1.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended March 31, 1998.
Commission File No. 1-1169
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
(330) 438-3000
Registrant's telephone number, including area code
Not Applicable
Former name, former address and former fiscal year if changed
since last report.
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
___ ___
Common shares outstanding at March 31, 1998, 62,123,841.
<PAGE>
PART I. FINANCIAL INFORMATION 2.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
Mar. 31 Dec. 31
1998 1997
ASSETS ---------- ----------
Current Assets (Thousands of dollars)
Cash and cash equivalents......................... $15,985 $9,824
Accounts receivable, less allowances,
(1998-$7,334; 1997-$7,003)........................ 395,105 357,423
Deferred income taxes............................. 49,389 42,071
Inventories (Note 2) ............................. 480,106 445,853
---------- ----------
Total Current Assets.................... 940,585 855,171
Property, Plant and Equipment..................... 2,704,641 2,677,786
Less allowances for depreciation................. 1,459,839 1,457,270
---------- ----------
1,244,802 1,220,516
Costs in excess of net assets of acquired business,
less amortization, (1998-$24,628; 1997-$23,448)... 132,280 139,409
Deferred income taxes............................. 15,645 26,605
Other assets...................................... 91,720 84,849
---------- ----------
Total Assets................................ $2,425,032 $2,326,550
========== ==========
LIABILITIES
Current Liabilities
Accounts payable and other liabilities............ $234,116 $253,033
Short-term debt and commercial paper.............. 204,869 156,585
Accrued expenses.................................. 170,587 157,343
---------- ----------
Total Current Liabilities............... 609,572 566,961
Noncurrent Liabilities
Long-term debt (Note 3) .......................... 239,814 202,846
Accrued pension cost.............................. 112,225 103,061
Accrued postretirement benefits cost.............. 390,161 389,749
Other noncurrent liabilities...................... 35,140 31,857
---------- ----------
Total Noncurrent Liabilities............ 777,340 727,513
Shareholders' Equity (Note 4)
Common stock...................................... 294,357 321,069
Earnings invested in the business................. 786,911 749,033
Cumulative foreign currency translation adjustment (43,148) (38,026)
---------- ----------
Total Shareholders' Equity.............. 1,038,120 1,032,076
Total Liabilities and Shareholders' Equity.. $2,425,032 $2,326,550
========== ==========
<PAGE>
PART I. FINANCIAL INFORMATION 3.
Continued
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
Mar. 31 Mar. 31
1998 1997
------ ------
(Thousands of dollars,
except per share data)
Net sales............................................. $707,381 $640,584
Cost of product sold.................................. 533,015 489,155
------ ------
Gross Profit....................................... 174,366 151,429
Selling, administrative and general expenses.......... 88,141 78,403
------ ------
Operating Income................................... 86,225 73,026
Interest expense...................................... (5,863) (5,465)
Other income (expense)................................ (854) (569)
------ ------
Income Before Income Taxes......................... 79,508 66,992
Provision for Income Taxes (Note 5)................... 30,372 25,926
------ ------
Net Income......................................... $49,136 $41,066
====== ======
Earnings Per Share * ............................. $0.79 $0.66
Earnings Per Share - assuming dilution **........ $0.78 $0.64
Dividends Per Share................................ $0.18 $0.165
* Per average shares outstanding..................... 62,481,627 62,448,532
** Per average shares outstanding - assuming dilution. 63,331,559 63,383,258
<PAGE>
PART I. FINANCIAL INFORMATION Continued 4.
THE TIMKEN COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
Cash Provided (Used) Mar. 31 Mar. 31
1998 1997
------ ------
OPERATING ACTIVITIES (Thousands of dollars)
Net Income............................................. $49,136 $41,066
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 33,756 33,205
Provision (credit) for deferred income taxes.......... 1,094 (6,194)
Stock issued in lieu of cash to employee benefit plans 10,091 4,095
Changes in operating assets and liabilities:
Accounts receivable.................................. (38,721) (35,269)
Inventories and other assets......................... (37,270) (11,315)
Accounts payable and accrued expenses................ 13,506 29,365
Foreign currency translation......................... 595 (233)
------ ------
Net Cash Provided by Operating Activities........... 32,187 54,720
INVESTING ACTIVITIES
Purchases of property, plant and equipment - net...... (65,014) (37,364)
Purchase of subsidiaries.............................. 0 (34,747)
------ ------
Net Cash Used by Investing Activities............... (65,014) (72,111)
FINANCING ACTIVITIES
Cash dividends paid to shareholders................... (11,258) (8,939)
Purchase of Treasury Shares........................... (36,803) (9,361)
Payments on long-term debt............................ (23,108) 0
Proceeds from issuance of long-term debt.............. 38,228 0
Short-term debt activity - net........................ 71,714 41,742
------ ------
Net Cash Provided by Financing Activities........... 38,773 23,442
Effect of exchange rate changes on cash................ 215 (419)
Increase in Cash and Cash Equivalents.................. 6,161 5,632
Cash and Cash Equivalents at Beginning of Period....... 9,824 5,342
------ ------
Cash and Cash Equivalents at End of Period............. $15,985 $10,974
====== ======
<PAGE>
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 5.
Note 1 -- Basis of Presentation
The accompanying consolidated condensed financial statements (unaudited) for
The Timken Company (the "company") been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) and disclosures considered necessary
for a fair presentation have been included. For further information, refer to
the consolidated financial statements and footnotes included in the company's
annual report on Form 10-K for the year ended December 31, 1997.
Certain amounts for 1997 have been reclassified to conform with the 1998
presentation.
3/31/98 12/31/97
Note 2 -- Inventories ------- -------
(Thousands of dollars)
Finished products $157,849 $144,621
Work-in-process and raw materials 284,887 264,784
Manufacturing supplies 37,370 36,448
------- -------
$480,106 $445,853
======= =======
Note 3 -- Long-term Debt 3/31/98 12/31/97
------- -------
(Thousands of dollars)
7-1/2% State of Ohio Pollution Control
Revenue Refunding Bonds, maturing on
January 1, 2002. $17,000 $17,000
State of Ohio Water Development Revenue
Refunding Bond, maturing on May 1, 2007.
The variable interest rate is tied to the
bank's tax exempt weekly interest rate.
The rate at March 31, 1998 is 3.70%. 8,000 8,000
State of Ohio Air Quality and Water Development
Revenue Refunding Bonds, maturing on
June 1, 2001. The variable interest rate
is tied to the bank's tax exempt weekly
interest rate. The rate at March 31, 1998 is 3.70%. 21,700 21,700
State of Ohio Water Development Authority Solid Waste
Revenue Bonds, maturing on July 2, 2032.
The variable interest rate is tied to the bank's
tax exempt weekly interest rate. The rate at
March 31, 1998 is 3.70%. 24,000 24,000
Fixed Rate Medium-Term Notes, Series A, due at
various dates through January, 2028 with
interest rates ranging from 6.20% to 9.10%. 167,000 153,000
Other 3,892 2,766
------- -------
241,592 226,466
Less: Current Maturities 1,778 23,620
------- -------
$239,814 $202,846
======= =======
<PAGE>
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 6.
Continued
Note 4 -- Shareholders' Equity 3/31/98 12/31/97
-------- --------
(Thousands of dollars)
Class I and Class II serial preferred stock
without par value: $0 $0
Authorized -- 10,000,000 shares each class
Issued - none
Common Stock without par value:
Authorized -- 200,000,000 shares
Issued (including shares in treasury)
1998 - 63,082,626 shares
1997 - 63,082,626 shares
Stated Capital 53,064 53,064
Other paid-in capital 277,617 273,873
Less cost of Common Stock in treasury 36,324 5,868
1998 - 958,784 shares
1997 - 202,627 shares
-------- --------
$294,357 $321,069
======== ========
<TABLE>
An analysis of the change in capital and earnings invested in the business is as follows:
Common Stock Earnings Accumulated
Other Invested Other
Stated Paid-In in the Comprehensive Treasury
Capital Capital Business Income Stock Total
------- -------- -------- ---------- -------- ---------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1997 $53,064 $273,873 $749,033 ($38,026) ($5,868) $1,032,076
Net Income 49,136 49,136
Foreign currency translation adjustment (5,122) (5,122)
------
Total comprehensive income 44,014
Dividends - $.18 per share (11,258) (11,258)
Stock Options, employee benefit and dividend
reinvestment plans: 3,744 (30,456) (26,712)
Treasury -(issued)/acquired 756,157 shares
------- -------- -------- ---------- -------- ---------
Balance March 31, 1998 $53,064 $277,617 $786,911 ($43,148) ($36,324) $1,038,120
======= ======== ======== ========== ======== =========
</TABLE>
<PAGE>
PART I. NOTES TO FINANCIAL STATEMENTS 7.
(Unaudited) Continued
Note 5 -- Income Tax Provision Three Months Ended
Mar. 31 Mar. 31
1998 1997
------ ------
U.S. (Thousands of dollars)
Federal $24,126 $19,449
State & Local 2,984 3,223
Foreign 3,262 3,254
------ ------
$30,372 $25,926
====== ======
Taxes provided exceed the U.S. statutory rate primarily
due to state and local taxes and losses without current
tax benefits.
<PAGE>
8.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The Timken Company reported record sales and earnings for the
first quarter of 1998. During the quarter, the company continued
to pursue its growth strategies, which included developing new
products and entering markets that offer profitable growth. The
company also maintained its focus on continuous improvement,
which helped it achieve margin improvement.
Demand for the company's products remained strong during the
quarter. Plant utilization throughout the company was high with
the majority of its facilities running at full levels. The
company believes that customer demand for its products will
remain strong in 1998 in both its bearing and steel businesses.
Net sales for the first quarter were $707.4 million, an increase
of 10.4% above 1997's first quarter sales of $640.6 million.
Demand for the company's products was particularly strong in
North America, Europe and Latin America.
Gross profit was $174.4 million (24.6% of net sales) in the first
quarter of 1998, a 15.2% increase over the $151.4 million (23.6%
of net sales) in 1997's first quarter. The higher sales volume
and benefits related to the company's on-going continuous
improvement efforts contributed to the higher profits. In
addition, the company's bearing business realized the benefits
from the additional hiring and associated training that occurred
during the second half of 1997 to help meet the strong demand
levels in the first quarter of 1998.
Selling, administrative, and general expenses were $88.1 million
(12.5% of net sales) in the first quarter of 1998 compared to
$78.4 million (12.2% of net sales) in 1997. These expenses
increased, in part, due to the support required for the company's
growth strategies, including higher expenses related to the
integration of the company's more recent acquisitions. In
addition, the expenses for the company's pay for performance
plans were higher in the first quarter of 1998 as compared to the
first quarter of 1997. These plans link pay directly to company
performance levels.
Interest expense was $.4 million higher in the first quarter of
1998 compared to the year-ago period. This increase resulted
from the higher average level of debt outstanding during the
first quarter.
Bearing Business net sales were $462.8 million in the first
quarter of 1998, an increase of $39.9 million compared to $422.9
million in the year-earlier period. Slightly over half of the
higher sales were achieved in the domestic light truck, heavy
truck, and industrial equipment markets. Sales in Europe,
excluding the company's recent acquisitions, accounted for
approximately 25% of the sales increase. The company's recent
acquisitions accounted for approximately 13% of the sales volume
<PAGE>
9.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
increase. The remaining sales volume increase occurred mainly in
Latin America and the North American rail market. Although the
Asia Pacific weakness continues, the impact of the economic
problems there has not been strongly felt in the company's
markets. The impact on the company's financial results has been
minor.
Bearing Business operating income totaled a record $50.1 million
in the first quarter of 1998 compared to $43.4 million in 1997's
first quarter. The higher sales volume, improved sales mix, the
business' continuous improvement efforts and the benefits from
the additional hiring and training in the second half of 1997
contributed to the higher operating income for the Bearing
Business in the first quarter.
On April 21, 1998, the company announced an additional $12
million investment in its Altavista, Virginia, bearing plant.
The $12 million expansion will help ensure adequate supply of the
advanced manufactured bearings for the growing light truck and
sport utility vehicle markets. This is the third capacity
expansion at the Altavista facility since 1991 when the original
plant was built.
Steel Business sales were $244.6 million in the first quarter of
1998 compared to $217.7 million recorded a year earlier. The
company experienced strong demand for both alloy steel products
and steel components in all markets. The Steel Business achieved
double-digit sales increases in its precision steel components,
alloy tubes and bars, and its service center business in the
first quarter of 1998 versus the year earlier period. Most of
the higher sales were achieved in the tube and bar markets.
During the first quarter the business performed at record levels
and was able to meet strong customer demand by continuing to
produce both steel tubes and bars at higher than expected levels
with existing equipment.
Steel Business operating income in the first quarter of 1998 rose
by $6.5 million to $36.1 million compared to $29.6 million in the
year-earlier period. This increase resulted primarily from the
higher sales volume and the business' continuous improvement
initiatives, which resulted in lower manufacturing costs and new
levels of output. The price of recycled scrap metal in the first
quarter of 1998 was also higher than the year-ago period and
partially offset the increase in operating income achieved
through the higher sales and continuous improvement efforts.
The Steel Business is currently completing a $55 million rolling
mill investment project at its Harrison Steel Plant in Canton,
Ohio, which will help position the business to be a premier
producer of high-quality, intermediate-size bars. It is
anticipated that the new rolling mill will be operational by mid-
1998. Start-up costs associated with bringing the new mill into
production will slightly dampen operating income in the second
<PAGE>
10.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
and third quarters of 1998.
On April 22,1998, the company announced tentative plans for a new
steel tube mill that would expand its tubing product line. Plans
are contingent upon completion of discussions with all key
constituents. The facility would include state-of-the-art
piercing, rolling and finishing operations designed to complement
the company's existing piercing mills by expanding the wall
thickness and size offerings. Timken seamless tubing is used in
applications in a multitude of industries, including automotive,
bearing and oil country. The location of the facility has not
been determined.
The company's basic labor agreement with the United Steelworkers
of America (AFL-CIO) at its Latrobe Steel subsidiary expired on
May 3, 1998. When negotiations ended on May 6, 1998,
approximately 450 production and maintenance associates at
Latrobe Steel went on strike. The distribution and service
portions of the business as well as manufacturing operations
located in other communities were not affected. On May 9, 1998,
the associates at Latrobe Steel ratified a new 3-year labor
contract which ended the 3-day work stoppage. The work stoppage
did not materially affect the company's 1998 financial
performance.
Financial Condition
Total assets increased by $98.5 million from December 31, 1997.
The increase resulted in part from higher accounts receivable and
inventories required to support the higher demand levels. The
$38.7 million increase in accounts receivable, as reflected in
the Consolidated Condensed Statements of Cash Flows, relates
primarily to the increase in sales. The number of days' sales in
receivables at March 31, 1998, was lower compared to the year-end
1997 level. Inventories and other assets increased by $37.3
million compared to year-end 1997. The increase in inventories
relates primarily to the higher level of activity, although the
number of days supply in inventory increased from the December
31, 1997, level. The company continues to recognize the
importance of cash flow by improving working capital usage,
especially focusing on lowering inventory levels.
Debt of $444.7 million at the end of the first quarter of 1998
exceeded the $359.4 million at year-end 1997. During the three
months ended March 31, 1998, cash was required to fund working
capital and capital expansion and improvement needs, as well as
for the purchase of shares under its previously announced 1996
common stock purchase plan. This plan was completed in April,
1998. The company expects debt to remain at current levels
during 1998. Any future cash needs that exceed cash generated
from operations will be met by short-term borrowing and issuance
of medium-term notes. On April 24, 1998, the company's
registration statement to register $300 million of medium-term
<PAGE>
11.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
notes was declared effective by the Securities and Exchange
Commission. On May 8, 1998, the company issued $100 million of
30-year notes, maturing on May 8, 2028, pursuant to this shelf
registration. The notes have a coupon rate of 6.875%.
The 30% debt to total capital ratio was higher than the 25.8% at
year-end 1997. Debt increased by $85.3 million during the first
quarter of 1998; total shareholders' equity increased by $6
million. The increase in debt was required to meet the company's
working capital needs, its capital expansion and improvement
needs, and to help fund its purchase of shares under the 1996
common stock purchase plan.
Purchases of property, plant and equipment - net during the three
months ended March 31, 1998, were $65.0 million compared to $37.4
million one year earlier. The company continues to invest in
activities consistent with the strategies it is pursuing to
achieve industry leadership positions. Further capital
investments in technologies in the company's plants throughout
the world and new acquisitions provide Timken with the
opportunity to improve the company's competitiveness and meet the
needs of its growing base of customers.
Other Information
The Timken Company has approached being year 2000 compliant using
a defined methodology that includes assessment, strategy
definition, development, test, integration and implementation
components. Additionally, the company's corporate information
systems department has instituted a corporate level reporting and
tracking process that encompasses all Timken year 2000 project
efforts world-wide. 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 is striving 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 operations or cash flows. The company's financial
results are also dependent on the ability of its customers,
suppliers and the government to become year 2000 compliant. The
company is communicating with its customers and suppliers on this
issue in an effort to minimize any potential year 2000 compliance
impact.
On April 21, 1998, the Board of Directors declared a quarterly
cash dividend of 18.0 cents per share payable June 1, 1998, to
shareholders of record at the close of business on May 15, 1998.
On April 21, 1998, the company announced board approval of the
1998 common stock purchase plan. The company's 1996 common stock
purchase plan had authorized the company to buy back, in the open
market, up to two million shares of common stock to be held as
treasury shares and used for benefit plans. The company has
<PAGE>
12.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
purchased all of the two million shares authorized under the 1996
common stock purchase plan. The company's 1998 common stock
purchase plan authorizes the company to buy, in the open market
on the New York Stock Exchange or otherwise in connection with
previously negotiated transactions, at prevailing market prices,
up to four million shares of common stock, which are to be held
as treasury shares and used for specific purposes. The company
may exercise this authorization until December 31, 2001. Shares
of common stock purchased pursuant to the 1998 common stock
purchase plan can be used as follows: to fund qualified employee
benefit plans maintained by the company and its direct and
indirect wholly owned domestic subsidiaries; to satisfy the
company's obligations under its equity-based incentive plans;
for use in making future acquisitions; and to deliver shares
under existing and future equity-based compensation arrangements
to associates and directors of the company and to associates of
direct and indirect subsidiaries of the company.
The Timken Company has entered a tentative agreement with Phoenix
Environmental Ltd. (PEL) to develop a byproduct processing
facility near its Faircrest and Gambrinus Steel Plants in Canton.
The facility will employ a newly patented process to convert
byproducts of the steel and bearing manufacturing process to
industrial materials. The facility will be constructed in three
separate phases with Phase I construction scheduled to begin in
June 1998. Timken is the first company to employ the patented
PEL technology. The operation will convert byproducts of the
manufacturing process, such as electric arc furnace dust, metal
grindings, and scale from the steel pickling process, to
magnetite, which is a form of iron oxide. This fully recyclable
magnetite can be sold as a raw material to industrial
manufacturers of blasting media, shingle granules, pigments and
colorants for paint and concrete, and filler additives for
plastics. This cost-efficient method of recycling will enable
the company to reduce disposal costs associated with the listed
waste materials.
Based on the Brazilian three-year cumulative inflation rate being
below 100% and the company's evaluation of the Brazilian economy,
in January 1998 the company began to consider Brazil a non-
hyperinflated economy. The initial adjustment of $6 million to
revalue Brazilian assets at current exchange rates was reflected
as a reduction of other comprehensive income in the first quarter
of 1998. Prospectively, exchange gains or losses on the
conversion of net assets also will be reflected in other
comprehensive income. Because of the trading relationship
between the company and its Mexican subsidiary, the functional
currency used for Mexico is the U.S. dollar. Accordingly, the
evaluation of the economy in Mexico as hyperinflated does not
impact the company's accounting for this subsidiary.
Effective in the first quarter 1998, the company adopted the
American Institute of Certified Public Accountants Statement of
<PAGE>
13.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." This SOP
offers new guidance concerning the capitalization and/or
expensing of costs associated with developing or obtaining
internal use software. The adoption of this SOP did not have a
material effect on the company's financial position, results of
operations or cash flows.
The statements set forth in this document that are not historical
in nature are forward-looking statements. The company cautions
readers that actual results may differ materially from those
projected or implied in forward-looking statements made by or on
behalf of the company due to a variety of important factors, such
as:
a) changes in world economic conditions. This includes, but is
not limited to, the potential instability of governments and
legal systems in countries in which the company conducts
business, 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 from its on-going 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.
<PAGE>
14.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Cont.)
g) changes in worldwide financial markets to the extent they
affect the company's ability or costs 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.
<PAGE>
Part II. OTHER INFORMATION 15.
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
(1) The Board of Directors recommended the three individuals
set forth below be elected Directors in Class I at the
1998 Annual Meeting of Shareholders of The Timken Company
held on April 21, 1998, to serve a term of three years
expiring at the Annual Meeting in 2001 (or until their
respective successors are elected and qualified). All
three individuals had been previously elected as Directors
by the shareholders and were re-elected at the 1998
meeting.
Affirmative Withheld
Ward J. Timken 57,537,213 499,155
Martin D. Walker 57,540,156 496,212
Charles H. West 57,516,706 519,662
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibits
4 Indenture dated as of April 24, 1998, between The
Timken Company and The Bank of New York, which was
filed with The Timken Company's Form S-3
registration statement which became effective
April 24, 1998, and is incorporated herein by
reference.
10 The form of The Timken Company Nonqualified Stock
Option Agreement for nontransferable options as
adopted on April 21, 1998.
<PAGE>
16.
10.1 The form of The Timken Company Nonqualified Stock
Option Agreement for transferable options as
adopted on April 21, 1998.
10.2 The Timken Company Deferral of Stock Option Gains
Plan effective as of April 21, 1998.
11 Computation of Per Share Earnings
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b). Reports on Form 8-K
On May 7, 1998, the company filed a Form 8-K discussing
the strike of production and maintenance associates at
Latrobe Steel Company, a wholly owned subsidiary of
the company. The strike took effect late on May 6, 1998.
On May 11, 1998, the company filed a Form 8-K discussing
the ratification of the new three-year labor contract on
May 9, 1998 for associates at Latrobe Steel Company, which
ended the strike that began on May 6, 1998.
<PAGE>
17.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
The Timken Company
_______________________________
Date May 14, 1998 BY /s/ W. R. Timken, Jr.
________________________ _______________________________
W. R. Timken, Jr.,
Director and Chairman;
President and Chief Executive
Officer
Date May 14, 1998 BY /s/ G. E. Little
________________________ _______________________________
G. E. Little
Senior Vice President - Finance
EXHIBIT 10
THE TIMKEN COMPANY
Nonqualified Stock Option Agreement
WHEREAS, _________________________ (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 April 21, 1998
(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 thirty-three and three-fourths dollars ($33.75)
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.
<PAGE>
(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
<PAGE>
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
<PAGE>
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. 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, the Company shall cause certificates
for any shares purchased hereunder to be delivered to the
Optionee upon payment of the Exercise Price in full.
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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 21st day of
April, 1998.
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: _________________________
EXHIBIT 10.1
TRANSFERABLE
THE TIMKEN COMPANY
Nonqualified Stock Option Agreement
WHEREAS, _____________(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 April 21, 1998
(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 thirty-three and three-fourths dollars ($33.75) 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
<PAGE>
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
<PAGE>
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
<PAGE>
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. 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, the Company shall cause certificates
for any shares purchased hereunder to be delivered to the
Optionee upon payment of the Exercise Price in full.
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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 21st day of
April, 1998.
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: _________________________
EXHIBIT 10.2
THE TIMKEN COMPANY
DEFERRAL OF STOCK OPTION GAINS PLAN
The Timken Company hereby establishes, effective as of April 21,
1998, the DEFERRAL OF STOCK OPTION GAINS PLAN for the Company.
Such Plan provides key executives with the opportunity to defer
stock option gains, in accordance with the provisions of this
Plan.
ARTICLE I
DEFINITIONS
For the purposes hereof, the following words and phrases shall
have the meanings indicated.
1. "Account" shall mean a bookkeeping account in which Gain
Shares deferred by a Participant shall be recorded and to which
dividends and distributions may becredited in accordance with
the Plan. As set forth in Section 4 of Article II of the Plan, a
Participant's Account shall consist of two Sub-Accounts -- (i) a
"Common Share" Sub-Account and (ii) a "Cash" Sub-Account.
2. "Beneficiary" or "Beneficiaries" shall mean the person or
persons designated by a Participant in accordance with the Plan
to receive payment of the remaining balance of the Participant's
Account in the event of the death of the Participant prior to
receipt of the entire amount credited to the Participant's
Account.
3. "Board" shall mean the Board of Directors of the Company.
4. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
5. "Change in Control" shall have the same meaning as defined
in the 1996 Deferred Compensation Plan.
6. "Committee" shall mean the Compensation Committee of the
Board or such other Committee as may be authorized by the Board
to administer the Plan.
7. "Common Shares" shall mean shares of common stock without
par value of the Company or any security into which such Common
Shares may be changed by reason of any transaction or event of
the type referred to in Section 9 of Article II of the Plan.
<PAGE>
8. "Company" shall mean The Timken Company and its successors,
including, without limitation, the surviving corporation
resulting from any merger or consolidation of The Timken Company
with any other corporation or corporations.
9. "1996 Deferred Compensation Plan" shall mean The Timken
Company 1996 Deferred Compensation Plan, as amended from time to
time.
10. "Disability" shall mean a physical or mental condition of a
Participant resulting from a bodily injury, disease or mental
disorder which renders him incapable of continuing in the
employment of the Company. Such Disability shall be determined
by the Committee based upon appropriate medical evidence and
examination.
11. "Election Agreement" shall mean an agreement in
substantially the form attached hereto as Exhibit A, as modified
from time to time by the Company.
12. "Eligible Associate" shall mean an associate of the Company,
or a Subsidiary, who is an eligible associate under the 1996
Deferred Compensation Plan. Unless otherwise determined by the
Committee, an Eligible Associate shall continue as such until
termination of employment. For purposes of the Plan, a
"termination of employment" shall not be deemed to occur upon a
transfer of employment to a Subsidiary or the Company.
13. "Gain Shares" shall mean a number of Common Shares equal to
the difference between the number of Common Shares issuable upon
exercise of the related Option and the number of Common Shares
delivered by the Participant in satisfaction of the exercise
price for such Option.
14. "Long-Term Incentive Plans" shall mean The Timken Company
Long-Term Incentive Plan, as amended from time to time, and The
Timken Company 1985 Incentive Plan.
15. "Option" shall mean any stock option, other than an
"incentive stock option" as defined in section 422 of the Code,
granted to an Eligible Associate under the Long-Term Incentive
Plans, or any similar plan of the Company.
16. "Participant" shall mean any Eligible Associate who has at
any time elected to defer the receipt of Gain Shares in
accordance with the Plan.
17. "Plan" shall mean this deferral plan, which shall be known
as the Deferral of Stock Option Gains Plan for The Timken
Company.
18. "Subsidiary" shall mean any corporation, joint venture,
partnership, unincorporated association or other entity in which
the Company has a direct or indirect ownership or other equity
interest and directly or indirectly owns or controls more than 50
percent of the total combined voting or other decision-making
power.
<PAGE>
ARTICLE II
ELECTION TO DEFER
1. Election to Defer. An Eligible Associate who desires to
defer Gain Shares pursuant to this Plan must complete and deliver
an Election Agreement to the Director of Compensation and
Benefits of the Company specifying the number of shares and award
date(s) of the Option(s) to which the Election Agreement applies.
By delivering an Election Agreement, the Participant irrevocably
waives his rights under the related Option to (i) exercise the
Option for cash at any time when the Participant is an Eligible
Associate and (ii) exercise the Option in any manner during the
period commencing on the date of the Election Agreement and
ending six months thereafter; provided, however, that such waiver
shall be null and void in the event that during such six-month
period (a) the Participant's employment is terminated by the
Company, (b) the Participant's employment terminates as a result
of his death or Disability, or (c) there is a Change in Control
of the Company.
2. Effect of Election. In order to exercise Options with
respect to which an Election Agreement is in effect, the
Participant must tender, in satisfaction of the option exercise
price, Common Shares which the Participant has owned for at least
6 months having a fair market value as of the exercise date equal
to the aggregate exercise price for the Options exercised. Upon
such exercise, the Company shall (i) deliver to the Participant a
number of Common Shares equal to the number of Common Shares
surrendered by the Participant in payment of the exercise price
and (ii) credit the Gain Shares to the Participant's Account.
3. Period of Deferral. The delivery of Gain Shares to a
Participant shall be deferred until (i) the date the Participant
ceases to be an associate by death, retirement or otherwise or
(ii) the date otherwise specified by the Participant in the
Election Agreement, including a date determined by reference to
the date the Participant ceases to be an associate by death,
retirement or otherwise.
4. Accounts. The Account of a Participant shall consist of two
Sub-Accounts -- (i) the "Common Share" Sub-Account and (ii) the
"Cash" Sub-Account. The Common Share Sub-Account, on the
exercise date of the related Option, shall be credited with the
number of Gain Shares. Such Sub-Account shall be deemed to be
invested in Common Shares and shall be credited with stock
dividends declared thereon. In the case of cash or other
property dividends, a Participant shall elect in the manner
described in Subsection 4(c) of this Article whether such
dividends are credited to a Participant's Common Share Sub-
Account or Cash Sub-Account.
<PAGE>
a) To the extent investment in the Participant's Common Share
Sub-Account is elected, on each dividend payment date, the
Participant's Common Share Sub-Account shall be credited with an
additional number of Common Shares determined as follows. First,
the amount of the cash (or fair market value of other property)
dividend paid per Common Share shall be multiplied by the number
of Common Shares covered by the Common Share Sub-Account dividend
election as of the record date of the corresponding dividend.
Then, that amount shall be divided by the fair market value of
one Common Share on the dividend payment date to arrive at the
additional number of Common Shares to credit to the Participant's
Common Share Sub-Account.
b) To the extent investment in the Cash Sub-Account is elected,
on each dividend payment date, the Participant's Cash Sub-Account
shall be credited with an amount equal to the amount of the cash
(or fair market value of other property) dividend paid per Common
Share multiplied by the number of Common Shares covered by the
Cash Sub-Account dividend election as of the record date for the
corresponding dividend. The Cash Sub-Account will be credited
with interest computed quarterly (based on calendar quarters) on
the lowest balance in such Sub-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 Cash Sub-Account as of
the first day of the following quarter.
c) Each Participant in his or her Election Agreement shall
specify whether cash or other property dividends shall be
invested in his or her Common Share Sub-Account or Cash Sub-
Account. Until revoked, this election between investment in a
Participant's Common Share Sub-Account or Cash Sub-Account
applies to the Gain Shares resulting from this Election Agreement
and any additional Common Shares attributable to such Gain
Shares. In order to be effective to revoke an election made
pursuant to this subsection, the revocation must be in writing
and delivered to the Director of Compensation and Benefits of the
Company prior to 30 days before a dividend payment date.
5. Payment of Accounts. The number of Common Shares in a
Participant's Common Share Sub-Account shall be issued or
transferred to the Participant in one installment or in a number
of approximately equal quarterly installments, as designated by
the Participant in the Election Agreement. Unless a participant
makes arrangements satisfactory to the Company for the payment of
any required withholding taxes, the number of Common Shares
issued or transferred in a lump sum or each installment shall be
reduced by a number of Common Shares having a fair market value
equal to the amount of any taxes required to be withheld with
respect to such lump sum or installment The one installment or
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 3 of this Article. All amounts credited
<PAGE>
to a Participant's Cash Sub-Account in respect of dividends,
distributions and interest thereon as provided in Section 4 of
this Article shall likewise be paid to the Participant at the
same time the shares causing the dividend, distribution or
interest are transferred to the Participant.
6. Death of a Participant. In the event of the death of a
Participant, the amount of the Participant's Account 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 Participant's
Election Agreement and Section 5 of this Article. A
Participant'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
Participant's death shall govern. In the absence of a
Beneficiary Designation or the failure of any Beneficiary to
survive the Participant, the amount of the Participant's Account
shall be paid to the Participant'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 Participant, the remaining amount of the Account 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.
7. Small Payments. Notwithstanding the foregoing, if
installment payments elected by a Participant would result in a
payment with a value of less than $500, the entire amount of the
Participant's Account may at the discretion of the Committee be
paid in a lump sum in accordance with Section 5 of this Article.
8. Acceleration. Notwithstanding the provisions of the
foregoing: (i) if a Change in Control occurs, the amount of each
Participant's Account shall immediately be paid to the
Participant 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 Participant 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 Participant or Beneficiary of the
amount of his or her Account, but only up to the amount necessary
to meet the emergency.
9. Adjustments. The Committee may make or provide for such
adjustments in the numbers of Common Shares credited to
Participants' Accounts, and in the kind of shares so credited, as
the Committee in its sole discretion, exercised in good faith,
may determine is equitably required to prevent dilution or
enlargement of the rights of Participants that otherwise would
result from (i) any stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure
of the Company, or (ii) any merger, consolidation, spin-off,
split-off, spin-out, split-up, reorganization, partial or
<PAGE>
complete liquidation or other distribution of assets, issuance of
rights or warrants to purchase securities, or (iii) any other
corporate transaction or event having an effect similar to any of
the foregoing. Moreover, in the event of any such transaction or
event, the Committee, in its discretion, may provide in
substitution for any or all Common Shares deliverable under this
Plan such alternative consideration as it, in good faith, may
determine to be equitable in the circumstances.
10. Fractional Shares. The Company shall not be required to
issue any fractional Common Shares pursuant to this Plan. The
Committee may provide for the elimination of fractions or for the
settlement of fractions in cash.
ARTICLE III
ADMINISTRATION
The Company, through the Committee, shall be responsible for the
general administration of the Plan and for carrying out the
provisions hereof. The Committee shall have all such powers as
may be necessary to carry out the provisions of the Plan,
including the power to (i) determine all questions relating to
eligibility for participation in the Plan and the amount in the
Account of any Participant and all questions pertaining to claims
for benefits and procedures for claim review, (ii) resolve all
other questions arising under the Plan, including any questions
of construction, and (iii) take such further action as the
Company shall deem advisable in the administration of the Plan.
The actions taken and the decisions made by the Committee
hereunder shall be final and binding upon all interested parties.
In accordance with the provisions of Section 503 of the Employee
Retirement Income Security Act of 1974, the Committee shall
provide a procedure for handling claims of Participants or their
Beneficiaries under this Plan. Such procedure shall be in
accordance with regulations issued by the Secretary of Labor and
shall provide adequate written notice within a reasonable period
of time with respect to the denial of any such claim as well as a
reasonable opportunity for a full and fair review by the
Committee of any such denial.
ARTICLE IV
AMENDMENT AND TERMINATION
The Company reserves the right to amend or terminate the Plan at
any time by action of the Board; provided, however, that no such
action shall adversely affect any Participant or Beneficiary who
has an Account, or result in the acceleration of payment of the
amount of any Account (except as otherwise permitted under the
Plan), without the consent of the Participant or Beneficiary.
<PAGE>
ARTICLE V
MISCELLANEOUS
1. Non-alienation of Deferred Compensation. Except as permitted
by this Plan, no right or interest under this Plan of any
Participant or 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 Participant or Beneficiary.
2. Interest of Associate. The obligation of the Company under
the Plan to make payment of amounts reflected in an Account
merely constitutes the unsecured promise of the Company to make
payments from its general assets or in the form of its Common
Shares, as the case may be, as provided herein, and no
Participant or Beneficiary shall have any interest in, or a lien
or prior claim upon, any property of the Company. Nothing in
this Plan shall be construed as guaranteeing future employment to
Eligible Associates, and nothing in this Plan shall be considered
in any manner a contract of employment. It is the intention of
the Company that the Plan be unfunded for tax purposes and for
purposes of Title I of ERISA. The Company may create a trust to
hold funds, Common Shares or other securities to be used in
payment of its obligations under the Plan, and may fund such
trust; provided, however, that any funds contained therein shall
remain liable for the claims of the Company's general creditors.
3. Claims of Other Persons. The provisions of the Plan shall in
no event be construed as giving any other person, firm or
corporation any legal or equitable right as against the Company
or any Subsidiary or the officers, employees or directors of the
Company or any Subsidiary, except any such rights as are
specifically provided for in the Plan or are hereafter created in
accordance with the terms and provisions of the Plan.
4. Severability. The invalidity and unenforceability of any
particular provision of the Plan shall not affect any other
provision hereof, and the Plan shall be construed in all respects
as if such invalid or unenforceable provision were omitted
herefrom.
5. Governing Law. Except to the extent preempted by federal
law, the provisions of the Plan shall be governed and construed
in accordance with the laws of the State of Ohio.
6. Relationship to Other Plans. This Plan is intended to serve
the purposes of and to be consistent with the Long-Term Incentive
Plans and any similar plan approved by the Committee for purposes
of this Plan. The issuance or transfer of Common Shares pursuant
to this Plan shall be subject in all respects to the terms and
conditions of the Long-Term Incentive Plans and any other such
plan. Without limiting the generality of the foregoing, Common
Shares credited to the Accounts of Participants pursuant to this
<PAGE>
Plan shall be taken into account for purposes of Section 3 of the
Long-Term Incentive Plans (Shares Available Under the Plan) and
for purposes of the corresponding provisions of any other such
plan.
<PAGE>
EXHIBIT A
DEFERRAL OF STOCK OPTION GAINS PLAN
THE TIMKEN COMPANY
ELECTION AGREEMENT
I, ____________________________, hereby elect to participate
in the Deferral of Stock Option Gains Plan for The Timken Company
(the "Plan") as follows:
I. DEFERRAL OF GAIN SHARES
1. Number of Common Shares that I am entitled to receive
upon exercise of the Option to which this Election
Agreement applies (in the event of a partial exercise
of an Option, this Election Agreement applies to the
Common Shares that would be the first to be received):
_______ Common Shares
2. Grant date(s) of Option:
_____________________
3. Please make payment of the Gain Shares resulting from
the exercise of the Option to which this Election
Agreement applies, together with all cash accumulated
in my Cash Sub-Account attributable to such Gain Shares
and any additional Common Shares in my Common Share Sub-
Account attributable to such Gain Shares, as follows:
a. Pay in lump sum [ ]
b. Pay in ______ approximately equal quarterly
installments [ ]
4. Please defer payment or make payment of first installment as
follows:
a. Defer until the date I cease to be an associate [ ]
b. Defer until _______ [ ] (specify date or number of
years following termination of employment)
<PAGE>
II. DIVIDENDS
1. Please credit cash or other non-stock property
dividends earned with respect to the Gain Shares, as
well as additional Common Shares attributable to such
Gain Shares, reflected in my Common Share Sub-Account
as follows:
a. Reinvest in Commmon Shares in my Common Share
Sub-Account [ ]
b. Credit to my Cash Sub-Account [ ]
III. SIGNATURE/AUTHORIZATION
I acknowledge that I have reviewed the Plan and understand that
my participation will be subject to the terms and conditions
contained in the Plan. Capitalized terms used, but not otherwise
defined, in this Election Agreement shall have the respective
meanings assigned to them in the Plan.
I understand that my election under that my election under Part
II relating to dividends applies to the Gain Shares resulting
from this Election Agreement and any additional Common Shares
attributable to such Gain Shares reflected in my Common Shares
Sub-Account. I understand that, in order to revoke or modify
this dividend election, the revocation or modification must be in
writing and delivered to the Director - Compensation and Benefits
prior to 30 days before a dividend payment date.
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 Plan.
Dated this ______ day of _____, 1998.
________________________________ _________________________
(Signature) (Print or type name)
<PAGE>
EXHIBIT B
THE TIMKEN COMPANY
DEFERRAL OF STOCK OPTION GAINS PLAN
BENEFICIARY DESIGNATIONS
In accordance with the terms and conditions of the Deferral of
Stock Option Gains Plan (the "Plan"), I hereby designate the
person(s) indicated below as my beneficiary(ies) to receive the
amounts payable under said Plan.
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 Plan.
In the event that there is no beneficiary living at the time of
my death, I understand that the amounts payable under the Plan
will be paid to my estate.
___________________________ _________________________
Date (Signature)
_________________________
(Print or type name)
<TABLE>
Exhibit 11 - COMPUTATION OF PER SHARE EARNINGS
(Thousands of dollars, except per share data)
<CAPTION>
Three Months Ended March 31
1998 1997
---------- ----------
BASIC
<S> <C> <C>
Average shares outstanding 62,481,627 62,448,532
Net income $49,136 $41,066
Per-share amount $0.79 $0.66
===== =====
DILUTED
Average shares outstanding 62,481,627 62,448,532
Effect of dilutive securities based on the
treasury stock method using the average
market price if higher than the exercise price 849,932 934,726
---------- ----------
63,331,559 63,383,258
Net income $49,136 $41,066
Per-share amount $0.78 $0.64
===== =====
</TABLE>
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended
Mar. 31 Mar. 31
1998 1997
------- -------
(Thousands of dollars)
Income before income taxes,
extraordinary item and cumulative
effect of accounting changes. $79,508 $66,992
Amortization of capitalized interest 610 530
Interest expense 5,863 5,465
Interest portion of rental expense 607 655
------- -------
Earnings $86,588 $73,642
======= =======
Interest $ 7,076 $ 5,692
Interest portion of rental expense 607 655
------- -------
Fixed Charges $ 7,683 $ 6,347
======= =======
Ratio of Earnings to Fixed Charges 11.27 11.60
======= =======
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 15,985
<SECURITIES> 0
<RECEIVABLES> 402,439
<ALLOWANCES> 7,334
<INVENTORY> 480,106
<CURRENT-ASSETS> 940,585
<PP&E> 2,704,641
<DEPRECIATION> 1,459,839
<TOTAL-ASSETS> 2,425,032
<CURRENT-LIABILITIES> 609,572
<BONDS> 239,814
0
0
<COMMON> 294,357
<OTHER-SE> 743,763
<TOTAL-LIABILITY-AND-EQUITY> 2,425,032
<SALES> 707,381
<TOTAL-REVENUES> 707,381
<CGS> 533,015
<TOTAL-COSTS> 533,015
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,863
<INCOME-PRETAX> 79,508
<INCOME-TAX> 30,372
<INCOME-CONTINUING> 49,136
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,136
<EPS-PRIMARY> .79
<EPS-DILUTED> .78
</TABLE>
