SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004 Commission File Number 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)
Registrants telephone number, including area code (330)438-3000
___________________
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock without par value New York Stock Exchange ______________________________ _______________________
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). YES [X] NO [ ]
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The aggregate market value of the voting stock held by all shareholders other than shareholders identified under Item 12 of this Form 10-K as of June 30, 2004 was $2,095,658,125 (representing 79,111,292 shares).
Indicate the number of shares outstanding of each of the registrant's classes of Common Stock, as of February 28, 2005.
Common Stock without par value-- 91,337,823 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31, 2004, are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual meeting of shareholders to be held on April 19, 2005, are incorporated by reference into Part III.
Exhibit Index may be found on Pages 20 through 26.
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THE TIMKEN COMPANY
INDEX TO FORM 10-K REPORT
PAGE
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I. PART I.
Item 1. Description of Business.................................... 1
General.................................................. 2
Products................................................. 3
Geographical Financial Information....................... 5
Sales and Distribution................................... 5
Industry Segments........................................ 6
Competition.............................................. 7
Joint Ventures........................................... 9
Backlog.................................................. 9
Raw Materials............................................ 9
Research................................................. 10
Environmental Matters.................................... 10
Patents, Trademarks and Licenses......................... 11
Employment............................................... 11
Available Information.................................... 11
Item 2. Properties................................................. 12
Item 3. Legal Proceedings.......................................... 13
Item 4. Submission of Matters to a Vote of Security Holders........ 13
Item 4A. Executive Officers of the Registrant....................... 13
II. PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................ 15
Item 6. Selected Financial Data.................................... 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 16
Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 16
Item 8. Financial Statements and Supplementary Data................ 16
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................... 16
Item 9A. Controls and Procedures.................................... 16
III. Part III.
Item 10. Directors and Executive Officers of the Registrant......... 17
Item 11. Executive Compensation..................................... 17
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters................. 17
Item 13. Certain Relationships and Related Transactions............. 18
Item 14. Principal Accountant Fees and Services..................... 18
IV. Part IV.
Item 15. Exhibits and Financial Statement Schedules................. 20
PART 1 1 ______Item 1. Description of Business ________________________________ Certain statements set forth in this document (including the company's fore- casts, beliefs and expectations) that are not historical in nature are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company cautions readers that actual results may differ materially from those expressed or implied in forward- looking statements made by or on behalf of the company due to a variety of important factors, such as:
a) risks associated with the acquisition of Torrington, including the
uncertainties in both timing and amount of actual benefits that may
be realized as a result of the integration of the Torrington
business with the company's operations and the timing and amount of
the resources required to achieve those benefits.
b) changes in world economic conditions, including additional adverse
effects from terrorism or hostilities. This includes, but is not
limited to, political risks associated with the potential instability
of governments and legal systems in countries in which the company or
its customers conduct business and significant changes in currency
valuations.
c) the effects of fluctuations in customer demand on sales, product mix and
prices in the industries in which the company operates. This includes
the ability of the company to respond to the rapid improvements in the
industrial market, the effects of customer strikes, the impact of changes
in industrial business cycles and whether conditions of fair trade
continue in the U.S. market.
d) competitive factors, including changes in market penetration,
increasing price competition by existing or new foreign and domestic
competitors, the introduction of new products by existing and new
competitors and new technology that may impact the way the company's
products are sold or distributed.
e) 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; higher cost and availability of raw
materials and energy; the company's ability to mitigate the impact of
higher material costs through surcharges and/or price increases; changes
resulting from inventory management and cost reduction initiatives and
different levels of customer demands; the effects of unplanned work
stoppages; and changes in the cost of labor and benefits.
f) the success of the company's operating plans, including its ability to
achieve the benefits from its manufacturing and administrative cost
reduction initiatives as well as its ongoing continuous improvement and
rationalization programs; the ability of 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.
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g) the success of the company's plans concerning the transfer of bearing
production from Canton, including the possibility that the transfer of
production will not achieve the desired results, the possibility of
disruption in the supply of bearings during the process, and the outcome
of the company's discussions with the union that represents company
associates at the affected facilities.
h) unanticipated litigation, claims or assessments. This includes, but
is not limited to, claims or problems related to intellectual property,
product liability or warranty and environmental issues.
i) changes in worldwide financial markets, including interest rates to the
extent they affect the company's ability to raise capital or increase
the company's cost of funds, have an impact on the overall performance
of the company's pension fund investments and/or cause changes in the
economy which affect customer demand.
Additional risks relating to the company's business, the industries in which the company operates or the company's common stock may be described from time to time in the company's filings with the SEC. All of these risk factors are difficult to predict, are subject to material uncertainties that may affect actual results and may be beyond the company's control.
Except as required by the federal securities laws, the company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
General _______
As used herein, the term "Timken" or the "company" refers to The Timken Company and its subsidiaries unless the context otherwise requires. Timken, an outgrowth of a business originally founded in 1899, was incorporated under the laws of the state of Ohio in 1904.
Timken is a leading global manufacturer of highly engineered bearings, alloy and specialty steel and related components. The company is the world's largest manufacturer of tapered roller bearings and alloy seamless mechani- cal steel tubing and the largest North American-based bearings manufacturer. Timken had facilities in 29 countries on six continents, and employed approx- imately 26,000 people, as of December 31, 2004.
On February 18, 2003, the company completed the acquisition of the Engineered Solutions business of Ingersoll-Rand Company Limited, including certain of its joint venture interests, operating assets and subsidiaries, including The Torrington Company. This business, referred to as Torrington, is a leading worldwide producer of needle roller, heavy-duty roller and ball bearings and motion control components and assemblies. Timken paid $700 million in cash and issued $140 million of its common stock (9,395,973 shares) for Torrington. The company financed the $700 million cash component of the Torrington acquisition through a public offering of 12,650,000 common shares, an offering of $250 million seven-year senior unsecured notes, a five-year revolving credit facility and a $125 million securitized accounts receivable facility.
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Torrington is a leading global manufacturer of needle roller bearings. It produces a wide range of bearings sold under a number of brand names, including Torrington needle roller bearings, Torrington heavy-duty roller bearings, Nadella precision needle roller bearings and linear motion solutions and Fafnir ball bearings and housed units. Torrington also produces a variety of precision motion control components and assemblies, such as steering shaft assemblies and steering column shafts. Torrington sells its products directly or through authorized distributors to automotive and industrial manufacturers, as well as to aftermarket users throughout the world.
The Torrington automotive business manufactures a variety of products, including roller and needle bearings and other components used in an auto- mobile's transmission, chassis, steering column and engine. Many of these products, such as column locks and rotary tilt products for steering columns, are highly engineered with precision technology, and are specially designed through collaborative efforts between Torrington and its customers. These products are primarily sold to original equipment manufacturers, or OEMs, including large automobile manufacturers, and their principal suppliers.
The Torrington industrial business produces a broad range of products, including roller bearings, needle bearings, wider inner ring ball bearings and housed units, radial ball bearings, super precision ball bearings, airframe control bearings, precision machined bearings and precision components and assemblies. These products are sold to OEMs, as well as through a global aftermarket network.
Products ________
The Timken Company manufactures two basic product lines: anti-friction bearings and steel products. Differentiation in these two product lines comes in two different ways: (1) differentiation by bearing type or steel type, and (2) differentiation in the applications of bearings and steel.
Tapered Roller Bearings. In the bearing industry, Timken is best known for the tapered roller bearing, which was originally patented by the company founder, Henry Timken. The tapered roller bearing is Timken's principal product in the anti-friction industry segment. It consists of four components: (1) the cone or inner race, (2) the cup or outer race, (3) the tapered rollers, which roll between the cup and cone, and (4) the cage, which serves as a retainer and maintains proper spacing between the rollers. Timken manufactures or purchases these four components and then sells them in a wide variety of configurations and sizes.
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Products (cont.)
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The tapered rollers permit ready absorption of both radial and axial load combinations. For this reason, tapered roller bearings are particularly well adapted to reducing friction where shafts, gears or wheels are used. The applications for tapered roller bearings have diversified from the original application on horse-drawn wagons to applications on passenger cars, light and heavy trucks, and trains, as well as a wide range of industrial applica- tions, ranging from very small gear drives to bearings over two meters in diameter for wind energy machines. Further differentiation has come in the form of adding sensors to these bearings, which measure parameters such as speed, load, temperature or overall bearing condition.
Matching bearings to the specific requirements of customers' applications requires engineering, and often sophisticated analytical techniques. The design of Timken's tapered roller bearing permits distribution of unit pressures over the full length of the roller. This fact, combined with high precision tolerance, proprietary internal geometry and premium quality material, provides Timken bearings with high load carrying capacity, excellent friction-reducing qualities and long life.
Precision Cylindrical and Ball Bearings. Timken's aerospace and super pre- cision facilities produce high-performance ball and cylindrical bearings for ultra high-speed and/or high-accuracy applications in the aerospace, medical and dental, computer disk drive and other industries. These bearings utilize ball and straight rolling elements and are in the super precision end of the general ball and straight roller bearing product range in the bearing industry. A majority of Timken's aerospace and super precision bearings products are custom-designed bearings and spindle assemblies. They often involve specialized materials and coatings for use in applications that subject the bearings to extreme operating conditions of speed and temp- erature.
Spherical and Cylindrical Bearings. Timken Romania produces spherical and cylindrical roller bearings for large gear drives, rolling mills and other process industry and infrastructure development applications. Timken's cylindrical and spherical roller bearing capability has been significantly enhanced with the acquisition of Torrington's broad range of spherical and heavy-duty cylindrical roller bearings for standard industrial and specialized applications. These products are sold worldwide to OEMs, and industrial distributors serving major industries, including construction and mining, natural resources, defense, pulp and paper production, rolling mills and general industrial goods.
Needle Bearings. With the acquisition of Torrington, the company has become a leading global manufacturer of highly engineered needle roller bearings. Torrington produces a broad range of radial and thrust needle roller bearings, as well as bearing assemblies, which are sold to OEMs and industrial distributors worldwide. Major applications include products for the automotive, consumer product, construction and agriculture and general industrial goods industries.
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Products (cont.)
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Bearing Reconditioning. A small part of the business involves providing bearing reconditioning services for industrial and railroad customers, both internationally and domestically. These services account for less than 5% of the company's net sales for the year ended December 31, 2004.
Steel. Steel products include steels of low and intermediate alloy, vacuum- processed alloys, tool steel and some carbon grades. These products are available in a wide range of solid and tubular sections with a variety of lengths and finishes. These steel products are used in a wide array of applications, including bearings, automotive transmissions, engine crankshafts, oil drilling, aerospace and other similarly demanding applications.
Timken also produces custom-made steel products, including alloy and steel components for automotive and industrial customers. This business has pro- vided the company with the opportunity to further expand its market for tubing and capture higher value-added steel sales. This also enables Timken's traditional tubing customers in the automotive and bearing industries to take advantage of higher performing components that cost less than current alternative products. Customizing of products is a growing portion of the company's steel business.
Geographical Financial Information __________________________________
Information appearing under the caption "Geographic Financial Information," on Page 58 of the Annual Report to Shareholders for the year ended December 31, 2004 is incorporated herein by reference.
Sales and Distribution ______________________
Timken's products in the Automotive Group and Industrial Group are sold principally by its own internal sales organization. A portion of the Industrial Group's sales are made through authorized distributors. Timken's sales organization consists of a separate sales force for each business Group.
Traditionally, a main focus of the company's sales strategy has consisted of collaborative projects with customers. For this reason, Timken's sales forces are primarily located in close proximity to its customers rather than at production sites. In some instances, the sales forces are located inside customer facilities. Timken's sales force is highly trained and knowledge- able regarding all bearings products and associates assist customers during the development and implementation phases and provide support on an ongoing basis.
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Sales and Distribution (cont.)
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The company has a joint venture in North America focused on joint logistics and e-business services. This alliance is called Colinx, and was founded by Timken, SKF, INA and Rockwell Automation. The e-business service was launched in April 2001, and is focused on information and business services for authorized distributors in the Industrial Group. The company also has another e-business joint venture in Europe which focuses on information and business services for authorized distributors in the Industrial Group. This alliance, which Timken founded together with SKF AB, Sandvik AB, Industriewerk Schaffler INA-Ingenieurdienst GmBH and Reliance is called Endorsia.com International AB.
Timken's steel products are sold principally by its own sales organization. Most orders are customized to satisfy customer-specific applications and are shipped directly to customers from Timken's steel manufacturing plants. Approximately 12% of Timken's Steel Group net sales are intersegment sales. In addition, sales are made to other anti-friction bearing companies and to the aircraft, automotive and truck, construction, forging, oil and gas drilling, and tooling industries. Sales are also made to steel service centers.
Timken has entered into individually negotiated contracts with some of its customers in its Automotive Group, Industrial Group and Steel Group. These contracts may extend for one or more years and, if a price is fixed for any period extending beyond current shipments, customarily include a commitment by the customer to purchase a designated percentage of its requirements from Timken. Contracts extending beyond one year that are not subject to price adjustment provisions do not represent a material portion of Timken's sales. Timken does not believe that there is any significant loss of earnings risk associated with any given contract.
Industry Segments _________________
The company has three reportable segments: Automotive Group, Industrial Group and Steel Group. Segment information in Note 14 of the Notes to Consolidated Financial Statements on pages 58 and 59 of the Annual Report to Shareholders for the year ended December 31, 2004, is incorporated herein by reference. Export sales from the U.S. and Canada are less than 10% of revenue. The company's Automotive and Industrial Groups' businesses have historically participated in the global bearing industry, while the Steel Group has concentrated primarily on U.S. customers. However, over the past few years, the Steel Group has acquired non-U.S. companies, such as Timken Alloy Steel Europe Limited, in Leicester, England, which specializes in the manufacturing of seamless mechanical tubing, and Timken Precision Components Europe, a precision component manufacturer based in France.
Timken's non-U.S. operations are subject to normal international business risks not generally applicable to domestic business. These risks include
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Industry Segments (cont.)
_________________________
currency fluctuation, changes in tariff restrictions, difficulties in establishing and maintaining relationships with local distributors and dealers, import and export licensing requirements, difficulties in staffing and managing geographically diverse operations, and restrictive regulations by foreign governments, including price and exchange controls.
Competition ___________
The anti-friction bearing business is highly competitive in every country in which Timken sells products. Timken competes primarily based on price, quality, timeliness of delivery, and product design and the ability to provide engineering support and service on a global basis. The company competes with domestic manufacturers and many foreign manufacturers of anti-friction bearings, including SKF, INA-Holding Schaeffler KG, NTN Corporation, Koyo Seiko Co., Ltd. and NSK Ltd.
Competition within the steel industry, both domestically and globally, is intense and is expected to remain so. However, the recent combination of a weakened U.S. dollar, worldwide rationalization of uncompetitive capacity, raw material cost increases, and North American and global market strength have allowed steel industry prices to increase and margins to improve. Timken's worldwide competitors for seamless mechanical tubing include Copperweld, Plymouth Tube, Michigan Seamless Tube, V & M Tube, Sanyo Special Steel, Ovako Steel and Tenaris. Competitors for steel bar products include North American producers such as Republic Engineered Products, Mac Steel, Ispat Inland, Steel Dynamics and a wide variety of off-shore steel producers who import into North America. Competitors in the precision steel components market include Metaldyne, Linamar and overseas companies such as Showa Seiko, SKF and FormFlo. In the specialty steel category, manufacturers compete for sales of high-speed, tool and die, and aerospace steels. High-speed steel competitors in North America and Europe include Erasteel, Bohler and Crucible. Tool and die steel competitors include Crucible, Carpenter Technologies and Thyssen. The principal competitors for Timken's aerospace steels include Ellwood Specialty, Slater/Atlas and Patriot (formerly Republic Technologies, Inc.).
Maintaining high standards of product quality and reliability while keeping production costs competitive is essential to Timken's ability to compete with domestic and foreign manufacturers in both the anti-friction bearing and steel businesses.
Trade Law Enforcement
In the second quarter of 2000, the U.S. International Trade Commission (ITC) voted to revoke the bearing industry's anti-dumping orders on imports of tapered roller bearings from Japan. The ITC determined that revocation of the anti-dumping duty orders on tapered roller bearings from Japan was not likely to lead to continuation or recurrence of material injury to the domestic industry within a reasonably foreseeable time. The company has
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Competition (cont.)
___________________
filed an appeal of the ITC's decision regarding Japan, which is still pending. The ITC upheld the anti-dumping duty order against tapered roller bearings from China, which will be up for review again starting in 2005.
Also in the second quarter of 2000, the ITC voted to continue the bearing industry's anti-dumping orders on imports of ball bearings from France, Germany, Italy, Japan, Singapore, and the United Kingdom. Some producers in those six countries attempted court appeals of these decisions, some of which are still pending. Separately, these six continuing ball bearing anti- dumping orders will be up for review again starting in 2005.
Continued Dumping and Subsidy Offset Act
The Continued Dumping and Subsidy Offset Act (CDSOA) provides for distribution of monies collected by U.S. Customs from antidumping cases to qualifying domestic producers where the domestic producers have continued to invest in their technology, equipment and people. The company reported CDSOA receipts, net of expenses, of $44.4 million, $65.6 million and $50.2 million in 2004, 2003 and 2002, respectively. Amounts received in 2003 were net of a one-time repayment, due to a miscalculation by the U.S. Treasury Department, of funds received by the company in 2002.
Amounts for 2003 and 2004 were net of the amounts that Timken delivered to the seller of the Torrington business, pursuant to the terms of the agreement under which the company purchased Torrington. In 2003 and 2004, Timken delivered to the seller of the Torrington business 80% of the CDSOA payments received in 2003 and 2004 for Torrington's bearing business. Timken is under no further obligation to transfer any CDSOA payments to the seller of the Torrington business.
The company cannot predict whether it will receive any payments under CDSOA in 2005 or if so, in what amount. In September 2002, the World Trade Organization (WTO) ruled that such payments are not consistent with international trade rules. The U.S. Trade Representative appealed this ruling; however, the WTO upheld the ruling on January 16, 2003. CDSOA continues to be in effect in the United States at this time.
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Joint Ventures _______________
As part of the Torrington acquisition, several additional equity interests were acquired, one of which was a needle bearing manufacturing venture in Japan, NTC, that had been operated by NSK Ltd. and Torrington. In July 2003, the company sold its interest in NTC to NSK for approximately $146.3 million, pre-tax.
During 2000, the company's Steel Group invested in a joint venture, PEL Technologies LLC (PEL), to commercialize a proprietary technology that converts iron units into engineered iron oxides for use in pigments, coatings and abrasives. In the fourth quarter of 2003, the company concluded its investment in PEL was impaired due to the following indicators of impairment: history of negative cash flow and losses; 2004 operating plan with continued losses and negative cash flow; and the continued required support from the company or another party. In the fourth quarter of 2003, the company reported a non-cash impairment loss of $45.7 million, which is reported in other expense-net on the consolidated statement of income.
The company concluded that PEL is a variable interest entity and that the com- pany is the primary beneficiary. In accordance with FASB Interpretation No. 46 "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletion No. 51," (FIN 46), the company consolidated PEL effective March 31, 2004. The adoption of FIN 46 resulted in a charge, representing the cumulative effect of change in accounting principle, of $0.9 million, which is reported in other expense-net on the consolidated statement of income. Also, the adoption of FIN 46 increased the consolidated balance sheet as follows: current assets by $1.7 million; property, plant and equipment by $11.3 million; short-term debt by $11.6 million; accounts payable and other liabilities by $0.7 million and other non-current liabilities by $1.7 million. All of PEL's assets are collateral for its obligations. Except for PEL's indebtedness for which the company is a guarantor, PEL's creditors have no recourse to the general credit of the company.
Backlog _______
The backlog of orders of Timken's domestic and overseas operations is estimated to have been $1.76 billion at December 31, 2004, and $1.33 billion at December 31, 2003. Actual shipments are dependent upon ever-changing production schedules of the customer. Accordingly, Timken does not believe that its backlog data and comparisons thereof as of different dates are reliable indicators of future sales or shipments.
Raw Materials _____________
The principal raw materials used by Timken in its North American bearing plants to manufacture bearings are its own steel tubing and bars, purchased strip steel and energy resources. Outside North America, the company purchases raw materials from local sources with whom it has worked closely to assure steel quality according to its demanding specifications. In addition, Timken Alloy Steel Europe Limited in Leicester, England is a major source of raw materials for the Timken plants in Western Europe.
The principal raw materials used by Timken in steel manufacturing are scrap metal, nickel and other alloys. The availability and prices of raw materials and energy resources are subject to curtailment or change due to, among other things, new laws or regulations, changes in demand levels, suppliers' allocations to other purchasers, interruptions in production by suppliers, changes in exchange rates and prevailing price levels. For example, the weighted average price of scrap metal increased 8.1% from 2001 to 2002, increased 19.2% from 2002 to 2003, and increased 87.1% from 2003 to 2004. Prices for raw materials and energy resources continue to remain high.
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Raw Materials (cont.) _____________________
The company continues to expect that it will be able to pass a portion of these increased costs through to customers in the form of price increases or raw material surcharges.
Disruptions in the supply of raw materials or energy resources could temporarily impair the company's ability to manufacture its products for its customers or require the company to pay higher prices in order to obtain these raw materials or energy resources from other sources, which could thereby affect the company's sales and profitability. Any increase in the prices for such raw materials or energy resources could materially affect the company's costs and therefore its earnings.
Timken believes that the availability of raw materials and alloys are adequate for its needs, and, in general, it is not dependent on any single source of supply.
Research ________
Timken's major research center, located in Canton, Ohio near its world head- quarters, is engaged in research on bearings, steels, manufacturing methods and related matters. Research facilities are also located at the Timken Aerospace & Super Precision Bearings New Hampshire plants; the Colmar, France plant; the Latrobe, Pennsylvania plant; the Ploiesti, Romania plant; the Vierzon, France plant; the Kunsebeck, Germany plant; and facilities in Norcross, Georgia; Torrington, Connecticut; Bangelore, India; and Brno, Czech Republic. Expenditures for research, development and testing amounted to approximately $58.5 million, $55.7 million and $57.0 million in 2004, 2003 and 2002, respectively. Of these amounts, $8.4 million, $3.3 million and $5.6 million, respectively, were funded by others. The company's research program is committed to the development of new and improved bearing and steel products, as well as more efficient manufacturing processes and techniques and the expansion of applications for existing products.
Environmental Matters _____________________
The company continues its efforts to protect the environment and comply with environmental protection laws. Additionally, it has invested in pollution control equipment and updated plant operational practices. The company is committed to implementing a documented environmental management system world- wide and to becoming certified under the ISO 14001 standard where appropriate to meet or exceed customer requirements. By the end of 2004, 33 of the company's plants had obtained ISO 14001 certification.
The company believes it has established adequate reserves to cover its environmental expenses and has a well-established environmental compliance audit program, which includes a proactive approach to bringing its domestic and international units to higher standards of environmental performance. This program measures performance against applicable laws, as well as standards that have been established for all units worldwide. It is difficult to assess the possible effect of compliance with future requirements that differ from existing ones. As previously reported, the company is unsure of the future financial impact to the company that could result from the United States Environmental Protection Agency's (EPA's) final rules to tighten the National Ambient Air Quality Standards for fine particulate and ozone.
The company and certain of its U.S. subsidiaries have been designated as potentially responsible parties by the United States EPA for site investigation and remediation at certain sites under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), known as the Superfund, or state laws similar to CERCLA. The claims for remediation have been asserted against numerous other entities, which are believed to
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Environmental Matters (cont.) _____________________________
be financially solvent and are expected to fulfill their proportionate share of the obligation. Management believes any ultimate liability with respect to all pending actions will not materially affect the company's operations, cash flows or consolidated financial position. The company is also conducting voluntary environmental investigations and/or remediations at a number of current or former operating sites. Any liability with respect to such investigations and remediations, in the aggregate, is not expected to be material to the operations or financial position of the company.
New laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements may require the company to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on Timken's business, financial condition or results of operations.
Patents, Trademarks and Licenses ________________________________
Timken owns a number of U.S. and foreign patents, trademarks and licenses relating to certain of its products. While Timken regards these as items of importance, it does not deem its business as a whole, or any industry segment, to be materially dependent upon any one item or group of items.
Employment __________
At December 31, 2004, Timken had 25,931 associates. Twenty percent of Timken's U.S. associates are covered under collective bargaining agreements.
Available Information _____________________
Timken's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available, free of charge, on Timken's website at www.timken.com as soon as reasonably practicable after electronically filing such material with the Securities and Exchange Commission.
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Item 2. Properties
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Timken has Automotive Group, Industrial Group and Steel Group manufacturing facilities at multiple locations in the United States and in a number of countries outside the United States. The aggregate floor area of these facilities worldwide is approximately 19,298,000 square feet, all of which, except for approximately 1,848,000 square feet, is owned in fee. The facilities not owned in fee are leased. The buildings occupied by Timken are principally made of brick, steel, reinforced concrete and concrete block construction. All buildings are in satisfactory operating condition in which to conduct business.
Timken's Automotive and Industrial Groups' manufacturing facilities in the United States are located in Bucyrus, Canton, New Philadelphia, and Niles, Ohio; Altavista, Virginia; Watertown and Torrington, Connecticut; Randleman, Iron Station and Rutherfordton, North Carolina; Carlyle, Illinois; South Bend, Indiana; Gaffney, Clinton, Union, Honea Path and Walhalla, South Carolina; Cairo, Norcross, Sylvania, Ball Ground, and Dahlonega, Georgia; Pulaski and Mascot, Tennessee; Keene and Lebanon, New Hampshire; Lenexa, Kansas; Ogden, Utah. These facilities, including the research facility in Canton, Ohio, and warehouses at plant locations, have an aggregate floor area of approximately 7,696,000 square feet. In 2004, the company divested its plant facility in Syracuse, New York.
Timken's Automotive and Industrial Groups' manufacturing plants outside the United States are located in Benoni, South Africa; Brescia, Italy; Colmar, Vierzon, Maromme and Moult, France; Northampton and Wolverhampton, England; Medemblik, The Netherlands; Bilbao, Spain; Westfalen, Germany; Olomouc, Czech Republic; Ploiesti, Romania; Mexico City, Mexico; Sao Paulo and Nova Friburgo, Brazil; Singapore; Jamshedpur, India; Sosnowiec, Poland; St. Thomas and Bedford, Canada; and Yantai and Wuxi, China. The facilities, including ware- houses at plant locations, have an aggregate floor area of approximately 5,521,000 square feet. In 2004, the company divested its plant facility in Toronto, Canada.
Timken's Steel Group's manufacturing facilities in the United States are located in Canton, Eaton, Wauseon, Wooster, and Vienna, Ohio; Columbus, North Carolina; White House, Tennessee; and Franklin and Latrobe, Pennsylvania. These facilities have an aggregate floor area of approximately 5,342,000 square feet. The manufacturing facility in Columbus, North Carolina ceased operations in November of 2004.
Timken's Steel Group's manufacturing facilities outside the United States are located in Leicester and Sheffield, England; and Fougeres and Marnaz, France. These facilities have an aggregate floor area of approximately 739,000 square feet.
In addition to the manufacturing and distribution facilities discussed
above, Timken owns warehouses and steel distribution facilities in the
United States, United Kingdom, France, Singapore, Mexico, Argentina,
Australia, Brazil, Germany, and China, and leases several relatively small
warehouse facilities in cities throughout the world.
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Properties (cont.) __________________
During 2004, the widespread incentive programs on light trucks, increasing demand for heavy trucks and new business from new platforms drove an increase in North American demand. Automotive plant utilizations were between 75% and 85%, which was higher than 2003. In 2004, as a result of the higher industrial global demand, Industrial plant utilizations were between 80% and 85%, which was higher than 2003. Also, in 2004, Steel plant utilization operated at near capacity and was higher than 2003. Capacity for many steel products was allocated to customers based on recent order history.
Item 3. Legal Proceedings __________________________
The company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate dis- position of these matters will not have a material adverse effect on the company's consolidated financial position or results of operations.
The company is currently in discussions with the State of Ohio concerning a violation of Ohio air pollution control laws which was discovered by the company and voluntarily disclosed to the State of Ohio approximately eight years ago. Although no final settlement has been reached, the company believes that the final settlement will not be material to the company or have a material adverse effect on the company's consolidated financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders ____________________________________________________________
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2004.
Item 4A. Executive Officers of the Registrant ______________________________________________
The executive officers are elected by the Board of Directors normally for a term of one year and until the election of their successors. All executive officers, except for two, have been employed by Timken or by a subsidiary of the company during the past five-year period. The executive officers of the company as of February 28, 2005, are as follows:
Current Position and Previous
Name Age Positions During Last Five Years
___________________ ___ ____________________________________________
J. W. Griffith 51 1999 President and Chief Operating Officer;
Director;
2002 President and Chief Executive Officer;
Director.
14
Executive Officers of the Registrant (cont.) ____________________________________________
Current Position and Previous
Name Age Positions During Last Five Years
___________________ ___ ____________________________________________
M. C. Arnold 48 2000 President - Industrial Group.
S. B. Bailey 45 2000 Treasurer;
2001 Corporate Controller;
2002 Senior Vice President - Finance and
Controller.
W. R. Burkhart 39 2000 Senior Vice President and General Counsel.
J. A. Dedo 43 2000 Sales, Marketing and Customer Enablement
Executive, Covisint LLC;
2001 Vice President and General Manager World-
wide Market Operations, Motorola;
2004 President - Automotive Group, The Timken
Company.
G. A. Eisenberg 43 1999 President and Chief Operating Officer,
United Dominion Industries;
2002 Executive Vice President - Finance and
Administration, The Timken Company.
S. J. Miraglia, Jr. 54 1999 Senior Vice President - Technology.
W. J. Timken, Jr. 37 2000 Corporate Vice President - Office of the
Chairman;
2002 Corporate Vice President - Office of the
Chairman; Director;
2003 Executive Vice President and President -
Steel Group; Director.
15
PART II
_______
Item 5. Market for Registrant's Common Equity and Related Stockholder
______________________________________________________________________
Matters
_______
The company's common stock is traded on the New York Stock Exchange (TKR). The estimated number of record holders of the company's common stock at December 31, 2004, was 7,410. The estimated number of beneficial shareholders at December 31, 2004, was 42,484.
High and low stock prices and dividends for the last two fiscal years are presented in the Quarterly Financial Data schedule on Page 65 of the Annual Report to Shareholders for the year ended December 31, 2004, and are incorporated herein by reference.
Issuer Purchases of Common Stock:
The following table provides information about purchases by the company
during the quarter ended December 31, 2004 of its common stock.
Total Number Maximum
of Shares Number of
Purchased as Shares that
Part of May Yet Be
Publicly Purchased
Total Number Average Announced Under the
of Shares Price Paid Plans or Plans or
Period Purchased (1) per Share (2) Programs Programs
------ ------------- ------------- ------------ -----------
10/1/04-
10/31/04 - - - -
11/1/04-
11/30/04 149 $23.17 - -
12/1/04-
12/31/04 - - - -
------------- ------------- ------------ -----------
Total 149 $23.17 - -
============= ============= ============ ===========
(1) The company repurchases shares of its common stock that are owned
and tendered by employees to satisfy tax withholding obligations
on the vesting of restricted shares.
(2) The average price paid per share is calculated using the daily high
and low of the company's common stock as quoted on the New York
Stock Exchange at the time the employee tenders the shares.
Information regarding the company's stock compensation plan is presented in Notes 1 and 9 to the Consolidated Financial Statements on Pages 42 and 52 of the Annual Report to Shareholders for the year ended December 31, 2004, and is incorporated herein by reference.
Item 6. Selected Financial Data ________________________________
The Summary of Operations and Other Comparative Data on Pages 66-67 of the Annual Report to Shareholders for the year ended December 31, 2004, is incorporated herein by reference.
16
Management's Discussion and Analysis of Financial Condition and Results of Operations on Pages 18-37 of the Annual Report to Shareholders for the year ended December 31, 2004, is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ____________________________________________________________________
Information appearing under the caption "Management's Discussion and Analysis of Other Information" appearing on Pages 36 and 37 of the Annual Report to Shareholders for the year ended December 31, 2004, is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data ____________________________________________________
The Quarterly Financial Data schedule included on Page 65, the Consolidated Financial Statements of the registrant and its subsidiaries on Pages 38-41, the Notes to Consolidated Financial Statements on Pages 42-61, and the Report of Management on Internal Control Over Financial Reporting on Page 62 of the Annual Report to Shareholders for the year ended December 31, 2004, are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
____________________________________________________________________
and Financial Disclosure
________________________
Not applicable.
Item 9A. Controls and Procedures __________________________________
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, the principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report. There have been no significant changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the Company's most recent fiscal quarter.
The Report of Management on Internal Control Over Financial Reporting is set forth in Exhibit 13 of this Annual Report on Form 10-K and is incorporated herein by reference. The attestation report of the company's independent registered public accounting firm is included in this Annual Report on Form 10-K in Item 15.
17
PART III ________
Item 10. Directors and Executive Officers of the Registrant ____________________________________________________________
Required information is set forth under the captions "Election of Directors" on Pages 4-7 and "Section 16(a) Beneficial Ownership Report Compliance" on Page 30 of the proxy statement filed in connection with the annual meeting of shareholders to be held April 19, 2005, and is incorporated herein by reference. Information regarding the executive officers of the registrant is included in Part I hereof. Information regarding the Company's Audit Committee and its Audit Committee Financial Expert is set forth on page 8 of the proxy statement filed in connection with the annual meeting of share- holders to be held April 19, 2005, and is incorporated herein by reference.
The General Policies and Procedures of the Board of Directors of the Company and the charters of its Audit Committee, Compensation Committee and Nominating and Governance Committee are also available on its website at www.timken.com and are available to any shareholder upon request to the Corporate Secretary. The information on the Company's website is not incorporated by reference into this Annual Report on Form 10-K.
The Company has adopted a code of ethics that applies to all of its employees, including its principal executive officer, principal financial officer and principal accounting officer, as well as its directors. The Company's code of ethics, The Timken Company Standards of Business Ethics Policy, is available on its website at www.timken.com. The Company intends to disclose any amendment to, or waiver from, the code of ethics that applies to its principal executive officer, principal financial officer or principal accounting officer otherwise required to be disclosed under Item 10 of Form 8-K by posting such amendment or waiver, as applicable, on its website.
Item 11. Executive Compensation ________________________________
Required information is set forth under the captions "Executive Compensation" on Pages 13-25 and "Comparison of Five Year Cumulative Total Return" on Page 26 of the proxy statement filed in connection with the annual meeting of shareholders to be held April 19, 2005, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and ____________________________________________________________________________
Related Stockholder Matters
___________________________
Required information, including with respect to institutional investors owning more than 5% of the company's Common Stock, is set forth under the caption "Beneficial Ownership of Common Stock" on Pages 11-12 of the proxy statement filed in connection with the annual meeting of shareholders to be held April 19, 2005, and is incorporated herein by reference.
18
Item 12. Security Ownership of Certain Beneficial Owners and Management and ____________________________________________________________________________
Related Stockholder Matters (cont.)
___________________________________
Required information is set forth under the caption "Equity Compensation Plan Information" on Page 18 of the proxy statement issued in connection with the annual meeting of shareholders to be held April 19, 2005, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions ________________________________________________________
Required information is set forth under the caption "Election of Directors" on Pages 4-7 of the proxy statement issued in connection with the annual meeting of shareholders to be held April 19, 2005, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services _________________________________________________
Required information regarding fees paid to and services provided by the Company's independent auditor during the years ended December 31, 2004 and 2003 and the pre-approval policies and procedures of the Audit Committee of the Company's Board of Directors is set forth on page 29 of the proxy statement issued in connection with the annual meeting of shareholders to be held April 19, 2005, and is incorporated herein by reference.
The Company's independent registered public accountant, Ernst & Young LLP
("E&Y"), has recently advised the SEC, the Public Company Accounting Oversight
Board and the Company's audit committee and board of directors that certain
non-audit work it has performed in China has raised questions regarding E&Y's
independence with respect to its performance of audit services to some of its
clients, including the Company.
E&Y has disclosed to the Company's audit committee that through August 2003,
E&Y's affiliate in China ("E&Y China") provided tax calculation, preparation
and remittance services for two subsidiaries of the Company and a small number
of employees located in China. These services included processing cash
disbursements on behalf of these subsidiaries and employees, which is not
permitted under SEC auditor independence rules. Total payments processed by
E&Y China on behalf of these subsidiaries and employees from 2001 through 2003
were not significant and all of such payments were paid to Chinese tax
authorities. In connection with the performance of these tax services,
including the cash processing services, the fees which E&Y China received
were not significant. The processing of cash disbursements ceased in August
2003.
E&Y has also disclosed to the Company's audit committee that a contingent fee arrangement for a 2000 research tax credit study that it performed for the Company has raised questions regarding E&Y's independence with respect to its performance of audit services to the Company. In July 2001, the Company engaged E&Y to provide a research tax credit study in connection with the original filing of the Company's federal tax return for 2000. A portion of E&Y's fee was a contingent performance bonus based on a percentage of the Company's net tax savings for 2000. At the time E&Y was engaged for the tax credit study, contingent fee arrangements with audit clients were prohibited
19
Item 14. Principal Accountant Fees and Services (cont.)
_________________________________________________________
by the SEC auditor independence rules and AICPA Ethics Rule 302, except when the fee was for tax services and determined based on the findings of a governmental agency. An AICPA interpretation of Rule 302 provided that a fee is considered to be based on findings of a governmental agency if there is a reasonable expectation, at the time of the fee arrangement, of substantive review by a governmental agency, such as the IRS. However, because the tax credit study was for an original return, under AICPA guidance, the contingent fee arrangement with E&Y did not fall within the exception provided by Rule 302.
The audit committee and E&Y have discussed E&Y's independence with respect to the Company in light of the foregoing. E&Y has confirmed to the audit committee that it is independent under applicable independence standards. The audit committee has concurred that there has been no impairment of E&Y's independence. In making this determination with respect to the cash processing services, the audit committee considered that: the amount of funds involved were de minimis; the services were ministerial in nature and have been discontinued; the operations conducted at the locations involved were not material to the consolidated financial statements of the Company; none of E&Y's personnel that are members of the Company's audit team were involved in providing these tax services; and E&Y concluded that its independence was not impaired under the applicable independence standards. In making this determination with respect to the contingent fee arrangement, the audit committee considered that: the tax credit study did not place E&Y in a position of auditing its own work because both the Company and E&Y expected the Company's return to be audited by the IRS (which it was) and the Company had its own tax department that was responsible for both the preparation of the Company's tax returns and the income tax provision included in the Company's financial statements; the work plans and processes of the tax credit study were based on techniques and tools developed solely by E&Y, and therefore E&Y did not act as management or as an employee of the Company; the tax credit study did not place E&Y in a position of being an advocate for the Company; and E&Y concluded that its independence was not impaired under the applicable independence standards.
The audit committee and E&Y continue to evaluate and review matters relevant to the maintenance of E&Y's independence.
20
Item 15. Exhibits and Financial Statement Schedules. ___________________________________________________________________________
(a)(1) and (2) - The response to this portion of Item 15 is submitted
as a separate section of this report.
Schedules I, III, IV and V are not applicable to the company and, therefore, have been omitted.
(3) Listing of Exhibits
Exhibit
_______
(3)(i) Amended Articles of Incorporation of The Timken Company
(Effective April 16, 1996) were filed with Form S-8 dated
April 16, 1996 (Registration No. 333-02553), and are
incorporated herein by reference.
(3)(ii) Amended Regulations of The Timken Company effective April 21,
1987, were filed on March 29, 1993 with Form 10-K (Commission
File No. 1-1169), and are incorporated herein by reference.
(4.0) Credit Agreement dated as of December 31, 2002 among The Timken
Company, as Borrower, Various Financial Institutions, as Banks,
and Bank of America, N.A. and Keybank National Association, as
Co-Administrative Agents was filed on March 27, 2003 with
Form 10-K (Commission File No. 1-1169), and is incorporated
herein by reference.
(4.1) Amendment dated as of September 3, 2004 to the Credit Agreement
dated as of December 31, 2002 among The Timken Company, as
Borrower, Various Financial Institutions, as Banks, and Bank of
America , N.A. and Keybank National Association, as
Co-Administrative Agents.
(4.2) Indenture dated as of July 1, 1990, between Timken and
Ameritrust Company of New York, which was filed with
Timken's Form S-3 registration statement dated July 12,
1990 (Registration No. 333-35773), and is incorporated
herein by reference.
(4.3) First Supplemental Indenture, dated as of July 24, 1996,
by and between The Timken Company and Mellon Bank, N.A.
was filed on November 13, 1996 with Form 10-Q (Commission
File No. 1-1169), and is incorporated herein by
reference.
21
Listing of Exhibits (cont.) ___________________________
(4.4) Indenture dated as of February 18, 2003, between The Timken
Company and The Bank of New York, as Trustee, Providing for
Issuance of Notes in Series was filed on March 27, 2003 with
Form 10-K (Commission File No. 1-1169), and is incorporated
herein by reference.
(4.5) The company is also a party to agreements with respect to other
long-term debt in total amount less than 10% of the
registrant's consolidated total assets. The registrant agrees
to furnish a copy of such agreements upon request.
Management Contracts and Compensation Plans
___________________________________________
(10.0) The Management Performance Plan of The Timken Company for
Officers and Certain Management Personnel, as revised on
December 18, 2002 was filed on March 27, 2003 with Form 10-K
(Commission File No. 1-1169), and is incorporated herein by
reference.
(10.1) The Management Performance Plan of The Timken Company for
Officers and Certain Management Personnel, as revised on
January 31, 2005.
(10.2) The Timken Company 1996 Deferred Compensation Plan for officers
and other key employees, amended and restated as of April 20,
1999 was filed on May 13, 1999 with Form 10-Q (Commission File
No. 1-1169), and is incorporated herein by reference.
(10.3) Amendment to The Timken Company 1996 Deferred Compensation Plan
was filed on March 3, 2004 with Form 10-K (Commission File No.
1-1169), and is incorporated herein by reference.
(10.4) The 1985 Incentive Plan of The Timken Company for Officers and
other key employees as amended through December 17, 1997 was
filed on March 20, 1998 with Form 10-K (Commission File No.
1-1169), and is incorporated herein by reference.
(10.5) The Timken Company Long-Term Incentive Plan for directors,
officers and other key employees as amended and restated as of
January 30, 2002 and approved by shareholders on April 16, 2002
was filed as Appendix A to Proxy Statement filed on
February 22, 2002 (Commission File No. 1-1169), and is
incorporated herein by reference.
(10.6) The Timken Company Long-Term Incentive Plan for directors,
officers and other key employees as amended and restated as of
February 6, 2004 and approved by shareholders on April 20, 2004
was filed as Appendix A to Proxy Statement filed on March 1,
2004 (Commission File No. 1-1169), and is incorporated herein
by reference.
Listing of Exhibits (cont.) ___________________________
Management Contracts and Compensation Plans (cont.)
___________________________________________________
(10.7) The form of Severance Agreement entered into with all Executive
Officers of the company was filed on March 27, 1997 with
Form 10-K (Commission File No. 1-1169), and is incorporated
herein by reference. Each differs only as to name and date
executed.
(10.8) The form of Death Benefit Agreement entered into with all
Executive Officers of the company was filed on March 30, 1994
with Form 10-K (Commission File No. 1-1169), and is incorporated
herein by reference. Each differs only as to name and date
executed. Currently applicable only to those Executive Officers
who retired prior to January 1, 2004.
(10.9) The amended form of Death Benefit Agreement entered into with
Executive Officers and certain key employees of the company who
held such positions as of October 1, 2003 was filed on August 6,
2004 with Form 10-Q (Commission File No. 1-1169), and is
incorporated herein by reference. Each differs only as to name
and date executed.
(10.10) The form of Indemnification Agreements entered into with all
Directors who are not Executive Officers of the company was
filed on April 1, 1991 with Form 10-K (Commission File No.
1-1169), and is incorporated herein by reference. Each differs
only as to name and date executed.
(10.11) The form of Indemnification Agreements entered into with
all Executive Officers of the company who are not Directors
of the company was filed on April 1, 1991 with Form 10-K
(Commission File No. 1-1169), and is incorporated herein
by reference. Each differs only as to name and date
executed.
(10.12) The form of Indemnification Agreements entered into with
all Executive Officers of the company who are also
Directors of the company was filed on April 1, 1991 with
Form 10-K (Commission File No. 1-1169), and is
incorporated herein by reference. Each differs only as to
name and date executed.
(10.13) The form of Employee Excess Benefits Agreement entered into with
all active Executive Officers, certain retired Executive
Officers, and certain other key employees of the company was
filed on March 27, 1992 with Form 10-K (Commission File No.
1-1169), and is incorporated herein by reference. Each differs
only as to name and date executed.
(10.14) Amendment to Employee Excess Benefits Agreement was filed on
May 12, 2000 with Form 10-Q (Commission File No. 1-1169),
and is incorporated herein by reference.
23
Listing of Exhibits (cont.) ___________________________
Management Contracts and Compensation Plans (cont.)
___________________________________________________
(10.15) The amended form of Employee Excess Benefits Agreement entered
into with certain Executive Officers and certain key employees
of the company was filed on August 6, 2004 with Form 10-Q
(Commission File No. 1-1169), and is incorporated herein
by reference. Each differs only as to name and date
executed.
(10.16) Amended form of Excess Benefits Agreement entered into with the
President & Chief Executive Officer and Senior Vice President -
Technology was filed on August 6, 2004 with Form 10-Q
(Commission File No. 1-1169), and is incorporated herein by
reference.
(10.17) The Amended and Restated Supplemental Pension Plan of
The Timken Company as adopted March 16, 1998 was filed
on March 20, 1998 with Form 10-K (Commission File No.
1-1169), and is incorporated herein by reference.
(10.18) Amendment to the Amended and Restated Supplemental Pension
Plan of the Timken Company executed on December 29, 1998
was filed on March 30, 1999 with Form 10-K (Commission File
No. 1-1169), and is incorporated herein by reference.
(10.19) The form of The Timken Company Nonqualified Stock Option
Agreement for nontransferable options without dividend credit
as adopted on April 17, 2001 was filed on May 14, 2001 with
Form 10-Q (Commission File No. 1-1169), and is incorporated
herein by reference.
(10.20) The form of The Timken Company Nonqualified Stock Option
Agreement for transferable options (Officers) as adopted on
April 16, 2002 was filed on May 14, 2002 with Form 10-Q
(Commission File No. 1-1169), and is incorporated herein by
reference.
(10.21) The form of The Timken Company Nonqualified Stock Option
Agreement for special award options (performance vesting) as
adopted on April 18, 2000 was filed on May 12, 2000 with Form
10-Q (Commission File No. 1-1169), and is incorporated herein by
reference.
(10.22) The form of Non-Qualified Stock Option Agreement for Officers
adopted on January 31, 2005 was filed on February 4, 2005 as
an exhibit to Form 8-K (Commission File No. 1-1169), and is
incorporated herein by reference.
(10.23) The form of The Timken Company Performance Share Agreement
entered into with W. R. Timken, Jr., was filed on March 20,
1998 with Form 10-K (Commission File No. 1-1169), and is
incorporated herein by reference.
24
Listing of Exhibits (cont.)
___________________________
Management Contracts and Compensation Plans (cont.)
___________________________________________________
(10.24) The Timken Company Senior Executive Management Performance
Plan effective January 1, 1999, and approved by shareholders
April 20, 1999 was filed as Appendix A to Proxy Statement
filed on February 28, 1999 (Commission File No. 1-1169), and
is incorporated herein by reference.
(10.25) The Timken Company Nonqualified Stock Option Agreement entered
into with James W. Griffith and adopted on December 16, 1999
was filed on March 29, 2000 with Form 10-K (Commission File
No. 1-1169), and is incorporated herein by reference.
(10.26) The Timken Company Promissory Note entered into with James W.
Griffith and dated December 17, 1999 was filed on March 29,
2000 with Form 10-K (Commission File No. 1-1169), and is
incorporated herein by reference.
(10.27) The Timken Company Director Deferred Compensation Plan
effective as of February 4, 2000 was filed on May 12, 2000 with
Form 10-Q (Commission File No. 1-1169), and is incorporated
herein by reference.
(10.28) The form of The Timken Company Deferred Shares Agreement as
adopted on April 18, 2000 was filed on May 12, 2000 with Form
10-Q (Commission File No. 1-1169), and is incorporated herein
by reference.
(10.29) The amended form of The Timken Company Deferred Shares Agreement
was filed on August 6, 2004 with Form 10-Q (Commission File
No. 1-1169), and is incorporated herein by reference.
(10.30) The form of The Timken Company Restricted Share Agreement as
adopted on April 16, 2002 was filed on May 14, 2002 with Form
10-Q (Commission File No. 1-1169), and is incorporated herein by
reference
(10.31) The form of The Timken Company Restricted Share Agreement as
adopted on January 31, 2005 was filed on February 4, 2005 as an
exhibit to Form 8-K (Commission File No. 1-1169), and is
incorporated herein by reference.
(10.32) The form of The Timken Company Performance Unit Agreement as
adopted on April 16, 2002 was filed on May 14, 2002 with Form
10-Q (Commission File No. 1-1169), and is incorporated herein
by reference.
(10.33) The form of The Timken Company Performance Unit Agreement as
adopted on January 31, 2005 was filed on February 4, 2005 as
an exhibit to Form 8-K (Commission File No. 1-1169), and is
incorporated herein by reference.
25
Listing of Exhibits (cont.) ___________________________
Management Contracts and Compensation Plans (cont.)
___________________________________________________
(10.34) The form of The Timken Company Restricted Share Agreement for
Non-Employee Directors as adopted on January 31, 2005.
(10.35) The form of The Timken Company Non-Qualified Stock Option
Agreement for Non-Employee Directors as adopted on
January 31, 2005.
(10.36) Restricted Shares Agreement entered into with Glenn A.
Eisenberg was filed on March 28, 2002 with Form 10-K
(Commission File No. 1-1169), and is incorporated herein
by reference.
(10.37) Executive Severance Agreement entered into with Glenn A.
Eisenberg was filed on March 27, 2003 with Form 10-K
(Commission File No. 1-1169), and is incorporated herein
by reference.
(10.38) The form of The Timken Company 1996 Deferred Compensation
Plan Election Agreement as adopted on December 17, 2003
was filed on March 3, 2004 with Form 10-K (Commission File
No. 1-1169), and is incorporated herein by reference.
(10.39) The form of Associate Election Agreement under the 1996
Deferred Compensation Plan was filed on February 4, 2005 as an
exhibit to Form 8-K (Commission File No. 1-1169), and is
incorporated herein by reference.
(10.40) The form of The Timken Company 1996 Deferred Compensation Plan
Election Agreement for Deferral of Restricted Shares was filed
on August 13, 2002 with Form 10-Q (Commission File No. 1-1169),
and is incorporated herein by reference.
(10.41) The form of The Timken Company Director Deferred Compensation
Plan Election Agreement was filed on May 15, 2003 with Form
10-Q (Commission File Number 1-1169), and is incorporated
herein by reference. Each differs only as to name and date
executed.
(10.42) The form of Non-employee Director Election Agreement under the
1996 Deferred Compensation Plan was filed on February 4, 2005 as
an exhibit to Form 8-K (Commission File No. 1-1169), and is
incorporated herein by reference.
(10.43) Non-Executive Chairman Agreement entered into with
W. R. Timken, Jr. was filed on March 3, 2004 with Form 10-K
(Commission File No. 1-1169), and is incorporated herein by
reference.
(12) Computation of Ratio of Earnings to Fixed Charges.
26
Listing of Exhibits (cont.) ___________________________
(13) Annual Report to Shareholders for the year ended December 31,
2004 (only to the extent expressly incorporated herein by
reference).
(21) A list of subsidiaries of the registrant.
(23) Consent of Independent Registered Public Accounting Firm.
(24) Power of Attorney.
(31.1) Principal Executive Officer's Certifications pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2) Principal Financial Officer's Certifications pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(32) Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE TIMKEN COMPANY
By /s/ James W. Griffith By /s/ Glenn A. Eisenberg
________________________________ ________________________________
James W. Griffith Glenn A. Eisenberg
Chief Executive Officer and Executive Vice President - Finance
Director and Administration (Principal
Financial Officer)
Date March 15, 2005 Date March 15, 2005
________________________________ _______________________________
By /s/ Sallie B. Bailey
_________________________________
Sallie B. Bailey
Senior Vice President - Finance
(Principal Accounting Officer)
Date March 15, 2005
_______________________________
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /s/ Phillip R. Cox* By /s/ Frank C. Sullivan*
______________________________ _______________________________
Phillip R. Cox Director Frank C. Sullivan Director
Date March 15, 2005 Date March 15, 2005
By /s/ Jerry J. Jasinowski* By /s/ John M. Timken, Jr.*
______________________________ _______________________________
Jerry J. Jasinowski Director John M. Timken, Jr. Director
Date March 15, 2005 Date March 15, 2005
By /s/ John A. Luke, Jr.* By /s/ Ward J. Timken*
______________________________ _______________________________
John A. Luke, Jr. Director Ward J. Timken Director
Date March 15, 2005 Date March 15, 2005
By /s/ Robert W. Mahoney* By /s/ Ward J. Timken, Jr.*
______________________________ _______________________________
Robert W. Mahoney Director Ward J. Timken, Jr. Director
Date March 15, 2005 Date March 15, 2005
By /s/ Jay A. Precourt* By /s/ W. R. Timken, Jr.*
______________________________ _______________________________
Jay A. Precourt Director W. R. Timken, Jr. Director
Date March 15, 2005 Date March 15, 2005
By /s/ Joseph W. Ralston* By /s/ Joseph F. Toot, Jr.*
______________________________ _______________________________
Joseph W. Ralston Director Joseph F. Toot, Jr. Director
Date March 15, 2005 Date March 15, 2005
By /s/ Jacqueline F. Woods*
_______________________________
Jacqueline F. Woods Director
Date March 15, 2005
* By /s/ Glenn A. Eisenberg
___________________________________
Glenn A. Eisenberg, attorney-in-fact
By authority of Power of Attorney
filed as Exhibit 24 hereto
Date March 15, 2005
ANNUAL REPORT ON FORM 10-K
ITEM 15(a)(1) AND (2), (c) AND (d)
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 2004
THE TIMKEN COMPANY
CANTON, OHIO
FORM 10-K-ITEM 15(a)(1) AND (2)
THE TIMKEN COMPANY AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of The Timken Company and subsidiaries, included in the annual report of the registrant to its shareholders for the year ended December 31, 2004, are incorporated by reference in Item 8:
Consolidated statements of income-Years ended December 31, 2004, 2003 and 2002
Consolidated balance sheets-December 31, 2004 and 2003
Consolidated statements of cash flows-Years ended December 31, 2004, 2003 and 2002
Consolidated statements of shareholders' equity-Years ended December 31, 2004, 2003 and 2002
Notes to consolidated financial statements-December 31, 2004
The consolidated financial statement Schedule II-Valuation and qualifying accounts of The Timken Company and subsidiaries is included in Item 15(d).
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
Report of Independent Registered Public Accounting Firm
To The Board of Directors and Shareholders The Timken Company
We have audited management's assessment, included in the accompanying Report of Management on Internal Control Over Financial Reporting, that The Timken Company maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Timken Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that The Timken Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, The Timken Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Timken Company as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2004 of The Timken Company and our report dated February 28, 2005 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio February 28, 2005
Report of Independent Registered Public Accounting Firm
To The Board of Directors and Shareholders The Timken Company
We have audited the accompanying consolidated balance sheets of The Timken Company and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Timken Company and subsidiaries at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 8 to the consolidated financial statements, "Goodwill and Other Intangible Assets," the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" effective January 1, 2002.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of The Timken Company's internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2005 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio February 28, 2005
II--VALUATION AND QUALIFYING ACCOUNTS
THE TIMKEN COMPANY AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E
Additions
Balance at Charged to Charged to Other
Beginning of Costs and Accounts-- Deductions-- Balance at End
Description Period Expenses Describe Describe of Period
(Thousands of dollars)
EXHIBIT 4.1
LETTER AMENDMENT
Dated as of September 3, 2004
To the banks, financial institutions and other institutional lenders (collectively, the "Lenders") parties to the Credit Agreement referred to below and to Bank of America, N.A. and Keybank National Association, as co-administrative agents (the "Agents") for the Lenders
Ladies and Gentlemen:
We refer to the Credit Agreement dated as of December 31, 2002 (as
amended, supplemented or otherwise modified through the date hereof, the
"Credit Agreement") among the undersigned and you and the other Lenders party
thereto from time to time. Capitalized terms not otherwise defined in this
Letter Amendment have the same meanings as specified in the Credit Agreement.
It is hereby agreed by you and us as follows:
The Credit Agreement is, effective as of the date of this Letter
Amendment, hereby amended as follows:
(a) Section 1.01 is amended by amending the definition of
"Subsidiary" to add the following proviso at the end of the first sentence
thereof:
"provided, that notwithstanding the foregoing, PEL Technologies,
L.L.C. shall not be a Subsidiary hereunder"
(b) Section 2.05(b) is amended by amending and restating the first
proviso set forth therein to read in full as follows:
"provided, however, that the Borrower shall be required to prepay
Revolving Credit Loans with the Net Cash Proceeds of any Disposition
of any property or assets permitted by Sections 7.05(f), (i) and
(j) only to the extent that the aggregate Net Cash Proceeds from all
such Dispositions exceeds $270,000,000;"
This Letter Amendment shall become effective as of the date first
above written when, and only when the Agents shall have received counterparts of
this Letter Amendment executed by the undersigned and the Required Lenders or,
as to any of the Lenders, advice satisfactory to the Agents that such Lender has
executed this Letter Amendment, and the consent attached hereto executed by the
Guarantors. This Letter Amendment is subject to the provisions of Section 10.01
of the Credit Agreement.
On and after the effectiveness of this Letter Amendment, each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or
words of like import referring to the Credit
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Agreement, and each reference in the Notes and each of the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Letter Amendment.
The Credit Agreement, the Notes and each of the other Loan Documents,
as specifically amended by this Letter Amendment, are and shall continue to be
in full force and effect and are hereby in all respects ratified and confirmed.
The execution, delivery and effectiveness of this Letter Amendment shall not,
except as expressly provided herein, operate as a waiver of any right, power or
remedy of any Lender or the Agents under any of the Loan Documents, nor
constitute a waiver of any provision of any of the Loan Documents.
If you agree to the terms and provisions hereof, please evidence such
agreement by executing and returning (i) one counterpart of this Letter
Amendment by fax to Jessica Miller, Shearman & Sterling (telephone 212-848-7631,
fax 646-848-7631) no later than noon on Tuesday, August 31, 2004 and (ii) at
least three counterparts of this Letter Amendment to Jessica Miller, Shearman &
Sterling, 599 Lexington Avenue, New York, New York at your earliest convenience.
This Letter Amendment may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart
of a signature page to this Letter Amendment by telecopier shall be effective as
delivery of a manually executed counterpart of this Letter Amendment.
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This Letter Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
Very truly yours,
THE TIMKEN COMPANY
By /s/Sallie B. Bailey
Title: Senior Vice President-
Finance and Corporate Controller
Agreed as of the date first above written:
KEYBANK NATIONAL ASSOCIATION, as Co-Administrative Agent and as Lender
By /s/Marianne T. Meil Title: Vice President
BANK OF AMERICA, N.A., as Co-Administrative Agent and as Lender
By /s/Thomas R. Durham Title: Managing Director
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Agreed as of the date first above written:
_________________________________ The Bank of New York
By /s/Kenneth R. McDonnell Title: Vice President
CONSENT
Dated as of September 3, 2004
Each of the undersigned, as Guarantors under the Subsidiary Guaranty
dated as of December 31, 2002, as supplemented by the Subsidiary Guaranty
Supplements dated February 18, 2003 (collectively, the "Guaranty") in favor of
the Agents and the Lenders party to the Credit Agreement referred to in the
foregoing Letter Amendment, hereby consents to such Letter Amendment and hereby
confirms and agrees that notwithstanding the effectiveness of such Letter
Amendment, the Guaranty is, and shall continue to be, in full force and effect
and is hereby ratified and confirmed in all respects, except that, on and after
the effectiveness of such Letter Amendment, each reference in the Guaranty to
the "Credit Agreement", "thereunder", "thereof" or words of like import shall
mean and be a reference to the Credit Agreement, as amended by such Letter
Amendment.
EDC, INC.
By /s/Scott A. Scherff
Title: Secretary
HANDPIECE HEADQUARTERS CORPORATION
By /s/Scott A. Scherff
Title: Assistant Secretary
KILIAN HOLDINGS, INC.
By /s/Scott A. Scherff
Title: Secretary
KILIAN MANUFACTURING CORPORATION
By /s/Scott A. Scherff
Title: Secretary
LATROBE STEEL COMPANY
By /s/Scott A. Scherff
Title: Assistant Secretary
MPB CORPORATION
By /s/Scott A. Scherff
Title: Assistant Secretary
MPB EXPORT CORPORATION
By /s/Scott A. Scherff
Title: Assistant Secretary
OH&R SPECIAL STEELS COMPANY
By /s/Scott A. Scherff
Title: Secretary
RAIL BEARING SERVICE CORPORATION
By /s/Scott A. Scherff
Title: Assistant Secretary
TIMKEN COMMUNICATIONS COMPANY
By /s/Scott A. Scherff
Title: Secretary
THE TIMKEN CORPORATION
By /s/Scott A. Scherff
Title: Corporate Secretary and
Assistant General Counsel
TIMKEN INDUSTRIAL SERVICES, LLC
By /s/Scott A. Scherff
Title: Secretary
TIMKEN SERVICE AND SALES COMPANY
By /s/Scott A. Scherff
Title: Secretary
TIMKEN US CORPORATION
(F/K/A THE TORRINGTON COMPANY)
By /s/Scott A. Scherff
Title: Corporate Secretary and
Assistant General Counsel
C:\\\\Basinski\Timken Corp\2005\NYDOCS03-737734-Letter Amend to Credit Agr- conformed.doc
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Agreed as of the date first above written:
THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH
By /s/Shinichiro Munechika Title: Deputy General Manager
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Agreed as of the date first above written:
Branch Banking and Trust Co.
By /s/ Title: VP
4
Agreed as of the date first above written:
_________________________________ CIBC Inc.
By /s/George Knight
Title: Managing Director
CIBC World Markets Corp. as Agent
4
Agreed as of the date first above written:
Citizens Bank of Pennsylvania
By /s/Debra L. McAllonis Title: Senior Vice President
4
Agreed as of the date first above written:
Fifth Third Bank
By /s/ Title: Vice President
4
Agreed as of the date first above written:
HSBC Bank USA, National Association
By /s/ Title: Senior Vice President, #9426
4
Agreed as of the date first above written:
Mellon Bank, N.A.
By /s/ Title: Vice President
4
Agreed as of the date first above written:
Merrill Lynch Capital Corporation
By /s/ Title: Director
4
Agreed as of the date first above written:
Morgan Stanley Bank
By /s/Daniel Twenge Title: Vice President
4
Agreed as of the date first above written:
THE NORTHERN TRUST COMPANY
By /s/Thomas E. Bernhardt Title: Vice President
4
Agreed as of the date first above written:
SANPAOLO IMI SpA
By /s/Carlo Persico Title: CEO for the Americas
By /s/Luca Sacchi
Title: Vice President
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Agreed as of the date first above written:
SOCIETE GENERALE
By /s/Anne Marie Dumortier Title: Vice President
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Agreed as of the date first above written:
SUNTRUST BANK
By /s/William C. Humphries Title: Managing Director
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Agreed as of the date first above written:
UNIZAN BANK NATIONAL ASSOCIATION
By /s/ Title: Vice President
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Agreed as of the date first above written:
U.S. Bank, N.A.
By /s/ Title: Vice President
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Agreed as of the date first above written:
Wachovia Bank, N.A.
By /s/Nathan R. Rantala Title: Vice President
EXHIBIT 10.1
January 1, 2003 (revised January 31, 2005)
THE TIMKEN COMPANY
MANAGEMENT PERFORMANCE PLAN
Purpose
The purpose of The Timken Company (the "Company") Management Performance Plan (the "Plan") is to promote the profitable growth of the Company by:
* Providing rewards for achieving increasing levels of return on capital.
* Recognizing corporate, business unit and individual performance achievement.
* Attracting, motivating and retaining superior executive talent.
Administration
It is the responsibility of senior management of the Company to execute the provisions of the Plan. Based on senior management recommendations, the Compensation Committee (the "Committee") approves financial goals, participation, target bonus awards, actual bonus awards, timing of payment and other actions necessary to the administration of the Plan.
Participation
The participant group includes Company executive officers and other key employees of the Company and its subsidiaries in positions assigned to Grades 7 or higher based on the Company's job evaluation process.
Bonus Opportunity
Each position is assigned a target bonus expressed as a percentage of annual base salary. The targets are based on market data for companies that are similar for compensation purposes, including companies of similar size and similar industries. The targets are reviewed annually by management, and the Committee will approve all target bonuses for officers.
The full target bonus opportunity represents an appropriate bonus award if performance standards are met for Corporate, Business Unit and Individual results.
Bonus funds for the three components-Corporate, Business Unit and Individual- will be developed independently based on performance achievement versus the goal(s) for each component. The actual value of each component can range from 0% to 200% of target based on performance.
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For most participants, the total bonus will be the sum of the amounts for Corporate, Business Unit and Individual performance. In general, the more senior participants will have greater weight placed on corporate results, while other participants will have a greater weight placed on business unit and individual performance results.
The allocations to corporate, business unit and individual performance will be reviewed annually and changes to the allocations will be determined by senior management.
Performance Measures
Corporate/Business Unit Components
The primary Corporate and Business Unit performance measure is Return on Invested Capital, one measure of which is Earnings Before Interest and Taxes (EBIT) divided by Beginning Invested Capital (BIC).
At the beginning of each year, the Committee will specify the EBIT/BIC and other financial or non-financial performance measures to be used to evaluate Corporate and Business Unit performance for the coming year. Potential performance measures include, but are not limited to:
* Cash flow (including free cash flow)
* Continuous improvement
* Cost of capital
* Customer service
* Debt reduction
* Earnings growth (including earnings per share and earnings before
interest and taxes)
* Financial performance exceeding that of peer/competitor companies
* Improvement of shareholder return
* Inventory management
* Net income
* Productivity improvement
* Profit after taxes
* Quality
* Recruitment and development of excellent associates with emphasis on
diversity
* Reduction of fixed costs
* Return on assets
* Return on equity
* Return on invested capital (EBIT/BIC)
* Sales from new products
* Sales growth
* Successful start-up of new facility
* Successful acquisition/divestiture
* Working Capital
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For the Corporate, Business Unit and Individual components of the Plan, the size of the award will be determined by the degree to which targets are achieved for each measure within that component. Awards for corporate performance that falls between threshold, target and maximum will be interpolated.
If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Corporation, the manner in which it conducts business or other events or circumstances render the performance objectives to be unsuitable, the Committee may modify such performance objectives or the related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate.
Individual Component
Individual performance goals will be established for each participant consistent with the Company's performance management process. The participant's supervisor will assess the participant's performance against these goals and make a determination of the amount of bonus to be earned for the individual component of the Plan. While the value of the individual component can range from 0% to 200% of target for a specific individual, the sum of individual award components for all participants must not exceed 100% of the final individual fund.
Award Determination
A participant's bonus award will be determined by adding the value of each of the applicable components (corporate, business unit, individual) once performance is considered. The sum of all participant bonus determinations will equal the Total Fund.
Minimum Performance Requirement
For a payment to be earned for any portion of this Plan, the Company must report a predetermined net profit for the Plan year after taking into account all Plan payments for that year. Once the predetermined profit level is achieved, the Plan will function as outlined. If the predetermined profit level is not achieved, no awards will be paid under the Corporate, Business Unit or Individual component of the Plan.
Bonus Payments
At the end of the year, senior management will determine whether Corporate performance has exceeded the minimum performance requirement for paying bonuses. Senior management will recommend to the Committee the Total Fund based on its assessment of performance achievement at Corporate, Business Unit and individual levels. The Committee may make further adjustments to such management recommendations based on its assessment of financial and non- financial performance.
Awards under the Plan will be paid in cash as soon as practicable after the Committee's determination of the award payments, but in no event later than two and one-half months after the close of the last fiscal year of the Company to which the award relates.
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One hundred percent of awards under the Plan will be included in pension earnings and earnings for the purpose of calculating 401(k) plan benefits. Awards will not be included for purposes of any other employee benefits plans, except long-term disability.
mpplan02revised01-31-2005.doc
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EXHIBIT 10.34
THE TIMKEN COMPANY
Restricted Share Agreement for
Nonemployee Directors
[GRANTEE], Grantee:
The Timken Company (the "Company") pursuant to its Long-Term Incentive
Plan (as Amended and Restated as of February 6, 2004) (the "Plan") has this day
granted to you, the above-named grantee, a total of [NUMBER] Common Shares of
the Company ("Common Shares") subject to the following terms, conditions,
limitations and restrictions:
1. Rights of Grantee. The Common Shares subject to this grant shall
be fully paid and nonassessable and shall be represented by a certificate or
certificates registered in your name and endorsed with an appropriate legend
referring to the restrictions hereinafter set forth. You shall have all the
rights of a shareholder with respect to such shares, including the right to vote
the shares and receive all dividends paid thereon, provided that such shares,
and any additional shares that you may become entitled to receive by virtue of a
share dividend, a merger or reorganization in which the Company is the surviving
corporation or any other change in the capital structure of the Company, shall
be subject to the restrictions hereinafter set forth.
2. Restrictions on Transfer of Common Shares. The Common Shares
subject to this grant may not be assigned, exchanged, pledged, sold, transferred
or otherwise disposed of by you, except to the Company, and shall be subject to
forfeiture as herein provided until five years have elapsed from the date of
this grant, except that (a) 20 percent of such shares shall become freely
transferable and nonforfeitable at the end of each year from and after the date
of this grant and (b) your rights with respect to such shares may be transferred
by will or pursuant to the laws of descent and distribution. Any purported
transfer in violation of the provisions of this paragraph shall be null and
void, and the purported transferee shall obtain no rights with respect to such
shares.
3. Forfeiture of Awards. All of the Common Shares subject to this
grant that are then forfeitable shall be forfeited by you if your service as a
member of the Board of Directors of the Company (a "Director") is terminated
before the fifth anniversary of the date of this grant; provided, however, if
your service as a Director of the Company is terminated before the fifth
anniversary of the date of this grant as a result of your death or disability,
or owing to your removal as a Director without cause, a portion of the shares
covered by this grant that then remain forfeitable shall become freely
transferable and nonforfeitable as follows: that number of shares shall become
freely transferable and nonforfeitable which bears the same ratio to the total
number of shares subject to this grant that then remain forfeitable and would
have become forfeitable at the next anniversary date as the number of full
months from the date of this grant (or, if such service is terminated after the
first anniversary of the date of this grant, then from the date of the latest
anniversary) to the date of termination of such service bears to 12, and the
balance of the shares subject to this grant shall be forfeited to the Company.
4. Retention of Certificates. During the period in which the
restrictions on transfer and risk of forfeiture provided in paragraphs 2 and 3
above are in effect, the certificates representing the Common Shares covered by
this grant shall be retained by the Company, together with the accompanying
stock power signed by you and endorsed in blank.
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CLI-1223277v2
5. Change in Control. Upon any change in control of the Company,
the restrictions on transfer and risk of forfeiture provided in paragraphs 2 and
3 above shall lapse and terminate with respect to all of the Common Shares that
are subject to this grant to which such restriction and risk then remain
applicable. For purposes of this grant, the term "change in control" shall mean
the occurrence of any of the following events:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 30% or more of either: (i) the then-
outstanding Common Shares or (ii) the combined voting power of the
then- outstanding voting securities of the Company entitled to vote
generally in the election of directors ("Voting Shares"); provided,
however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a change in control: (A) any
acquisition directly from the Company, (B) any acquisition by the
Company, (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any Subsidiary, or
(D) any acquisition by any Person pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 5; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason (other than death or
disability) to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the Company in
which such person is named as a nominee for director, without
objection to such nomination) shall be considered as though such
individual were a member of the Incumbent Board, but excluding for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest (within
the meaning of Rule 14a-11 of the Exchange Act) with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following
such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively,
of the Common Shares and Voting Shares immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than 66 2/3% of, respectively, the then-outstanding shares of common
stock and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors, as
the case may be, of the entity resulting from such Business
Combination (including, without limitation, an entity which as a
result of such transaction owns the Company or all or substantially
all of the
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CLI-1223277v2
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions relative to each other as
their ownership, immediately prior to such Business Combination, of
the Common Shares and Voting Shares of the Company, as the case may
be, (ii) no Person (excluding any entity resulting from such Business
Combination or any employee benefit plan (or related trust) sponsored
or maintained by the Company or such entity resulting from such
Business Combination) beneficially owns, directly or indirectly, 30%
or more of, respectively, the then-outstanding shares of common stock
of the entity resulting from such Business Combination, or the
combined voting power of the then-outstanding voting securities of
such corporation except to the extent that such ownership existed
prior to the Business Combination, and (iii) at least a majority of
the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action
of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
6. Severability. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision in any other person or circumstances shall not
be affected, and the provisions so held to be invalid, unenforceable or
otherwise illegal shall be reformed to the extent (and only to the extent)
necessary to make it enforceable, valid and legal.
7. Processing of Information. Information about the Grantee and the
Grantee's participation in the Plan may be collected, recorded and held, used
and disclosed for any purpose related to the administration of the Plan. The
Grantee understands that such processing of this information may need to be
carried out by the Company and its Subsidiaries and by third party
administrators whether such persons are located within the Grantee's country or
elsewhere, including the United States of America. The Grantee consents to the
processing of information relating to the Grantee and the Grantee's
participation in the Plan in any one or more of the ways referred to above.
8. Relation to Plan. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Plan.
Dated this ____ day of ______________________, 200_
THE TIMKEN COMPANY
By:___________________________
Name:
Title:
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CLI-1223277v2
Accepted and agreed to: _________________ Dated:_____________________
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CLI-1223277v2
EXHIBIT 10.35
THE TIMKEN COMPANY
Nonqualified Stock Option Agreement for
Nonemployee Directors
WHEREAS, [NAME] (hereinafter called the "Optionee") is a Non employee
Director (as defined in The Timken Company Long-Term Incentive Plan (the "Plan")
(As Amended and Restated on February 6, 2004) of The Timken Company (hereinafter
called the "Company");
WHEREAS, Section 9 of the Plan authorizes the Company's Board of
Directors (the "Board") to grant options to purchase Common Shares of the
Company to Non employee Directors of the Company, subject to the terms and
conditions of the Plan; and
WHEREAS, the execution of a Nonqualified Stock Option Agreement
substantially in the form hereof has been authorized by a resolution of the
Committee duly adopted on [DATE]; and
NOW, THEREFORE, the Company hereby grants to the Optionee on this ____
day of __________ (the "Date of Grant") an Option (the "Option") pursuant to the
Plan to purchase [NUMBER] Common Shares of the Company at a price of [PRICE] per
share (the "Option Price") which represents the Market Value per Share on the
Date of Grant. The Company agrees to cause certificates for any shares
purchased hereunder to be delivered to the Optionee upon payment of the Option
Price in full, subject to the terms and conditions of the Plan and the terms and
conditions hereinafter set forth.
1. Vesting of Option. (a) Unless terminated as hereinafter
provided, the Option shall be exercisable with respect to all of the Common
Shares covered by the Option after the Optionee continuously serves as a Non-
employee Director of the Company for a period of one (1) year following the Date
of Grant.
(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 a Nonemployee Director of
the Company. For the purposes of this agreement, the term "change in control"
shall mean the occurrence of any of the following events:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 30% or more of either: (A) the
then-outstanding Common Shares or (B) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote
generally in the election of directors ("Voting Shares"); provided,
however, that for purposes of this subsection (i), the following
acquisitions shall not constitute a change in control: (1) any acquisition
directly from the Company, (2) any acquisition by the Company, (3) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, or (4) any acquisition by any
Person pursuant to a transaction which complies with clauses (A), (B) and
(C) of subsection (iii) of this Section 1(b); or
CLI-1223273v3
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason (other than death or
disability) to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the date
hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board (either by a specific vote
or by approval of the proxy statement of the Company in which such person
is named as a nominee for director, without objection to such nomination)
shall be considered as though such individual were a member of the
Incumbent Board, but excluding for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest (within the meaning of Rule 14a-11 of the Exchange Act)
with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of
the Company (a "Business Combination"), in each case, unless, following
such Business Combination, (A) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Common
Shares and Voting Shares immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 66 2/3% of,
respectively, the then-outstanding shares of common stock and the combined
voting power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the entity
resulting from such Business Combination (including, without limitation, an
entity which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or
more subsidiaries) in substantially the same proportions relative to each
other as their ownership, immediately prior to such Business Combination,
of the Common Shares and Voting Shares of the Company, as the case may be,
(B) no Person (excluding any entity resulting from such Business
Combination or any employee benefit plan (or related trust) sponsored or
maintained by the Company or such entity resulting from such Business
Combination) beneficially owns, directly or indirectly, 30% or more of,
respectively, the then-outstanding shares of common stock of the entity
resulting from such Business Combination, or the combined voting power of
the then-outstanding voting securities of such corporation except to the
extent that such ownership existed prior to the Business Combination, and
(C) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or
of the action of the Board, providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(c) Notwithstanding the provisions of Section 1(a) hereof, the
Option shall become immediately exercisable in full if the Optionee should (i)
retire (within the meaning in the Board's General Policies & Procedures), (ii)
die, (iii) become permanently disabled (within the meaning of the Company's
long-term disability plan) while serving as a Nonemployee Director of the
Company, or (iv) otherwise cease to be a Nonemployee Director of the Company
for any reason; provided, however, that this Option shall become immediately
exercisable in full pursuant to Section 1(c)(iv) only if the Optionee shall have
continuously served as a Nonemployee Director for at least six months following
the Date of Grant.
CLI-1223273v3
(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) five years after the date upon which the Optionee ceases to
be a Nonemployee Director of the Company or subsidiary for any reason, except
death;
(b) one year after the date of the Optionee's death; or
(c) ten years after the Date of Grant.
3. Payment of Option Price. The Option 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 Option
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
4 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 Option Price in full.
4. 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 if the exercise 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 unless the Common Shares or other securities
covered by the Option 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.
5. Transferability and Exercisability.
(a) Except as provided in Section 5(b) below, the Option
including any interest in thereof, shall not 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 5(a) above, the Option or any
interest in 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
CLI-1223273v3
delivered to the Company; and provided, further, however, that any such transferee is subject to the same terms and conditions hereunder as the Optionee.
6. Adjustments. The Committee shall make any adjustments in the
Option Price and the number or kind of shares of stock or other securities
covered by the Option 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 6(a) or 6(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.
7. Future Employment with the Company or a Subsidiary. If the
Optionee becomes an employee of the Company or a Subsidiary after the Date of
Grant while remaining a member of the Board, any Option Rights held under the
Plan by the Optionee at the time of commencement of such employment shall not be
affected thereby.
8. 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 without the Optionee's consent.
9. Severability. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision in any other person or circumstances shall not
be affected, and the provisions so held to be invalid, unenforceable or other-
wise illegal shall be reformed to the extent (and only to the extent) necessary
to make it enforceable, valid and legal.
10. Processing of Information. Information about the Optionee and
the Optionee's participation in the Plan may be collected, recorded and held,
used and disclosed for any purpose related to the administration of the Plan.
The Optionee understands that such processing of this information may need to
be carried out by the Company and its Subsidiaries and by third party
administrators whether such persons are located within the Optionee's country or
elsewhere, including the United States of America. The Optionee consents to the
processing of information relating to the Optionee and the Optionee's
participation in the Plan in any one or more of the ways referred to above.
11. Governing Law. This agreement is made under, and shall be
construed in accordance with, the internal substantive laws of the State of
Ohio.
12. Relation to Plan. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Plan.
Dated this ____ day of ______________________, 200_
THE TIMKEN COMPANY
By:___________________________
William R. Burkhart
Sr. Vice President & General
Counsel
Accepted and agreed to: _________________ Dated:_____________________
CLI-1223273v3
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Twelve Months Ended Three Months Ended
Dec. 31 Dec. 31 Dec. 31 Dec. 31
2004 2003 2004 2003
-------- -------- -------- --------
(Thousands of Dollars, except ratio amounts)
Income before income taxes $199,779 $ 60,802 $ 84,821 $ 37,494
Share of undistributed losses from
50%-or-less-owned affiliates,
excluding affiliates with
guaranteed debt 5,462 4,827 1,599 1,995
Amortization of capitalized interest 1,352 2,702 341 591
Interest expense 50,834 48,401 14,893 12,757
Interest portion of rental expense 1,866 1,513 963 588
-------- -------- -------- --------
Earnings $259,293 $118,245 $102,617 $ 53,425
======== ======== ======== ========
Interest $ 51,375 $ 48,401 $ 15,076 $ 12,952
Interest portion of rental expense 1,866 1,513 963 588
Interest expense relating to
guaranteed debt of 50%-or-less-
owned affiliates 106 464 - 106
-------- -------- -------- --------
Fixed Charges $ 53,347 $ 50,378 $ 16,039 $ 13,646
======== ======== ======== ========
Ratio of Earnings to Fixed Charges 4.86 2.35 6.40 3.92
EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 2004
FINANCIAL summary
| 2004 | 2003 | |
|
(Thousands of dollars, except per share data) |
||
|
Net sales
Impairment and restructuring charges Income before income taxes Provision for income taxes Net income Earnings per share Earnings per share – assuming dilution Dividends per share |
$ 4,513,671
13,434 199,779 64,123 $ 135,656 $ 1.51 $ 1.49 $ .52 |
$ 3,788,097
19,154 60,802 24,321 $ 36,481 $ .44 $ .44 $ .52 |
| TIMKEN |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Introduction|
The Timken Company is a leading global manufacturer of highly
The Automotive and Industrial Groups design, manufacture
On February 18, 2003, Timken acquired The Torrington Company
Financial Overview
For 2004, The Timken Company reported net sales of approximately
The company achieved record sales and strong earnings growth,
|
2004, with savings from purchasing synergies, workforce consolidation
The company expects the improvement in industrial demand to
In 2004, the Automotive Group’s net sales increased from 2003
In 2004, the Industrial Group’s net sales increased from 2003
In 2004, the Steel Group’s net sales increased from 2003 due to
|
19
| TIMKEN |
The Statement of Income
2004 compared to 2003|
|
||||
| 2004 | 2003 | $ Change | % Change | |
|
(Dollars in millions, except earnings per share) |
||||
|
Net sales
Net income Earnings per share – diluted Average number of shares – diluted |
$ 4,513.7
$ 135.7 $ 1.49 90,759,571 |
$ 3,788.1
$ 36.5 $ 0.44 83,159,321 |
$ 725.6
$ 99.2 $ 1.05 – |
19.2%
271.8% 238.6% 9.1% |
|
|
||||
|
|
||||
| 2004 | 2003 | $ Change | % Change | |
|
(Dollars in millions, and exclude intersegment sales) |
||||
|
Automotive Group
Industrial Group Steel Group |
$ 1,582.2
1,709.8 1,221.7 |
$ 1,396.1
1,498.8 893.2 |
$ 186.1
211.0 328.5 |
13.3%
14.1% 36.8% |
|
|
||||
| Total Company | $ 4,513.7 | $ 3,788.1 | $ 725.6 | 19.2% |
|
|
||||
|
The Automotive Group’s net sales benefited from increased light
|
Automotive and Industrial Groups, a portion of the net sales
|
|
|
||||
| 2004 | 2003 | $ Change | % Change | |
|
(Dollars in Millions) |
||||
|
Gross profit
Gross profit % to net sales Integration and special charges included in cost of products sold |
$ 838.6
18.6% $ 4.5 |
$ 639.1
16.9% $ 3.4 |
$ 199.5
– $ 1.1 |
31.2%
1.7% 32.4% |
|
|
||||
|
Gross profit for 2003 included a reclassification of $7.5 million from
|
In 2004, integration charges related to the continued integration of
|
20
| TIMKEN |
|
|
||||
| 2004 | 2003 | $ Change | % Change | |
|
(Dollars in Millions) |
||||
|
Selling, administrative and general expenses
Selling, administrative and general expenses % to net sales Integration charges included in selling, administrative and general expenses |
$ 587.9
|
$ 521.7
13.8% $ 30.5 |
$ 66.2
– $ (8.0) |
12.7%
(0.8)% (26.2)% |
|
|
||||
|
|
|||
| 2004 | 2003 | $ Change | |
|
(Dollars in millions) |
|||
|
Impairment charges
Severance and related benefit costs Exit costs |
$ 8.5
|
$ 12.5
2.9 3.7 |
$ (4.0)
1.3 (3.0) |
|
|
|||
| Total | $ 13.4 | $ 19.1 | $ (5.7) |
|
|
|||
21
| TIMKEN |
|
|
|||
| 2004 | 2003 | $ Change | |
|
(Dollars in millions) |
|||
|
Interest expense
Interest income |
$ 50.8
|
$ 48.4
$ 1.1 |
$ 2.4
$ 0.3 |
|
|
|||
|
|
|||
| 2004 | 2003 | $ Change | |
|
(Dollars in millions) |
|||
| CDSOA receipts, net of expenses | $ 44.4 | $ 65.6 | $ (21.2) |
|
|
|
|
|
|
Impairment charge – equity investment
Gain on divestitures of non–strategic assets Loss on dissolution of subsidiary Other |
$ –
$ 16.4 $ (16.2) $ (32.6) |
$ (45.7)
$ 2.0 $ – $ (12.0) |
$ 45.7
$ 14.4 $ (16.2) $ (20.6) |
|
|
|||
| Other expense – net | $ (32.4) | $ (55.7) | $ 23.3 |
|
|
|||
22
| TIMKEN |
|
|
||||
| 2004 | 2003 | $ Change | % Change | |
|
(Dollars in millions) |
||||
|
Income tax expense
Effective tax rate |
$ 64.1
|
$ 24.3
40.0% |
$ 39.8
– |
163.8 %
(7.9)% |
|
|
||||
|
The primary measurement used by management to measure the
financial performance of each Group is adjusted EBIT (earnings before interest and taxes, excluding the effect of amounts related to certain items that management considers not representative of ongoing operations such as impairment and restructuring, integra– tion costs, one–time gains or losses on sales of assets, allocated |
receipts received or payments made under the CDSOA, loss on the
|
|
|
||||
| 2004 | 2003 | $ Change | % Change | |
|
(Dollars in millions) |
||||
|
Net sales, including intersegment sales
Adjusted EBIT Adjusted EBIT margin |
$ 1,582.2
|
$ 1,396.1
$ 15.7 1.1% |
$ 186.1
$ 0.2 – |
13.3 %
1.3 % (0.1)% |
|
|
||||
23
| TIMKEN |
|
|
||||
| 2004 | 2003 | $ Change | % Change | |
|
(Dollars in millions) |
||||
|
Net sales, including intersegment sales
Adjusted EBIT Adjusted EBIT margin |
$ 1,711.2
|
$ 1,499.7
$ 128.0 8.5% |
$ 211.5
$ 49.9 – |
14.1%
39.0% 1.9% |
|
|
||||
|
|
||||
| 2004 | 2003 | $ Change | % Change | |
|
(Dollars in millions) |
||||
|
Net sales, including intersegment sales
Adjusted EBIT (loss) Adjusted EBIT (loss) margin |
$ 1,383.6
|
$ 1,026.5
$ (6.0) (0.6)% |
$ 357.1
$ 60.8 – |
34.8%
– – |
|
|
||||
|
The Steel Group’s products include steels of intermediate alloy, low
alloy and carbon grades in both solid and tubular sections, as well as custom–made steel products, for both industrial and automotive applications, including bearings. The increase in the Steel Group’s net sales in 2004 resulted primarily from surcharges and price increases, which were driven by higher raw material costs, as well as increased volume. Demand increased across all steel customer segments, led by strong industrial market growth. The strongest customer segments for the Steel Group were oil production, aerospace and general industrial customers. The Steel Group’s profitability improved significantly in 2004 due to volume, raw material surcharges and price increases. Raw material costs, especially scrap steel prices, increased over 2003. The company |
recovered these cost increases primarily through surcharges. The
During the second quarter of 2004, the company’s Faircrest steel
|
24
| TIMKEN |
2003 compared to 2002
|
|
||||
| 2003 | 2002 | $ Change | % Change | |
|
(Dollars in millions, except earnings per share) |
||||
|
Net sales
Income before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle, net of tax Net income Earnings per share before cumulative effect of change in accounting principle – diluted Cumulative effect of change in accounting principle, net of tax Earnings per share – diluted Average number of shares – diluted |
$ 3,788.1
|
$ 2,550.1
$ 51.4 $ (12.7) $ 38.7 $ 0.83 $ (0.21) $ 0.62 61,635,339 |
$ 1,238.0
$ (14.9) $ 12.7 $ (2.2) $ (0.39) $ 0.21 $ (0.18) – |
48.6 %
(29.1)% – (5.9)% (47.0)% – (29.0)% 34.9 % |
|
|
||||
|
|
||||
| 2003 | 2002 | $ Change | % Change | |
|
(Dollars in millions, and exclude intersegment sales) |
||||
|
Automotive Group
Industrial Group Steel Group |
$ 1,396.1
|
$ 752.8
971.5 825.8 |
$ 643.3
527.3 67.4 |
85.5%
54.3% 8.2% |
|
|
||||
| Total company | $ 3,788.1 | $ 2,550.1 | $ 1,238.0 | 48.6% |
|
|
||||
|
|
||||
| 2003 | 2002 | $ Change | % Change | |
|
(Dollars in millions) |
||||
|
Gross profit
Gross profit % to net sales Reorganization and integration charges included in cost of products sold |
$ 639.1
|
$ 469.6
18.4% $ 8.5 |
$ 169.5
– $ (5.1) |
36.1%
(1.5)% (60.0)% |
|
|
||||
|
Gross profit increased in 2003, primarily due to the incremental
sales volume from the Torrington acquisition. Gross profit for the Automotive Group benefited in 2003 from the additional sales volume, resulting from the Torrington acquisition; however, it was negatively impacted by additional costs associated with the restruc–turing of its manufacturing plants. During the last six months of 2003, the Automotive Group reduced employment by more than 750 associates. This action, along with others, improved the Automotive Group’s productivity in the fourth quarter of 2003. In addition to the increased sales volume from the Torrington acquisi– tion, gross profit for the Industrial Group benefited in 2003 from improved performance in Europe that was largely due to favorable foreign currency exchange, exiting of low–margin businesses and |
manufacturing cost reductions. Steel Group gross profit in 2003
In 2003, reorganization and integration charges included in cost of
|
25
| TIMKEN |
|
|
||||
| 2003 | 2002 | $ Change | % Change | |
|
(Dollars in millions) |
||||
|
Selling, administrative and general expenses
Selling, administrative and general expenses % to net sales Reorganization and integration charges included in selling, administrative and general expenses |
$ 521.7
|
$ 358.9
14.1% $ 9.9 |
$ 162.8
– $ 20.6 |
45.4 %
(0.3)% 208.0 % |
|
|
||||
|
Selling, administrative and general expenses in 2003 increased
primarily due to the Torrington acquisition, costs incurred in the integration of Torrington and currency exchange rates. Even though the amount of selling, administrative and general expenses in 2003 increased from 2002 as a result of higher net sales, selling, administrative and general expenses as a percentage of net sales decreased to 13.8% in 2003 from 14.1% in 2002. |
In 2003, reorganization and integration charges included in selling,
|
|
|
|||
| 2003 | 2002 | $ Change | |
|
(Dollars in millions) |
|||
|
Impairment charges
Severance and related benefit costs Exit costs |
$ 12.5
|
$ 17.9
10.2 4.0 |
$ (5.4)
(7.3) (0.3) |
|
|
|||
| Total | $ 19.1 | $ 32.1 | $ (13.0) |
|
|
|||
|
|
|||
| 2003 | 2002 | $ Change | |
|
(Dollars in millions) |
|||
|
Interest expense
Interest income |
$ 48.4
|
$ 31.5
$ 1.7 |
$ 16.9
$ (0.6) |
|
|
|||
26
| TIMKEN |
|
|
|||
| 2003 | 2002 | $ Change | |
|
(Dollars in millions) |
|||
|
CDSOA receipts, net of expenses
Impairment charge – equity investment Other expense, net |
$ 65.6
|
$ 50.2
$ – $ (13.4) |
$ 15.4
$ (45.7) $ 3.4 |
|
|
|||
|
CDSOA receipts are reported net of applicable expenses. In addi–
During 2000, the company’s Steel Group invested in PEL to
|
investment in PEL was impaired due to the following indicators
In 2003, “other expense, net” included losses from other equity
|
|
The effective tax rate was 40.0% for the years ended December
|
reduce overall tax expense, additional taxes on foreign income, and
|
27
| TIMKEN |
Business Segments:
Automotive Group:|
|
||||
| 2003 | 2002 | $ Change | % Change | |
|
(Dollars in millions) |
||||
|
Net sales, including intersegment sales
Adjusted EBIT Adjusted EBIT margin |
$ 1,396.1
|
$ 752.8
$ 11.1 1.5% |
$ 643.3
$ 4.6 – |
85.5 %
41.4 % (0.4)% |
|
|
||||
|
The Automotive Group includes sales of bearings and other products
|
2003 reflected higher costs due to issues in the execution of the
|
|
|
||||
| 2003 | 2002 | $ Change | % Change | |
|
(Dollars in millions) |
||||
|
Net sales, including intersegment sales
Adjusted EBIT Adjusted EBIT margin |
$ 1,499.7
|
$ 971.5
$ 73.0 7.5% |
$ 528.2
$ 55.0 – |
54.4%
75.2% 1.0% |
|
|
||||
28
| TIMKEN |
|
|
||||
| 2003 | 2002 | $ Change | % Change | |
|
(Dollars in millions) |
||||
|
Net sales, including intersegment sales
Adjusted EBIT (loss) Adjusted EBIT (loss) margin |
$ 1,026.5
|
$ 981.3
$ 32.5 3.3% |
$ 45.2
$ (38.5) – |
4.6%
– – |
|
|
||||
|
The increase in the Steel Group’s net sales was primarily the result
|
impacted by extremely high costs for scrap steel, natural gas and
|
The Balance Sheet
Total assets as shown on the Consolidated Balance Sheet at December 31, 2004 increased by $248.7 million from
December 31, 2003.
This increase was due primarily to increased working capital required to support higher sales.
|
|
||||
| 12/31/04 | 12/31/03 | $ Change | % Change | |
|
(Dollars in millions) |
||||
|
Cash and cash equivalents
Accounts receivable, net Deferred income taxes Inventories |
$ 51.0
|
$ 28.6
602.3 50.3 695.9 |
$ 22.4
115.1 39.8 178.9 |
78.3%
19.1% 79.1% 25.7% |
|
|
||||
|
Total current assets
|
$ 1,733.3
|
$ 1,377.1
|
$ 356.2
|
25.9% |
|
|
||||
|
|
||||
| 12/31/04 | 12/31/03 | $ Change | % Change | |
|
(Dollars in millions) |
||||
|
Property, plant and equipment – cost
Less: allowances for depreciation |
$ 3,622.2
|
$ 3,503.8
(1,893.0) |
$ 118.4
(146.2) |
3.4 %
(7.7)% |
|
|
||||
|
Property, plant and equipment – net
|
$ 1,583.0
|
$ 1,610.8
|
$ (27.8)
|
(1.7)% |
|
|
||||
29
| TIMKEN |
|
|
||||
| 12/31/04 | 12/31/03 | $ Change | % Change | |
|
(Dollars in millions) |
||||
|
Goodwill
Other intangible assets Intangible pension assets Miscellaneous receivables and other assets Deferred income taxes Deferred charges and prepaid expenses |
$ 189.3
|
$ 173.1
91.5 106.5 130.1 148.8 51.8 |
$ 16.2
(5.5) (13.6) 8.4 (72.0) (13.0) |
9.4 %
(6.0)% (12.8)% 6.5 % (48.4)% (25.1)% |
|
|
||||
| Total other assets | $ 622.3 | $ 701.8 | $ (79.5) | (11.3)% |
|
|
||||
|
|
||||
| 12/31/04 | 12/31/03 | $ Change | % Change | |
|
(Dollars in millions) |
||||
|
Short–term debt
Accounts payable and other liabilities Salaries, wages and benefits Income taxes Current portion of long–term debt |
$ 157.4
|
$ 114.5
425.2 376.6 78.5 6.7 |
$ 42.9
95.0 (33.2) (59.5) (5.4) |
37.5 %
22.3 % (8.8)% (75.8)% (80.6)% |
|
|
||||
| Total current liabilities | $ 1,041.3 | $ 1,001.5 | $ 39.8 | 4.0% |
|
|
||||
|
|
||||
| 12/31/04 | 12/31/03 | $ Change | % Change | |
|
(Dollars in millions) |
||||
|
Long–term debt
Accrued pension cost Accrued postretirement benefits cost Other non–current liabilities |
$ 620.6
|
$ 613.4
477.5 477.0 30.8 |
$ 7.2
(8.9) 13.4 16.9 |
1.2 %
(1.9)% 2.8 % 54.9 % |
|
|
||||
| Total non–current liabilities | $ 1,627.3 | $ 1,598.7 | $ 28.6 | 1.8% |
|
|
||||
|
The decrease in accrued pension cost in 2004 was due primarily to plan contributions, partially offset by current year accruals for pen–
|
Refer to Note 13 – Retirement and Postretirement Benefit Plans
|
30
| TIMKEN |
|
|
||||
| 12/31/04 | 12/31/03 | $ Change | % Change | |
|
(Dollars in millions) |
||||
|
Common stock
Earnings invested in the business Accumulated other comprehensive loss Treasury shares |
$ 711.8
|
$ 689.3
758.9 (358.4) (0.2) |
$ 22.5
88.8 68.9 – |
3.3%
11.7% 19.2% – |
|
|
||||
| Total shareholders’ equity | $ 1,269.8 | $ 1,089.6 | $ 180.2 | 16.5% |
|
|
||||
|
Earnings invested in the business were increased in 2004 by net
|
cumulative foreign currency translation adjustment loss, resulting
|
|
|
|||
| 2004 | 2003 | $ Change | |
|
(Dollars in millions) |
|||
|
Net cash provided by operating activities
Net cash (used) by investing activities Net cash (used) provided by financing activities Effect of exchange rate changes on cash Increase (decrease) in cash and cash equivalents |
$ 139.1
|
$ 204.9
$ (665.0) $ 401.9 $ 4.8 $ (53.4) |
$ (65.8)
$ 556.4 $ (422.3) $ 7.4 |
|
|
|||
31
| TIMKEN |
|
|
||
| 12/31/04 | 12/31/03 | |
|
(Dollars in millions) |
||
|
Net debt
Shareholders’ equity |
$ 728.4
|
$ 706.0
1,089.6 |
|
|
||
|
Net debt + shareholders’ equity (capital)
|
$ 1,998.2
|
$ 1,795.6 |
|
|
||
| Ratio of net debt to capital | 36.5% | 39.3% |
|
|
||
32
| TIMKEN |
The company’s contractual debt obligations and contractual commitments outstanding as of December 31, 2004 are as follows:
Payments due by Period
|
|
|||||
|
Contractual Obligations
|
Total |
Less than
1 Year |
1–3 Years | 3–5 Years |
More than
5 Years |
|
(Dollars in millions) |
|||||
|
Long–term debt
Short–term debt Operating leases Supply agreement |
$ 621.9
|
$ 1.3
157.4 19.3 5.2 |
$ 101.2
– 33.9 2.3 |
$ 27.3
– 23.3 – |
$ 492.1
– 33.2 – |
|
|
|||||
| Total | $896.5 | $ 183.2 | $ 137.4 | $ 50.6 | $ 525.3 |
|
|
|||||
33
| TIMKEN |
34
| TIMKEN |
35
| TIMKEN |
36
| TIMKEN |
37
| TIMKEN |
| Year Ended December 31 | |||
|
|
|||
|
|
2004 | 2003 | 2002 |
|
(Thousands of dollars, except per share data) |
|||
|
Net sales
Cost of products sold |
$ 4,513,671
3,675,086 |
$ 3,788,097
3,148,979 |
$ 2,550,075
2,080,498 |
|
|
|||
| Gross Profit | 838,585 | 639,118 |
469,577
|
|
Selling, administrative and general expenses
Impairment and restructuring charges |
587,923
13,434 |
521,717
19,154 |
358,866
32,143 |
|
|
|||
| Operating Income | 237,228 | 98,247 |
78,568
|
|
Interest expense
Interest income Receipt of Continued Dumping & Subsidy Offset Act (CDSOA) payment Other expense – net |
(50,834)
1,397 44,429 (32,441) |
(48,401)
1,123 65,559 (55,726) |
(31,540)
1,676 50,202 (13,388) |
|
|
|||
|
Income Before Income Taxes and Cumulative Effect
of Change in Accounting Principle |
199,779 |
60,802 |
85,518 |
| Provision for income taxes | 64,123 | 24,321 | 34,067 |
|
|
|||
|
Income Before Cumulative Effect of Change
in Accounting Principle |
$ 135,656 |
$ 36,481 |
$ 51,451 |
|
|
|||
|
Cumulative effect of change in accounting principle
(net of income tax benefit of $7,786) |
– |
– |
(12,702) |
|
|
|||
| Net Income | $ 135,656 | $ 36,481 |
$ 38,749
|
|
Earnings Per Share:
|
$ 1.51 – |
$ 0.44 – |
$ 0.84 (0.21) |
|
|
|||
| Earnings Per Share | $ 1.51 | $ 0.44 |
$ 0.63
|
|
Earnings Per Share–Assuming Dilution:
Income before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle |
$ 1.49 – |
$ 0.44 – |
$ 0.83 (0.21) |
|
|
|||
| Earnings Per Share–Assuming Dilution | $ 1.49 | $ 0.44 |
$ 0.62
|
38
| TIMKEN |
Consolidated Balance Sheet
| December 31 | ||
|
|
||
|
|
2004 | 2003 |
|
(Thousands of dollars) |
||
|
ASSETS
Current Assets
|
|
|
|
|
||
| Total Inventories | 874,833 | 695,946 |
|
|
||
| Total Current Assets | 1,733,291 | 1,377,105 |
|
Property, Plant and Equipment
Land and buildings Machinery and equipment |
648,646 2,973,542 |
601,108 2,902,697 |
|
|
||
|
Less allowances for depreciation |
3,622,188
2,039,231 |
3,503,805
1,892,957 |
|
|
||
| Property, Plant and Equipment–Net |
1,582,957
|
1,610,848
|
|
Other Assets
Goodwill Other intangible assets Miscellaneous receivables and other assets Deferred income taxes Deferred charges and prepaid expenses |
189,299 178,844 138,466 76,834 38,809 |
173,099 197,993 130,081 148,802 51,861 |
|
|
||
| Total Other Assets |
622,252
|
701,836 |
|
|
||
| Total Assets | $ 3,938,500 | $ 3,689,789 |
39
| TIMKEN |
Consolidated Statement of Cash Flows
| Year Ended December 31 | |||
|
|
|||
|
|
2004 | 2003 | 2002 |
|
(Thousands of dollars) |
|||
|
CASH PROVIDED (USED)
Operating Activities
|
|
|
|
|
|
|||
| Net Cash Provided by Operating Activities | 139,067 | 204,888 |
206,103
|
|
Investing Activities
Purchases of property, plant and equipment–net Proceeds from disposals of property, plant and equipment Proceeds from disposals of non–strategic assets Acquisitions |
(155,180) 5,268 50,690 (9,359) |
(118,530) 26,377 152,279 (725,120) |
(85,277) 12,616 – (6,751) |
|
|
|||
| Net Cash Used by Investing Activities | (108,581) | (664,994) |
(79,412)
|
|
Financing Activities
Cash dividends paid to shareholders Accounts receivable securitization financing borrowings Accounts receivable securitization financing payments Proceeds from issuance of common stock Common stock issued to finance acquisition Proceeds from issuance of long–term debt Payments on long–term debt Short–term debt activity–net |
(46,767) 198,000 (198,000) – – 339,547 (334,040) 20,860 |
(42,078) 127,000 (127,000) 54,985 180,010 (1) 629,800 (379,790) (41,082) |
(31,713) – – – – – (37,296) (11,498) |
|
|
|||
|
Net Cash (Used) Provided by Financing Activities
Effect of exchange rate changes on cash |
(20,400)
12,255 |
401,845
4,837 |
(80,507)
2,474 |
|
|
|||
|
Increase (Decrease) In Cash and Cash Equivalents
Cash and cash equivalents at beginning of year |
22,341
28,626 |
(53,424)
82,050 |
48,658
33,392 |
|
|
|||
| Cash and Cash Equivalents at End of Year | $ 50,967 | $ 28,626 | $ 82,050 |
|
|
|||
40
| TIMKEN |
Consolidated Statement of Shareholders’ Equity
|
Common Stock
|
||||||
|
|
Total |
Stated
Capital |
Other
Paid–In Capital |
Earnings
Invested in the Business |
Accumulated
Other Comprehensive Loss |
Treasury
Stock |
|
(Thousands of dollars, except share data) |
||||||
|
Year Ended December 31, 2002
|
|
|
$ 256,423 |
$ 757,410 38,749 |
$ (224,538) 14,050 (254,318) (871) |
|
|
|
||||||
|
Total comprehensive loss
Dividends – $0.52 per share Issuance of 3,186,470 shares from treasury (1) Issuance of 369,290 shares from authorized (1) |
(202,390)
(31,713) 57,747 3,707 |
(2,138) 3,707 |
(31,713) |
59,885 |
||
|
|
||||||
| Balance at December 31, 2002 | $ 609,086 | $ 53,064 | $ 257,992 | $ 764,446 | $ (465,677) | $ (739) |
|
|
||||||
|
Year Ended December 31, 2003
Net income Foreign currency translation adjustments (net of income tax of $1,638) Minimum pension liability adjustment (net of income tax of $19,164) Change in fair value of derivative financial instruments net of reclassifications |
36,481 75,062 31,813 420 |
|
36,481 |
75,062 31,813 420 |
||
|
|
||||||
|
Total comprehensive income
Dividends – $0.52 per share Tax benefit from exercise of stock options Issuance of 29,473 shares from treasury (1) Issuance of 25,624,198 shares from authorized (1)(2) |
143,776
(42,078) 1,104 301 377,438 |
1,104 (262) 377,438 |
(42,078) |
563 |
||
|
|
||||||
| Balance at December 31, 2003 | $1,089,627 | $ 53,064 | $ 636,272 | $ 758,849 | $ (358,382) | $ (176) |
|
|
||||||
|
Year Ended December 31, 2004
Net income Foreign currency translation adjustments (net of income tax of $18,766) Minimum pension liability adjustment (net of income tax of $18,391) Change in fair value of derivative financial instruments (net of reclassifications) |
135,656 105,736 (36,468) (372) |
135,656 |
105,736 (36,468) (372) |
|||
|
|
||||||
|
Total comprehensive income
|
204,552
(46,767) 3,068 (1,067) 20,435 |
3,068 (1,045) 20,435 |
(46,767) |
(22) |
||
|
|
||||||
| Balance at December 31, 2004 | $1,269,848 | $ 53,064 | $ 658,730 | $ 847,738 | $ (289,486) | $ (198) |
|
|
||||||
41
| TIMKEN |
(Thousands of dollars, except share data)
|
|
|||
|
|
2004 | 2003 | 2002 |
|
|
|||
|
Net income,as reported
Add: Stock–based employee compensation expense, net of related taxes Deduct: Stock–based employee compensation expense determined under fair value based methods for all awards,net of related taxes |
$ 135,656
1,884 (6,751) |
$ 36,481
1,488 (7,305) |
$ 38,749
1,170 (6,786) |
|
|
|||
| Pro forma net income | $ 130,789 | $ 30,664 | $ 33,133 |
|
|
|||
|
Earnings per share:
Basic – as reported Basic – pro forma Diluted – as reported Diluted – pro forma |
$1.51 $1.46 $1.49 $1.44 |
$0.44 $0.37 $0.44 $0.37 |
$0.63 $0.54 $0.62 $0.54 |
42
| TIMKEN |
43
| TIMKEN |
Notes to Consolidated Financial Statements
(Thousands of dollars, except share data)
2 Acquisitions44
| TIMKEN |
|
There is no tax basis goodwill associated with the Torrington
The $1,800 related to in–process research and development was
|
In July 2003, the company sold to NSK Ltd. its interest in a needle
The following unaudited pro forma financial information presents
|
|
Unaudited
Year Ended December 31 |
|
|
||
| 2003 | 2002 | |
|
|
||
|
Net sales
Income before cumulative effect of change in accounting principle Net income Earnings per share – assuming dilution: Income before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle |
$3,939,340
29,629 29,629 $ 0.36 $ – |
$3,756,652
104,993 92,291 $ 1.25 $ (0.15) |
|
|
||
| Earnings per share – assuming dilution | $ 0.36 | $ 1.10 |
|
During 2004 and 2002, the company finalized several acquisitions.
|
over the fair value of the net assets acquired was allocated to
|
45
| TIMKEN |
Notes to Consolidated Financial Statements
(Thousands of dollars, except share data)
3 Earnings Per Share
The following table sets forth the
reconciliation
of the numerator and the denominator of earnings per share
and earnings per share –
assuming dilution for the years ended December 31:
|
|
|||
| 2004 | 2003 | 2002 | |
|
|
|||
|
Numerator:
Net income for earnings per share and earnings per share – assuming dilution – income available to common shareholders Denominator: Denominator for earnings per share – weighted–average shares Effect of dilutive securities: Stock options and awards – based on the treasury stock method |
$ 135,656 89,875,650 883,921 |
$ 36,481 82,945,174 214,147 |
$ 38,749 61,128,005 507,334 |
|
|
|||
|
Denominator for earnings per share – assuming dilution – adjusted
weighted–average shares |
90,759,571 |
83,159,321 |
61,635,339 |
|
|
|||
|
Earnings per share
|
$ 1.51
|
$ 0.44
|
$ 0.63 |
|
|
|||
| Earnings per share – assuming dilution | $ 1.49 | $ 0.44 | $ 0.62 |
|
|
|||
|
The exercise prices for certain of the stock options that the company
Under the performance unit component of the company’s long–
|
Directors can elect to make payments that become due in the
|
4 Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consists of the following:|
|
|||
| 2004 | 2003 | 2002 | |
|
|
|||
|
Foreign currency translation adjustment
Minimum pension liability adjustment Fair value of open foreign currency cash flow hedges |
$ 100,278
(387,750) (2,014) |
$ (5,458)
(351,282) (1,642) |
$ (80,520)
(383,095) (2,062) |
|
|
|||
| $ (289,486) | $ (358,382) | $ (465,677) | |
|
|
|||
|
In 2004, the company began the process of liquidating one of its
|
currency translation losses to the consolidated statement of income,
During 2004, the company sold the real estate of this facility in
|
5 Financing Arrangements
Short–term debt at December 31, 2004 and 2003 was as follows:|
|
||
| 2004 | 2003 | |
|
|
||
|
Variable–rate lines of credit for certain of the company’s European subsidiaries with
|
|
$ 78,196 23,000 – 13,273 |
|
|
||
| Short–term debt | $ 157,417 | $ 114,469 |
|
|
||
46
| TIMKEN |
|
|
||
| 2004 | 2003 | |
|
|
||
|
Fixed–rate Medium–Term Notes, Series A, due at various dates through
|
|
$ 287,000 21,700 17,000 8,000 24,000 250,000 12,471 |
|
|
||
|
Less current maturities |
621,907
1,273 |
620,171
6,725 |
|
|
||
| Long–term debt | $ 620,634 | $ 613,446 |
|
|
||
47
| TIMKEN |
Notes to Consolidated Financial Statements
(Thousands of dollars, except share data)
6 Impairment and Restructuring Charges
Impairment and restructuring charges are comprised of the following:|
|
|||
| 2004 | 2003 | 2002 | |
|
(Dollars in millions) |
|||
|
Impairment charges
|
$ 8.5
|
$ 12.5
2.9 3.7 |
$ 17.9
10.2 4.0 |
|
|
|||
| Total | $ 13.4 | $ 19.1 | $ 32.1 |
|
|
|||
Impairment and restructuring charges by segment are as follows:
|
|
||||
| Auto | Industrial | Steel | Total | |
|
(Dollars in millions) |
||||
|
Impairment charges
|
$ –
|
$ –
2.5 0.7 |
$ 8.5
– – |
$ 8.5
4.2 0.7 |
|
|
||||
| Total | $1.7 | $ 3.2 | $ 8.5 | $ 13.4 |
|
|
||||
|
|
||||
| Auto | Industrial | Steel | Total | |
|
(Dollars in millions) |
||||
|
Impairment charges
|
$ –
|
$ 2.3
2.2 3.0 |
$ 10.2
0.2 – |
$ 12.5
2.9 3.7 |
|
|
||||
| Total | $1.2 | $ 7.5 | $ 10.4 | $ 19.1 |
|
|
||||
|
|
||||
| Auto | Industrial | Steel | Total | |
|
(Dollars in millions) |
||||
|
Impairment charges
|
$ 14.2
|
$ 3.7
5.5 0.1 |
$ –
3.8 – |
$ 17.9
10.2 4.0 |
|
|
||||
| Total | $19.0 | $ 9.3 | $ 3.8 | $ 32.1 |
|
|
||||
|
As of December 31, 2004, the remaining accrual balance for
|
The activity for 2003 included expense accrued of $6.1 million,
|
48
| TIMKEN |
|
The company and certain of its U.S. subsidiaries have been
The company is also the guarantor of debt for PEL Technologies
|
of credit was provided by the company to secure payment on Ohio
In connection with the Ashland plant sale, the company entered
|
49
| TIMKEN |
Notes to Consolidated Financial Statements
(Thousands of dollars, except share data)
8 Goodwill and Other Intangible Assets|
SFAS No. 142 requires that goodwill and indefinite–lived intangible
In 2003, due to trends in the steel industry, the guideline company
|
company’s Steel reporting unit. Accordingly, the company had
In fiscal 2002, upon adoption of SFAS No. 142, the company
|
|
|
|||||
|
Beginning
Balance |
Impairment | Acquisitions | Other | Ending Balance | |
|
|
|||||
|
Goodwill:
|
$ 1,633 119,440 8,870 |
|
$ – 46,951 – |
$ (369) 5,444 1,367 |
$ 1,264 171,835 – |
|
|
|||||
| Totals | $ 129,943 | $ (10,237) | $ 46,951 |
$ 6,442 |
$173,099 |
|
|
|||||
50
| TIMKEN |
|
Amortization expense for intangible assets was approximately
|
amortization acquired in the Torrington acquisition have useful lives
|
51
| TIMKEN |
Notes to Consolidated Financial Statements
(Thousands of dollars, except share data)
9 Stock Compensation Plans|
Under the company’s stock option plans, shares of common stock
|
earnings per share is required by SFAS No. 123, and has been
|
|
|
|||
| 2004 | 2003 | 2002 | |
|
|
|||
|
Assumptions:
|
|
|
|
|
|
|||
52
| TIMKEN |
|
The company performs research and development under
|
2004, 2003 and 2002, respectively. Of these amounts, $8,400,
|
53
| TIMKEN |
Notes to Consolidated Financial Statements
(Thousands of dollars, except share data)
13 Retirement and Postretirement Benefit Plans54
| TIMKEN |
The company uses a measurement date of December 31 to determine pension and other postretirement benefit measurements for the
pension plans and other postretirement benefit plans.
The following tables set forth the
change in benefit obligation, change in plan assets, funded status and amounts recognized in the
consolidated balance sheet
of the defined benefit pension and postretirement benefits as of December 31, 2004 and 2003:
|
The current portion of accrued pension cost, which is included in
|
benefit cost, which is included in salaries, wages and benefits on
|
55
| TIMKEN |
Notes to Consolidated Financial Statements
(Thousands of dollars, except share data)
13 Retirement and Postretirement Benefit Plans (continued)| Pension Benefits | Postretirement Benefits | |||||
|
|
||||||
| 2004 | 2003 | 2002 | 2004 | 2003 | 2002 | |
|
|
||||||
|
Assumptions
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
||||||
| Net periodic benefit cost | $ 84,899 | $ 88,838 | $ 59,543 | $ 67,503 | $ 56,665 | $ 58,152 |
|
|
||||||
|
For measurement purposes, the company assumed a weighted–
|
The assumed health care cost trend rate may have a significant
|
56
| TIMKEN |
|
On December 8, 2003, the Medicare Prescription Drug,
|
the financial statements or accompanying notes reflect the effects of
For the year 2004, the effect on the accumulated postretirement
|
Plan Assets:
The company’s pension asset allocation at December 31, 2004 and 2003, and target allocation are as follows:
|
Current Target
Allocation |
Percentage of Pension Plan
Assets at December 31 |
||
|
|
|||
| Asset Category | 2005 | 2004 | 2003 |
|
|
|||
|
Equity securities
|
60% to 70%
|
68%
|
70%
|
|
|
|||
| Total | 100% | 100% | 100% |
|
|
|||
Cash Flows:
| Employer Contributions to Defined Benefit Plans | |
|
|
|
|
2003
2004 2005 (expected) |
$ 173,990
$ 196,951 $ 135,000 |
|
|
|
Future benefit payments are expected to be as follows:
| Benefit Payments | Pension Benefits | Postretirement Benefits | ||
|
|
||||
| Gross |
Expected
Medicare Subsidies |
Net Including
Medicare Subsidies |
||
|
|
||||
|
2005
|
$ 154,034
|
$ 59,732
$ 63,181 $ 65,620 $ 67,696 $ 69,595 $ 349,879 |
$ –
|
$ 59,732
|
|
|
||||
57
| TIMKEN |
Notes to Consolidated Financial Statements
(Thousands of dollars, except share data)
14 Segment Information
Description of types of products and services from which each| Geographic Financial Information |
United
States |
Europe |
Other
Countries |
Consolidated |
|
|
||||
|
2004
Net sales Non–current assets |
$ 3,114,138 1,536,859 |
$ 784,778 410,407 |
$ 614,755 257,943 |
$ 4,513,671 2,205,209 |
|
|
||||
|
2003
|
|
$ 648,412 365,969 |
|
|
|
|
||||
|
2002
Net sales Non–current assets |
$ 1,876,696 1,472,680 |
$ 347,220 223,348 |
$ 326,159 84,036 |
$ 2,550,075 1,780,064 |
|
|
||||
58
| TIMKEN |
| Segment Financial Information | 2004 | 2003 | 2002 |
|
|
|||
|
Automotive Group
Net sales to external customers Depreciation and amortization EBIT as adjusted Capital expenditures Assets employed at year–end |
$ 1,582,226 78,100 15,919 73,385 1,280,979 |
$1,396,104 82,958 15,685 71,294 1,180,537 |
$ 752,763 33,866 11,095 34,948 663,864 |
|
|
|||
|
Industrial Group
Net sales to external customers Intersegment sales Depreciation and amortization EBIT, as adjusted Capital expenditures Assets employed at year–end |
$ 1,709,770 1,437 71,352 177,913 49,721 1,680,175 |
|
|
|
|
|||
|
Steel Group
Net sales to external customers Intersegment sales Depreciation and amortization EBIT (loss), as adjusted Capital expenditures Assets employed at year–end |
$ 1,221,675 161,941 59,979 54,756 23,907 977,346 |
$ 893,161 133,356 64,875 (6,043) 24,297 891,354 |
$ 825,778 155,500 67,240 32,520 23,547 978,808 |
|
|
|||
|
Total
Net sales to external customers Depreciation and amortization EBIT, as adjusted Capital expenditures Assets employed at year–end |
$ 4,513,671 209,431 248,588 147,013 3,938,500 |
$3,788,097 208,851 137,673 129,315 3,689,789 |
$2,550,075 146,535 116,655 90,673 2,748,356 |
|
|
|||
|
Reconciliation to Income Before Income Taxes
Total EBIT, as adjusted, for reportable segments Impairment and restructuring Integration/Reorganization expenses (Loss) gain on sale of assets CDSOA net receipts, net of expenses Acquisition–related unrealized currency exchange gains Impairment charge for investment in PEL Gain on sale of real estate Loss on dissolution of subsidiary Loss on sale of business Adoption of FIN 46 for investment in PEL Other Interest expense Interest income Intersegment adjustments |
$ 248,588 (13,434) (27,025) (734) 44,429 – – 22,509 (16,186) (5,399) (948) (719) (50,834) 1,397 (1,865) |
$ 137,673 (19,154) (33,913) 1,996 65,559 1,696 (45,730) – – – – – (48,401) 1,123 (47) |
$ 116,655 (32,143) (18,445) – 50,202 – – – – – – – (31,540) 1,676 (887) |
|
|
|||
|
Income before income taxes and cumulative effect of change
in accounting principle |
$ 199,779 |
$ 60,802 |
$ 85,518 |
|
|
|||
59
| TIMKEN |
Notes to Consolidated Financial Statements
(Thousands of dollars, except share data)
15 Income Taxes|
For financial statement reporting purposes, income before income
|
has elected to treat certain foreign entities as branches for US
|
| Income before income taxes | |||
|
|
|||
| 2004 | 2003 | 2002 | |
|
|
|||
|
United States
Non– United States |
$165,392
$ 34,387 |
$ 53,560
$ 7,242 |
$
191,105
$(105,587) |
|
|
|||
| Income before income taxes | $199,779 | $ 60,802 | $ 85,518 |
|
|
|||
The company made income tax payments of approximately $49,758 and $13,830 in 2004 and 2003, respectively. During
2002, the company received income tax refunds of approximately $27,000. Taxes paid differ from current taxes provided,
primarily due to the timing of payments.
|
In connection with various investment arrangements, the Company
|
expire in 2010 and 2007, respectively. In total, the agreements
|
60
| TIMKEN |
|
|
||
| 2004 | 2003 | |
|
|
||
|
Deferred tax assets:
Accrued postretirement benefits cost Accrued pension cost Inventory Benefit accruals Tax loss and credit carryforwards Other–net Valuation allowance |
$ 198,210 166,525 27,832 14,479 170,799 17,302 (129,328) |
|
|
|
||
|
Deferred tax liability – depreciation & amortization |
465,819
(298,918) |
492,653
(293,580) |
|
|
||
| Net deferred tax asset | $ 166,901 | $199,073 |
|
|
||
61
| TIMKEN |
Report of Management on Internal Control
Over Financial Reporting
|
The management of The Timken Company is responsible for estab–
Timken management assessed the effectiveness of the company’s
|
Committee of Sponsoring Organizations of the Treadway
Ernst & Young LLP, independent registered public accounting firm,
|
|
|
/s/ James W. Griffith
President and
|
/s/ Glenn A. Eisenberg
Executive Vice President –
|
|
Management Certifications
|
James W. Griffith, President and Chief Executive Officer of Timken,
|
Section 302 of the Sarbanes–Oxley Act of 2002 requires Timken’s
|
Report of Independent Registered Public
Accounting Firm
To the Board of Directors and Shareholders
The Timken Company
|
We have audited the accompanying consolidated balance sheets
We conducted our audits in accordance with the standards of the
|
In our opinion, the financial statements referred to above present
We also have audited, in accordance with the standards of the
/s/ Ernst & Young LLP
Cleveland, Ohio
|
62
| TIMKEN |
Report of Independent Registered Public
Accounting Firm
To the Board of Directors and Shareholders
The Timken Company
|
We have audited management’s assessment, included in the
We conducted our audit in accordance with the standards of the
A company’s internal control over financial reporting is a process
|
are recorded as necessary to permit preparation of financial
Because of its inherent limitations, internal control over financial
In our opinion, management’s assessment that The Timken
We also have audited, in accordance with the standards of the
/s/ Ernst & Young LLP
Cleveland, Ohio
|
63
| TIMKEN |
Forward–Looking Statements
|
Certain statements set forth in this annual report (including
a) risks associated with the acquisition of Torrington,
b) changes in world economic conditions, including
c) the effects of fluctuations in customer demand on sales,
d) competitive factors, including changes in market
e) changes in operating costs. This includes: the effect
|
and energy; the company’s ability to mitigate the impact
f) the success of the company’s operating plans, including
g) the success of the company’s plans concerning the
h) unanticipated litigation, claims or assessments. This
i) changes in worldwide financial markets, including interest
Additional risks relating to the company’s business, the
Except as required by the federal securities laws, the
|
64
| TIMKEN |
Quarterly Financial Data
| 2004 |
Net
Sales |
Gross
Profit |
Impairment &
Restructuring |
Net
Income (Loss) |
Earnings per
Basic |
Share
(1)
Diluted |
Dividends
per Share |
|
(Thousands of dollars, except per share data) |
|||||||
|
Q1
Q2 Q3 Q4 |
$ 1,098,785
1,130,287 1,096,724 1,187,875 |
$ 202,523
205,587 184,045 246,430 |
$ 730
329 2,939 9,436 |
$ 28,470
25,341 17,463 64,382 (2)(5) |
$ .32
.28 .19 .71 |
$ .32
.28 .19 .71 |
$ .13
.13 .13 .13 |
|
|
|||||||
| $ 4,513,671 | $ 838,585 | $ 13,434 | $135,656 | $ 1.51 | $ 1.49 | $ .52 | |
|
|
|||||||
|
2003
(Thousands of dollars, except per share data) |
|||||||
|
Q1
Q2 Q3 Q4 |
$ 838,007
990,253 938,012 1,021,825 |
$ 137,762
(3)
158,069 147,610 195,677 |
$ –
853 1,883 16,418 |
$ 11,339
3,921 (1,275) 22,496 (2)(4) |
$ .15
.05 (.01) .26 |
$ .15
.05 (.01) .25 |
$ .13
.13 .13 .13 |
|
|
|||||||
| $ 3,788,097 | $ 639,118 (3) | $ 19,154 | $ 36,481 | $ .44 | $ .44 | $ .52 | |
|
|
|||||||
(1)Annual earnings per share do not equal the sum of the individual quarters due to differences in the average number of shares outstanding during the respective periods.
(2)Includes receipt (net of expenses) of $44.4 million and $65.6 million in 2004 and 2003 resulting from the U.S. Continued Dumping and Subsidy Offset Act.
(3)Gross profit for 2003 includes a reclassification of $7.5 million from cost of products sold to selling administrative and general expenses for Torrington engineering and
research and development expenses to be consistent with the company’s 2004 cost classification methodology.
(4)Includes $45.7 million for write–off of investment in joint venture, PEL.
(5)Includes $17.1 million for the gain on sale of non–strategic assets and $16.2 million for the loss on dissolution of a subsidiary.
| 2004 Stock Prices | 2003 Stock Prices | |||||
| High | Low | High | Low | |||
|
|
|
|||||
|
Q1
Q2 Q3 Q4 |
$24.70
26.49 26.49 27.50 |
$18.74
20.81 22.50 22.82 |
Q1
Q2 Q3 Q4 |
$20.46
18.50 19.25 20.32 |
$14.88
15.59 14.55 15.31 |
|
65
| TIMKEN |
Summary of Operations and Other Comparative Data
|
|
||||
| 2004 | 2003 | 2002 | 2001 | |
|
(Thousands of dollars, except per share data) |
||||
|
Statements of Income
Net sales: Automotive Bearings Industrial Bearings Total Bearings Steel |
$ 1,582,226 1,709,770 3,291,996 1,221,675 |
$ 1,396,104 1,498,832 2,894,936 893,161 |
$ 752,763 971,534 1,724,297 825,778 |
$ 642,943 990,365 1,633,308 813,870 |
|
|
||||
| Total net sales | 4,513,671 | 3,788,097 | 2,550,075 | 2,447,178 |
|
Gross profit Selling, administrative and general expenses Impairment and restructuring charges Operating income (loss) Other income (expense) – net Earnings before interest and taxes (EBIT) (1) Interest expense Income (loss) before cumulative effect of accounting changes Net income (loss) Balance Sheets Inventory Working capital Property, plant and equipment – net Total assets Total debt: Commercial paper Short–term debt Current portion of long–term debt Long–term debt |
838,585 587,923 13,434 237,228 11,988 249,216 50,834 135,656 $ 135,656 $ 874,833 691,964 1,582,957 3,938,500 – 157,417 1,273 620,634 |
639,118 (6) 521,717 (6) 19,154 98,247 9,833 108,080 48,401 36,481 $ 36,481 $ 695,946 375,637 1,610,848 3,689,789 – 114,469 6,725 613,446 |
469,577 358,866 32,143 78,568 36,814 115,382 31,540 51,451 $ 38,749 $ 488,923 334,222 1,226,244 2,748,356 8,999 78,354 23,781 350,085 |
400,720 363,683 54,689 (17,652) 22,061 4,409 33,401 (41,666) $ (41,666) $ 429,231 187,224 1,305,345 2,533,084 1,962 84,468 42,434 368,151 |
|
|
||||
|
Total debt
Net debt: Total debt Less: cash and cash equivalents |
779,324
779,324 (50,967) |
734,640
734,640 (28,626) |
461,219
461,219 (82,050) |
497,015
497,015 (33,392) |
|
|
||||
|
Net debt
(5)
Total liabilities Shareholders’ equity Capital: Net debt Shareholders’ equity |
728,357
2,668,652 $ 1,269,848 728,357 1,269,848 |
706,014
2,600,162 $ 1,089,627 706,014 1,089,627 |
379,169
2,139,270 $ 609,086 379,169 609,086 |
463,623
1,751,349 $ 781,735 463,623 781,735 |
|
|
||||
|
Capital
Other Comparative Data
|
1,998,205
|
1,795,641
|
988,255
|
1,245,358
|
|
|
||||
|
Beginning invested capital
Net sales per associate (3) Capital expenditures Depreciation and amortization Capital expenditures / Net sales Dividends per share Earnings per share (4) Earnings per share – assuming dilution (4) Net debt to capital (5) Number of associates at year–end Number of shareholders (9) |
2,581,816
$ 173.6 $ 147,013 $ 209,431 3.3% $ 0.52 $ 1.51 $ 1.49 36.5% 25,931 42,484 |
1,938,316
$ 172.0 $ 129,315 $ 208,851 3.4% $ 0.52 $ 0.44 $ 0.44 39.3% 26,073 42,184 |
1,917,341
$ 139.0 $ 90,673 $ 146,535 3.6% $ 0.52 $ 0.63 $ 0.62 38.4% 17,963 44,057 |
2,132,055
$ 124.8 $ 102,347 $ 152,467 4.2% $ 0.67 $ (0.69) $ (0.69) 37.2% 18,735 39,919 |
66
| TIMKEN |
|
|
|||||
| 2000 | 1999 | 1998 | 1997 | 1996 | 1995 |
|
|
|||||
|
$ 839,838 (7) 923,477 (7) 1,763,315 879,693 |
$ (8) (8) 1,759,871 735,163 |
$ (8) (8) 1,797,745 882,096 |
$ (8) (8) 1,718,876 898,686 |
$ (8) (8) 1,598,040 796,717 |
$ (8) (8) 1,524,728 705,776 |
|
|
|||||
| 2,643,008 | 2,495,034 | 2,679,841 | 2,617,562 | 2,394,757 | 2,230,504 |
|
|
|
|
|
|
|
|
|
|||||
|
514,604
514,604 (10,927) |
449,890
449,890 (7,906) |
469,398
469,398 (320) |
359,431
359,431 (9,824) |
302,665
302,665 (5,342) |
211,232
211,232 (7,262) |
|
|
|||||
|
503,677
1,559,423 $ 1,004,682 503,677 1,004,682 |
441,984
1,395,337 $ 1,045,981 441,984 1,045,981 |
469,078
1,393,950 $ 1,056,081 469,078 1,056,081 |
349,607
1,294,474 $ 1,032,076 349,607 1,032,076 |
297,323
1,149,110 $ 922,228 297,323 922,228 |
203,970
1,104,747 $ 821,178 203,970 821,178 |
|
|
|||||
|
1,508,359
|
1,487,965
|
1,525,159
|
1,381,683
|
1,219,551
|
1,025,148
|
|
|
|||||
|
2,031,182
$ 127.9 $ 162,717 $ 151,047 6.2% $ 0.72 $ 0.76 $ 0.76 33.4% 20,474 42,661 |
2,040,903
$ 119.1 $ 173,222 $ 149,949 6.9% $ 0.72 $ 1.01 $ 1.01 29.7% 20,856 42,907 |
1,837,674
$ 127.5 $ 258,621 $ 139,833 9.7% $ 0.72 $ 1.84 $ 1.82 30.8% 21,046 45,942 |
1,616,223
$ 130.5 $ 229,932 $ 134,431 8.8% $ 0.66 $ 2.73 $ 2.69 25.3% 20,994 46,394 |
1,435,019
$ 132.4 $ 155,925 $ 126,457 6.5% $ 0.60 $ 2.21 $ 2.19 24.4% 19,130 31,813 |
1,401,984
$ 134.2 $ 131,188 $ 123,409 5.9% $ 0.56 $ 1.80 $ 1.78 19.9% 17,034 26,792 |
67
| TIMKEN |
APPENDIX TO EXHIBIT 13
On page 1 of the printed document, three bar charts were shown which contain the following information:
| (1) | Net Sales ($ Millions) | |
|
2000
2001 2002 2003 2004 |
2,643
2,447 2,550 3,788 4,514 |
|
| (2) | Earnings (loss) per share – diluted | |
|
2000
2001 2002 2003 2004 |
0.76
(0.69) 0.62 0.44 1.49 |
|
| (3) | Dividends per share | |
|
2000
2001 2002 2003 2004 |
0.72
0.67 0.52 0.52 0.52 |
|
| TIMKEN |
Exhibit 21. Subsidiaries of the Registrant
___________________________________________
The Timken Company has no parent company.
The active subsidiaries of the Company (all of which are included
in the consolidated financial statements of the Company and its
subsidiaries) are as follows:
Percentage of
voting securities
State or sovereign owned directly
power under laws or indirectly
Name of which organized by Company
__________________________________________________________________
MPB Corporation Delaware 100%
Timken Super Precision-
Europa B.V. Netherlands 100%
Timken Super Precision-
Singapore Pte. Ltd. Singapore 100%
Timken UK, Ltd. England 100%
Australian Timken Proprietary,
Limited Victoria, Australia 100%
Timken do Brasil
Comercio e Industria, Ltda. Sao Paulo, Brazil 100%
British Timken Limited England 100%
Timken Communications Company Ohio 100%
Timken Alloy Steel Europe
Limited England 100%
EDC, Inc. Ohio 100%
Timken Engineering and Research -
India Private Limited India 100%
Timken Espana, S.L. Spain 100%
Timken Germany GmbH Germany 100%
Timken Europe B.V. Netherlands 100%
Timken Finance Europe B.V. Netherlands 100%
HHC1, Inc. Delaware 100%
Timken India Limited India 80%
Timken Industrial Services, LLC Delaware 100%
Timken Italia, S.R.L. Italy 100%
Timken Korea Limited Liability
Corporation Korea 100%
Latrobe Steel Company Pennsylvania 100%
OH&R Special Steels Company Delaware 100%
Timken Latrobe Steel-Europe Ltd. England 100%
Timken de Mexico S.A. de C.V. Mexico 100%
MPB Export Corporation Delaware 100%
Nihon Timken K.K. Japan 100%
Timken Precision Components
Europe France 100%
Timken Polska Sp.z.o.o. Poland 100%
Rail Bearing Service Corporation Virginia 100%
Timken Alcor Aerospace
Technologies, Inc. Delaware 100%
Timken (China) Investment Co.,
Ltd. China 100%
Timken Bearing Services South
Africa (Proprietary) Limited South Africa 74%
Timken Canada GP Inc. Canada 100%
Timken Canada LP Canada 100%
Exhibit 21. Subsidiaries of the Registrant (cont).
_______________________________________________
Percentage of
voting securities
State or sovereign owned directly
power under laws or indirectly
Name of which organized by Company
__________________________________________________________________
Timken Rail Service Company Russia 100%
Timken Receivables Corporation Delaware 100%
Timken Romania S.A. Romania 94%
The Timken Corporation Ohio 100%
The Timken Service & Sales Co. Ohio 100%
Timken Servicios Administrativos
S.A. de C.V. Mexico 100%
Timken Singapore Pte. Ltd. Singapore 100%
Timken South Africa (Pty.) Ltd. South Africa 100%
Timken de Venezuela C.A. Venezuela 100%
Yantai Timken Company Limited China 100%
Timken Argentina Sociedad De
Responsabilidad Limitada Argentina 100%
International Component Supply,
Limitada Brazil 100%
Timken Scandinavia AB Sweden 100%
Timken Engineered Products
(Shanghai) Co., Ltd. China 100%
Timken Benelux, SA Belgium 100%
Timken Ceska Republika S.R.O. Czech Republic 100%
Timken France SAS France 100%
Timken Industries SAS France 100%
Timken Deutschland GmbH Germany 100%
Timken GmbH Germany 100%
Timken SpA Italy 100%
Timken IRB SA Spain 100%
Nadella SA Switzerland 100%
Timken Coventry Limited England 100%
Timken Great Britain Ltd. England 100%
Timken Luxembourg Holdings SARL Luxembourg 100%
Timken US Corporation Delaware 100%
S.E. Setco Service Company, LLC Georgia 100%
KILT Holdings, Inc. Delaware 100%
Timken Canada Holdings ULC Canada 100%
Timken Holdings, Inc. Delaware 100%
Timken SH Holdings ULC Canada 100%
Timken U.S. Holdings LLC Delaware 100%
Timken Wuxi Bearings Company
Limited China 100%
TTC Asia Limited Cayman Islands 100%
TTC Sales Company, Inc. Barbados 100%
The Company also has a number of inactive subsidiaries that were
incorporated for name-holding purposes and a foreign sales
corporation subsidiary.
Exhibit 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements and related prospectuses of The Timken Company listed below of our reports dated February 28, 2005, with respect to the consolidated financial statements and schedule of The Timken Company, The Timken Company management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of The Timken Company, included in this Annual Report (Form 10-K) for the year ended December 31, 2004:
Registration Filing Number Description of Registration Statement Date
2-97340 1985 Incentive Plan of The Timken Company - November 19, 1990
Post-effective Amendment No. 1 to Form S-8
333-17503 The Timken Company Dividend Reinvestment December 9, 1996
Plan - Form S-3
333-41155 OH&R Investment Plan - Form S-8 November 26, 1997
333-43847 The Timken Company International Stock January 7, 1998
Ownership Plan - Form S-8
333-45753 Rail Bearing Service Employee Savings February 6, 1998
Plan - Form S-8
333-45891 $300,000,000 Medium-Term Notes, Series April 23, 1998
A - Amendment No. 4 to Form S-3
333-66911 Voluntary Investment Program for Hourly November 6, 1998
Employees of Latrobe Steel Company - Form S-8
333-66907 The MPB Employees' Savings Plan - Form S-8 November 6, 1998
333-69129 The Timken Company - Latrobe Steel Company December 17,1998
Savings and Investment Pension Plan -
Form S-8
333-35154 The Timken Company Long-Term Incentive Plan April 19,2000
- Form S-8
333-35152 The Hourly Pension Investment Plan - Form S-8 April 19,2000
333-52866 Voluntary Investment Pension Plan for Hourly December 28, 2000
Employees of The Timken Company - Form S-8
333-76062 The Company Savings Plan for the Employees of December 28, 2001
Timken France - Form S-8
333-86452 The Timken Company Long-Term Incentive Plan - April 17, 2002
Form S-8
333-86448 The Timken Company Collective Investment Trust April 17, 2002
for Retirement Trusts - Form S-3
333-100731 Prospectus Supplements - 11,000,000 shares of February 11, 2003
Timken Company Common Stock; $250,000,000 in
Senior Notes - Form S-3
333-103753 The Timken Company Savings and Stock Investment March 11, 2003
Plan for Torrington Non-Bargaining Associates -
Form S-8
333-103754 The Timken Company Savings Plan for Torrington March 11, 2003
Bargaining Associates - Form S-8
333-105333 The Timken Share Incentive Plan - Form S-8 May 16, 2003
333-108840 The Hourly Pension Investment Plan - Form S-8 September 16, 2003
333-108841 Voluntary Investment Program for Hourly September 16, 2003
Employees of Latrobe Steel Company - Form S-8
333-113390 The Voluntary Investment Pension Plan for Hourly March 8, 2004
Employees of The Timken Company - Form S-8
333-113391 The Timken Company - Latrobe Steel Company March 8, 2004
Savings and Investment Pension Plan - Form S-8
333-113394 The Rail Bearing Service Employee Savings Plan - March 8, 2004
Form S-8
333-114647 The Timken Company Long-Term Incentive Plan - April 20, 2004
Form S-8
333-118664 MPB Employees' Savings Plan - Form S-8 August 30, 2004
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
and officers of The Timken Company, an Ohio corporation (the "Company"),
hereby (1) constitutes and appoints James W. Griffith, Glenn A. Eisenberg,
William R. Burkhart and Scott A. Scherff, collectively and individually, as
his or her agent and attorney-in-fact, with full power of substitution and
resubstitution, to (a) sign and file on his or her behalf and in his or
her name, place and stead in any and all capacities (i) an Annual Report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, on Form 10-K for the fiscal year ended December 31, 2004, (ii)
any and all amendments and exhibits to such Annual Report, and (b) do and
perform any and all other acts and deeds whatsoever that may be necessary
or required in the premises; and (2) ratifies and approves any and all
actions that may be taken pursuant hereto by any of the above-named agents
and attorneys-in-fact or their substitutes.
IN WITNESS WHEREOF, the undersigned directors and officers of the
Company have hereunto set their hands as of the 15th day of March 2005.
/s/ Sallie B. Bailey /s/ Joseph W. Ralston
_____________________________ ______________________________
Sallie B. Bailey Joseph W. Ralston
(Principal Accounting Officer)
/s/ Glenn A. Eisenberg /s/ Frank C. Sullivan
_____________________________ ______________________________
Glenn A. Eisenberg Frank C. Sullivan
(Principal Financial Officer)
/s/ Phillip R. Cox /s/ John M. Timken, Jr.
_____________________________ ______________________________
Phillip R. Cox John M. Timken, Jr.
/s/ James W. Griffith /s/ Ward J. Timken
_____________________________ ______________________________
James W. Griffith Ward J. Timken
(Principal Executive Officer)
/s/ Jerry J. Jasinowski /s/ Ward J. Timken, Jr.
_____________________________ ______________________________
Jerry J. Jasinowski Ward J. Timken, Jr.
/s/ John A. Luke, Jr. /s/ W.R. Timken, Jr.
_____________________________ ______________________________
John A. Luke, Jr. W.R. Timken, Jr.
/s/ Robert W. Mahoney /s/ Joseph F. Toot, Jr.
_____________________________ ______________________________
Robert W. Mahoney Joseph F. Toot, Jr.
/s/ Jay A. Precourt /s/ Jacqueline F. Woods
_____________________________ ______________________________
Jay A. Precourt Jacqueline F. Woods
EXHIBIT 31.1
PRINCIPAL EXECUTIVE OFFICER'S CERTIFICATIONS
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James W. Griffith, certify that:
1. I have reviewed this Form 10-K of The Timken Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
report is being prepared;
b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting: and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 15, 2005 BY /s/ James W. Griffith
______________________________________
James W. Griffith,
President and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
PRINCIPAL FINANCIAL OFFICER'S CERTIFICATIONS
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Glenn A. Eisenberg, certify that:
1. I have reviewed this Form 10-K of The Timken Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
report is being prepared;
b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting: and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 15, 2005 BY /s/ Glenn A. Eisenberg
______________________________________
Glenn A. Eisenberg
Executive Vice President - Finance and
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of The Timken Company (the "Company")
on Form 10-K for the year ended December 31, 2004, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), each of
the undersigned officers of the Company certifies, pursuant to 18 U.S.C. 1350,
as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that, to
such officer's knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company as of the dates and for the periods expressed in the
Report.
BY /s/ James W. Griffith
Date: March 15, 2005 ______________________________
Name: James W. Griffith
Title: President and Chief
Executive Officer
BY /s/ Glenn A. Eisenberg
______________________________
Name: Glenn A. Eisenberg
Title: Executive Vice President
- Finance and Administration
The foregoing certification is being furnished solely pursuant to 18 U.S.C.
1350 and is not being filed as part of the Report or as a separate disclosure