plan, more than two percent of the outstanding
Common Stock of the Company shall be eligible for participation.
c) No employee who has received a stock option award accompanied
by a right to receive dividend credits shall thereafter be
eligible to receive a grant of restricted stock rights set forth
in Section 8 herein.
7. Stock Options and Dividend Credits. Stock options and
rights to receive dividend credits shall be evidenced by
agreements in such form and including such terms and conditions
consistent with the Plan as the Committee shall determine to be
appropriate. In substance, these agreements shall include the
following terms and conditions:
a) Number of Shares. Each option agreement shall specify the
number of shares that may be purchased upon exercise of the
option.
b) Exercise Price. The exercise price shall be determined by
the Committee, but in no event shall it be less than 100 percent
of the fair market value of the Common Stock of the Company on
the date of grant.
c) Option Term. The term of an option, as set by the Committee,
shall not exceed 10 years from the date of grant.
d) Exercise Dates. Except as otherwise provided in this Plan,
or in the applicable option agreement, each option will be
exercisable as to one-fourth of the initial shares at any time
after 1 year from date of grant, as to an additional one-fourth
of the initial shares at any time after 2 years from date of
grant, as to an additional one-fourth of the shares at any time
after 3 years from date of grant, and as to the remaining one-
fourth of the shares at any time after 4 years from date of
grant.
e) Medium and Time of Payment. Payment for shares purchased
upon exercise of an option granted under the Plan must be made
in full at the time of exercise. Payment may be in cash, check,
or in Common Stock of the Company, provided that the shares of
Common Stock used for payment have been owned by the participant
for at least 6 months. Fair market value of Common Stock for
this purpose shall be the average of the high and low selling
prices, on the New York Stock Exchange or such other stock
exchange or market on which Common Stock of the Company shall be
principally traded, for the day on which such Common Stock is
tendered (the exercise date).
f) Effect of Employment Termination.
(i) If the participant's employment terminates during the
option term as a result of retirement with the Company's
consent, or as the result of disability, any options then
exercisable shall continue in force up to 3 years, but not
beyond the option term.
(ii) If termination of employment is the result of death,
options then exercisable shall continue for up to 1 year, but
not beyond the option term. Exercisable options for a disabled
participant whose employment has terminated and whose death
occurs within the 3 years following termination shall expire at
the earliest of 1 year from the date of death, 3 years from date
of the disability termination, or the last day of the option
term.
(iii) In the case of all other terminations (voluntary or
involuntary termination of employment or retirement without the
Company's consent), options exercisable on the date of
termination shall expire 30 days later. All unexercisable
options shall expire immediately. In the case of an approved
leave of absence, the Committee shall determine whether or not
the option shall continue in force and under what conditions,
but in no event shall the option term be extended.
g) Rights to Receive Dividend Credits. All stock option grants
shall include rights to receive dividend credits in accordance
with the following terms, conditions, and requirements:
(i) Timing and Amount. At the end of each calendar year, the
total cash dividends per Common Share paid during that year
shall be multiplied by the total number of shares then in force
for each participant (unexercised option shares plus unvested
restricted stock units from prior dividend credits) to arrive at
the participant's total dividend credit for the year; provided
however that no dividend credit will be made for a year unless
net income per share is at least 200 percent of the dividends
per share, and that no dividends will be credited following
termination of employment, even though stock options and
restricted stock units may continue in force under certain
termination situations.
(ii) Conversion to Restricted Stock Units. A participant's
dividend credit each year shall be converted into restricted
stock units at the end of each calendar year based upon the
average closing price of Common Stock of the Company, as
reported by the New York Stock Exchange or such other stock
exchange or market on which Common Stock of the Company shall be
principally traded, for the 10 trading days preceding this
conversion date, rounded to the nearest whole share.
(iii) Vesting of Restricted Stock Units. The restricted stock
units in respect of each year's dividend credit shall vest and
be paid out 100 percent after a vesting period, established by
the Committee, of not less than 4 years from the date credited,
subject to the participant's continued employment during the
vesting period. However, if the participant's employment
terminates during the vesting period as the result of death,
disability, or retirement with the Company's consent, all
restricted stock units shall vest and be paid out within 30
days. If employment terminates for any other reason, vesting of
any or all restricted stock units shall be solely at the
discretion of the Committee.
8. Restricted Stock Rights. As a means of retaining and
motivating selected employees who are not yet eligible for
grants of stock options with rights to dividend credits, the
Committee may at any time make grants of restricted stock rights
to these employees. These grants shall be evidenced by
agreements in such form and including such terms and conditions
consistent with the Plan as the Committee shall determine to be
appropriate. In substance, these agreements shall include the
following terms and conditions:
a) Restricted Stock Units. A restricted stock rights agreement
shall specify the number of restricted stock units to which it
pertains. Each restricted stock unit shall be equivalent to one
share of Common Stock, and shall entitle the holder to receive,
without payment of cash to the Company (other than required
withholding taxes), one share of Common Stock in consideration
for services performed for the Company by the holder during the
vesting period.
b) Dividend Credits. Each restricted stock rights agreement
will also provide for cash dividends declared quarterly on the
Company's Common Stock to be credited in respect of a
participant's restricted stock units and accumulated without
interest until the end of the vesting period.
c) Vesting of Restricted Stock Units. The restricted stock
units and accumulated dividend credits covered by a grant of
restricted stock rights shall vest and be paid out 100 percent
after a vesting period, established by the Committee, of not
less than 5 years from the date granted, subject to the
participant's continued employment during the vesting period.
However,
(i) If the participant's employment terminates during the
vesting period as the result of death or disability, a portion
of both the restricted stock units and the accumulated dividend
credits prorated for the number of full months employed during
the vesting period shall vest and be paid out within 30 days.
(ii) If employment terminates for any other reason, all
restricted stock units and accumulated dividend credits shall be
forfeited.
9. Non-Assignability of Options and Rights. No stock option,
right to receive dividend credits, or restricted stock right
shall be assignable or transferable by a participant except by
will or by the laws of descent and distribution, and during the
participant's lifetime shall be exercisable only by the
participant.
10. General Restriction. The Company shall not be obligated to
deliver any shares upon the exercise of an option or vesting of
a restricted stock unit unless and until, in the opinion of the
Company's counsel, all applicable federal, state, and other laws
and regulations have been complied with, nor, in the event the
outstanding Common Stock is at the time listed upon any stock
exchange, unless and until the shares to be delivered have been
listed or authorized to be added to the list upon official
notice of issuance upon such exchange, nor unless or until all
other legal matters in connection with the issuance and delivery
of shares have been approved by the Company's counsel. Without
limiting the generality of the foregoing, the Company may
require from the participant or other person purchasing or
receiving shares of Common Stock under the Plan such investment
representation or such agreement, if any, as counsel for the
Company may consider necessary in order to comply with the
Securities Act of 1933, may impose upon certificates evidencing
the shares a restrictive legend and place a stop transfer
order with its transfer agent, and may require that the
participant or such other person agree that any sale of the
shares will be made only on one or more specified stock
exchanges or in such other manner as is permitted by the
Committee and that he will notify the Company before making a
disposition of the shares whether by sale, gift, or otherwise.
11. Changes in Stock. In the event of a stock dividend, split-
up, or combination of shares, recapitalization or merger in
which the Company is the surviving corporation or other similar
capital change, the number and kind of shares of stock or
securities of the Company to be subject to the Plan and to
options and rights then outstanding or to be granted thereunder,
the maximum number of shares of stock or securities which may be
issued on the exercise of options or vesting of rights granted
under the Plan, the option price and other relevant provisions
shall be appropriately adjusted by the Committee, whose
determination shall be binding on all persons. In the event of
a consolidation or a merger in which the Company is not the
surviving corporation, or any other merger in which the
stockholders of the Company exchange their shares of stock in
the Company for stock of another corporation, or in the event of
complete liquidation of the Company, all outstanding options and
rights shall thereupon terminate, provided that the Committee
may, prior to the effective date of any such consolidation or
merger or the completion of the liquidation, either (i) make any
or all outstanding options and rights immediately exercisable or
vested or (ii), in the case of a consolidation or merger,
arrange to have the surviving corporation grant to the
participants replacement options or rights on terms which the
Committee shall determine to be fair and reasonable. If any
"person," as defined in Section 13(d) under the Securities
Exchange Act of 1934 and the rules and regulations thereunder in
effect on May 1, 1985 ("Exchange Act"), shall make or institute
a tender offer for all or any portion of the outstanding voting
securities of the Company, or shall become a "beneficial owner,"
as defined in Rule 13d-3 under the Exchange Act, of 30 percent
or more of the outstanding voting securities of the Company,
then the Committee may, in its discretion, terminate any or all
outstanding options and rights or make such options and rights
immediately exercisable or vested.
12. Rights as a Shareholder. The participant shall have no
rights as a shareholder with respect to any shares of Common
Stock of the Company held under option or subject to restricted
stock rights until the date of issuance of the stock
certificates to the participant for such shares.
13. Withholding Taxes. Whenever under the Plan shares are to
be issued in satisfaction of options or rights granted
thereunder, the Company shall have the right to require the
recipient to remit to the Company an amount sufficient to
satisfy federal, state, and local withholding tax requirements
prior to the delivery of any certificate or certificates for
such shares.
14. Subsidiary. For purposes of the Plan, subsidiary shall
mean any corporate more than 50 percent of total combined voting
power or all classes of stock of which is owned, directly or
indirectly, by the Company and which, with the approval of the
Board of Directors of the Company, has adopted the Plan.
15. Employment Rights. Neither the adoption of the Plan nor
the granting of any option or right hereunder shall be deemed to
confer upon any employee of the Company or any subsidiary the
right to continued employment with the Company or any
subsidiary, or to interfere in any way with the right of the
Company or any subsidiary to terminate the employment of any
employee at any time.
16. Amendments. The Committee may at any time discontinue
granting options or rights under the Plan. The Board of
Directors may at any time or times amend the Plan or amend any
outstanding option or options for the purpose of satisfying the
requirements of any changes in applicable laws or regulations or
for any other purpose which may at the time be permitted by law;
provided that (except to the extent permitted under Section 11)
no such amendment shall, without the approval of the
stockholders of the Company (a) increase the maximum number of
shares available under the Plan (subject to adjustment as
provided in Section 11), (b) reduce the minimum exercise price
of options below the price provided for in Section 7(b), (c)
extend the time within which options or rights may be granted,
(d) extend the term of an outstanding option beyond 10 years
from the date of grant or the vesting period of an outstanding
restricted stock unit, (e) change the designation of the
employees or class of employees eligible to receive options
under the Plan. No amendment shall adversely affect the right
of any participant (without the participant's consent) under any
option or right theretofore
granted.
17. Termination. The Board of Directors may terminate the Plan
at any time prior to its scheduled expiration date, but no such
termination shall adversely affect the rights of any participant
(without the participant's consent) under any stock option or
right theretofore granted.
<PAGE>
AMENDMENT TO
THE 1985 INCENTIVE PLAN
OF THE TIMKEN COMPANY
Recitals
WHEREAS, The Timken Company, an Ohio corporation (the
"Company"), with the approval of the Company's shareholders, has
established the 1985 Incentive Plan of The Timken Company,
effective as of May 1, 1985 (the "Plan");
WHEREAS, the Plan previously has been restated and amended;
WHEREAS, the Company desires to amend the Plan further
specifically to provide optionees with an election to have the
Company withhold shares of the Company's Common Stock without
par value (the "Common Stock") to cover tax withholding
requirements upon the issuance of shares of Common Stock in
connection with the exercise of stock options and the vesting of
restricted stock units representing dividend credits under stock
options (the "Share Withholding Amendment"); and
WHEREAS, the Board of Directors of the Company (the "Board") has
approved the Share Withholding Amendment in accordance with the
provisions of Section 16 of the Plan and such Amendment does not
require approval by the shareholders of the Company.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. The Plan is amended by adding the following two sentences
to the end of Section 13 of the Plan:
The recipient may elect to satisfy all or any part of any
such withholding obligation by surrendering to the Company a
portion of the shares that are issued to the recipient in
satisfaction of such options or rights. If such election is
made, the shares so surrendered by the recipient shall be
credited against any such withholding obligation at their fair
market value (determined in accordance with Section 7(e)) on the
date of such surrender.
2. Except as amended prior to the date hereof and by the Share
Withholding Amendment, the Plan shall remain in full force and
effect.
3. This Amendment to the 1985 Incentive Plan of The Timken
Company shall be effective as of November 7, 1997, the date of
the approval hereof by the Board.
<PAGE>
AMENDMENT TO
THE 1985 INCENTIVE PLAN
OF THE TIMKEN COMPANY
WHEREAS, The Timken Company, an Ohio corporation )the
"Company"), with the approval of the Company's shareholders, has
established the 1985 Incentive Plan of the Timken Company,
effective as of May 1, 1985 (as amended through November 7,
1997, the "Plan");
WHEREAS, the Company desires to amend the Plan further to permit
Restricted Stock Units representing dividend credits in
connection with stock options to be paid out upon vesting
thereof in shares of the Company's Common Stock without par
value or in cash and to afford the Compensation Committee of the
Board of Directors the authority to amend awards outstanding
under the Plan (the "Amendment"); and
WHEREAS, the Board of Directors of the Company (the "Board") has
approved the Amendment in accordance with the provisions of
Section 16 of the Plan and such Amendment does not require
approval by the shareholders of the Company.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. The Plan is amended by adding the following sentence to the
end of Section 7 (g)(iii) of the Plan:
Restricted Stock Units representing dividend credits may provide
for payment upon vesting in the form of shares of Common Stock
or cash.
2. The portion of the second sentence of Section 16 of the Plan
before the proviso is amended to read as follows:
The Board of Directors may at any time or times amend the Plan,
and the Board of Directors or the Committee may at any time or
times amend any outstanding options, for the purpose of
satisfying any applicable lows or regulations or for any other
purpose which may at the time be permitted by law;
3. Except as amended prior to the date hereof and by the
Amendment, the Plan shall remain in full force and effect.
4. This Amendment to the 1985 Incentive Plan of The Timken
Company shall be effective as of December 17, 1997, the date of
the approval hereof by the Board.
<PAGE>
Exhibit 10.11
AMENDED AND RESTATED
SUPPLEMENTAL PENSION PLAN
OF THE TIMKEN COMPANY
The Timken Company, 1835 Dueber Avenue, S. W., Canton, Ohio
44706, EIN 34-0577130, and its wholly-owned subsidiaries Latrobe
Steel Company and MPB Corporation (collectively the "Company")
hereby amend and restate the Supplemental Pension Plan of The
Timken Company (the "Supplemental Plan") originally effective May
14, 1979, for the following purpose and in accordance with the
provisions as set forth below. This Amended and Restated
Supplemental Plan is effective November 1, 1997.
1. Purpose
The purpose of the Supplemental Plan is to provide for, on
or after the effective date hereof, the payment of supplemental
retirement benefits:
(a) to those participants of the qualified defined
benefit plans of the Company whose benefits payable under
such qualified defined benefit plans of the Company and
related companies are subject to certain benefit limitations
(collectively referred to as "Code Limitations") imposed by
the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 401 and Section 415 of the
Internal Revenue Code of 1986, as amended (the "Code");
(b) to certain employees of the Company's
international operations with whom the Company has special
retirement agreements; and
(c) to certain employees of the Company who have
Employee Excess Benefits Agreements ("Excess Agreements") in
effect with the Company.
2. Eligibility
The following individuals shall be eligible for benefits
under the Supplemental Plan and shall be known as participants:
(a) Members of or Participants in (i) The Timken
Company Retirement Plan for Salaried Employees, (ii) the
1984 Retirement Plan for Salaried Employees of The Timken
Company, and (iii) those provisions of the Timken-Latrobe-
MPB Retirement Plan incorporating the Restated Pension Plan
for Salaried Employees of Latrobe Steel Company, and the MPB
Corporation Retirement Plan (the plans identified in clauses
(i), (ii) and (iii) being collectively the "Qualified
Plan"), other than participants described in paragraph 2(d),
who are eligible for a retirement benefit other than a
deferred vested pension and whose retirement benefits under
the Qualified Plan are limited pursuant to the Code
Limitations;
(b) Certain employees of the Company's international
operations with whom the Company has special agreements
concerning retirement benefits to be paid by the
Supplemental Plan;
(c) (i) Former employees of the Company who
separated from the service of the Company, and (ii) current
employees of the Company who separate from the service of
the Company under circumstances which the Company, in its
sole discretion, deems to be for mutually satisfactory
reasons, in each case with eligibility for a deferred vested
pension and whose retirement benefits under the Qualified
Plan are limited by the Code Limitations; and
(d) Employees of the Company who have Excess
Agreements currently in effect with the Company.
3. Incorporation of the Qualified Plan
The Qualified Plan, with any amendments thereto in effect on
the effective date of the Supplemental Plan, shall be attached
hereto as Exhibit A, and is hereby incorporated by reference into
and shall be a part of the Supplemental Plan as fully as if set
forth herein. Any amendment made to the Qualified Plan shall be
also incorporated by reference into and form a part of the
Supplemental Plan, effective as of the effective date of such
amendment. The Qualified Plan, whenever referred to in the
Supplemental Plan, shall mean such Qualified Plan as it exists as
of the date any determination is made of benefits payable under
the Supplemental Plan. All terms used herein shall have the
meanings assigned to them under the provisions of the Qualified
Plan unless otherwise qualified by the context of the
Supplemental Plan. If there is any conflict between the
provisions of the Qualified Plan and the provisions of the
Supplemental Plan, the provisions of the Supplemental Plan will
govern.
4. Amount of Benefit
(a) The benefit payable to a participant described-
in paragraphs 2(a) or (c) under the Supplemental Plan shall
be the actuarial equivalent of the excess, if any, of:
(i) The benefit which would have been payable to
such participant under the Qualified Plan, if
the provisions of the Qualified Plan were
administered without regard to the Code
Limitations, over
(ii) The benefit which is in fact payable to such
participant under the Qualified Plan. Such
benefits payable under the Supplemental Plan to
any participant shall be computed in accordance
with the foregoing and with the objective that
such participant should receive under the
Supplemental Plan and the Qualified Plan the
total amount which would otherwise have been
payable to that participant solely under the
Qualified Plan had not the Code Limitations been
applicable thereto. The provisions of
paragraphs 4(d), (e) and (f) will be applicable
to the participant's benefit and that of a
surviving spouse or other beneficiary.
(b) For participants described in paragraph 2(b),
the Supplemental Plan will pay the amount that is the
difference between the participant's benefit calculated
under the Qualified Plan, as if he had been a member of the
Qualified Plan (and the participant's primary Social
Security amount is the amount the participant will receive
upon retirement or thereafter from any state-mandated
pension programs assuming no earnings after retirement),
over the amount the participant will actually receive from
any private pension benefit of the international operation.
The provisions of paragraphs 4(d), (e) and (f) will be
applicable to the participant's benefit and that of his
surviving spouse or other beneficiary.
(c) The benefit payable to a participant described
in paragraph 2(d) under the Supplemental Plan shall be the
benefit described in such participant's Excess Agreement.
(d) If a married participant dies prior to
retirement, the Supplemental Plan shall pay to the
participant's spouse an amount equal to the difference
between the monthly pension said spouse would be entitled to
receive under the Qualified Plan, were it not for the Code
Limitations, and the monthly pension said spouse will
actually receive under the Qualified Plan, such monthly
payments to continue until said spouse's death.
(e) If a married participant who was receiving the
normal form of pension benefit (as defined in the Qualified
Plan) dies after retirement (whether at normal retirement
age or early retirement age), the Supplemental Plan shall
pay to the participant's spouse an amount equal to the
difference between the monthly pension said spouse would be
entitled to under the Qualified Plan, were it not for the
Code Limitations, and the monthly payment said spouse will
actually receive under the Qualified Plan, such monthly
payments to continue until said spouse's death.
(f) If a participant, who was receiving an optional
form of pension benefit (as defined in the Qualified Plan),
dies after retirement (whether at normal retirement age or
early retirement age), and, if the terms of the optional
form of pension benefit provide for a benefit for a
designated beneficiary, the Supplemental Plan shall pay to
said beneficiary, an amount equal to the difference between
the monthly pension the said beneficiary would be entitled
to under the Qualified Plan, were it not for the Code
Limitations, and the monthly pension the said beneficiary
will actually receive under the Qualified Plan, such monthly
payments to continue until such time as they would otherwise
cease under the terms of the optional form of pension
benefit.
5. Payment of Benefits
(a) Subject to the provisions of any domestic
relations order described in the final sentence of paragraph
6(b), the benefits payable to participants described in
paragraphs 2(a), (c) or (d) under the Supplemental Plan
shall be paid in the same form as, and coincident with, the
payment of pension benefits from the Qualified Plan.
Designations of beneficiaries and elections relating to
optional forms of payment, made by the participant for
purposes of the Qualified Plan, shall be equally applicable
to the Supplemental Plan, including designations of
beneficiaries for purposes of qualified domestic relations
orders (within the meaning of Section 206(d)(3) of ERISA)
under the Qualified Plans. Benefits payable to a
participant, spouse, or beneficiary under the Supplemental
Plan shall cease to be payable, at the same time as benefits
payable from the Qualified Plan to such participant, spouse
or beneficiary shall cease, or at such earlier time as the
relevant Code Limitations are no longer applicable.
(b) The benefits payable to participants described
in paragraph 2(b) under the Supplemental Plan (or to their
beneficiaries) shall be paid as if the participants were
participants in the Qualified Plan. Such participants shall
make designations of beneficiaries and elections relating to
optional forms of payment for purposes of the Supplemental
Plan according to the terms of the Qualified Plan, including
designations of beneficiaries for purposes of qualified
domestic relations orders (within the meaning of Section
206(d)(3) of ERISA) under the Qualified Plans.
(c) Notwithstanding the provisions of paragraphs
5(a) and 5(b), but subject to the approval of the
Compensation Committee as described in paragraph 5(d), a
participant described in paragraph 2(d) may elect to receive
the benefits payable to him (after taking into account the
effects of any qualified domestic relations order described
in paragraph 5(a) or 5(b)) under the Supplemental Plan in
the form of a single lump sum payment. The lump sum payment
described in the preceding sentence shall be calculated by
converting the benefits otherwise payable to the participant
at the time such benefits are to commence into a lump sum
amount of equivalent actuarial value when computed using the
actuarial factors set forth in Exhibit B to the Supplemental
Plan. A participant described in paragraph 2(d) who elects
to receive a single lump sum payment pursuant to the second
preceding sentence may further elect that, in the event that
the participant dies before receiving the single lump sum
payment, benefits shall be paid to the participant's
surviving spouse or other beneficiary without taking into
account the election made under the second preceding
sentence. Any election by a participant described in
paragraph 2(d) to receive Supplemental Plan benefits in a
single lump sum payment pursuant to this paragraph 5(c)
shall be in writing on a form provided by the Company, which
form shall be filed with the Company (i) prior to the
participant's termination of employment with the Company
because of involuntary termination of employment (including
by reason of disability) or death or (ii) at least one year
prior to the participant's voluntary retirement. Any such
election may be changed or revoked by the participant at any
time and from time to time without the consent of any other
person by the filing of a later written election with the
Company; provided that any election made less than one year
prior to a participant's voluntary retirement shall not be
valid, and in such case, payment shall be made in accordance
with the latest valid election of the participant. The
payment by the Company of a lump sum amount to a participant
(or his beneficiary or estate in the event of his death)
pursuant to this paragraph 5(c) shall discharge all
obligations of the Company to such participant (or his
beneficiary or estate) under the Supplemental Plan and such
participant's Excess Agreement.
(d) Payment of benefits in the form of a single lump
sum payment pursuant to the election of a participant under
paragraph 5(c) is subject to the approval of the
Compensation Committee, which may, in its discretion,
approve or withdraw its prior approval of such election at
any time prior to the date the lump sum payment is actually
paid to the participant and instead require that benefits be
paid in such other form as is permitted by the Supplemental
Plan.
6. General
(a) The entire cost of the Supplemental Plan shall
be paid from the general assets of the Company. It is the
intent of the Company to so pay benefits under the
Supplemental Plan as they become due; provided, however,
that the Company may, in its sole discretion, establish or
cause to be established a trust account for any or each
participant pursuant to an agreement, or agreements, with a
bank and direct that some or all of a participant's benefits
under the Supplemental Plan be paid from the general assets
of the Company which are transferred to the custody of such
bank to be held by it in such trust account as property of
the Company subject to the claims of its creditors until
such time as benefit payments pursuant to the Supplemental
Plan are made from such assets in accordance with such
agreement; and until any such payment is made, neither the
Plan nor any participant or beneficiary shall have any
preferred claim on, or any beneficial ownership interest in,
such assets. No liability for the payment of benefits under
the Supplemental Plan shall (i) be imposed upon any officer,
director, employee, or stockholder of the Company, (ii) be
imposed upon the Trust Fund under the Qualified Plan, (iii)
be paid from the Trust Fund under the Qualified Plan, or
(iv) have any effect whatsoever upon the Qualified Plan or
the payment of benefits from the Trust Fund under the
Qualified Plan.
(b) No right or interest of a participant or
beneficiary under the Supplemental Plan shall be
anticipated, assigned (either at law or in equity), or
alienated by the participant or beneficiary, nor shall any
such right or interest be subject to attachment,
garnishment, levy, execution, or other legal or equitable
process or in any manner be liable for or subject to the
debts of any participant or beneficiary. If any participant
or beneficiary (other than the surviving spouse of any
deceased participant) shall attempt to or shall alienate,
sell, transfer, assign, pledge, or otherwise encumber his or
her benefits under the Supplemental Plan or any part
thereof, or if by reason of his or her bankruptcy or other
event happening at any time such benefits would devolve upon
anyone else or would not be enjoyed by him or her, then the
Company may terminate his or her interest in any such
benefit and hold or apply it to or for his or her benefit or
the benefit of his or her spouse, children, or other person
or persons in fact dependent upon him or her, or any of
them, in such a manner as the Company may deem proper. The
Company shall not recognize any attempt by any participant
or beneficiary to alienate, sell, transfer, assign, pledge,
or otherwise encumber his or her benefits under the
Supplemental Plan or any part thereof. This Section 6(b)
shall not apply, however, in the case of a domestic
relations order that would be a "qualified domestic
relations order" within the meaning of Section 206(d)(3) of
ERISA if the Supplemental Plan was subject to Section
206(d)(3) of ERISA.
(c) Employment rights shall not be enlarged or
affected hereby. The Company shall continue to have the
right to discharge or retire a participant, with or without
cause.
7. Miscellaneous
(a) The Company shall interpret where necessary, in
its reasonable and good faith judgment, the provisions of
the Supplemental Plan and, except as otherwise provided in
the Supplemental Plan, shall determine the rights and status
of participants and beneficiaries hereunder (including,
without limitation, the amount of any benefit to which a
participant or beneficiary may be entitled under the
Supplemental Plan). Except to the extent federal law
controls, all questions pertaining to the construction,
validity, and effect of the provisions hereof shall be
determined in accordance with the laws of the State of Ohio.
(b) The Company may, from time to time, delegate all
or part of the administrative powers, duties, and
authorities delegated to it under the Supplemental Plan to
such person or persons, office or committee as it shall
select. For the purposes of ERISA, the Company shall be the
plan sponsor and the plan administrator.
(c) Whenever there is denied, whether in whole or in
part, a claim for benefits under the Supplemental Plan filed
by any person (herein referred to as the "Claimant"), the
plan administrator shall transmit a written notice of such
decision to the Claimant, which notice shall be written in a
manner calculated to be understood by the Claimant and shall
contain a statement of the specific reasons for the denial
of the claim and statement advising the Claimant that,
within 60 days of the date on which he or she receives such
notice, he or she may obtain review of such decision in
accordance with the procedures hereinafter set forth.
Within such 60-day period, the Claimant or the Claimant's
authorized representative may request that the claim denial
be reviewed by filing with the plan administrator a written
request therefor, which request shall contain the following
information:
(i) the date on which the Claimant's request was filed
with the plan administrator; provided, however, that
the date on which the Claimant's request for review
was in fact filed with the plan administrator shall
control in the event that the date of the actual
filing is later than the date stated by the Claimant
pursuant to this paragraph;
(ii) the specific portions of the denial of the claim
which the Claimant requests the plan administrator to
review;
(iii) a statement by the Claimant setting forth the basis
upon which the Claimant believes the plan
administrator should reverse the previous denial of
the Claimant's claim for benefits and accept the
claim as made; and
(iv) any written material (offered as exhibits) which
the Claimant desires the plan administrator to
examine in its consideration of the Claimant's
position as stated pursuant to clause (iii) above.
Within 60 days of the date determined pursuant to
clause (i) above, the plan administrator shall
conduct a full and fair review of the decision
denying the Claimant's claim for benefits. Within 60
days of the date of such hearing, the plan
administrator shall render its written decision on
review, written in a manner calculated to be
understood by the Claimant, specifying the reasons
and Plan provisions upon which its decision was
based.
8. Amendment and Termination
(a) The Company has reserved and does hereby reserve
the right to amend, restate or terminate, at any time, any
or all of the provisions of the Supplemental Plan, without
the consent of any participant, beneficiary, or any other
person. Without limiting the authority of the Board of
Directors of the Company or a duly authorized committee
thereof to amend, restate or terminate the Supplemental
Plan, the Board of Directors of the Company has authorized
and instructed its Vice President - Human Resources and
Logistics (or any other officer or delegate of an officer)
to amend, restate or terminate the Plan. Any amendment,
restatement or termination of the Plan shall be expressed in
an instrument executed in the name of the Company. Any such
amendment, restatement or termination shall become effective
as of the date designated in such instrument or, if no such
date is specified, on the date of its execution.
(b) Notwithstanding the foregoing provisions hereof,
no amendment, restatement or termination of the Supplemental
Plan shall, without the consent of the participant (or, in
the case of his or her death, his or her beneficiary),
adversely affect (i) the benefit under the Supplemental Plan
of any participant or beneficiary then entitled to receive a
benefit under the Supplemental Plan or (ii) the right of any
participant to receive upon termination of employment with
the Company (or the right of the participant's beneficiary
to receive upon the participant's death) that benefit which
would have been received under the Supplemental Plan if such
employment of the participant had terminated immediately
prior to the amendment, restatement or termination of the
Supplemental Plan. Upon any termination of the Supplemental
Plan, each affected participant's Supplemental Plan Benefit
shall be determined and distributed to such participant in
the case of such participant's death, to his beneficiary as
provided in paragraphs 4(d), 4(e) and 4(f) as if the
employment of the participant with the Company had
terminated immediately prior to the termination of the
Supplemental Plan.
9. Restriction on Competition
For a period of two years following a participant's
retirement, the participant shall not (a) engage or participate,
directly or indirectly, in any Competitive Activity (as defined
below), 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 three year period ending on the participant's
retirement date, if the Employee had any direct responsibility
for such customer while employed by the Company. The term
"Competitive Activity" shall mean the participant'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. If a participant engages in
activity prohibited by this section, then in addition to all
other remedies available to the Company, the Company shall be
released of any obligation under the Supplemental Plan to pay
benefits to such participant or to such participant's spouse or
beneficiary under the Supplemental Plan.
IN WITNESS WHEREOF, The Company has executed this amendment
and restatement of this Plan at Canton, Ohio, this 16th day of
March, 1998.
THE TIMKEN COMPANY
/s/ Stephen A. Perry
Senior Vice President -
Human Resources, Purchasing
and Communications
<PAGE>
Exhibit B to the
Amended and Restated
Supplemental Pension Plan
of The Timken Company
The following actuarial factors shall be used for purposes
of computing a lump sum amount pursuant to paragraph 5(c) of the
Supplemental Plan:
Interest: Average of the 30-year Treasury bonds for
the three month period ending with the second month
prior to the month of distribution.
Mortality: 1983 Group Annuity Mortality Table (male
rates) using age nearest birthday for the employee
and the 1983 Group Annuity Mortality Table (female
rates) using age nearest birthday for the spouse.
<PAGE>
EXHIBIT 10.12
THE TIMKEN COMPANY
Nonqualified Stock Option Agreement
WHEREAS, <<FName>> <<LName>> (the "Optionee") is an employee of
The Timken Company (the "Company");
WHEREAS, the execution of a stock option agreement in the form
hereof has been authorized by a resolution of the Compensation
Committee (the "Committee") of the Board of Directors (the
"Board") of the Company that was duly adopted on _________ __,
____ (the "Date of Grant"), and is incorporated herein by this
reference; and
WHEREAS, the option granted hereby is intended to be a
nonqualified stock option and shall not be treated as an
"incentive stock option" within the meaning of that term under
Section 422 of the Internal Revenue Code of 1986;
NOW, THEREFORE, pursuant to the Company's Long-term Incentive
Plan (as Amended and Restated as of December 20, 1995) (the
"Plan") and subject to the terms and conditions thereof and the
terms and conditions hereinafter set forth, the Company hereby
grants to the Optionee (i) a nonqualified stock option (the
"Option") to purchase <<Shares>> shares of the Company's common
stock without par value (the "Common Shares") at the exercise
price of ___________ dollars ($_____) per Common Share (the
"Exercise Price") and (ii) the right to receive dividend
equivalents payable in Common Shares on a deferred basis (the
"Deferred Dividend Shares") or, at the discretion of the
Committee, in cash, with respect to the Common Shares covered by
any unexercised portion of the Option.
1. Vesting of Option. (a) Unless terminated as hereinafter
provided, the Option shall be exercisable to the extent of one-
fourth (1/4th) of the Common Shares covered by the Option after
the Optionee shall have been in the continuous employ of the
Company or a subsidiary for one full year from the Date of Grant
and to the extent of an additional one-fourth (1/4th) thereof
after each of the next three successive years thereafter during
which the Optionee shall have been in the continuous employ of
the Company or a subsidiary. For the purposes of this
agreement: "subsidiary" shall mean a corporation, partnership,
joint venture, unincorporated association or other entity in
which the Company has a direct or indirect ownership or other
equity interest; the continuous employment of the Optionee with
the Company or a subsidiary shall not be deemed to have been
interrupted, and the Optionee shall not be deemed to have ceased
to be an employee of the Company or a subsidiary, by reason of
the transfer of his employment among the Company and its
subsidiaries.
(b) Notwithstanding the provisions of Section 1(a) hereof, the
Option shall become immediately exercisable in full upon any
change in control of the Company that shall occur while the
Optionee is an employee of the Company or a subsidiary. For the
purposes of this agreement, the term "change in control" shall
mean the occurrence of any of the following events:
(i) 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 percent of the
outstanding securities entitled to vote generally in the
election of directors or other capital interests of the
acquiring corporation or entity is owned, directly or
indirectly, by the shareholders of the Company generally prior
to the transaction; or
(ii) there is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report thereto), 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 thereto under the Exchange Act) of securities
representing 30 percent or more of the combined voting power of
the then-outstanding voting securities of the Company; or
(iii) the Company shall file a report or proxy statement with
the Securities and Exchange Commission (the "SEC") pursuant to
the Exchange Act disclosing in response to Item 1 of Form 8-
K thereunder or Item 5(f) of Schedule 14A thereunder (or any
successor schedule, form, report or item thereto) 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
(iv) the individuals who constituted the Board at the beginning
of any period of two consecutive calendar years cease for any
reason to constitute at least a majority thereof unless the
nomination for election by the Company's shareholders of each
new member of the Board was approved by a vote of at least two-
thirds of the members of the Board still in office who were
members of the Board at the beginning of any such period.
In the event that any person described in Section 1(b)(ii)
hereof files an amendment to any report referred to in Section
1(b)(ii) hereof that shows the beneficial ownership described in
Section 1(b)(ii) hereof to have decreased to less than 30
percent, or in the event that any anticipated change in control
referred to in Section 1(b)(iii) hereof does not occur following
the filing with the SEC of any report or proxy statement
described in Section 1(b)(iii) hereof because any contract or
transaction referred to in Section 1(b)(iii) hereof is canceled
or abandoned, the Committee may nullify the effect of Section
1(b)(ii) or 1(b)(iii) hereof, as the case may be, and reinstate
the provisions of Section 1(a) hereof by giving notice thereof
to the Optionee; provided, however, that any such action by the
Committee shall not prejudice any exercise of the Option that
may have occurred prior to the nullification and reinstatement.
The provisions of Section 1(b)(ii) hereof shall again become
automatically effective following any such nullification of the
provisions thereof and reinstatement of the provisions of
Section 1(a) hereof in the event that any person described in
Section 1(b)(ii) hereof files a further amendment to any report
referred to in Section 1(b)(ii) hereof that shows the beneficial
ownership described in Section 1(b)(ii) hereof to have again
increased to 30 percent or more.
(c) Notwithstanding the provisions of Section 1(a) hereof, the
Option shall become immediately exercisable in full if the
Optionee should die or become permanently disabled(within the
meaning of the Company's long-term disability plan) while in the
employ of the Company or any subsidiary, or if the Optionee
should retire under a retirement plan of the Company or any
subsidiary (i) at or after age 62 or (ii) at an earlier age with
the consent of the Company.
(d) To the extent that the Option shall have become exercisable
in accordance with the terms of this agreement, it may be
exercised in whole or in part from time to time thereafter.
2. Termination of Option. The Option shall terminate
automatically and without further notice on the earliest of the
following dates:
(a) thirty days after the date upon which the Optionee ceases
to be an employee of the Company or a subsidiary, unless the
cessation of his employment (i) is a result of his death,
disability or retirement with the Company's consent or (ii)
follows a change in control;
(b) five years after the date upon which the Optionee ceases to
be an employee of the Company or subsidiary (i) as a result of
his disability, (ii) as a result of his retirement with the
Company's consent, unless he is also a director of the Company
who continues to serve as such following his retirement with the
Company's consent, or (iii) following a change in control,
unless the cessation of his employment following a change in
control is a result of his death;
(c) one year after the date upon which the Optionee ceases to
be a director of the Company, but not less than five years after
the date upon which he ceases to be an employee of the Company
or a subsidiary, if (i) the cessation of his employment is a
result of his retirement with the Company's consent and (ii) he
continues to serve as a director of the Company following the
cessation of his employment;
(d) one year after the date of the Optionee's death regardless
of whether he ceases to be an employee of the Company or a
subsidiary prior to his death (i) as a result of his disability
or retirement with the Company's consent or (ii) following a
change in control; or
(e) ten years after the Date of Grant.
For the purposes of this agreement: "retirement with the
Company's consent" shall mean the retirement of the Optionee
prior to age 62, if the Board or the Committee determines that
his retirement is for the convenience of the Company or a
subsidiary, or the retirement of the Optionee at or after age 62
under a retirement plan of the Company or a subsidiary;
"disability" shall mean that the Optionee has qualified for
disability benefits under the Company's Long-Term Disability
Program or any successor disability plan or program of the
Company.
In the event that the Optionee shall intentionally commit an act
that the Committee determines to be materially adverse to the
interests of the Company or a subsidiary, the Option shall
terminate at the time of that determination notwithstanding any
other provision of this agreement.
3. Payment of Exercise Price. The Exercise Price shall be
payable (a) in cash in the form of currency or check or other
cash equivalent acceptable to the Company, (b) by transfer to
the Company of nonforfeitable, unrestricted Common Shares that
have been owned by the Optionee for at least six months prior to
the date of exercise or (c) by any combination of the methods of
payment described in Sections 3(a) and 3(b) hereof.
Nonforfeitable, unrestricted Common Shares that are transferred
by the Optionee in payment of all or any part of the Exercise
Price shall be valued on the basis of their fair market value as
determined by the Committee from time to time.
4. Crediting of Deferred Dividend Shares. Each Deferred
Dividend Share represents the right of the Optionee to receive
one Common Share if and when the Deferred Dividend Share becomes
nonforfeitable in accordance with Section 5(a) hereof. Upon the
determination by the Committee of the number of Deferred
Dividend Shares to be credited in accordance with this Section
4, Deferred Dividend Shares shall be credited annually to the
Optionee as of December 31 of each year that the Option remains
in effect and any portion thereof remains unexercised. The
number of Deferred Dividend Shares to be credited to the
Optionee for any calendar year shall be determined as follows:
(a) the total amount per share of cash dividends that were paid
on the outstanding Common Shares during the calendar year shall
be multiplied by the total number of Common Shares then covered
by both exercisable and unexercisable portions of the Option,
including any Deferred Dividend Shares that shall have been
previously credited to the Optionee hereunder and remain subject
to forfeiture pursuant to Section 5(a) hereof; (b) the product
of the arithmetical operation described in Section 4(a) hereof
shall then be divided by the average closing price of the Common
Shares, as reported on the New York Stock Exchange or other
national market on which the Common Shares are then principally
traded, for the 10 trading dates immediately preceding December
31; (c) the quotient of the arithmetical operation described in
Section 4(b) hereof shall be the number of Deferred Dividend
Shares that shall be credited to the Optionee for the calendar
year; provided, however, that no Deferred Dividend Shares shall
be credited to the Optionee for any calendar year in which the
total net income per share of the outstanding Common Shares is
not at least 250 percent of the total amount of cash dividends
per share that were paid on the outstanding Common Shares during
that calendar year, and no Deferred Dividend Shares shall be
credited to the Optionee following the cessation of his
employment with the Company or a subsidiary, regardless of the
circumstances under which the cessation of his employment
occurred and notwithstanding that the term of the Option or any
Deferred Dividend Share remains in effect.
5. Vesting and Issuance of Deferred Dividend Shares. (a) A
Deferred Dividend Share shall become nonforfeitable upon the
earlier to occur of (i) the expiration of a period of four years
from the date as of which it is credited to the Optionee on the
records of the Company, if the Optionee shall have remained in
the continuous employ of the Company or a subsidiary during that
period, or (ii) the termination of the Optionee's employment
with the Company or a subsidiary following a change in control
or as a result of his death, disability or retirement with the
Company's consent. If the Optionee ceases to be an employee of
the Company or a subsidiary under any circumstances other than
those described in Section 5(a)(ii) hereof, any Deferred
Dividend Shares that shall have been previously credited to the
Optionee hereunder and remain subject to forfeiture at the time
of the cessation of his employment shall thereupon be forfeited
automatically and without further notice unless otherwise
determined by the Committee.
(b) Subject to the terms and conditions of Section 6 hereof,
and subject to any deferral election the Optionee may have made
pursuant to any plan or program of the Company, Deferred
Dividend Shares shall be issuable to the Optionee at the time
when they become nonforfeitable in accordance with Section 5(a)
hereof.
6. Compliance with Law. The Company shall make reasonable
efforts to comply with all applicable federal and state
securities laws; provided, however, notwithstanding any other
provision of this agreement, the Option shall not be exercisable
and the Company shall not be obligated to issue any Common
Shares in payment of Deferred Dividend Shares if the exercise
or issuance thereof would result in a violation of any such law.
To the extent that the Ohio Securities Act shall be applicable
to the Option, the Option shall not be exercisable and the
Company shall not be obligated to issue any Common Shares in
payment of Deferred Dividend Shares unless the Common Shares or
other securities covered by the Option or to be issued in
payment of Deferred Dividend Shares are (a) exempt from
registration thereunder, (b) the subject of a transaction that
is exempt from compliance therewith, (c) registered by
description or qualification thereunder or (d) the subject of a
transaction that shall have been registered by description
thereunder.
7. Transferability and Exercisability. Neither the Option nor
any Deferred Dividend Shares, including any interest in either
thereof, shall be transferable by the Optionee except by will or
the laws of descent and distribution, and the Option shall be
exercisable during the lifetime of the Optionee only by him or,
in the event of his legal incapacity to do so, by his guardian
or legal representative acting on behalf of the Optionee in a
fiduciary capacity under state law and court supervision.
8. Adjustments. The Committee shall make any adjustments in
the Exercise Price and the number or kind of shares of stock or
other securities covered by the Option or to be issued in
payment of Deferred Dividend Shares that the Committee may
determine to be equitably required to prevent any dilution or
expansion of the Optionee's rights under this agreement that
otherwise would result from any (a) stock dividend, stock split,
combination of shares, recapitalization or other change in the
capital structure of the Company, (b) merger, consolidation,
separation, reorganization or partial or complete liquidation
involving the Company or (c) other transaction or event having
an effect similar to any of those referred to in Section 8(a) or
8(b) hereof. Furthermore, in the event that any transaction or
event described or referred to in the immediately preceding
sentence shall occur, the Committee may provide in substitution
of any or all of the Optionee's rights under this agreement such
alternative consideration as the Committee may determine in good
faith to be equitable under the circumstances.
9. Withholding Taxes. If the Company shall be required to
withhold any federal, state, local or foreign tax in connection
with any exercise of the Option or payment of Deferred Dividend
Shares, the Optionee shall pay the tax or make provisions that
are satisfactory to the Company for the payment thereof. The
Optionee may elect to satisfy all or any part of any such
withholding obligation by surrendering to the Company a portion
of the Common Shares that are issuable to the Optionee upon the
exercise of the Option or payment of Deferred Dividend Shares.
If such election is made, the shares so surrendered by the
Optionee shall be credited against any such withholding
obligation at their fair market value (as determined by the
Committee from time to time) on the date of such surrender.
10. Right to Terminate Employment. No provision of this
agreement shall limit in any way whatsoever any right that the
Company or a subsidiary may otherwise have to terminate the
employment of the Optionee at any time.
11. Relation to Other Benefits. Any economic or other benefit
to the Optionee under this agreement or the Plan shall not be
taken into account in determining any benefits to which the
Optionee may be entitled under any profit-sharing, retirement or
other benefit or compensation plan maintained by the Company or
a subsidiary and shall not affect the amount of any life
insurance coverage available to any beneficiary under any life
insurance plan covering employees of the Company or a
subsidiary.
12. Amendments. Any amendment to the Plan shall be deemed to
be an amendment to this agreement to the extent that the
amendment is applicable hereto; provided, however, that no
amendment shall adversely affect the rights of the Optionee with
respect to the Option or the Deferred Dividend Shares without
the Optionee's consent.
13. Severability. In the event that one or more of the
provisions of this agreement shall be invalidated for any reason
by a court of competent jurisdiction, any provision so
invalidated shall be deemed to be separable from the other
provisions hereof, and the remaining provisions hereof shall
continue to be valid and fully enforceable.
14. Governing Law. This agreement is made under, and shall be
construed in accordance with, the laws of the State of Ohio.
<PAGE>
This agreement is executed by the Company on this day of ,
THE TIMKEN COMPANY
By ___________________________
Stephen A. Perry
Senior Vice President
Human Resources, Purchasing & Communications
The undersigned Optionee hereby acknowledges receipt of an
executed original of this agreement and accepts the Option
granted hereunder and the right to receive Deferred Dividend
Shares with respect to the Common Shares covered thereby,
subject to the terms and conditions of the Plan and the terms
and conditions hereinabove set forth.
______________________________
Optionee
Date: _______________________
<PAGE>
EXHIBIT 10.13
TRANSFERABLE
THE TIMKEN COMPANY
Nonqualified Stock Option Agreement
WHEREAS, <<FName>> <<LName>> (the "Optionee") is an employee of
The Timken Company (the "Company");
WHEREAS, the execution of a stock option agreement in the form
hereof has been authorized by a resolution of the Compensation
Committee (the "Committee") of the Board of Directors (the
"Board") of the Company that was duly adopted on ________ __,
____ (the "Date of Grant"), and is incorporated herein by this
reference; and
WHEREAS, the option granted hereby is intended to be a
nonqualified stock option and shall not be treated as an
"incentive stock option" within the meaning of that term under
Section 422 of the Internal Revenue Code of 1986;
NOW, THEREFORE, pursuant to the Company's Long-term Incentive
Plan (As Amended and Restated as of December 20, 1995) (the
"Plan") and subject to the terms and conditions thereof and the
terms and conditions hereinafter set forth, the Company hereby
grants to the Optionee (i) a nonqualified stock option (the
"Option") to purchase <<Shares>> of the Company's common stock
without par value (the "Common Shares") at the exercise price of
________________ dollars ($_____) per Common Share (the
"Exercise Price") and (ii) the right to receive dividend
equivalents payable in Common Shares on a deferred basis (the
"Deferred Dividend Shares") or, at the discretion of the
Committee, in cash, with respect to the Common Shares covered by
any unexercised portion of the Option.
1. Vesting of Option. (a) Unless terminated as hereinafter
provided, the Option shall be exercisable to the extent of one-
fourth (1/4th) of the Common Shares covered by the Option after
the Optionee shall have been in the continuous employ of the
Company or a subsidiary for one full year from the Date of Grant
and to the extent of an additional one-fourth (1/4th) thereof
after each of the next three successive years thereafter during
which the Optionee shall have been in the continuous employ of
the Company or a subsidiary. For the purposes of this
agreement: "subsidiary" shall mean a corporation, partnership,
joint venture, unincorporated association or other entity in
which the Company has a direct or indirect ownership or other
equity interest; the continuous employment of the Optionee with
the Company or a subsidiary shall not be deemed to have been
interrupted, and the Optionee shall not be deemed to have ceased
to be an employee of the Company or a subsidiary, by reason of
the transfer of his employment among the Company and its
subsidiaries.
(b) Notwithstanding the provisions of Section 1(a) hereof, the
Option shall become immediately exercisable in full upon any
change in control of the Company that shall occur while the
Optionee is an employee of the Company or a subsidiary. For the
purposes of this agreement, the term "change in control" shall
mean the occurrence of any of the following events:
(i) 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 percent of the
outstanding securities entitled to vote generally in the
election of directors or other capital interests of the
acquiring corporation or entity is owned, directly or
indirectly, by the shareholders of the Company generally prior
to the transaction; or
(ii) there is a report filed on Schedule 13D or Schedule 14D-
1 (or any successor schedule, form or report thereto), 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 thereto under the Exchange Act) of securities
representing 30 percent or more of the combined voting power of
the then-outstanding voting securities of the Company; or
(iii) the Company shall file a report or proxy statement with
the Securities and Exchange Commission (the "SEC") pursuant to
the Exchange Act disclosing in response to Item 1 of Form 8-K
thereunder or Item 5(f) of Schedule 14A thereunder (or any
successor schedule, form, report or item thereto) 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
(iv) the individuals who constituted the Board at the
beginning of any period of two consecutive calendar years cease
for any reason to constitute at least a majority thereof unless
the nomination for election by the Company's shareholders of
each new member of the Board was approved by a vote of at least
two-thirds of the members of the Board still in office who were
members of the Board at the beginning of any such period.
In the event that any person described in Section 1(b)(ii)
hereof files an amendment to any report referred to in Section
1(b)(ii) hereof that shows the beneficial ownership described in
Section 1(b)(ii) hereof to have decreased to less than 30
percent, or in the event that any anticipated change in control
referred to in Section 1(b)(iii) hereof does not occur following
the filing with the SEC of any report or proxy statement
described in Section 1(b)(iii) hereof because any contract or
transaction referred to in Section 1(b)(iii) hereof is canceled
or abandoned, the Committee may nullify the effect of Section
1(b)(ii) or 1(b)(iii) hereof, as the case may be, and reinstate
the provisions of Section 1(a) hereof by giving notice thereof
to the Optionee; provided, however, that any such action by the
Committee shall not prejudice any exercise of the Option that
may have occurred prior to the nullification and reinstatement.
The provisions of Section 1(b)(ii) hereof shall again become
automatically effective following any such nullification of the
provisions thereof and reinstatement of the provisions of
Section 1(a) hereof in the event that any person described in
Section 1(b)(ii) hereof files a further amendment to any report
referred to in Section 1(b)(ii) hereof that shows the beneficial
ownership described in Section 1(b)(ii) hereof to have again
increased to 30 percent or more.
(c) Notwithstanding the provisions of Section 1(a) hereof, the
Option shall become immediately exercisable in full if the
Optionee should die or become permanently disabled (within the
meaning of the Company's long-term disability plan) while in the
employ of the Company or any subsidiary, or if the Optionee
should retire under a retirement plan of the Company or any
subsidiary (i) at or after age 62 or (ii) at an earlier age with
the consent of the Company.
(d) To the extent that the Option shall have become exercisable
in accordance with the terms of this agreement, it may be
exercised in whole or in part from time to time thereafter.
2. Termination of Option. The Option shall terminate
automatically and without further notice on the earliest of the
following dates:
(a) thirty days after the date upon which the Optionee ceases to
be an employee of the Company or a subsidiary, unless the
cessation of his employment (i) is a result of his death,
disability or retirement with the Company's consent or (ii)
follows a change in control;
(b) five years after the date upon which the Optionee ceases to
be an employee of the Company or subsidiary (i) as a result of
his disability, (ii) as a result of his retirement with the
Company's consent, unless he is also a director of the Company
who continues to serve as such following his retirement with the
Company's consent, or (iii) following a change in control,
unless the cessation of his employment following a change in
control is a result of his death;
(c) one year after the date upon which the Optionee ceases to be
a director of the Company, but not less than five years after
the date upon which he ceases to be an employee of the Company
or a subsidiary, if (i) the cessation of his employment is a
result of his retirement with the Company's consent and (ii) he
continues to serve as a director of the Company following the
cessation of his employment;
(d) one year after the date of the Optionee's death regardless
of whether he ceases to be an employee of the Company or a
subsidiary prior to his death (i) as a result of his disability
or retirement with the Company's consent or (ii) following a
change in control; or
(e) ten years after the Date of Grant.
For the purposes of this agreement: "retirement with the
Company's consent" shall mean the retirement of the Optionee
prior to age 62, if the Board or the Committee determines that
his retirement is for the convenience of the Company or a
subsidiary, or the retirement of the Optionee at or after age 62
under a retirement plan of the Company or a subsidiary;
"disability" shall mean that the Optionee has qualified for
disability benefits under the Company's Long-Term Disability
Program or any successor disability plan or program of the
Company.
In the event that the Optionee shall intentionally commit an act
that the Committee determines to be materially adverse to the
interests of the Company or a subsidiary, the Option shall
terminate at the time of that determination notwithstanding any
other provision of this agreement.
3. Payment of Exercise Price. The Exercise Price shall be
payable (a) in cash in the form of currency or check or other
cash equivalent acceptable to the Company, (b) by transfer to
the Company of nonforfeitable, unrestricted Common Shares that
have been owned by the Optionee for at least six months prior to
the date of exercise or (c) by any combination of the methods of
payment described in Sections 3(a) and 3(b) hereof.
Nonforfeitable, unrestricted Common Shares that are transferred
by the Optionee in payment of all or any part of the Exercise
Price shall be valued on the basis of their fair market value as
determined by the Committee from time to time.
4. Crediting of Deferred Dividend Shares. Each Deferred
Dividend Share represents the right of the Optionee to receive
one Common Share if and when the Deferred Dividend Share becomes
nonforfeitable in accordance with Section 5(a) hereof. Upon the
determination by the Committee of the number of Deferred
Dividend Shares to be credited in accordance with this
Section 4, Deferred Dividend Shares shall be credited annually
to the Optionee as of December 31 of each year that the Option
remains in effect and any portion thereof remains unexercised.
The number of Deferred Dividend Shares to be credited to the
Optionee for any calendar year shall be determined as follows:
(a) the total amount per share of cash dividends that were paid
on the outstanding Common Shares during the calendar year shall
be multiplied by the total number of Common Shares then covered
by both exercisable and unexercisable portions of the Option,
including any Deferred Dividend Shares that shall have been
previously credited to the Optionee hereunder and remain subject
to forfeiture pursuant to Section 5(a) hereof; (b) the product
of the arithmetical operation described in Section 4(a) hereof
shall then be divided by the average closing price of the Common
Shares, as reported on the New York Stock Exchange or other
national market on which the Common Shares are then principally
traded, for the 10 trading dates immediately preceding
December 31; (c) the quotient of the arithmetical operation
described in Section 4(b) hereof shall be the number of Deferred
Dividend Shares that shall be credited to the Optionee for the
calendar year; provided, however, that no Deferred Dividend
Shares shall be credited to the Optionee for any calendar year
in which the total net income per share of the outstanding
Common Shares is not at least 250 percent of the total amount of
cash dividends per share that were paid on the outstanding
Common Shares during that calendar year, and no Deferred
Dividend Shares shall be credited to the Optionee following the
cessation of his employment with the Company or a subsidiary,
regardless of the circumstances under which the cessation of his
employment occurred and notwithstanding that the term of the
Option or any Deferred Dividend Share remains in effect.
5. Vesting and Issuance of Deferred Dividend Shares. (a) A
Deferred Dividend Share shall become nonforfeitable upon the
earlier to occur of (i) the expiration of a period of four years
from the date as of which it is credited to the Optionee on the
records of the Company, if the Optionee shall have remained in
the continuous employ of the Company or a subsidiary during that
period, or (ii) the termination of the Optionee's employment
with the Company or a subsidiary following a change in control
or as a result of his death, disability or retirement with the
Company's consent. If the Optionee ceases to be an employee of
the Company or a subsidiary under any circumstances other than
those described in Section 5(a)(ii) hereof, any Deferred
Dividend Shares that shall have been previously credited to the
Optionee hereunder and remain subject to forfeiture at the time
of the cessation of his employment shall thereupon be forfeited
automatically and without further notice unless otherwise
determined by the Committee.
(b) Subject to the terms and conditions of Section 6 hereof, and
subject to any deferral election the Optionee may have made
pursuant to any plan or program of the Company, Deferred
Dividend Shares shall be issuable to the Optionee at the time
when they become nonforfeitable in accordance with Section 5(a)
hereof.
6. Compliance with Law. The Company shall make reasonable
efforts to comply with all applicable federal and state
securities laws; provided, however, notwithstanding any other
provision of this agreement, the Option shall not be exercisable
and the Company shall not be obligated to issue any Common
Shares in payment of Deferred Dividend Shares if the exercise
or issuance thereof would result in a violation of any such law.
To the extent that the Ohio Securities Act shall be applicable
to the Option, the Option shall not be exercisable and the
Company shall not be obligated to issue any Common Shares in
payment of Deferred Dividend Shares unless the Common Shares or
other securities covered by the Option or to be issued in
payment of Deferred Dividend Shares are (a) exempt from
registration thereunder, (b) the subject of a transaction that
is exempt from compliance therewith, (c) registered by
description or qualification thereunder or (d) the subject of a
transaction that shall have been registered by description
thereunder.
7. Transferability and Exercisability.
(a) Except as provided in Section 7(b) below, neither the Option
nor any Deferred Dividend Shares, including any interest in
either thereof, shall be transferable by the Optionee except by
will or the laws of descent and distribution, and the Option
shall be exercisable during the lifetime of the Optionee only by
him or, in the event of his legal incapacity to do so, by his
guardian or legal representative acting on behalf of the
Optionee in a fiduciary capacity under state law and court
supervision.
(b) Notwithstanding Section 7(a) above, the Option, any Deferred
Dividend Shares, or any interest in either thereof, may be
transferable by the Optionee, without payment of consideration
therefor, to any one or more members of the immediate family of
Optionee (as defined in Rule 16a-1(e) under the Exchange Act),
or to one or more trusts established solely for the benefit of
such members of the immediate family or to partnerships in which
the only partners are such members of the immediate family of
the Optionee; provided, however, that such transfer will not be
effective until notice of such transfer is delivered to the
Company; and provided, further, however, that any such
transferee is subject to the same terms and conditions hereunder
as the Optionee.
8. Adjustments. The Committee shall make any adjustments in
the Exercise Price and the number or kind of shares of stock or
other securities covered by the Option or to be issued in
payment of Deferred Dividend Shares that the Committee may
determine to be equitably required to prevent any dilution or
expansion of the Optionee's rights under this agreement that
otherwise would result from any (a) stock dividend, stock split,
combination of shares, recapitalization or other change in the
capital structure of the Company, (b) merger, consolidation,
separation, reorganization or partial or complete liquidation
involving the Company or (c) other transaction or event having
an effect similar to any of those referred to in Section 8(a) or
8(b) hereof. Furthermore, in the event that any transaction or
event described or referred to in the immediately preceding
sentence shall occur, the Committee may provide in substitution
of any or all of the Optionee's rights under this agreement such
alternative consideration as the Committee may determine in good
faith to be equitable under the circumstances.
9. Withholding Taxes. If the Company shall be required to
withhold any federal, state, local or foreign tax in connection
with any exercise of the Option or payment of Deferred Dividend
Shares, the Optionee shall pay the tax or make provisions that
are satisfactory to the Company for the payment thereof. The
Optionee may elect to satisfy all or any part of any such
withholding obligation by surrendering to the Company a portion
of the Common Shares that are issuable to the Optionee upon the
exercise of the Option or payment of Deferred Dividend Shares.
If such election is made, the shares so surrendered by the
Optionee shall be credited against any such withholding
obligation at their fair market value (as determined by the
Committee from time to time) on the date of such surrender.
10. Right to Terminate Employment. No provision of this
agreement shall limit in any way whatsoever any right that the
Company or a subsidiary may otherwise have to terminate the
employment of the Optionee at any time.
11. Relation to Other Benefits. Any economic or other benefit
to the Optionee under this agreement or the Plan shall not be
taken into account in determining any benefits to which the
Optionee may be entitled under any profit-sharing, retirement or
other benefit or compensation plan maintained by the Company or
a subsidiary and shall not affect the amount of any life
insurance coverage available to any beneficiary under any life
insurance plan covering employees of the Company or a
subsidiary.
12. Amendments. Any amendment to the Plan shall be deemed to
be an amendment to this agreement to the extent that the
amendment is applicable hereto; provided, however, that no
amendment shall adversely affect the rights of the Optionee with
respect to the Option or the Deferred Dividend Shares without
the Optionee's consent.
13. Severability. In the event that one or more of the
provisions of this agreement shall be invalidated for any reason
by a court of competent jurisdiction, any provision so
invalidated shall be deemed to be separable from the other
provisions hereof, and the remaining provisions hereof shall
continue to be valid and fully enforceable.
14. Governing Law. This agreement is made under, and shall be
construed in accordance with, the laws of the State of Ohio.
<PAGE>
This agreement is executed by the Company on this day of
, .
THE TIMKEN COMPANY
By
Stephen A. Perry
Senior Vice President
Human Resources, Purchasing & Communications
The undersigned Optionee hereby acknowledges receipt of an
executed original of this agreement and accepts the Option
granted hereunder and the right to receive Deferred Dividend
Shares with respect to the Common Shares covered thereby,
subject to the terms and conditions of the Plan and the terms
and conditions hereinabove set forth.
Optionee
Date:
<PAGE>
Exhibit 10.14
CONSULTING AGREEMENT
___________________________
This consulting agreement (hereinafter referred to as
"Agreement") is entered into as of the 1st day of January,
1998, by and between Joseph F. Toot, Jr., (hereinafter
referred to as "Consultant") and The Timken Company
(hereinafter referred to as "Company"), a corporation
organized and existing under the laws of the State of Ohio.
WHEREAS, Consultant has been employed for many years as an
officer of the Company and has acquired extensive
experience and developed important relationships which the
Company wishes to utilize by retaining Consultant to
perform certain services as described herein; and
WHEREAS, Consultant will resign as an officer and retire as
an employee on December 31, 1997, under the Company's
retirement program.
NOW, THEREFORE, in consideration of the mutual promises and
covenants, it is hereby agreed by and between the parties
as follows:
1. In consideration for Consultant's services as hereinafter
described, the Company agrees to pay Consultant $180,000.00 per
year payable in quarterly payments of $45,000.00 to be paid on
the last day of each calendar quarter beginning March 31, 1998.
2. The services to be performed by Consultant shall consist of
the following:
(1) Provide counsel and advice to the Company on various matters
from time to time as requested by the Chairman, President and CEO
and either of the Chief Operating Officers of the Company; (2)
continue his relationships with customers and others in the
bearing and steel industry and make calls on and entertain such
persons on behalf of the Company; (3) provide advice regarding
business activities in China and other Far Eastern countries,
including visits to the area; (4) assist in the development of
Asian strategy; and (5) provide similar services to support the
interests of the Company from time to time as requested by the
Chairman, President and CEO of the Company.
3. It is anticipated that Consultant will devote the equivalent
of approximately one week per month to the performance of the
services described above. The days on which Consultant will
perform services under this Agreement, and the number of hours
devoted to the performance of such services on any given day,
will be determined by Consultant in his sole discretion.
4. The Company will provide an office and secretarial services
for the Consultant to assist him in performing the services
described in this Agreement. Consultant is not required to make
use of such office or secretarial assistance and may perform the
services requested under this Agreement at any location of his
choice, whether inside or outside of Ohio.
5. Consultant shall be entitled to the use of Company aircraft
in connection with performing services under this Agreement,
provided, however, that commercial aviation will be used when
practical and that scheduling for Corporate Officers shall take
precedence to the extent practical. Consultant shall be entitled
to use first class air travel.
6. The Company will reimburse Consultant for all reasonable and
necessary expenses incurred in the performance of the services
described in this Agreement.
7. Consultant agrees that he shall treat confidentially any
material, non-public information, trade secrets, or proprietary
data of the Company that he obtains during the course of
performing his services under this Agreement.
8. Consultant agrees that, during the term of this Agreement
and for three years after the termination of this Agreement, he
shall not provide services to any third party that is a direct
competitor of the Company. Subject to the foregoing, Consultant
may provide consulting or other services to other parties during
the term of this Agreement and at anytime thereafter.
9. It is agreed that Consultant shall render his services as an
independent contractor and that no relationship of employer-
employee shall result from the execution of this Agreement or
from the performance of any services hereunder.
10. Consultant shall have the right to determine when, where,
how and in what manner he will perform the services under this
Agreement. It is understood that as an independent contractor,
Consultant is not under the direction or control of the Company
when rendering the services requested of him under this Agreement
and is expected to exercise independent judgment when providing
services under this Agreement. Moreover, Consultant shall not be
entitled to any Company benefits as a result of performing
services under this Agreement, and the Company shall not pay or
withhold any federal, state, or local income tax or payroll tax
of any kind on behalf of the Consultant.
11. This Agreement shall be for a term of three years
terminating on December 31, 2000, provided, however, that either
party may cancel and terminate this Agreement at any time by
giving a sixty-day written notice to the other party of its the
desire to do so. Moreover, this Agreement will terminate
immediately if Consultant dies, becomes permanently disabled, or
breaches any material term of this Agreement. If this Agreement
is terminated prior to December 31, 2000, the quarterly payment
to which Consultant would otherwise be entitled to receive will
be pro-rated based on the number of days the Agreement was in
effect during the calendar quarter in which the Agreement was
terminated. The provisions of Paragraphs 8 and 9 hereof shall
continue in full force and effect notwithstanding the termination
of this Agreement.
12. This Agreement constitutes the entire agreement between the
parties relative to the services referred to herein and
supersedes all previous negotiations and understandings,
oral or written, relative to such services.
Notwithstanding the foregoing, nothing contained herein
shall affect or adversely impact any compensation or
benefits to which Consultant is entitled as a result of his
employment by the Company prior to December 31, 1997, and
his retirement on said date.
13. This Agreement shall be construed, interpreted and applied,
and the legal relationship created herein shall be determined, in
accordance with the laws of the State of Ohio.
In witness whereof, the parties have executed this
Agreement as of the date first above written.
THE TIMKEN COMPANY
By: ________________________________
________________________________
(Title)
________________________________
Joseph F. Toot, Jr.
<PAGE>
DECEMBER 3, 1997
Exhibit 10.15
THE TIMKEN COMPANY
Performance Share Agreement
WHEREAS, <<FName>> << LName>> (the "Grantee") is a key employee
of The Timken Company (the "Company"); and
WHEREAS, the execution of a Performance Share Agreement (this
"Agreement") in the form hereof has been authorized by a
resolution of the Compensation Committee (the "Committee") of
the Board of Directors (the "Board") of the Company that was
duly adopted on _______________, 1997.
NOW THEREFORE, pursuant to the Company's Long Term Incentive
Plan (As Amended and Restated as of December 20, 1995) (the
"Plan"), and subject to the terms and conditions thereof and the
terms and conditions hereinafter set forth, the Company hereby
grants to the Grantee ______________ Performance Shares.
1. Definitions. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Plan.
2. Grant of Performance Shares. The Company granted to the
Grantee the number of Performance Shares specified above, which
shall be earned out by the Grantee during the period commencing
on January 1, 1998 and ending on December 31, 2000 (the
"Performance Period") as set forth in Section 3 of this
Agreement.
3. Earn-Out of Performance Shares. (a) One-third of the
Performance Shares shall be earned out on December 31 of each
year (the "Annual Award") during the Performance Period, but
only if the Committee shall determine that (i) the Grantee shall
have been in the continuous employ of the Company or any
subsidiary of the Company through such December 31 and (ii) the
market price of the Common Shares shall have reached the
applicable price set forth in the Performance Share Vesting
Table set forth below under the column "Target Price II" and
maintained such price for the period specified in Section 3(c)
below.
(b) The Committee shall have the discretion to authorize an
award based upon a reduced number of Performance Shares, up to
50 percent of the Annual Award, if the market price of the
shares for any given year in the Performance Period has reached
the applicable price set forth in the Performance Share Vesting
Table set forth below under the column "Target Price I" and
maintained such price for the period specified in Section 3(c)
below.
(c) The market price of the shares shall only be deemed to have
reached a Target Price if the closing price of the shares on the
New York Stock Exchange (as reported in the Midwest Edition of
the Wall Street Journal) (the "Market Price") shall have reached
the specified Target Price and remained at or above such level
for a minimum of 15 trading days within any period of 90
consecutive calendar days during the calendar year immediately
preceding the applicable determination date.
(d) Notwithstanding the provisions of this Section 3, the
Performance Shares awarded hereby that have not theretofore been
earned out (other than those which were not earned out by reason
of failure of the Market Price of the Common Shares to reach the
applicable price set forth in the Performance Share Vesting
Table) shall become immediately earned out if at any time during
the employment of the Grantee a "change in control" shall occur.
For the purposes of this Agreement, the term "change in control"
shall mean the occurrence of any of the following events:
(i) 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 percent of the
outstanding securities entitled to vote generally in the
election of Directors or other capital interests of the
acquiring corporation or entity is owned, directly or
indirectly, by the shareholders of the Company generally prior
to the transaction; or
(ii) there is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report thereto), as
promulgated pursuant to the Securities Exchange Act of 1934, as
amended (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 thereto under the Exchange Act) of securities
representing 30 percent or more of the combined voting power of
the then-outstanding voting securities of the Company; or
(iii) the Company shall file a report or proxy statement with
the Securities and Exchange Commission (the "SEC") pursuant to
the Exchange Act disclosing in response to Item 1 of Form 8-K
thereunder or Item 5(f) of Schedule 14A thereunder (or any
successor schedule, form, report or item thereto) 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
(iv) the individuals who constituted the Board at the beginning
of any period of two consecutive calendar years cease for any
reason to constitute at least a majority thereof unless the
nomination for election by the Company's shareholders of each
new member of the Board was approved by a vote of at least two-
thirds of the members of the Board still in office who were
members of the Board at the beginning of any such period.
In the event that any person described in Section 3(d)(ii)
hereof files an amendment to any report referred to in Section
3(d)(ii) hereof that shows the beneficial ownership described in
Section 3(d)(ii) hereof to have decreased to less than 30
percent, or in the event that any anticipated change in control
referred to in Section 3(d)(iii) hereof does not occur following
the filing with the SEC of any report or proxy statement
described in Section 3(d)(iii) hereof because any contract or
transaction referred to in Section 3(d)(iii) hereof is canceled
or abandoned, the Committee may nullify the effect of Section
3(d)(ii) or 3(d)(iii) hereof, as the case may be, and reinstate
the remaining provisions of Section 3 hereof by giving notice
thereof to the Grantee. The provisions of Section 3(d)(ii)
hereof shall again become automatically effective following any
such nullification of the provisions thereof and the remaining
provisions of Section 3 hereof shall be reinstated in the event
that any person described in Section 3(d)(ii) hereof files a
further amendment to any report referred to in Section 3(d)(ii)
hereof that shows the beneficial ownership described in Section
3(d)(ii) hereof to have again increased to 30 percent or more.
Performance Share Vesting Table
TARGET PRICE I TARGET PRICE II
YEAR (15-20% INCREASE) (20% OR GREATER INCREASE)
1998 [$44.85 - $46.75] [$46.75 or greater]
1999 [$53.76 - $56.13] [$56.13 or greater]
2000 [$64.55 - $67.38] [$67.38 or greater]
4. Pay-Out of Performance Shares. (a) For each calendar year
during the Performance Period, if the applicable conditions have
been satisfied as set forth in Section 3 hereof, the Grantee
shall receive, in cash, payment for his/her Annual Award, or, if
applicable, the reduced award determined pursuant to Section
3(b) hereof, multiplied by the Market Price of the Common Shares
as of December 31 at the end of applicable calendar year during
the Performance Period. Not later than 90 days after the end of
the applicable calendar year during the Performance Period, the
Committee shall determine whether the applicable Target Price
has been met and, thus, whether awards have been earned. Final
awards that have been earned shall be paid, less applicable tax
withholdings, as soon as practicable following such
determination by the Committee.
(b) Prior to payment, the Company shall only have an unfunded
and unsecured obligation to make payment of any earned awards to
the Grantee.
5. Deferral of Performance Shares. Grantee may elect to defer
all or a specified part of his or her Annual Award pursuant to
the Deferral Provisions set forth in Appendix A hereto.
6. Effect of Death, Disability or Retirement. If the Grantee's
employment with the Company should terminate because of death,
permanent total disability or retirement with the Company's
consent, prior to the end of any calendar year within the
Performance Period, the extent to which the Performance Shares
granted hereby shall be deemed to have been earned out shall be
determined according to the earn-out provisions of Section 3 as
if the Grantee's employment had not been terminated and the
final award shall be multiplied by a fraction, the numerator of
which is the number of full months the Grantee was employed
during the current calendar year of the Performance Period and
the denominator of which is the total number of months in the
current year of the Performance Period; provided, however, that
the Board, upon recommendation of the Committee may, in its
discretion, increase payments made under the foregoing
circumstances up to the full amount payable for service
throughout the Performance Period if the earn-out provisions of
Section 3 have been satisfied.
7. Effect of Other Terminations of Employment. In the event
that the Grantee's employment shall terminate in a manner other
than any specified in Section 6 hereof, the Grantee shall
forfeit any rights he or she may have in any Performance Shares
that have not been earned out by such Grantee at the time of
such termination; provided, however, that the Board, upon
recommendation of the Committee may order payment of an award,
in an amount determined as in Section 6 for Termination for
Death, Disability or Retirement under circumstances which
warrant such exceptional treatment in the judgment of the
Committee or the Board.
8. Effect of Change of Control. Notwithstanding any other
provision of this Agreement, in the event that there is a change
in control pursuant to Section 3(d) hereof, the Grantee shall be
entitled to receive in cash an amount equal to the Market Price
of the Common Shares as of the date of such change in control
multiplied by the number of Performance Shares earned out
pursuant to Section 3(d) by reason of such change in control.
9. Shares Non-Transferable. The Performance Shares granted
hereby and any interest in such Performance Shares are not
transferable other than by will or the laws of descent and
distribution.
10. Dilution and Other Adjustments. The Committee shall make
any adjustments in the Target Prices and/or the number of
Performance Shares then held by the Grantee that the Committee
may determine to be equitably required to prevent any dilution
or expansion of the Grantee's rights under this Agreement that
otherwise would result from any (a) stock dividend, stock split,
combination of shares, recapitalization or other change in the
capital structure of the Company, (b) merger, consolidation,
separation, reorganization or partial or complete liquidation
involving the Company or (c) other transaction or event having
an effect similar to any of those referred to in Section 10(a)
or 10(b) hereof. Furthermore, in the event that any transaction
or event described or referred to in the immediately preceding
sentence shall occur, the Committee may provide in substitution
of any or all of the Grantee's rights under this Agreement such
alternative consideration as the Committee may determine in good
faith to be equitable under the circumstances.
11. Withholding Taxes. The Company may withhold from any
amounts payable under this Agreement all federal, state, local,
foreign or other tax as shall be required to be withheld
pursuant to any law or government regulation or ruling.
12. Right to Terminate Employment. No provision of this
Agreement shall limit in any way whatsoever any right that the
Company may otherwise have to terminate the employment of the
Grantee at any time.
13. Relation to Other Benefits. Any economic or other benefit
to the Grantee under this agreement or the Plan shall not be
taken into account in determining any benefits to which the
Grantee may be entitled under any profit-sharing, retirement or
other benefit or compensation plan maintained by the Company or
a subsidiary and shall not affect the amount of any life
insurance coverage available to any beneficiary under any life
insurance plan covering employees of the Company or a
subsidiary.
14. Amendments. Any amendment to the Plan shall be deemed to
be an amendment to this agreement to the extent that the
amendment is applicable hereto; provided, however, that no
amendment shall adversely affect the rights of the Grantee with
respect to the Performance Shares earned out without the
Grantee's consent.
15. Severability. In the event that one or more of the
provisions of this agreement shall be invalidated for any reason
by a court of competent jurisdiction, any provision so
invalidated shall be deemed to be separable from the other
provisions hereof, and the remaining provisions hereof shall
continue to be valid and fully enforceable.
16. Governing Law. This agreement is made under, and shall be
construed in accordance with the internal substantive laws of
the State of Ohio.
<PAGE>
This agreement is executed by the Company on this ____ day of
____________.
THE TIMKEN COMPANY
By ________________________________
Stephen A. Perry
Senior Vice President
Human Resources, Purchasing
and Communications
The undersigned Grantee hereby acknowledges receipt of an
executed original of this agreement and accepts the Performance
Shares granted hereunder, subject to the terms and conditions of
the Plan and the terms and conditions hereinabove set forth.
__________________________
Grantee
Date: ____________________
<PAGE>
APPENDIX A
DEFERRAL PROVISIONS
This Appendix A sets forth the terms and conditions applicable
to the Grantee's election to defer receipt of all or a specified
part of his or her Annual Award pursuant to Section 5 of the
Agreement. Capitalized terms used, but not otherwise defined in
this Appendix A, shall have the respective meanings assigned to
them in the Agreement.
1. Election to Defer. The Grantee to effect a deferral must
complete and deliver an election agreement, substantially in the
form attached hereto as Exhibit A, to the Director of
Compensation and Benefits of the Company before the first day of
the year for which such Annual Award would otherwise be paid,
except in the case of an Annual Award for 1998 where the
election agreement may be delivered to the Director of
Compensation and Benefits of the Company within [ days
after the date of the Agreement]. Unless otherwise specified by
the Grantee in the election agreement, an election agreement
that is timely delivered shall be effective for Annual Awards
earned under this Agreement for any succeeding years until
revoked or modified by written notice to the Director of
Compensation and Benefits of the Company. In order to be
effective to revoke or modify an election, a revocation or
modification must be delivered prior to the beginning of the
year for which an Annual Award is payable.
2. Amount Deferred; Period of Deferral. The Grantee shall
designate in the election agreement the percentage or the dollar
amount of his or her Annual Award that is to be deferred and
whether the amount deferred shall remain denominated in
Performance Shares or whether the amount deferred shall be
translated into cash. Any amount deferred shall be deferred
until the earlier to occur of (i) the date the Grantee ceases to
be an employee by death, retirement or otherwise or (ii) the
date specified by the Grantee in the election agreement,
including a date determined by reference to the date the Grantee
ceases to be an employee by death, retirement or otherwise
(provided in the case where the Grantee ceases to be an employee
on December 31 of a year that such date is after March 15 of the
year following the year in which the Grantee ceases to be an
employee).
3. Accounts. (i) Deferred amounts that are translated into
cash shall be treated as if it were set aside in an account on
the date the Annual Award would otherwise have been paid to the
Grantee. Such account will be credited with interest computed
quarterly (based on calendar quarters) on the lowest balance in
the account during each quarter at such rate and in such manner
as determined from time to time by the Committee. Unless
otherwise determined by the Committee, interest to be credited
hereunder shall be credited at the prime rate in effect
according to the Wall Street Journal on the last day of each
calendar quarter plus one percent. Interest for a calendar
quarter shall be credited to the account as of the first day of
the following quarter.
(ii) Deferred amounts that remain denominated in Performance
Shares shall be reflected in a separate account, which shall be
credited with the number of deferred Performance Shares. Such
account shall be credited from time to time with amounts equal
to dividends or other distributions paid on a number of Common
Shares of the Company equal to the number of Performance Shares
reflected in such account, and such account shall be credited
with interest on cash amounts credited to such account from time
to time in the manner provided in Subsection (i) above.
4. Payment of Accounts. The amounts in the Grantee's
account(s) shall be paid as provided in this Section 4.
(i) Amounts described in Section 3(i) shall be paid to the
Grantee in a lump sum or in a number of approximately equal
quarterly installments, as designated by the Grantee in his or
her election agreement. The amount of such account remaining
unpaid shall continue to bear interest, as provided in Section
3(i). The lump sum payment or the first quarterly installment,
as the case may be, shall be made as soon as practicable
following the end of the period of deferral as specified in
Section 2.
(ii) Amounts described in Section 3(ii) shall be paid to a
Grantee in cash as soon as practicable following the end of the
period of deferral as specified in Section 2. All amounts
credited to such account in respect of dividends, distributions
and interest thereon as provided in Section 3(ii) shall likewise
be paid to the Grantee at such time.
5. Death of Grantee. In the event of the death of the Grantee,
the amount of the Grantee's account or accounts shall be paid to
the beneficiary or beneficiaries designated in a writing
substantially in the form attached hereto as Exhibit B (the
"Beneficiary Designation"), in accordance with the Grantee's
election agreement and Section 4. A Grantee's Beneficiary
Designation may be changed at any time prior to his or her death
by the execution and delivery of a new Beneficiary Designation.
The Beneficiary Designation on file with the Company that bears
the latest date at the time of the Grantee's death shall govern.
In the absence of a Beneficiary Designation or the failure of
any beneficiary to survive the Grantee, the amount of the
Grantee's account or accounts shall be paid to the Grantee's
estate in a lump sum 90 days after the appointment of an
executor or administrator. In the event of the death of the
beneficiary or beneficiaries after the death of a Grantee, the
remaining amount of the account or accounts shall be paid in a
lump sum to the estate of the last beneficiary to receive
payments 90 days after the appointment of an executor or
administrator.
6. Acceleration. Notwithstanding the provisions of the
foregoing: (i) if a "change in control", as that term is
defined in The Timken Company 1996 Deferred Compensation Plan,
occurs, the amount of the Grantee's account or accounts shall
immediately be paid to the Grantee in full; (ii) in the event of
an unforeseeable emergency, as defined in section 1.457-2(h)(4)
and (5) of the Income Tax Regulations, that is caused by an
event beyond the control of the Grantee or beneficiary and that
would result in severe financial hardship to the individual if
acceleration were not permitted, the Committee may in its sole
discretion accelerate the payment to the Grantee or beneficiary
of the amount of his or her account or accounts, but only up to
the amount necessary to meet the emergency.
7. Non-alienation of Deferred Amounts. No right or interest of
the Grantee or any beneficiary shall, without the written
consent of the Company, be (i) assignable or transferable in any
manner, (ii) subject to alienation, anticipation, sale, pledge,
encumbrance, attachment, garnishment or other legal process or
(iii) in any manner liable for or subject to the debts or
liabilities of the Grantee or beneficiary.
8. Interest of Grantee. The obligation of the Company to make
payment of amounts reflected in an account merely constitutes
the unsecured promise of the Company to make payments from its
general assets, as provided herein, and neither the Grantee nor
any beneficiary shall have any interest in, or a lien or prior
claim upon, any property of the Company. It is the intention of
the Company that its obligation be unfunded for tax purposes and
for purposes of Title I of ERISA. The Company may create a
trust to hold funds to be used in payment of its obligations
under the Agreement, and may fund such trust; provided, however,
that any funds contained therein shall remain liable for the
claims of the Company's general creditors.
<PAGE>
EXHIBIT A
PERFORMANCE SHARE GRANT
THE TIMKEN COMPANY
DEFERRAL ELECTION
I,______________________, hereby elect pursuant to Section
5 of the Performance Share Agreement dated ________________
between myself and the Company (the "Agreement") to defer
receipt of all or part of the Annual Award(s) which I
otherwise would be entitled to receive as follows:
Deferral of Cash Deferral of Performance Shares
1. Percentage or dollar amount 1. Percentage or dollar amount of
of Annual Award, if any, (a) Annual Award (a) for 1998 only [ ]
for 1998 only [ ] or (b) for or (b) for 1998 and for later years
1998 and for later years [ ]:
[ ]:
25% [ ] 100% [ ]
25% [ ] 100% [ ] 50% [ ] ___% [ ]
50% [ ] ___% [ ]
$ [ ]
$ [ ]
2. Please defer my receipt of
2. Please make payment of the Performance Shares, payable in cash,
above specified cash together together with the cash credited to
with all accrued interest my account equal to dividends or
reflected in my account as other distributions paid on a number
as follows: of Common Shares equal to the number
of Performance Shares reflected in
a. Pay in lump sum [ ] such account, together with all
b. Pay in __ approximately accrued interest, as follows:
equal quarterly installments
[ ] a. Defer until the date I
cease to be an employee [ ]
3. Please defere payment or
make payment of first installment
as follows:
a. Defer until the date I
cease to be an employee [ ]
b. Defer until ________ [ ]
(specify date or number of years
following termination of
employement)
b. Defer until ______ [ ] (specify date or number of years
following termination of employment)
I acknowledge that I have reviewed the Agreement and
understand that my participation will be subject to the
terms and conditions contained in the Agreement.
Capitalized terms used, but not otherwise defined, in this
election agreement shall have the respective meanings
assigned to them in the Agreement.
I understand that (i) this election agreement shall
continue to be effective for subsequent Annual Awards
earned under the Agreement except as specified above and
except as otherwise provided in the Agreement and (ii) in
order to be effective to revoke or modify this election
agreement with respect to Annual Award otherwise payable
for a particular year, a revocation or modification must be
delivered to the Director of Compensation and Benefits of
the Company prior to the beginning of the year for which
such Annual Award is payable.
I acknowledge that I have been advised to consult with my
own financial, tax, estate planning and legal advisors
before making this election to defer in order to determine
the tax effects and other implications of my participation
in the Agreement.
Dated this______ day of_____________________, 1997.
______________________________
(Signature) (Print or type name)
<PAGE>
EXHIBIT B
PERFORMANCE SHARE GRANT
THE TIMKEN COMPANY
BENEFICIARY DESIGNATIONS
In accordance with the terms and conditions of the
Performance Share Agreement dated
between
and The Timken Company (the "Performance Share Agreement"),
I hereby designate the person(s) indicated below as my
beneficiary(ies) to receive the amounts payable under said
Performance Share Agreement.
Name______________________________
Address___________________________
___________________________
___________________________
Social Sec. Nos. of Beneficiary(ies)__________________________
Relationship(s)_______________________________________________
Date(s) of Birth______________________________________________
In the event that the above-named beneficiary(ies)
predecease(s) me, I hereby designate the following person
as beneficiary(ies);
Name______________________________
Address___________________________
___________________________
___________________________
Social Sec. Nos. of Beneficiary(ies)__________________________
Relationship(s)_______________________________________________
Date(s) of Birth______________________________________________
I hereby expressly revoke all prior designations of
beneficiary(ies), reserve the right to change the
beneficiary(ies) herein designated and agree that the
rights of said beneficiary(ies) shall be subject to the
terms of the Performance Share Agreement. In the event
that there is no beneficiary living at the time of my
death, I understand that the amounts payable under the
Performance Share Agreement will be paid to my estate.
______________________
Date (Signature) (Print or type name)
EXHIBIT 13
FINANCIAL SUMMARY
1997 1996
(Thousands of dollars, except
per share data)
Net sales $ 2,617,562 $ 2,394,757
Income before income taxes 266,592 225,259
Provision for income taxes 95,173 86,322
Net income $ 171,419 $ 138,937
Earnings per share $ 2.73 $ 2.21
Earnings per share - assuming dilution $ 2.69 $ 2.19
Dividends paid per share $ 0.66 $ 0.60
In 1997, for the third consecutive year, The Timken Company
achieved record sales and earnings. Net sales grew 9.3 percent to
$2.618 billion. Net income increased 23.4 percent to $171.4 million.
The year ended on a strong note, with record fourth quarter sales and
earnings.
Both the Bearing and Steel Businesses achieved profitable growth
in 1997.
QUARTERLY FINANCIAL DATA
<TABLE>
Dividends
Net Gross Net Earnings per Share(1) per Stock Prices
1997 Sales Profit Income Basic Diluted Share High Low
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $ 640,584 $153,212 $ 41,066 $ .66 $ .64 $ .165 $ 27 5/8 $ 22 5/8
Second Quarter 676,003 167,519 44,940 .72 .70 .165 36 3/4 25 7/8
Third Quarter 629,900 142,718 37,790 .60 .59 .165 41 1/2 34
Fourth Quarter 671,075 156,710 47,623 .76 .74 .165 40 1/2 31 1/16
$2,617,562 $620,159 $171,419 $ 2.73 $ 2.69 $ .660
1996
First Quarter $ 595,954 $139,215 $ 33,598 $ .54 $ .53 $ .15 $ 23 13/16 $ 18 11/16
Second Quarter 601,553 142,389 34,524 .55 .54 .15 23 3/8 19
Third Quarter 581,417 137,650 31,785 .51 .50 .15 20 1/4 18 1/4
Fourth Quarter 615,833 154,518 39,030 .62 .62 .15 23 11/16 19 1/2
$2,394,757 $573,772 $138,937 $ 2.21 $ 2.19 $ .60
</TABLE>
(1)Annual earnings per share do not equal the sum of the individual
quarters due to differences in the average number of shares
outstanding during the respective periods.
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - SUMMARY
During the last five years, The Timken Company has focused on
growing profitably through both continuous improvement and expansion
of its businesses. In that period, the company's financial
performance has improved steadily. Sales have increased by about 10%
per year since 1992 and total shareholder return has averaged 24.4%
annually.
Again in 1997, the company achieved record sales and earnings.
Net sales increased 9.3% to $2.618 billion. Net income rose 23.4% to
$171.4 million. Increased profitability resulted from higher sales
volume as well as manufacturing efficiencies and cost savings from
continuous improvement initiatives. New product development, plant
openings and expansions, and acquisitions in 1997 are designed to
drive further profitable growth worldwide.
In the Bearing Business, higher volume and manufacturing cost
reductions contributed to the growth in profits. New products and
strong sales in the automotive, aerospace and industrial markets also
were factors.
The Steel Business achieved unprecedented levels of output
without significant capacity additions. Improved productivity,
combined with strong sales to oil country, automotive and aerospace
markets, also increased profitability. Revenue generated through its
domestic distribution business also was a factor.
The company completed four acquisitions and announced several
plant expansions in 1997. In the first quarter, the company acquired
certain assets of Gnutti Carlo, S.p.A. near Brescia, Italy. This
subsidiary is now Timken Italia, s.r.l. and serves primarily the
European truck, railroad and industrial markets. In March, the
company expanded its railroad bearing reconditioning capabilities
internationally, with initial focus in the United Kingdom.
The second quarter was a high-growth period for both the Steel
and Bearing Businesses. In April, the company broke ground for its
$55 million bar mill at the Harrison Steel Plant in Canton. The
project is on schedule, with full operation expected to begin in mid-
1998. The Steel Business's Winchester Parts Plant in Kentucky began
operations in May and already has installed additional equipment to
meet demand for its products.
Also in May, the Bearing Business acquired Handpiece
Headquarters, Inc. in California, which repairs and rebuilds a variety
of dental handpieces that use miniature bearings made by the company's
MPB subsidiary.
In June, the company opened a liaison office in Istanbul's busy
commercial center to strengthen distribution of Timken products to the
growing Turkish automotive and industrial markets. Also in June, the
company paid its 300th consecutive quarterly dividend to shareholders
and split its stock 2-for-1. This also was the company's 75th
anniversary as a member of the New York Stock Exchange.
Additionally, in the second quarter the company merged two of its
tool steel distribution organizations, Ohio Alloy Steels and Houghton
& Richards. The new company functions as a Latrobe Steel subsidiary.
In the third quarter, the company acquired the aerospace bearing
operations of The Torrington Company Limited in Wolverhampton,
England. Now MPB UK Limited, it will expand the scope of the
company's products and services in the European aerospace market,
second in size only to the U.S. market. A $20 million investment in
the company's Asheboro Plant was announced in July to increase that
plant's unique ability to provide low-volume product with
unprecedented speed and flexibility to customers in the industrial
market.
The fourth quarter brought further growth initiatives. The
company began work on its $51 million investment in the Gaffney, South
Carolina, plant and announced a $15 million investment in its Bucyrus
plant in Ohio. Both initiatives are designed to improve operations
with more advanced, computer-controlled equipment that will increase
throughput, improve product quality and lower costs.
In the automotive aftermarket, the company introduced a new line
of bearings, seals and related components for cars and light trucks, as
well as rebuild kits and individual components for the light- and
heavy-duty truck market.
In December, the company acquired 70% of Rulmenti Grei S.A., a
bearing manufacturer in Ploesti, Romania. The plant produces bearings
used in a wide range of industrial applications, including steel and
aluminum rolling mills, paper mills, marine systems, and oil and gas
production. It serves customers in Romania as well as in Eastern and
Western Europe, Asia and North America.
The Steel Business announced in the fourth quarter the opening of
a tool and alloy steel distribution facility in Greer, South Carolina.
The business's Tryon Peak Plant in North Carolina completed
construction of its profile ring mill, a $15 million investment
announced in 1996.
In 1997, the company made significant leadership changes. With
the retirement of long-time president and chief executive officer
Joseph F. Toot, Jr., chairman W. R. Timken, Jr., took on the added
responsibilities of president and chief executive officer. Serving
with Mr. Timken in the office of the chairman are Robert L.
Leibensperger and Bill J. Bowling, who added the responsibility of
chief operating officer to their positions as executive vice president
and president of the Bearing and Steel Businesses, respectively.
Also, Karl P. Kimmerling and Hans J. Sack were elected officers
of the company. Mr. Kimmerling is group vice president - alloy steel,
and Mr. Sack is group vice president - specialty steel and president -
Latrobe Steel Company.
17
<PAGE>
CONSOLIDATED STATEMENT OF INCOME TIMKEN
<TABLE>
Year Ended December 31
1997 1996 1995
(Thousands of dollars, except per share data)
<S> <C> <C> <C>
Net sales $2,617,562 $2,394,757 $2,230,504
Cost of products sold 1,997,403 1,820,985 1,717,700
Gross Profit 620,159 573,772 512,804
Selling, administrative and general expenses 330,830 316,515 302,588
Operating Income 289,329 257,257 210,216
Interest expense (21,432) (17,899) (19,813)
Other income (expense) (1,305) (14,099) (10,229)
Income Before Income Taxes 266,592 225,259 180,174
Provision for income taxes 95,173 86,322 67,824
Net Income $171,419 $138,937 $112,350
Earnings Per Share $ 2.73 $ 2.21 $ 1.80
Earnings Per Share-assuming dilution $ 2.69 $ 2.19 $ 1.78
</TABLE>
See accompanying Notes to Consolidated Financial Statements on pages
25 through 33.
FORWARD-LOOKING STATEMENTS
The statements set forth in this annual report that are not
historical in nature are forward-looking statements. This is
particularly true of the statements made in the Corporate Profile on
pages 6 and 7. 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,
significant changes in currency valuations and the effects of
year 2000 compliance.
b) changes in customer demand on 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 benefits of its ongoing continuous
improvement programs; its ability, along with that of its
customers and suppliers, to update computer systems to
be year 2000 compliant; its ability to integrate acquisitions
into company operations; the ability of recently acquired
companies to achieve satisfactory operating results; and the
company's ability to maintain appropriate relations with unions
that represent company associates in certain locations in order
to avoid disruptions of business.
f) unanticipated litigation, claims or assessments. This includes,
but is not limited to, claims or problems related to product
warranty and environmental issues.
g) changes in worldwide financial markets to the extent they affect
the company's ability to raise capital, have an impact on the
overall performance of the company's pension fund investments and
cause changes in the economy which affect customer demand.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE STATEMENT OF INCOME
1997 compared to 1996
Net sales increased in 1997 by 9.3% to $2.618 billion. The
company achieved sales gains in the North American automotive,
industrial and super precision bearing markets, and in the specialty
alloy steel and steel components markets. Sales growth in Europe and
Latin America, along with sales by the company's recently acquired
businesses, also contributed to the year-to-year increase. Sales in
Asia Pacific markets, still a small part of the company's total
operations, weakened significantly toward year end due to the severe
economic problems in that area.
18
<PAGE>
Gross profit for 1997 increased to $620.2 million (23.7% of net
sales), an 8.1% increase over 1996's gross profit of $573.8 million
(24% of net sales). Higher sales volume and cost improvements related
to the company's ongoing continuous improvement initiatives
contributed to this growth. Costs associated with bringing products
manufactured by new acquisitions to Timken quality and technological
standards caused gross margins to decline slightly in 1997. Higher
product costs, some associated with the exceptional levels of customer
demand, also affected margins.
Operating income increased to $289.3 million in 1997, up from
$257.3 million in 1996. The company was successful in reducing
further its selling, administrative and general expenses as a percent
of sales, which were $330.8 million (12.6% of net sales) in 1997
compared to $316.5 million (13.2% of net sales) in 1996. In addition
to expenses required to support the increased level of sales volume,
the higher dollar figure resulted in part from the continued phase-in
of the company's pay-for-performance plan for salaried associates,
recent acquisitions and higher research expenditures.
"Other income (expense)" for 1997 reflects lower net expense
resulting primarily from a gain on the sale of property in the United
Kingdom.
Taxes represent about 35.7% of income before taxes. The
provision for income taxes for the year 1997 included a credit
relating to claims for prior years' research and development credits
of $4 million, or $.06 per share. The effective income tax rate for
the year exclusive of this item was 37.2%.
Bearing Business net sales increased by 7.6% from $1.598 billion
in 1996 to $1.719 billion in 1997. During the year, the Bearing
Business grew through expansions, the launch of new products and
services, and acquisitions. Sales increased in several segments
including U.S. heavy- and light-duty truck, super precision,
aftermarket and industrial original equipment markets. Higher bearing
sales in Europe and Latin America, along with sales from bearing
acquisitions completed during 1996 and 1997, also contributed to the
increase. Demand for bearing products in Asia Pacific markets dropped
significantly in the fourth quarter due to the economic problems
there.
Bearing Business operating income grew to $163.3 million in 1997,
an increase of 5.2% over the $155.2 million achieved in 1996. Higher
sales volume and manufacturing cost reductions resulting from the
business's continuous improvement efforts helped to offset the higher
cost of labor; additional hiring and training costs associated with
meeting higher customer demand; and increased administrative costs
related to integrating newly acquired operations.
Steel Business net sales totaled $898.7 million, up 12.8% from
$796.7 million in 1996. Successful marketing efforts, combined with
strong demand for alloy steel products and steel components, fueled
the increase in sales. Sales to oil country markets increased by more
than 50%. Higher sales of specialty steel at the company's Latrobe
Steel subsidiary, along with sales growth resulting from recently
acquired tool steel distribution businesses, also contributed to
higher 1997 sales.
Operating income was $126 million in 1997, up 23.5% from the
$102 million reported in 1996, and resulted primarily from higher
sales volume and improved manufacturing efficiencies. Productivity
improved for the year, and steel manufacturing operations achieved
record levels of output. The Steel Business was able to meet
increased customer demand by continuing to exceed established capacity
expectations of existing equipment. Cost reductions linked to the
company's ongoing continuous improvement efforts, along with lower
priced scrap metal, more than offset higher labor costs and the
operating costs associated with bringing the business's recently
acquired European distribution operation on stream.
1996 compared to 1995
Net sales in 1996 increased over 1995 by 7.4% to $2.395 billion.
Sales growth was achieved in the U.S. automotive, aftermarket, super
precision bearings and specialty alloy steel markets as well as in
Australia, South Africa, Mexico and Argentina. The company's 1996
acquisitions also contributed to the increase. Sales in the U.S.
heavy truck, freight car and locomotive markets, as well as sales in
Europe, were weaker. Gross profit for 1996 increased to
$573.8 million (24% of net sales), an increase of 11.9% over 1995's
$512.8 million (23% of net sales). Improvements in productivity and
success in accelerating continuous improvement in its manufacturing
plants contributed to this growth. Operating income for 1996
increased to $257.3 million compared to $210.2 million in 1995.
Selling, administrative and general expenses of $316.5 million (13.2%
of net sales) were higher than the $302.6 million (13.6% of net sales)
recorded in 1995 due primarily to the company's acquisitions, costs
associated with the development of new scheduling and costing systems,
and the company's pay-for-performance plan for salaried associates
implemented in the fourth quarter of 1995.
19
<PAGE>
CONSOLIDATED BALANCE SHEET
December 31
1997 1996
(Thousands of dollars)
ASSETS
Current Assets
Cash and cash equivalents $ 9,824 $ 5,342
Accounts receivable, less allowances:
1997-$7,003; 1996-$7,062 357,423 313,932
Deferred income taxes 42,071 54,852
Inventories:
Manufacturing supplies 36,448 40,150
Work in process and raw materials 264,784 241,691
Finished products 144,621 137,666
Total Inventories 445,853 419,507
Total Current Assets 855,171 793,633
Property, Plant and Equipment
Land and buildings 420,322 397,895
Machinery and equipment 2,257,464 2,085,305
2,677,786 2,483,200
Less allowances for depreciation 1,457,270 1,388,871
Property, Plant and Equipment-Net 1,220,516 1,094,329
Other Assets
Costs in excess of net assets of acquired
businesses, net of amortization,
1997-$23,448; 1996-$18,670 139,409 125,018
Deferred income taxes 26,605 3,803
Miscellaneous receivables and other assets 60,161 32,175
Deferred charges and prepaid expenses 24,688 22,380
Total Other Assets 250,863 183,376
Total Assets $2,326,550 $2,071,338
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE BALANCE SHEET
The consolidated balance sheet reflects the company's commitment
to maintain its strong capital structure through effective debt
management.
Total assets increased by $255.2 million from December 31, 1996.
Accounts receivable were higher at year-end 1997 due primarily to the
sales increase and to longer credit terms in countries where the
company's recent acquisitions are located. The number of days' sales
in receivables at December 31, 1997, was slightly higher than the year-
end 1996 level. While inventory balances increased primarily due to
the higher level of activity, the company succeeded in lowering the
number of days' supply in inventory to 112 days at December 31, 1997,
from 118 days at the end of 1996. The company continues to recognize
the importance of cash flow by improving working capital usage,
especially through lowering inventory levels.
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.
Other assets increased by $67.5 million during 1997. The $14.4
million increase in "costs in excess of net assets of acquired
businesses" relates directly to the business acquisitions completed
during the year. "Miscellaneous receivables and
20
<PAGE>
TIMKEN
December 31
1997 1996
(Thousands of dollars)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Commercial paper $ 71,566 $ 46,977
Short-term debt 61,399 59,457
Accounts payable and other liabilities 284,890 237,020
Salaries, wages and benefits 115,136 125,026
Income taxes 22,953 29,072
Current portion of long-term debt 23,620 30,396
Total Current Liabilities 579,564 527,948
Non-Current Liabilities
Long-term debt 202,846 165,835
Accrued pension cost 103,061 56,568
Accrued postretirement benefits cost 409,003 398,759
Total Non-Current Liabilities 714,910 621,162
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)
63,082,626 shares in 1997; 63,050,402
shares in 1996
Stated capital 53,064 53,064
Other paid-in capital 273,873 270,840
Earnings invested in the business 749,033 619,061
Accumulated other comprehensive income (38,026) (12,799)
Treasury shares at cost (1997-202,627
shares; 1996-403,512 shares) (5,868) (7,938)
Total Shareholders' Equity 1,032,076 922,228
Total Liabilities and
Shareholders' Equity $2,326,550 $2,071,338
See accompanying Notes to Consolidated Financial Statements on pages
25 through 33.
other assets" is higher in 1997 due primarily to a receivable from the
Romanian government related to the company's acquisition of a Romanian
bearing manufacturer.
Accrued pension liabilities were higher at December 31, 1997.
The balance at December 31, 1996, was lower due to the contribution of
additional funds to the company's pension plans in the third quarter
of 1996.
Debt of $359.4 million at December 31, 1997, exceeded the
$302.7 million at year-end 1996. The 25.8% debt to total capital
ratio was higher than the 24.7% at year-end 1996. Debt increased by
$56.7 million in 1997 due to the cash required to purchase
acquisitions, while total shareholders' equity increased by
$109.8 million.
In January 1998, the company issued $37 million of medium-term
notes at interest rates between 6.20% and 6.74%, maturing from January
15, 2008, to January 13, 2028. The issuance of these notes completed
the company's $250 million debt registration filed with the Securities
and Exchange Commission (SEC) in 1990. Another shelf registration for
$300 million of debt securities was approved by the board in November
1997 and is expected to be filed with the SEC in the first quarter of
1998.
21
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS TIMKEN
<TABLE>
Year Ended December 31
1997 1996 1995
(Thousands of dollars)
CASH PROVIDED (USED)
Operating Activities
<S> <C> <C> <C>
Net income $171,419 $138,937 $112,350
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 134,431 126,457 123,409
Deferred income tax provision (credit) (1,564) 23,216 14,390
Common stock issued in lieu of cash to
benefit plans 20,452 4,862 4,317
Changes in operating assets and liabilities:
Accounts receivable (48,584) (18,348) (20,228)
Inventories and other assets (30,056) (25,398) (57,821)
Accounts payable and accrued expenses 66,357 (63,100) 47,568
Foreign currency translation (gain) loss (472) (215) 27
Net Cash Provided by Operating Activities 311,983 186,411 224,012
Investing Activities
Purchases of property, plant and equipment-net (233,392) (150,728) (128,824)
Acquisitions (78,739) (85,459) -0-
Net Cash Used by Investing Activities (312,131) (236,187) (128,824)
Financing Activities
Cash dividends paid to shareholders (38,714) (30,244) (28,383)
Purchases of treasury shares (18,083) (13,786) (170)
Proceeds from issuance of long-term debt 60,453 45,000 -0-
Payments on long-term debt (30,217) (288) (30,168)
Short-term debt activity-net 32,485 47,461 (40,930)
Net Cash Provided (Used) by Financing Activities 5,924 48,143 (99,651)
Effect of exchange rate changes on cash (1,294) (287) (396)
Increase (Decrease) In Cash and Cash Equivalents 4,482 (1,920) (4,859)
Cash and cash equivalents at beginning of year 5,342 7,262 12,121
Cash and Cash Equivalents at End of Year $9,824 $5,342 $7,262
</TABLE>
See accompanying Notes to Consolidated Financial Statements on pages
25 through 33.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE STATEMENT OF CASH FLOWS
1997 compared to 1996
Net cash provided by operating activities was $312 million in
1997, compared to $186.4 million in 1996. The cash generated from
income in 1997 was more than sufficient to cover the additional cash
required for working capital. Accounts receivable, and inventories
and other assets increased during 1997 by $48.6 million and
$30.1 million, respectively, primarily as a result of higher sales and
production activity. The $66.4 million cash provided by higher
accounts payable and accrued expenses also related primarily to the
higher activity level and recent acquisitions. In 1996, the $63.1
million cash outflow resulted primarily from the contribution of
additional funds to the company's pension plans.
"Purchases of property, plant and equipment-net" during the
twelve months ended December 31, 1997, was $233.4 million compared to
$150.7 million one year earlier. The company also invested
$78.7 million in acquisitions compared to $85.5 million in 1996. The
company continues to invest in activities consistent with its strategy
to strengthen its core bearing and alloy steel leadership positions.
Recent acquisitions, along with capital investments in the company's
existing operations worldwide and planned research and development
expenditures, continue to accelerate growth and strengthen positions
in new and existing markets.
The company's debt increased in 1997. Cash was needed to fund
additional investments in property, plant and equipment,
22
<PAGE>
finance acquisitions and to buy back shares of the company's stock.
Approximately 1 million of the 2 million shares authorized per the
purchase plan adopted in June 1996, have been repurchased. The
company expects that cash generated from operating activities during
1998 will be sufficient to cover working capital, pay dividends, fund
capital expenditures and pay interest. Any further cash needs that
exceed cash generated from operations will be met by short-term
borrowing and issuance of medium-term notes.
1996 compared to 1995
Net cash provided by operating activities was $186.4 million in
1996 compared to $224 million in 1995. 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.
The company's 1996 "purchases of property, plant and equipment-net"
was $150.7 million compared to $128.8 million in 1995. The company
also invested $85.5 million in acquisitions. Debt at year-end 1996
was higher than 1995's level. Cash was required to fund the company's
pension plans, to purchase property, plant and equipment, to finance
acquisitions and other growth initiatives, and to buy back shares of
the company's stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS - OTHER INFORMATION
The Timken Company's efforts to be year 2000 compliant include a
defined methodology of assessment, strategy definition, development,
test, integration and implementation components. The company's
corporate information systems department has instituted a corporate
level reporting and tracking process that encompasses all of the
company's year 2000 project efforts worldwide. Through the use of
this methodology over the past two years, the company is well into its
year 2000 conversion effort. Based on current project plans, Timken
expects to have all of its critical systems year 2000 compliant by the
last quarter of 1998. The costs associated with this project will not
have a material effect on the company's financial position, results of
operation or cash flows.
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,
1997, 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 3 to the
Consolidated Financial Statements. Deferred gains and losses on
foreign exchange contracts in 1995 - 1997 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 emphasize 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 and has a well-
established environmental compliance audit program, which includes a
proactive approach to bringing its domestic and international units to
higher standards of environmental performance. This program measures
performance against local laws and standards established for all units
worldwide.
It is difficult to assess the possible effect of compliance with
future requirements that differ from existing ones. As previously
reported, the company was uncertain whether additional emission
monitoring would be required or what the cost would be when proposed
emission monitoring regulations pursuant to the Clean Air Act of 1990
were issued. In 1997, the regulations were issued in a modified form
from those proposed and, while some uncertainty remains, the financial
impact on the company is expected to be small, certainly less than
anticipated under the proposed regulations. The company also is
unsure of the ultimate future financial impact that could result from
the United States Environmental Protection Agency's (EPA's) final
rules to tighten the National Ambient Air Quality Standards for fine
particulate and ozone, which were issued in July.
The company and certain of its U.S. subsidiaries have been
designated as potentially responsible parties (PRP's) by the United
States EPA for site investigation and remediation at certain sites
under the Comprehensive Environmental Response, Compensation and
Liability Act (Superfund). 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 1997, the company and its Latrobe Steel
subsidiary were both named a PRP at one additional site. 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 has two environmental
projects at its manufacturing locations in New Hampshire. Remediation
at one plant is nearing completion. In late 1996, the second system
was installed and remediation was begun at the other plant. The
company had provided for the costs of these projects, which to date
have been $3.5 million. A portion of these costs is being recovered
from a former owner of the property. Future operating and maintenance
costs are expected to be $1.7 million. MPB also filed suit against
and settled with four insurance companies for reimbursement of clean-
up costs.
The company continued work in 1997 on environmental projects at
its locations in Canton and Columbus, Ohio. Costs
23
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY TIMKEN
<TABLE>
Common Stock Earnings Accumulated
Other Invested Other
Stated Paid-In In the Comprehensive Treasury
Total Capital Capital Business Income Stock
(Thousands of dollars)
Year Ended December 31, 1995
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 732,891 $53,064 $254,002 $440,083 $(14,252) $ (6)
Net income 112,350 112,350
Foreign currency translation
adjustments (net of income tax
benefit of $1,473) 173 173
Total comprehensive income 112,523
Dividends-$0.555 per share (34,631) (34,631)
Issuance of 585,538 shares of
common stock (1) 10,565 10,565
Purchase of 8,528 shares for treasury (170) (170)
Balance at December 31, 1995 821,178 53,064 264,567 517,802 (14,079) (176)
Year Ended December 31, 1996
Net income 138,937 138,937
Foreign currency translation
adjustments (net of income tax
benefit of $958) 1,280 1,280
Total comprehensive income 140,217
Dividends-$0.60 per share (37,678) (37,678)
Issuance of 341,788 shares of
common stock (1) 6,273 6,273
Purchase of 724,600 shares for
treasury (13,786) (13,786)
Issuance of 329,976 shares from
treasury (1) 6,024 6,024
Balance at December 31, 1996 922,228 53,064 270,840 619,061 (12,799) (7,938)
Year Ended December 31, 1997
Net income 171,419 171,419
Foreign currency translation
adjustments (net of income tax
benefit of $3,401) (22,516) (22,516)
Minimum pension liability
adjustment (net of income tax
benefit of $1,589) (2,711) (2,711)
Total comprehensive income 146,192
Dividends-$0.66 per share (41,447) (41,447)
Issuance of 32,224 shares of
common stock (1) 3,033 3,033
Purchase of 697,100 shares for
treasury (18,083) (18,083)
Issuance of 897,985 shares from
treasury (1) 20,153 20,153
Balance at December 31, 1997 $1,032,076 $53,064 $273,873 $749,033 $(38,026) $(5,868)
(1) Share activity was in conjunction with stock options and various
benefit and dividend reinvestment plans. In 1997, the majority
of shares issued from treasury related to the exercise of stock
options. See accompanying Notes to Consolidated Financial
Statements on pages 25 through 33.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS - OTHER INFORMATION (Continued)
for these two projects are estimated to be about $2.1 million.
In June 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
which changes the way public companies report segment information in
annual financial statements. The company will adopt SFAS No. 131 in
1998. Management does not expect the adoption to have a material
impact on the company's financial statement disclosures.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TIMKEN
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 $162,709,000 and $166,818,000 greater at December 31, 1997 and
1996, 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 years for businesses acquired after 1991
and over 40 years for those acquired before 1991. The carrying value
of goodwill is reviewed on a quarterly basis for recoverability based
on the undiscounted cash flows of the businesses 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 1997
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 $70,000,000 at December 31, 1997. Accordingly, U.S.
income taxes have not been provided on such earnings. While the
amount of any U.S. income taxes on these reinvested earnings - if
distributed in the future - is not presently determinable, it is
anticipated that they would be reduced substantially by the
utilization of tax credits or deductions. Such distributions would be
subject to withholding taxes.
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.
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 accumulated other
comprehensive income. 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. The company recorded a foreign currency exchange gain
of $731,000 in 1997, and losses of $1,358,000 and $3,807,000 in 1996
and 1995, respectively.
Segment Information: In June 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which changes the way public companies report segment
information in annual financial statements. The Statement also
requires public companies to report selected segment information in
interim financial reports to shareholders. The company will adopt
SFAS No. 131 in 1998. Restatement of comparative information for
earlier years is required in the initial year of adoption. Management
does not expect the adoption of the statement to have a material
impact on the company's financial statement disclosures.
Comprehensive Income: Effective in the fourth quarter 1997, the
company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement had no impact on the company's net income or shareholders'
equity. SFAS No. 130 requires the company's change in the minimum
pension liability and the foreign currency translation adjustments to
be included in other comprehensive income. Prior years' financial
statements have been reclassified to conform to these requirements.
Earnings Per Share: In 1997, the FASB issued SFAS No. 128, "Earnings
Per Share" which replaced the calculation of primary and fully diluted
earnings per share with earnings per share and earnings per share -
assuming dilution. Unlike primary earnings per share, earnings per
share excludes any dilutive effects of options, warrants and
convertible securities. Earnings per share - assuming dilution is
very similar to the previously reported fully diluted earnings per
share. Because common stock equivalents were immaterial in prior
years, no difference exists between the application of SFAS No. 128
and previous methods. Accordingly, no restatement of prior years was
necessary.
Reclassifications: Certain amounts reported in the 1996 financial
statements have been reclassified to conform to the 1997 presentation.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. FINANCING ARRANGEMENTS
Long-term debt at December 31, 1997 and 1996 was as follows:
1997 1996
(Thousands of dollars)
Fixed-rate Medium-Term Notes, Series A, due at various
dates through November 2027, with interest rates
ranging from 6.40% to 9.10% $153,000 $148,000
Variable-rate State of Ohio Air Quality and Water
Development Revenue Refunding Bonds, maturing
on June 1, 2001 (3.70% at December 31, 1997) 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 (3.70% at
December 31, 1997) 8,000 8,000
Variable-rate State of Ohio Water Development
Authority Solid Waste Revenue Bonds, maturing on
July 2, 2032 (3.75% at December 31, 1997) 24,000 -0-
Other 2,766 1,531
226,466 196,231
Less current maturities 23,620 30,396
$202,846 $165,835
The aggregate maturities of long-term debt for the five years
subsequent to December 31, 1997, are as follows: 1998-$23,620,000;
1999-$15,223,000; 2000-$776,000; 2001-$22,461,000; 2002-$52,128,000.
In January 1998, the company issued $37,000,000 of medium-term notes
at interest rates between 6.20% and 6.74% and maturity dates ranging
from January 15, 2008, to January 13, 2028.
Interest paid in 1997, 1996 and 1995 approximated $24,000,000,
$18,500,000 and $26,000,000, respectively. This differs from interest
expense due to timing of payments and interest capitalized of
$2,200,000 in 1997, $1,800,000 in 1996 and $1,900,000 in 1995 as a
part of major capital additions. The weighted-average interest rate
on commercial paper borrowings during the year was 5.7% in 1997, 5.5%
in 1996 and 7.5% in 1995. The weighted-average interest rate on short-
term debt during the year was 6.6% in 1997, 6.3% in 1996 and 8.4% in
1995.
At December 31, 1997, the company had available $228,400,000 through
an unsecured $300,000,000 revolving credit agreement with a group of
banks. The agreement, which expires in August 2002, 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
$16,689,000, $14,580,000 and $14,673,000 in 1997, 1996 and 1995,
respectively. At December 31, 1997, future minimum lease payments for
noncancelable operating leases totaled $40,194,000 and are payable as
follows: 1998-$12,521,000; 1999-$8,520,000; 2000-$5,532,000; 2001-
$4,124,000; 2002-$3,237,000; and $6,260,000, thereafter.
3. 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, 1997 and 1996, the company
had forward exchange contracts, all having maturities of less than one
year, in amounts of $20,596,000 and $24,171,000, 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 $177,000,000 and
$170,000,000 at December 31, 1997 and 1996, respectively. The
carrying value of this debt was $170,000,000 and $165,000,000.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TIMKEN
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:
1997 1996 1995
Discount rate 7.25% 7.5% 7.25%
Future compensation assumption 3% to 4% 3% to 4% 3% to 4%
Expected long-term return on plan assets 9.25% 9.25% 9.25%
A summary of the components of net periodic pension cost for the
defined benefit plans follows:
1997 1996 1995
(Thousands of dollars)
Service cost-benefits earned during
the period $26,144 $27,319 $22,511
Interest cost on projected benefit
obligation 88,683 84,195 80,272
Actual return on plan assets (178,580) (110,773) (178,085)
Net amortization and deferral 98,696 40,569 112,521
Total pension expense $34,943 $41,310 $37,219
The following table sets forth the funded status and amounts
recognized in the consolidated balance sheet at December 31, 1997 and
1996, for the company's defined benefit plans:
<TABLE>
1997 1996
Plans Where Plans Where Plans Where
Assets Accumulated Assets
Exceed Benefits Exceed
Accumulated Exceed Accumulated
Benefits Assets Benefits
(Thousands of dollars)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(538,255) $(471,354) $(892,535)
Accumulated benefit obligation $(595,494) $(568,536) $(1,017,239)
Projected benefit obligation $(680,004) $(616,862) $(1,145,852)
Plan assets at fair value (1) 685,817 522,030 1,099,576
Projected benefit obligation
(in excess of) or less than plan assets 5,813 (94,832) (46,276)
Unrecognized net (gain) loss (61,779) (54,852) (95,047)
Prior service cost not yet recognized
in net periodic pension cost 23,143 88,552 81,927
Unrecognized net asset at transition dates,
net of amortization (10,870) (1,675) (15,896)
Minimum pension liability -0- (5,400) -0-
Net pension liability recognized
in the balance sheet $(43,693) $(68,207) $(75,292)
</TABLE>
(1) Plans' assets are primarily invested in listed stocks and bonds
and cash equivalents.
The company also sponsors defined contribution retirement and savings
plans covering substantially all associates in the United States. The
company contributes Timken Company common stock to certain plans based
on formulas established in the respective plan agreements. At
December 31, 1997, the plans had net assets of $515,328,000, including
6,883,283 shares of Timken Company common stock. Company
contributions to the plans, including performance sharing, amounted to
$16,245,000 in 1997, $14,761,000 in 1996 and $12,968,000 in 1995.
27
<PAGE>
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 8.5% declining
gradually to 5% in 2004 and thereafter. The weighted-average discount
rate used was 7.25% in 1997, 7.5% in 1996 and 7.25% in 1995.
Net periodic postretirement benefits cost included the following
components:
1997 1996 1995
(Thousands of dollars)
Service cost $4,116 $4,332 $3,750
Interest cost on accumulated
postretirement benefits obligation 28,691 28,299 30,217
Net amortization and deferral (4,547) (4,610) (3,190)
Net periodic postretirement benefits cost $28,260 $28,021 $30,777
The following table sets forth the components of the accumulated
postretirement benefits obligation recognized in the balance sheet at
December 31, 1997 and 1996:
1997 1996
(Thousands of dollars)
Accumulated postretirement benefits
obligation:
Retirees $(260,590) $(253,234)
Fully eligible active plan participants (67,223) (65,040)
Other active plan participants (86,757) (79,683)
(414,570) (397,957)
Unrecognized net gain 41,460 29,230
Unrecognized prior service cost (45,506) (49,778)
Postretirement benefits obligation recognized
in the balance sheet $(418,616) $(418,505)
Increasing the assumed health care cost trend rate by one percentage
point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1997, by approximately
$37,800,000 and the net periodic postretirement benefits cost for 1997
by approximately $2,860,000.
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. 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. Environmental costs include
compensation and related benefit costs associated with associates
expected to devote significant amounts of time to the remediation
effort and post-monitoring costs. 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>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TIMKEN
7. ACQUISITIONS
During 1997, the company made the following acquisitions:
- February 1997 -- Gnutti Carlo S.p.A., of Brescia, Italy, a
manufacturer of medium-sized industrial bearings for primarily
the European truck, railroad and industrial markets.
- May 1997 -- Handpiece Headquarters, Inc., which repairs and
rebuilds a variety of dental handpieces.
- July 1997 -- The aerospace bearing operations of the Torrington
Company Limited located in Wolverhampton, England.
- December 1997 -- 70% of Rulmenti Grei S.A., a bearing
manufacturer in Ploesti, Romania, which produces bearings used
in industrial applications, including steel and aluminum
rolling mills, paper mills, marine systems, and oil and gas
systems.
During 1996, the company completed the acquisitions of three companies
(Ohio Alloy Steels, Inc., Houghton & Richards, Inc., and Sanderson
Kayser Ltd.) that service, finish and distribute tool steel and
operate as subsidiaries of Latrobe Steel Company. In April 1996, the
company purchased a fourth company, FLT Prema Milmet S.A., a
manufacturer of automotive, agricultural and industrial machinery
bearings. Also, the company joined with Yantai Bearing Factory to
form the Yantai Timken Company Limited joint venture in March 1996.
The company holds a 60% interest in the joint venture, which provides
tapered roller bearings to the Chinese automotive and agricultural
markets.
The total cost of these acquisitions amounted to $78,739,000 in 1997
and $85,459,000 in 1996. 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 purchase allocation for
Rulmenti Grei is preliminary, subject to obtaining asset appraisals.
The fair value of the assets was $85,619,000 in 1997 and $68,709,000
in 1996, and the fair value of liabilities assumed was $20,075,000 in
1997 and $11,843,000 in 1996. The excess of the purchase price over
the fair value of the net assets acquired has been allocated to the
intangible asset, "costs in excess of net assets of acquired
businesses." All of the acquisitions were accounted for as purchases.
The company's consolidated financial statements include the results of
operations of the acquired businesses for the period subsequent to the
effective date of these acquisitions. Pro forma results of operations
have not been presented because the effect of these acquisitions was
not significant.
8. RESEARCH AND DEVELOPMENT
Expenditures committed to research and development amounted to
approximately $43,000,000 in 1997; $41,000,000 in 1996; and
$35,000,000 in 1995. Such expenditures may fluctuate from year to
year depending on special projects and needs.
9. EARNINGS PER SHARE
On April 15, 1997, the company's Board of Directors approved a two-for-
one stock split effected in the form of a stock dividend. As a result
of this action, shareholders received on June 2, 1997, a stock
dividend of one share of the company's common stock for each full
share of common stock outstanding to holders of record on May 16,
1997. All references throughout this annual report to shares of
common stock, per share and stock option data have been restated to
reflect the two-for-one stock split.
The following table sets forth the reconciliation of the numerator and
the denominator of earnings per share and earnings per share -
assuming dilution for the years ended December 31:
<TABLE>
1997 1996 1995
(Thousands of dollars, except per share data)
Numerator:
<S> <C> <C> <C>
Net income for earnings per share and earnings per
share - assuming dilution --
income available to common shareholders $ 171,419 $ 138,937 $ 112,350
Denominator:
Denominator for earnings per share -- weighted-
average shares 62,786,387 62,776,132 62,388,736
Effect of dilutive securities:
Stock options and awards -- based on the treasury
stock method 1,017,747 733,570 601,274
Denominator for earnings per share - assuming
dilution -- adjusted weighted-average shares 63,804,134 63,509,702 62,990,010
Earnings per share $ 2.73 $ 2.21 $ 1.80
Earnings per share - assuming dilution $ 2.69 $ 2.19 $ 1.78
</TABLE>
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK COMPENSATION PLANS
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.
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.
Pro forma information regarding net income and earnings per share is
required by Financial Accounting Standard (FAS) No. 123, and has been
determined as if the company had accounted for its associate stock
options under the fair value method of FAS No. 123. The fair value
for these options was estimated at the date of grant using a Black-
Scholes option pricing model. For purposes of pro forma disclosures,
the estimated fair value of the options granted under the plan is
amortized to expense over the options' vesting periods. The pro forma
information for grants in 1997, 1996 and 1995 indicates a decrease in
net income of $2,901,000 in 1997, $1,131,000 in 1996 and $320,000 in
1995. Following is the pro forma information and the related
assumptions under the Black-Scholes method:
1997 1996 1995
(Thousands of dollars except per share data)
Pro forma net income $168,518 $137,806 $112,030
Earnings per share $2.68 $2.19 $1.80
Earnings per share - assuming dilution $2.64 $2.17 $1.78
Assumptions:
Risk-free interest rate 6.90% 6.52% 7.13%
Dividend yield 3.13% 3.33% 3.49%
Expected stock volatility 0.235 0.219 0.226
Expected life - years 8 8 8
Under SFAS No. 123, the first year to recognize pro forma stock-based
compensation expense was 1995. Based on the estimated life of the
grants, 1997 was the first year to demonstrate the full effect on pro
forma net income of amortizing compensation expense related to stock
options.
A summary of activity related to stock options for the above plan is
as follows for the years ended December 31:
<TABLE>
1997 1996 1995
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 3,091,994 $17.80 2,913,416 $16.52 2,810,386 $15.77
Granted 762,200 26.44 654,000 22.06 563,800 18.69
Exercised (653,608) 16.41 (437,872) 15.56 (435,370) 14.49
Canceled or expired (20,450) 18.77 (37,550) 18.12 (25,400) 16.85
Outstanding - end of year 3,180,136 $20.15 3,091,994 $17.80 2,913,416 $16.52
Options exercisable 1,617,355 1,782,044 1,695,116
Reserved for future use 2,396,441 3,125,658 802,166
</TABLE>
Exercise prices for options outstanding as of December 31, 1997, range
from $12.88 to $26.44 and the weighted-average remaining contractual
life of these options is four years. The estimated weighted-average
fair values of stock options granted during 1997, 1996 and 1995 were
$7.58, $5.79 and $5.13, respectively. At December 31, 1997 a total
of 236,350 restricted stock rights, restricted shares or deferred
shares have been awarded under the above plans and are not vested.
The company distributed 71,188 and 41,006 common shares in 1997 and
1996, respectively, as a result of awards of restricted stock rights,
restricted shares and deferred shares.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TIMKEN
11. INCOME TAXES
The provision (credit) for income taxes consisted of the following:
<TABLE>
1997 1996 1995
Current Deferred Current Deferred Current Deferred
(Thousands of dollars)
United Sates:
<S> <C> <C> <C> <C> <C> <C>
Federal $76,866 $(4,627) $47,120 $20,596 $38,321 $14,104
State and local 10,248 (294) 6,271 2,573 4,120 1,841
Foreign 9,623 3,357 9,715 47 10,993 (1,555)
$96,737 $(1,564) $63,106 $23,216 $53,434 $14,390
</TABLE>
The company made income tax payments of approximately $93,486,000 in
1997, $54,100,000 in 1996 and $38,000,000 in 1995. Taxes paid differ
from current taxes provided, primarily due to the timing of payments.
The effect of temporary differences giving rise to deferred tax assets
and liabilities at December 31, 1997 and 1996 was as follows:
1997 1996
(Thousands of dollars)
Deferred tax assets:
Accrued postretirement benefits cost $155,888 $156,178
Accrued pension cost 39,271 25,565
Benefit accruals 21,126 22,803
Foreign tax loss and credit carryforwards 12,702 10,734
Other-net 19,932 23,016
Valuation allowance (12,702) (10,734)
236,217 227,562
Deferred tax liability-depreciation (167,541) (168,907)
Net deferred tax asset $68,676 $58,655
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:
1997 1996 1995
(Thousands of dollars)
Income tax at the statutory federal rate $93,307 $78,841 $63,061
Adjustments:
State and local income taxes, net of
federal tax benefit 6,470 5,749 3,876
Tax on foreign remittances -0- 944 1,363
Research tax credit claims for prior years (4,000) -0- -0-
Other items (604) 788 (476)
Provision for income taxes $95,173 $86,322 $67,824
Effective income tax rate 36% 38% 38%
12. 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
was completed in 1997 and has improved productivity, increased
manufacturing efficiencies and accelerated annual cost reductions. In
1993, a reserve was established for separation costs associated with
the planned reduction of 865 plant associates and separation and
relocation costs for 65 salaried administrative associates worldwide.
In total, 451 plant associates and 56 administrative associates were
laid off as a result of the program. During 1997, the company made
cash expenditures totaling $1,989,000 relating to separation costs and
reversed the remaining reserve of $1,629,000 into income to end the
program as of December 31, 1997. Prior to 1997, the company expended
cash of $18,144,000 relating to separation and relocation costs,
recorded noncash charges of $3,336,000, and reversed $5,902,000 of the
reserve into income.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. 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 a 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)
1997
<S> <C> <C> <C>
Net sales $1,718,876 $898,686 $2,617,562
Operating income 163,280 126,049 289,329
Assets employed at year-end 1,455,086 871,464 2,326,550
Depreciation and amortization 76,625 57,806 134,431
Capital expenditures 122,350 107,582 229,932
1996
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
</TABLE>
(1)Intersegment sales are accounted for at values based on market prices.
Intersegment steel sales to the Bearing Business of $204,295,000 in 1997,
$185,677,000 in 1996 and $214,808,000 in 1995 are eliminated on
consolidation and are not included in the figures presented. Operating
income relating to these sales is also eliminated.
32
<PAGE>
<TABLE>
TIMKEN
United Other
Information by Geographic Area (1) States Europe Countries Consolidated
(Thousands of dollars)
1997
<S> <C> <C> <C> <C>
Net sales $2,077,822 $339,630 $200,110 $2,617,562
Operating income 245,025 22,947 21,357 289,329
Income before income taxes 219,916 25,335 21,341 266,592
Assets employed at year-end 1,841,181 372,612 112,757 2,326,550
1996
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
</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, 1997 and 1996, and
the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended
December 31, 1997. 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, 1997 and 1996,
and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Canton, Ohio
February 5, 1998
33
<PAGE>
<TABLE>
SUMMARY OF OPERATIONS AND OTHER COMPARATIVE DATA
(Thousands of dollars, except per share data)
1997 1996 1995 1994
Statements of Income
Net sales:
<S> <C> <C> <C> <C>
Bearing $1,718,876 $1,598,040 $1,524,728 $1,312,323
Steel 898,686 796,717 705,776 618,028
Total net sales 2,617,562 2,394,757 2,230,504 1,930,351
Cost of products sold 1,997,403 1,820,985 1,717,700 1,509,347
Selling, administrative
and general expenses 330,830 316,515 302,588 282,429
Impairment and
restructuring charges -0- -0- -0- -0-
Operating income (loss) 289,329 257,257 210,216 138,575
Earnings before
interest and taxes (EBIT) 288,024 243,158 199,987 136,195
Interest expense 21,432 17,899 19,813 24,872
Income (loss) before
income taxes 266,592 225,259 180,174 111,323
Provisions for income
taxes (credit) 95,173 86,322 67,824 42,859
Income (loss) before
cumulative effect of
accounting changes 171,419 138,937 112,350 68,464
Net income (loss) $ 171,419 $ 138,937 $ 112,350 $ 68,464
Balance Sheets
Inventory $ 445,853 $ 419,507 $ 367,889 $ 332,304
Current assets 855,171 793,633 710,258 657,180
Working capital 275,607 265,685 247,895 178,556
Property, plant and
equipment (less
depreciation) 1,220,516 1,094,329 1,039,382 1,030,451
Total assets 2,326,550 2,071,338 1,925,925 1,858,734
Total debt 359,431 302,665 211,232 279,519
Total liabilities 1,294,474 1,149,110 1,104,747 1,125,843
Shareholders' equity $1,032,076 $ 922,228 $ 821,178 $ 732,891
Other Comparative Data
Net income (loss)/
Total assets 7.4% 6.7% 5.8% 3.7%
Net income (loss)/
Net sales 6.5% 5.8% 5.0% 3.5%
EBIT/Beginning invested
capital(1) 16.1% 15.2% 12.7% 9.1%
Net cash provided by
operating activities $ 311,983 $ 186,411 $ 224,012 $ 146,674
Inventory days (FIFO) 111.9 118.0 112.6 118.4
Net sales per
associate(2) $ 130.5 $ 132.4 $ 134.2 $ 119.9
Capital expenditures $ 229,932 $ 155,925 $ 131,188 $ 119,656
Depreciation and
amortization $ 134,431 $ 126,457 $ 123,409 $ 119,255
Capital expenditures/
Depreciation 177.3% 127.0% 109.1% 102.6%
Dividends per share $ 0.66 $ 0.60 $ 0.555 $ 0.50
Income (loss) before
cumulative effect of
accounting changes per
share(3) $ 2.73 $ 2.21 $ 1.80 $ 1.11
Debt to total capital 25.8% 24.7% 20.5% 27.6%
Number of associates at
year-end 20,994 19,130 17,034 16,202
Number of shareholders(4) 46,394 31,813 26,792 49,968
</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>
TIMKEN
<TABLE>
1993 1992 1991 1990(5) 1989 1988
<C> <C> <C> <C> <C> <C>
$1,153,987 $1,169,035 $1,128,972 $1,173,056 $1,042,122 $1,002,412
554,774 473,275 518,453 527,955 490,840 551,731
1,708,761 1,642,310 1,647,425 1,701,011 1,532,962 1,554,143
1,366,164 1,296,511 1,309,893 1,284,232 1,157,125 1,178,839
274,141 296,826 297,660 286,427 250,676 235,072
48,000 -0- 41,000 -0- -0- -0-
20,456 48,973 (1,128) 130,352 125,161 140,232
8,700 42,091 (15,277) 125,155 113,710 132,745
29,619 28,660 26,673 26,339 17,217 20,879
(20,919) 13,431 (41,950) 98,816 96,493 111,866
(3,250) 8,979 (6,263) 43,574 41,148 45,954
(17,669) 4,452 (35,687) 55,242 55,345 65,912
$ (271,932) $4,452 $(35,687) $ 55,242 $ 55,345 $ 65,912
$299,783 $ 310,947 $ 320,076 $ 379,543 $ 344,135 $ 350,410
586,384 556,017 562,496 657,865 608,224 619,456
153,971 165,553 148,950 238,486 359,773 348,322
1,024,664 1,049,004 1,058,872 1,025,565 932,828 941,121
1,789,719 1,738,450 1,759,139 1,814,909 1,565,961 1,593,031
276,476 320,515 273,104 266,392 80,647 182,341
1,104,407 753,387 740,168 740,208 501,157 619,315
$ 685,312 $ 985,063 $1,018,971 $1,074,701 $1,064,804 $ 973,716
(15.2)% 0.3% (2.0)% 3.0% 3.5% 4.1%
(15.9)% 0.3% (2.2)% 3.2% 3.6% 4.2%
0.5% 2.6% (0.9)% 8.3% 7.6% 9.6%
$ 153,720 $ 115,501 $ 140,419 $ 181,852 $ 165,144 $ 106,652
122.8 138.3 140.5 163.2 167.5 161.0
$ 104.5 $ 95.3 $ 90.0 $ 94.2 $ 86.9 $ 89.4
$ 92,940 $ 139,096 $ 144,678 $ 120,090 $ 91,536 $ 78,943
$ 118,403 $ 114,433 $ 109,252 $ 101,260 $ 91,070 $ 88,756
80.2% 124.4% 135.6% 120.4% 100.5% 88.9%
$ 0.50 $ 0.50 $ 0.50 $ .49 $ 0.46 $ 0.35
$ (0.29) $ 0.07 $ (0.60) $ 0.92 $ 0.94 $ 1.17
28.7% 24.5% 21.1% 19.9% 7.0% 15.8%
15,985 16,729 17,740 18,860 17,248 18,050
28,767 31,395 26,048 25,090 22,445 21,184
</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 court 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)
1993 1,709
1994 1,930
1995 2,230
1996 2,395
1997 2,618
(2) Total Annual Return To Shareholders
1993 30.7%
1994 7.8%
1995 11.7%
1996 23.1%
1997 53.4%
(3) Productivity (Net Sales / Total Compensation)
Index: 1993 = 100
1993 100%
1994 107%
1995 113%
1996 120%
1997 126%
On page 32 of the printed document, three pie chars were shown that
contain the following information:
(1) The Timken Company Net Sales to Customers
Bearings 66%
Steel 34%
(2) The Timken Company Net Sales by Geographic Area
United States 79%
Europe 13%
Other 8%
(3) The Steel Business Net Sales - Total
Customers 81%
Intersegment 19%
<PAGE>
On page 34 of the printed document, two bar charts were shown that
contain the following information:
(1) Total Net Sales (Billions of Dollars)
Bearing Steel
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
1997 1.719 0.899
(2) Return on Net Sales (before cumulative effect of accounting
changes):
Operating
Income (Loss) Income(Loss)
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%
1997 11.1% 6.5%
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
1988 1.17 0.350
1989 0.94 0.460
1990 0.92 0.490
1991 -0.60 0.500
1992 0.07 0.500
1993 -0.29 0.500
1994 1.11 0.500
1995 1.80 0.555
1996 2.21 0.600
1997 2.73 0.660
(2) EBIT/Beginning Invested Capital
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%
1997 16.1%
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:
Percentage of
voting securities
State or sovereign owned directly
power under laws or indirectly
Name of which organized by Company
__________________________________________________________________
Australian Timken Proprietary,
Limited Victoria, Australia 100%
Timken do Brasil
Comercio e Industria, Ltda. Sao Paulo, Brazil 100%
British Timken Limited England 100%
Canadian Timken, Limited Ontario, Canada 100%
Timken Communications Company Ohio 100%
EDC, Inc. Ohio 100%
Timken Espana, S.L. Spain 100%
Timken Europa GmbH Germany 100%
Timken Europe B.V. Netherlands 100%
Timken Finance Europe B.V. Netherlands 100%
Handpiece Headquarters Corp. Delaware 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%
M.P.B. Europa B.V. Netherlands 100%
M.P.B. Singapore Pte. Ltd. Singapore 100%
M.P.B. UK, Ltd. England 100%
Nihon Timken K.K. Japan 100%
OH&R Special Steels Company Delaware 100%
Timken Polska Sp.z.o.o. Poland 100%
Rail Bearing Service Corporation Virginia 100%
Timken Romania S.A. Romania 70%
Sanderson Special Steels Limited England 100%
The Timken Service & Sales Co. Ohio 100%
Timken Servicios Administrativos
S.A. de C.V. Mexico 100%
Timken Singapore Pte. Ltd. Singapore 100%
Timken South Africa (Pty.) Ltd. South Africa 100%
Timken De Venezuela C.A. Venezuela 100%
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 5, 1998, 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, 1997, in the following Registration Statements
and in the related Prospectuses:
Registration Filing
Number Description of Registration Statement Date
2-97340 1985 Incentive Plan of The Timken Company - November 19, 1990
Post-effective Amendment No. 1 to Form S-8
333-02553 The Timken Company Long-Term Incentive April 16, 1996
Plan - Form S-8
333-17503 The Timken Company Dividend Reinvestment December 9, 1996
Plan - Form S-3
33-36839 Voluntary Investment Program for Hourly August 15, 1997
Employees of Latrobe Steel Company -
Post-effective Amendment No. 2 to
Form S-8
33-55121 Voluntary Investment Pension Plan for August 15, 1997
Hourly Employees of The Timken Company -
Post-effective Amendment No. 1 to
Form S-8
333-16465 The MPB Corporation Employees' Savings August 15, 1997
Plan - Post-effective Amendment No. 1
to Form S-8
333-17509 The Timken Company - Latrobe Steel Company August 15, 1997
Savings and Investment Pension Plan -
Post-effective Amendment No. 1 to Form S-8
333-33737 The Hourly Pension Investment Plan - August 15, 1997
Form S-8
333-41155 OH&R Investment Plan - Form S-8 November 26, 1997
333-43847 The Timken Company International Stock January 7, 1998
Ownership Plan - Form S-8
333-45753 Rail Bearing Service Employee Savings February 6, 1998
Plan - Form S-8
333-45891 $300,000,000 Medium-Term Notes, Series A - February 9, 1998
Form S-3
ERNST & YOUNG LLP
Canton, Ohio
March 19, 1998
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., 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, qn 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, 1997 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 6th day of February, 1998.
/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,
President and Chief Executive
Officer
/s/ J. Clayburn LaForce, Jr. /s/ Joseph F. Toot, Jr.
_____________________________ ______________________________
J. Clayburn La Force, Jr., Joseph F. Toot, Jr., Director
Director
/s/ Gene E. Little /s/ M. D. Walker
_____________________________ ______________________________
Gene E. Little, Senior Vice Martin D. Walker, Director
President - Finance (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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,824
<SECURITIES> 0
<RECEIVABLES> 364,426
<ALLOWANCES> 7,003
<INVENTORY> 445,853
<CURRENT-ASSETS> 855,171
<PP&E> 2,677,786
<DEPRECIATION> 1,457,270
<TOTAL-ASSETS> 2,326,550
<CURRENT-LIABILITIES> 579,564
<BONDS> 202,846
0
0
<COMMON> 318,358
<OTHER-SE> 713,718
<TOTAL-LIABILITY-AND-EQUITY> 2,326,550
<SALES> 2,617,562
<TOTAL-REVENUES> 2,617,562
<CGS> 1,997,403
<TOTAL-COSTS> 1,997,403
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,432
<INCOME-PRETAX> 266,592
<INCOME-TAX> 95,173
<INCOME-CONTINUING> 171,419
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 171,419
<EPS-PRIMARY> 2.73
<EPS-DILUTED> 2.69
</TABLE>
