þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OHIO | 34-0577130 | |
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer Identification No.) | |
1835 Dueber Ave., SW, Canton, OH | 44706-2798 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Class | Outstanding at June 30, 2011 | |
Common Stock, without par value | 98,144,509 shares |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Dollars in millions, except per share data)
|
||||||||||||||||
Net sales
|
$ | 1,329.6 | $ | 1,011.4 | $ | 2,583.7 | $ | 1,925.1 | ||||||||
Cost of products sold
|
979.1 | 743.1 | 1,899.9 | 1,434.1 | ||||||||||||
Gross Profit
|
350.5 | 268.3 | 683.8 | 491.0 | ||||||||||||
Selling, general and administrative expenses
|
153.7 | 140.7 | 304.0 | 273.7 | ||||||||||||
Impairment and restructuring charges
|
6.2 | 1.0 | 7.3 | 6.5 | ||||||||||||
Operating Income
|
190.6 | 126.6 | 372.5 | 210.8 | ||||||||||||
Interest expense
|
(9.3 | ) | (10.0 | ) | (19.1 | ) | (19.6 | ) | ||||||||
Interest income
|
1.4 | 0.9 | 2.9 | 1.5 | ||||||||||||
Other income (expense), net
|
1.1 | 2.7 | (1.3 | ) | 2.1 | |||||||||||
Income From Continuing Operations Before Income Taxes
|
183.8 | 120.2 | 355.0 | 194.8 | ||||||||||||
Provision for income taxes
|
61.5 | 38.2 | 118.9 | 84.1 | ||||||||||||
Income From Continuing Operations
|
122.3 | 82.0 | 236.1 | 110.7 | ||||||||||||
Income from discontinued operations, net of income taxes
|
| 4.2 | | 4.5 | ||||||||||||
Net Income
|
122.3 | 86.2 | 236.1 | 115.2 | ||||||||||||
Less: Net income attributable to noncontrolling interest
|
0.8 | 0.6 | 1.9 | 1.0 | ||||||||||||
Net Income Attributable to The Timken Company
|
$ | 121.5 | $ | 85.6 | $ | 234.2 | $ | 114.2 | ||||||||
|
||||||||||||||||
Amounts Attributable to The Timken Companys
Common Shareholders:
|
||||||||||||||||
|
||||||||||||||||
Income from continuing operations, net of income taxes
|
$ | 121.5 | $ | 81.4 | $ | 234.2 | $ | 109.7 | ||||||||
Income from discontinued operations, net of income taxes
|
| 4.2 | | 4.5 | ||||||||||||
Net Income Attributable to The Timken Company
|
$ | 121.5 | $ | 85.6 | $ | 234.2 | $ | 114.2 | ||||||||
|
||||||||||||||||
Net Income per Common Share Attributable to
The Timken Companys Common Shareholders
|
||||||||||||||||
|
||||||||||||||||
Earnings per share Continuing Operations
|
$ | 1.24 | $ | 0.84 | $ | 2.39 | $ | 1.13 | ||||||||
Earnings per share Discontinued Operations
|
| 0.04 | | 0.05 | ||||||||||||
Basic earnings per share
|
$ | 1.24 | $ | 0.88 | $ | 2.39 | $ | 1.18 | ||||||||
|
||||||||||||||||
Diluted earnings per share Continuing Operations
|
$ | 1.22 | $ | 0.84 | $ | 2.36 | $ | 1.13 | ||||||||
Diluted earnings per share Discontinued Operations
|
| 0.04 | | 0.04 | ||||||||||||
Diluted earnings per share
|
$ | 1.22 | $ | 0.88 | $ | 2.36 | $ | 1.17 | ||||||||
|
||||||||||||||||
Dividends per share
|
$ | 0.20 | $ | 0.13 | $ | 0.38 | $ | 0.22 | ||||||||
2
3
Six Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
(Dollars in millions)
|
||||||||
CASH PROVIDED (USED)
|
||||||||
Operating Activities
|
||||||||
Net income attributable to The Timken Company
|
$ | 234.2 | $ | 114.2 | ||||
Earnings from discontinued operations
|
| (4.5 | ) | |||||
Net income attributable to noncontrolling interest
|
1.9 | 1.0 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
93.8 | 95.2 | ||||||
Impairment charges
|
3.2 | | ||||||
(Gain) loss on sale of assets
|
(0.6 | ) | 2.3 | |||||
Gain on divestiture
|
(0.5 | ) | | |||||
Deferred income tax provision
|
42.2 | 17.1 | ||||||
Stock-based compensation expense
|
9.2 | 8.5 | ||||||
Pension and other postretirement expense
|
37.2 | 45.9 | ||||||
Pension and other postretirement benefit contributions
and payments
|
(331.8 | ) | (133.6 | ) | ||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(191.7 | ) | (103.8 | ) | ||||
Inventories
|
(86.6 | ) | (45.7 | ) | ||||
Trade accounts payable
|
46.9 | 67.5 | ||||||
Other accrued expenses
|
(38.8 | ) | 15.4 | |||||
Income taxes
|
19.8 | 66.1 | ||||||
Other net
|
(1.3 | ) | 13.9 | |||||
Net Cash (Used) Provided by Operating Activities Continuing Operations
|
(162.9 | ) | 159.5 | |||||
Net Cash Provided by Operating Activities Discontinued Operations
|
| 4.5 | ||||||
Net Cash (Used )Provided By Operating Activities
|
(162.9 | ) | 164.0 | |||||
|
||||||||
Investing Activities
|
||||||||
Capital expenditures
|
(59.6 | ) | (39.0 | ) | ||||
Proceeds from disposals of property, plant and equipment
|
5.2 | 0.5 | ||||||
Divestitures
|
4.8 | | ||||||
Investments in short-term marketable securities
|
(13.3 | ) | | |||||
Other
|
1.9 | 1.1 | ||||||
Net Cash Used by Investing Activities
|
(61.0 | ) | (37.4 | ) | ||||
|
||||||||
Financing Activities
|
||||||||
Cash dividends paid to shareholders
|
(37.1 | ) | (21.3 | ) | ||||
Net proceeds from common share activity
|
23.2 | 19.4 | ||||||
Purchase of treasury shares net
|
(25.3 | ) | (29.2 | ) | ||||
Proceeds from issuance of long-term debt
|
9.2 | 11.0 | ||||||
Payments on long-term debt
|
(3.1 | ) | (9.0 | ) | ||||
Short-term debt activity net
|
0.1 | (20.8 | ) | |||||
Increase in restricted cash
|
(4.8 | ) | | |||||
Other
|
(4.1 | ) | | |||||
Net Cash Used by Financing Activities
|
(41.9 | ) | (49.9 | ) | ||||
Effect of exchange rate changes on cash
|
21.5 | (36.0 | ) | |||||
(Decrease) Increase In Cash and Cash Equivalents
|
(244.3 | ) | 40.7 | |||||
Cash and cash equivalents at beginning of year
|
877.1 | 755.5 | ||||||
Cash and Cash Equivalents at End of Period
|
$ | 632.8 | $ | 796.2 | ||||
4
5
6
7
8
9
10
11
12
13
14
15
16
(Dollars in millions, except share and per share data)
June 30,
December 31,
2011
2010
$
59.0
$
57.9
425.9
371.9
444.0
398.7
$
928.9
$
828.5
Table of Contents
June 30,
December 31,
2011
2010
$
634.9
$
623.2
2,872.7
2,830.8
3,507.6
3,454.0
(2,264.5
)
(2,186.3
)
$
1,243.1
$
1,267.7
Process
Aerospace
Industries
and Defense
Steel
Total
$
50.0
$
162.3
$
12.1
$
224.4
1.3
0.3
0.5
2.1
$
51.3
$
162.6
$
12.6
$
226.5
Table of Contents
As of June 30, 2011
As of December 31, 2010
Gross
Net
Gross
Net
Carrying
Accumulated
Carrying
Carrying
Accumulated
Carrying
Amount
Amortization
Amount
Amount
Amortization
Amount
$
81.5
$
20.8
$
60.7
$
82.0
$
18.6
$
63.4
2.0
2.0
2.0
2.0
2.1
1.1
1.0
2.1
1.0
1.1
0.4
0.1
0.3
0.4
0.1
0.3
8.4
3.6
4.8
8.2
3.3
4.9
4.4
3.4
1.0
4.4
3.3
1.1
38.9
7.3
31.6
39.0
6.3
32.7
6.0
5.1
0.9
6.0
5.0
1.0
8.8
2.9
5.9
8.8
2.7
6.1
2.7
2.1
0.6
2.7
1.9
0.8
7.6
6.4
1.2
7.6
6.0
1.6
$
162.8
$
54.8
$
108.0
$
163.2
$
50.2
$
113.0
$
2.0
$
2.0
$
2.0
$
2.0
14.2
14.2
14.2
14.2
$
16.2
$
16.2
$
16.2
$
16.2
$
179.0
$
54.8
$
124.2
$
179.4
$
50.2
$
129.2
June 30,
December 31,
2011
2010
$
22.9
$
22.4
$
22.9
$
22.4
Table of Contents
June 30,
December 31,
2011
2010
$
175.0
$
175.0
249.8
249.7
12.2
12.2
9.5
9.5
17.0
17.0
6.1
8.3
28.4
19.6
498.0
491.3
7.4
9.6
$
490.6
$
481.7
Table of Contents
June 30,
December 31,
2011
2010
| |
$
8.0
$
5.4
2.4
6.0
(0.8
)
(3.4
)
$
9.6
$
8.0
The Timken Company Shareholders
Earnings
Accumulated
Other
Invested
Other
Stated
Paid-In
in the
Comprehensive
Treasury
Noncontrolling
Total
Capital
Capital
Business
(Loss)
Stock
Interest
$
1,941.8
$
53.1
$
881.7
$
1,626.4
$
(624.7
)
$
(11.5
)
$
16.8
236.1
234.2
1.9
46.5
46.5
18.5
18.5
0.3
0.2
0.1
0.1
0.1
301.5
(1.2
)
(1.2
)
(37.1
)
(37.1
)
10.0
10.0
9.2
9.2
(25.3
)
(25.3
)
16.3
(17.0
)
33.3
(0.6
)
(0.7
)
0.1
(8.3
)
(8.3
)
$
2,206.3
$
53.1
$
883.2
$
1,823.5
$
(559.4
)
$
(11.7
)
$
17.6
Table of Contents
Three Months Ended
Six Months Ended
June 30,
June 30,
2011
2010
2011
2010
$
121.5
$
81.4
$
234.2
$
109.7
0.4
0.4
0.9
0.5
$
121.1
$
81.0
$
233.3
$
109.2
97,644,773
96,305,087
97,552,528
96,336,974
1,255,219
716,085
1,353,328
608,675
98,899,992
97,021,172
98,905,856
96,945,649
$
1.24
$
0.84
$
2.39
$
1.13
$
1.22
$
0.84
$
2.36
$
1.13
Table of Contents
Three Months Ended
Six Months Ended
June 30,
June 30,
2011
2010
2011
2010
$
465.1
$
400.4
$
908.0
$
767.9
307.5
211.0
591.6
416.9
83.5
82.7
162.6
174.8
473.5
317.3
921.5
565.5
$
1,329.6
$
1,011.4
$
2,583.7
$
1,925.1
$
0.1
$
$
0.2
$
0.8
0.6
1.7
1.3
31.6
20.8
65.1
42.9
$
32.5
$
21.4
$
67.0
$
44.2
$
66.8
$
68.6
$
134.8
$
108.2
70.3
28.3
137.0
52.4
3.3
6.1
5.5
18.0
72.1
43.0
132.1
62.9
$
212.5
$
146.0
$
409.4
$
241.5
(20.4
)
(17.8
)
(38.4
)
(32.2
)
(9.3
)
(10.0
)
(19.1
)
(19.6
)
1.4
0.9
2.9
1.5
(0.4
)
1.1
0.2
3.6
$
183.8
$
120.2
$
355.0
$
194.8
Table of Contents
Mobile
Process
Aerospace
Industries
Industries
& Defense
Steel
Corporate
Total
| | | | | |
$
0.1
$
0.2
$
0.1
$
$
$
0.4
0.2
0.2
5.4
0.2
5.6
$
5.7
$
0.4
$
0.1
$
$
$
6.2
Mobile
Process
Aerospace
Industries
Industries
& Defense
Steel
Corporate
Total
| | | | | |
$
(0.6
)
$
$
0.8
$
(0.1
)
$
$
0.1
0.5
0.2
0.2
0.9
$
(0.1
)
$
0.2
$
1.0
$
(0.1
)
$
$
1.0
Mobile
Process
Aerospace
Industries
Industries
& Defense
Steel
Corporate
Total
$
0.1
$
0.2
$
0.1
$
$
$
0.4
0.1
0.1
6.6
0.2
6.8
$
6.8
$
0.4
$
0.1
$
$
$
7.3
Mobile
Process
Aerospace
Industries
Industries
& Defense
Steel
Corporate
Total
$
1.6
$
1.6
$
1.4
$
(0.1
)
$
0.6
$
5.1
0.9
0.2
0.3
1.4
$
2.5
$
1.8
$
1.7
$
(0.1
)
$
0.6
$
6.5
Table of Contents
June 30
,
December 31,
2011
2010
| |
$
22.1
$
34.0
6.9
17.0
(4.2
)
(28.9
)
$
24.8
$
22.1
Table of Contents
Pension
Postretirement
Three Months Ended
Three Months Ended
June 30,
June 30,
2011
2010
2011
2010
$
7.9
$
7.0
$
0.7
$
0.4
39.6
39.3
7.5
8.4
(57.5
)
(50.8
)
(1.5
)
2.3
2.4
0.2
(0.4
)
15.2
13.7
0.5
0.7
$
7.5
$
11.6
$
7.4
$
9.1
Pension
Postretirement
Six Months Ended
Six Months Ended
June 30,
June 30,
2011
2010
2011
2010
$
16.2
$
16.5
$
1.2
$
1.1
79.4
79.0
16.2
17.5
(107.6
)
(100.1
)
(2.2
)
4.7
4.7
(0.2
)
(0.7
)
28.0
25.9
1.5
2.0
$
20.7
$
26.0
$
16.5
$
19.9
Three Months Ended
Six Months Ended
June 30,
June 30,
2011
2010
2011
2010
$
61.5
$
38.2
$
118.9
$
84.1
33.4
%
31.8
%
33.5
%
43.2
%
Table of Contents
Unadjusted quoted prices in active markets for identical assets or liabilities.
Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Unobservable inputs for the asset or liability.
Fair Value at June 30, 2011
Total
Level 1
Level 2
Level 3
| | | |
$
632.8
$
632.8
$
$
29.0
29.0
0.5
0.5
$
662.3
$
661.8
$
0.5
$
$
5.8
$
$
5.8
$
$
5.8
$
$
5.8
$
Table of Contents
Carrying
Fair Value
Value
Adjustment
Fair Value
$
4.7
$
(3.2
)
$
1.5
6.9
(2.8
)
4.1
$
11.6
$
(6.0
)
$
5.6
$
0.4
$
(0.4
)
$
$
12.0
$
(6.4
)
$
5.6
Table of Contents
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
Mobile Industries
provides bearings, power transmission components and related products and
services to original equipment manufacturers and suppliers of agricultural, construction and
mining equipment, passenger cars, light trucks, medium and heavy-duty trucks, rail cars and
locomotives, as well as to automotive and heavy truck aftermarket distributors.
Process Industries
provides bearings, power transmission components and related products
and services to original equipment manufacturers and suppliers of power transmission, energy
and heavy industries machinery and equipment. This includes rolling mills, cement and
aggregate processing equipment, paper mills, sawmills, printing presses, cranes, hoists,
drawbridges, wind energy turbines, gear drives, drilling equipment, coal conveyors, coal
crushers and food processing equipment. This segment also serves the industrial aftermarket
through its global network of authorized distributors.
Aerospace and Defense
provides bearings, helicopter transmission systems, rotor head
assemblies, turbine engine components, gears and other precision flight-critical components
for commercial and military aviation applications and also provides aftermarket services,
including repair and overhaul of engines, transmissions and fuel controls, as well as
aerospace bearing repair and component reconditioning. Additionally, this segment
manufactures precision bearings, higher-level assemblies and sensors for equipment
manufacturers of health and positioning control equipment.
Steel
produces more than 450 grades of carbon and alloy steel, which are sold in both solid
and tubular sections in a variety of chemistries, lengths and finishes. This segments
metallurgical expertise and operational capabilities result in solutions for the automotive,
industrial and energy sectors. Timken
®
specialty steels feature prominently in a wide variety
of end products including oil country drill pipe, bits and collars, gears, hubs, axles,
crankshafts and connecting rods, bearing races and rolling elements, and bushings, fuel
injectors and wind energy shafts.
For differentiation, the Company undertakes investments in new technologies to enhance
existing products and services and to create new products that capture value for its
customers. The Company recently broadened its product offering by introducing new housed
bearings, adding to its spherical and cylindrical bearing line, developing new products and
services for the wind energy market sector including a new Timken
®
UltraWind P1 seal and
introducing several new grades of steel.
Regarding expansion, the Companys strategy is to grow in attractive sectors, with
particular emphasis on those industrial markets that test the limits of the Companys products
and create significant aftermarket, thereby providing a lifetime of opportunity in both
product sales and services. The Companys strategy also encompasses expanding its portfolio
in new geographic spaces with an emphasis in Asia. The Companys acquisition strategy is
directed at complementing its existing portfolio and expanding the Companys market position.
Table of Contents
In May 2011, the Company announced an agreement to acquire the assets of Philadelphia Gear
Corp. (Philadelphia Gear), a leading provider of high-performance gear drives and components
with a strong focus on value-added aftermarket capabilities in the industrial and military
marine sectors, for $200 million. Based in King of Prussia, Pennsylvania and employing
approximately 220 people, Philadelphia Gear had trailing 12-month sales through March 2011 of
approximately $85 million. The Company completed this acquisition on July 1, 2011.
Philadelphia Gear will be part of the Process Industries segment.
In May 2011, the Company sold its equity investment in International Components Supply LTDA
(ICS) to the SKF Group for approximately $4.8 million. The Company and the SKF Group had
previously purchased their 50% equity investments in ICS in early 2001. Located in Sao Paulo,
Brazil, ICS manufactures forged and turned steel rings for tapered roller and ball bearings.
The Company recorded a gain of approximately $0.5 million on the sale of its equity investment
in ICS.
In May 2011, the Company announced plans to build an 18,000 square foot Wind Energy
Research and Development Center in Canton, Ohio. The cost is expected to be approximately
$11.8 million. This new center will be focused on advanced development of bearing systems in
wind turbines.
In April 2011, the Company announced it will increase its annual steelmaking capacity by
120,000 tons across its steel manufacturing facilities in Canton, Ohio. The Company is
achieving this increase through a series of improvements at its Harrison Steel Plant.
Additional investments and crew additions will enable a further increase in output and will
allow the Company to optimize production loads between its Harrison and Faircrest plants.
These changes will effectively create new capacity at both of these steel facilities to
support growing demand for finished bar products and billets for tubing product which serve
customers in the global industrial, oil and gas, and mobile markets.
Table of Contents
Three Months Ended
June 30,
2011
2010
$ Change
% Change
$
1,329.6
$
1,011.4
$
318.2
31.5
%
122.3
82.0
40.3
49.1
%
4.2
(4.2
)
(100.0
)%
0.8
0.6
0.2
33.3
%
121.5
85.6
35.9
41.9
%
$
1.22
$
0.84
$
0.38
45.2
%
0.04
(0.04
)
(100.0
)%
$
1.22
$
0.88
$
0.34
38.6
%
98,899,992
97,021,172
1.9
%
Six Months Ended
June 30,
2011
2010
$ Change
% Change
$
2,583.7
$
1,925.1
$
658.6
34.2
%
236.1
110.7
125.4
113.3
%
4.5
(4.5
)
(100.0
)%
1.9
1.0
0.9
90.0
%
234.2
114.2
120.0
105.1
%
$
2.36
$
1.13
$
1.23
108.8
%
0.04
(0.04
)
(100.0
)%
$
2.36
$
1.17
$
1.19
101.7
%
98,905,856
96,945,649
2.0
%
Table of Contents
Three Months Ended
June 30,
2011
2010
$ Change
% Change
$
465.1
$
400.4
$
64.7
16.2
%
307.5
211.0
96.5
45.7
%
83.5
82.7
0.8
1.0
%
473.5
317.3
156.2
49.2
%
$
1,329.6
$
1,011.4
$
318.2
31.5
%
Six Months Ended
June 30,
2011
2010
$ Change
% Change
$
908.0
$
767.9
$
140.1
18.2
%
591.6
416.9
174.7
41.9
%
162.6
174.8
(12.2
)
(7.0
)%
921.5
565.5
356.0
63.0
%
$
2,583.7
$
1,925.1
$
658.6
34.2
%
Table of Contents
Three Months Ended
June 30,
2011
2010
$ Change
Change
$
350.5
$
268.3
$
82.2
30.6
%
26.4
%
26.5
%
(10) bps
Six Months Ended
June 30,
2011
2010
$ Change
Change
$
683.8
$
491.0
$
192.8
39.3
%
26.5
%
25.5
%
100 bps
Three Months Ended
June 30,
2011
2010
$ Change
Change
$
153.7
$
140.7
$
13.0
9.2
%
11.6
%
13.9
%
(230) bps
Six Months Ended
June 30,
2011
2010
$ Change
Change
$
304.0
$
273.7
$
30.3
11.1
%
11.8
%
14.2
%
(240) bps
Table of Contents
Three Months Ended
June 30,
2011
2010
$ Change
$
0.4
$
$
0.4
0.2
0.1
0.1
5.6
0.9
4.7
$
6.2
$
1.0
$
5.2
Six Months Ended
June 30,
2011
2010
$ Change
$
0.4
$
$
0.4
0.1
5.1
(5.0
)
6.8
1.4
5.4
$
7.3
$
6.5
$
0.8
Table of Contents
Three Months Ended
June 30,
2011
2010
$ Change
% Change
$
9.3
$
10.0
$
(0.7
)
(7.0
)%
$
1.4
$
0.9
$
0.5
55.6
%
Six Months Ended
June 30,
2011
2010
$ Change
% Change
$
19.1
$
19.6
$
(0.5
)
(2.6
)%
$
2.9
$
1.5
$
1.4
93.3
%
Three Months Ended
June 30,
2011
2010
$ Change
Change
$
61.5
$
38.2
$
23.3
61.0
%
33.4
%
31.8
%
160 bps
Six Months Ended
June 30,
2011
2010
$ Change
Change
$
118.9
$
84.1
$
34.8
41.4
%
33.5
%
43.2
%
(970) bps
Table of Contents
Three Months Ended
June 30,
2011
2010
$ Change
% Change
$
$
4.2
$
(4.2
)
(100.0
)%
$
$
4.2
$
(4.2
)
(100.0
)%
Six Months Ended
June 30,
2011
2010
$ Change
% Change
$
$
4.5
$
(4.5
)
(100.0
)%
$
$
4.5
$
(4.5
)
(100.0
)%
Table of Contents
Three Months Ended
June 30,
2011
2010
$ Change
Change
$
465.2
$
400.4
$
64.8
16.2
%
$
66.8
$
68.6
$
(1.8
)
(2.6
)%
14.4
%
17.1
%
(270) bps
Three Months Ended
June 30,
2011
2010
$ Change
% Change
$
465.2
$
400.4
$
64.8
16.2
%
19.4
19.4
NM
$
445.8
$
400.4
$
45.4
11.3
%
Six Months Ended
June 30,
2011
2010
$ Change
Change
$
908.2
$
767.9
$
140.3
18.3
%
$
134.8
$
108.2
$
26.6
24.6
%
14.8
%
14.1
%
70 bps
Six Months Ended
June 30,
2011
2010
$ Change
% Change
$
908.2
$
767.9
$
140.3
18.3
%
25.1
25.1
NM
$
883.1
$
767.9
$
115.2
15.0
%
Table of Contents
Three Months Ended
June 30,
2011
2010
$ Change
Change
$
308.3
$
211.6
$
96.7
45.7
%
$
70.3
$
28.3
$
42.0
148.4
%
22.8
%
13.4
%
940 bps
Three Months Ended
June 30,
2011
2010
$ Change
% Change
$
308.3
$
211.6
$
96.7
45.7
%
7.5
7.5
NM
11.3
11.3
NM
$
289.5
$
211.6
$
77.9
36.8
%
Six Months Ended
June 30,
2011
2010
$ Change
Change
$
593.3
$
418.2
$
175.1
41.9
%
$
137.0
$
52.4
$
84.6
161.5
%
23.1
%
12.5
%
1,060 bps
Six Months Ended
June 30,
2011
2010
$ Change
% Change
$
593.3
$
418.2
$
175.1
41.9
%
13.0
13.0
NM
15.0
15.0
NM
$
565.3
$
418.2
$
147.1
35.2
%
Table of Contents
Three Months Ended
June 30,
2011
2010
$ Change
Change
$
83.5
$
82.7
$
0.8
1.0
%
$
3.3
$
6.1
$
(2.8
)
(45.9
)%
4.0
%
7.4
%
(340) bps
Three Months Ended
June 30,
2011
2010
$ Change
% Change
$
83.5
$
82.7
$
0.8
1.0
%
1.1
1.1
NM
$
82.4
$
82.7
$
(0.3
)
(0.4
)%
Six Months Ended
June 30,
2011
2010
$ Change
Change
$
162.6
$
174.8
$
(12.2
)
(7.0
)%
$
5.5
$
18.0
$
(12.5
)
(69.4
)%
3.4
%
10.3
%
(690) bps
Six Months Ended
June 30,
2011
2010
$ Change
% Change
$
162.6
$
174.8
$
(12.2
)
(7.0
)%
1.5
1.5
NM
$
161.1
$
174.8
$
(13.7
)
(7.8
)%
Table of Contents
Three Months Ended
June 30,
2011
2010
$ Change
Change
$
505.1
$
338.1
$
167.0
49.4
%
$
72.1
$
43.0
$
29.1
67.7
%
14.3
%
12.7
%
160 bps
Three Months Ended
June 30,
2011
2010
$ Change
% Change
$
505.1
$
338.1
$
167.0
49.4
%
2.0
2.0
NM
0.5
0.5
NM
$
502.6
$
338.1
$
164.5
48.7
%
Table of Contents
Six Months Ended
June 30,
2011
2010
$ Change
Change
$
986.6
$
608.4
$
378.2
62.2
%
$
132.1
$
62.9
$
69.2
110.0
%
13.4
%
10.3
%
310 bps
Six Months Ended
June 30,
2011
2010
$ Change
% Change
$
986.6
$
608.4
$
378.2
62.2
%
3.7
3.7
NM
0.8
0.8
NM
$
982.1
$
608.4
$
373.7
61.4
%
Table of Contents
Three Months Ended
June 30,
2011
2010
$ Change
Change
$
20.4
$
17.8
$
2.6
14.6
%
1.5
%
1.8
%
(30) bps
Six Months Ended
June 30,
2011
2010
$ Change
Change
$
38.4
$
32.2
$
6.2
19.3
%
1.5
%
1.7
%
(20) bps
Table of Contents
June 30,
December 31,
2011
2010
$ Change
% Change
$
632.8
$
877.1
$
(244.3
)
(27.9
)%
4.8
4.8
NM
718.8
516.6
202.2
39.1
%
928.9
828.5
100.4
12.1
%
100.5
100.4
0.1
0.1
%
12.4
11.3
1.1
9.7
%
72.6
65.3
7.3
11.2
%
$
2,470.8
$
2,399.2
$
71.6
3.0
%
June 30,
December 31,
2011
2010
$ Change
% Change
$
3,507.6
$
3,454.0
$
53.6
1.6
%
(2,264.5
)
(2,186.3
)
(78.2
)
(3.6
)%
$
1,243.1
$
1,267.7
$
(24.6
)
(1.9
)%
June 30,
December 31,
2011
2010
$ Change
% Change
$
226.5
$
224.4
$
2.1
0.9
%
124.2
129.2
(5.0
)
(3.9
)%
68.0
121.5
(53.5
)
(44.0
)%
42.5
38.4
4.1
10.7
%
$
461.2
$
513.5
$
(52.3
)
(10.2
)%
Table of Contents
June 30,
December 31,
2011
2010
$ Change
% Change
$
22.9
$
22.4
$
0.5
2.2
%
314.6
263.5
51.1
19.4
%
203.1
233.4
(30.3
)
(13.0
)%
23.5
14.0
9.5
67.9
%
0.9
0.7
0.2
28.6
%
183.5
176.3
7.2
4.1
%
7.4
9.6
(2.2
)
(22.9
)%
$
755.9
$
719.9
$
36.0
5.0
%
June 30,
December 31,
2011
2010
$ Change
% Change
$
490.6
$
481.7
$
8.9
1.8
%
154.0
394.5
(240.5
)
(61.0
)%
448.7
531.2
(82.5
)
(15.5
)%
6.2
6.0
0.2
3.3
%
113.4
105.3
8.1
7.7
%
$
1,212.9
$
1,518.7
$
(305.8
)
(20.1
)%
June 30,
December 31,
2011
2010
$ Change
% Change
$
936.3
$
934.8
$
1.5
0.2
%
1,823.5
1,626.4
197.1
12.1
%
(559.4
)
(624.7
)
65.3
10.5
%
(11.7
)
(11.5
)
(0.2
)
(1.7
)%
17.6
16.8
0.8
4.8
%
$
2,206.3
$
1,941.8
$
264.5
13.6
%
Table of Contents
For the Six Months Ended
June 30,
2011
2010
$ Change
$
(162.9
)
$
164.0
$
(326.9
)
(61.0
)
(37.4
)
(23.6
)
(41.9
)
(49.9
)
8.0
21.5
(36.0
)
57.5
$
(244.3
)
$
40.7
$
(285.0
)
For the Six Months Ended
June 30,
2011
2010
$
(191.7
)
$
(103.8
)
(86.6
)
(45.7
)
46.9
67.5
(38.8
)
15.4
Table of Contents
June 30,
December 31,
2011
2010
$
22.9
$
22.4
7.4
9.6
490.6
481.7
520.9
513.7
(632.8
)
(877.1
)
(4.8
)
$
(116.7
)
$
(363.4
)
June 30,
December 31,
2011
2010
$
(116.7
)
$
(363.4
)
2,206.3
1,941.8
$
2,089.6
$
1,578.4
(5.6
)%
(23.0
)%
Table of Contents
Table of Contents
deterioration in world economic conditions, including additional adverse effects from
the global economic slowdown, terrorism or hostilities. This includes: political risks
associated with the potential instability of governments and legal systems in countries in
which the Company or its customers conduct business, and changes in currency valuations;
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 changes in customer demand, the effects of customer bankruptcies or
liquidations, the impact of changes in industrial business cycles and whether conditions
of fair trade continue in the U.S. markets;
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
Companys products are sold or distributed;
changes in operating costs. This includes: the effect of changes in the Companys
manufacturing processes; changes in costs associated with varying levels of operations and
manufacturing capacity; higher cost and availability of raw materials and energy; the
Companys ability to mitigate the impact of fluctuations in raw materials and energy costs
and the operation of the Companys surcharge mechanism; changes in the expected costs
associated with product warranty claims; 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;
Table of Contents
the success of the Companys operating plans; the ability to integrate acquired
companies; the ability of acquired companies to achieve satisfactory operating results,
including Philadelphia Gears results being accretive to earnings; and the Companys
ability to maintain appropriate relations with unions that represent Company associates in
certain locations in order to avoid disruptions of business;
unanticipated litigation, claims or assessments. This includes, but is not limited to,
claims or problems related to intellectual property, product liability or warranty,
environmental issues, and taxes;
changes in worldwide financial markets, including availability of financing and
interest rates, which affect: the Companys cost of funds and/or ability to raise capital;
the Companys pension obligations and investment performance; and/or customer demand and
the ability of customers to obtain financing to purchase the Companys products or
equipment that contain the Companys products; and
those items identified under Item 1A. Risk Factors in the Companys Annual Report on
Form 10-K for the year ended December 31, 2010.
Table of Contents
Refer to information appearing under the caption Managements Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q. Furthermore, a discussion of market risk exposures is included in Part II, Item 7A. Quantitative and Qualitative Disclosure about Market Risk, of the Companys Annual Report on Form 10-K for the year ended December 31, 2010. There have been no material changes in exposures to market risk since the discussion included in the Companys Annual Report on Form 10-K referenced above. |
(a) | Disclosure 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 Companys management, including the Companys principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based upon that evaluation, the principal executive officer and principal financial officer concluded that the Companys disclosure controls and procedures were effective as of the end of the period covered by this report. | |||
(b) | Changes in Internal Control Over Financial Reporting | ||
During the Companys most recent fiscal quarter, there have been no changes in the Companys internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting. |
38
39
40
The Company is involved in various claims and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these matters is not
expected to have a materially adverse effect on the Companys consolidated financial position
or results of operations.
Our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 includes a detailed
discussion of our risk factors. There have been no material changes to the risk factors
included the Companys Annual Report on Form 10-K for the year ended December 31, 2010.
The following table provides information about purchases by the Company during the quarter
ended June 30, 2011 of its common stock.
Total number
Maximum
of shares
number of
purchased as
shares that
part of publicly
may yet
Total number
Average
announced
be purchased
of shares
price paid
plans or
under the plans
Period
purchased
(1)
per share
(2)
programs
or programs
(3)
21,636
$
55.92
2,500,000
2,940
52.62
2,500,000
1,010
48.61
2,500,000
25,586
$
55.25
2,500,000
(1)
The shares purchased represent shares of the Companys common stock that are
owned and tendered by employees to exercise stock options, and to satisfy withholding obligations
in connection with the exercise of stock options and vesting of restricted shares.
(2)
For shares tendered in connection with the vesting of restricted shares, the average
price paid per share is an average calculated using the daily high and low of the Companys common
stock as quoted on the New York Stock Exchange at the time of vesting. For shares tendered in
connection with the exercise of stock options, the price paid is the real-time trading stock price
at the time the options are exercised.
(3)
Pursuant to the Companys 2006 common stock purchase plan, the Company may purchase
up to four million shares of common stock at an amount not to exceed $180 million in the aggregate.
The Company may purchase shares under its 2006 common stock purchase plan until December 31, 2012.
The Company may purchase shares from time to time in open market purchases or privately negotiated
transactions. The Company may make all or part of the purchases pursuant to accelerated share purchases or Rule
10b5-1 plans.
Table of Contents
10.1
Form of Employee Excess Benefits Agreement, entered into with certain Executive
Officers and certain key employees of the Company on or after January 1, 2011.
12
Computation of Ratio of Earnings to Fixed Charges
31.1
Certification of James W. Griffith, President and Chief Executive Officer
(principal executive officer) of The Timken Company, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2
Certification of Glenn A. Eisenberg, Executive Vice President Finance and
Administration (principal financial officer) of The Timken Company, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32
Certifications of James W. Griffith, President and Chief Executive Officer
(principal executive officer) and Glenn A. Eisenberg, Executive Vice President
Finance and Administration (principal financial officer) of The Timken Company,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
Financial statements from the quarterly report on Form 10-Q of The Timken
Company for the quarter ended June 30, 2011, filed on August 4, 2011, formatted in
XBRL: (i) the Consolidated Statements of Income, (ii) the Consolidated Balance Sheets,
(iii) the Consolidated Statements of Cash Flows and (iv) the Notes to the Consolidated
Financial Statements.
Table of Contents
THE TIMKEN COMPANY
Date: August 4, 2011
By
/s/ James W. Griffith
James W. Griffith
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: August 4, 2011
By
/s/ Glenn A. Eisenberg
Glenn A. Eisenberg
Executive Vice President Finance
and Administration (Principal Financial Officer)
1. | Timken shall provide the following Excess Benefits: |
(a) | Except as provided in Section 2(a), if, under the Amended and Restated Supplemental Pension Plan of The Timken Company (the Supplemental Plan), the Employee would be eligible for a benefit pursuant to paragraph 2(a) of the Supplemental Plan but for this Agreement and the Employee Terminates Employment (as defined in Section 4(a) of this Agreement) after having been an elected officer of Timken for five or more years, the Employee shall be eligible to receive a benefit in an amount equal to the difference between |
(i) | the monthly pension the Employee would be entitled to receive under the 1984 Retirement Plan for Salaried Employees of The Timken Company, the Retirement Plan for Salaried Employees of The Timken Company and the Timken-Latrobe-MPB-Torrington Retirement Plan (hereinafter the Retirement Plans) were it not for the limitations imposed by the Employee Retirement Income Security Act of 1974, as amended, (ERISA) and Sections 401 and 415 of the Internal Revenue Code of 1986, as amended (hereinafter collectively referred to as the Code Limitations), and | ||
(ii) | the monthly pension he would actually receive under the Retirement Plans. |
If any portion of the Employees benefit under the Retirement Plans is not payable at the same time the Employees Excess Benefits are payable, the corresponding portion of the Excess Benefit under this Section 1(a) shall be determined by calculating such corresponding portion of the Excess Benefit that would be payable under Section 1(a) and that portion of the benefit that would be payable under the Retirement Plans at age 65 and then actuarially reducing such Excess Benefit from age 65 to the commencement date provided under this Agreement for the Excess Benefits. Any actuarial adjustments under this Section 1(a) shall be based on the applicable mortality table, as defined in Section 417(e)(3) of the Internal Revenue Code of 1986 (the Code) and the applicable interest rate as defined in Section 417(e)(3) of the Code, during the third calendar month (October) immediately preceding the first day of the calendar year in which the determination is made. | |||
The Excess Benefits to which the Employee is entitled under this Section 1(a) shall commence, subject to Section 3, on the first day of the month following the later of (A) the Employees Termination of Employment or (B) the Employees ____ birthday 1 . The form of payment of the Excess Benefits to which the Employee is entitled under this Section 1(a) shall be as specified under the provisions applicable to Participants under the Supplemental Plan. | |||
(b) | If a married Employee dies after having been an elected officer of Timken for five or more years but prior to commencement of the Employees benefit payments and the Employees Spouse is entitled to a monthly pension under the Retirement Plans, Timken shall pay to the Employees Spouse an amount equal to the difference between the monthly pension the Employees Spouse would be entitled to receive under the Retirement Plans, were it not for the Code Limitations, and the monthly pension the Employees Spouse would actually receive under the Retirement Plans. Monthly payments shall be made until the Spouses death. A Spouses benefit under this Section 1(b), shall commence on the first day of the month following the later of (A) the Employees death, or (B) the date on which the Employee would have reached age 55. | ||
(c) | Except as provided in Section 2(a), if the Employee Terminates Employment after having been an elected officer of Timken for five or more years, the Employee shall be entitled to a monthly benefit under this Agreement equal to 60% of one-twelfth of Final Average Earnings (as defined in the Retirement Plans without consideration of the pay limitation under Internal Revenue Code (Code) Section 401(a)(17) and based on a five non-consecutive year average), multiplied by the following ratio: |
1 | This age should be 55 or the date elected by the participant under the Supplement Plan prior to Jan. 1, 2009 to be consistent with the Supplemental Plan and to avoid impermissible changes to timing of payment under Section 409A. |
- 2 -
reduced by each of the following: |
(i) | the monthly payment from the Retirement Plans before any adjustments for optional forms of benefits are made but after any adjustment for early commencement, | ||
(ii) | the monthly payment under subsection (a) above before any adjustments for optional forms of benefits are made but after any adjustment for early commencement, and | ||
(iii) | the monthly annuity value of the account balance the employee would have accumulated under the Savings and Investment Pension (SIP) Plan and any other qualified defined contribution plans sponsored by Timken and the Post-Tax Savings Plan (the Savings Plans) on the date that Excess Benefits are to commence under this Section 1(c), but excluding amounts contributed by the Employee, such account balance being determined in the manner set forth in the next to last paragraph of this Section 1(c). |
The benefit to which the Employee is entitled to receive under this Section 1(c) shall commence, subject to Section 3, on the first day of the month following the later of (A) the Employees Termination of Employment, or (B) the Employees ___ birthday, 2 and shall be paid in the form of a monthly annuity for the life of the Employee. Continuous Service shall mean the Employees years of Continuous Service as determined under the applicable Retirement Plans or Savings Plans as of the Employees Termination of Employment or, if earlier, death. Notwithstanding any provision to the contrary, for purposes of the ratio set forth in the first paragraph of this Section 1(c), if an Employee who has been an elected officer of Timken for five or more years but who has less than 15 years of Continuous Service experiences an involuntary Termination of Employment as a result of a layoff and such Termination of Employment is not for Cause (as defined in Section 2(b), below), the Employee will be credited, as of Employees Termination of Employment, with the lesser of (C) two additional years of Continuous Service or (D) the number of years of Continuous Service necessary for the Employees total years of Continuous Service to equal 15. | |||
In the event the benefits described in Sections 1(c)(i) and 1(c)(ii) are not payable immediately because the Employee has not met the service requirements in the Retirement Plans, for purposes of this section, the benefits will be reduced for early commencement in the same manner as if the Employee met the service requirement for immediate commencement. | |||
For purposes of Section 1(c)(iii), the account balances related to the Savings Plans will be determined by (A) assuming the Employee received in an account held for the Employee under the Savings Plans the maximum amount of matching contributions at the rate specified for matching contributions in Exhibit B for each year he was an employee and eligible to participate in the Savings Plans and (B) assuming Timkens contributions to the account held for the Employee under the Savings Plan, in addition to the matching |
2 | See Footnote No. 1. |
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contributions described in (A), consisted only of the Core Contributions (as defined in the Savings Plans) under the Savings Plans at the rate specified for Core Contributions in Exhibit B for each year he was an employee and eligible for Core Contributions in the Savings Plans. Interest will be credited to such account at a rate of eight percent (8%) per annum beginning at the end of the year to which the contributions are attributable. The monthly annuity will be that which could be purchased on the date of the Employees Termination of Employment with the account balance at the date that Excess Benefits are to commence under this Section 1(c) from an insurance company which at the time of purchase has the highest rating by A. M. Best assuming that the annuity is purchased with assets from a qualified retirement plan, is based on group rates, is on a no commission basis and is payable for the Employees lifetime, with no continuation after the Employees death. | |||
Notwithstanding the foregoing provisions of this subsection (c), if the Employees benefit payable under this subsection (c) commences prior to attaining age 62, such benefit (before the reductions described in Sections 1(c)(i), 1(c)(ii) and 1(c)(iii) are made) shall be reduced by 4% for each year by which the commencement date of the benefit precedes age 62. | |||
(d) | If a married Employee is eligible for a benefit under Section 1(c), his surviving spouse shall be entitled to a monthly benefit after the death of the Employee as follows: |
(i) | If a married Employee dies after the Employee has started to receive the benefit provided for under Section 1(c), the Employees surviving spouse shall be entitled to receive an immediate monthly benefit equal to 50% of the amount the Employee was receiving pursuant to Section 1(c). Such benefit will commence on the first day of the month next following the month of the Employees death. | ||
(ii) | If a married Employee dies before the Employee has started to receive the benefit provided for under Section 1(c) but after having been an elected officer of Timken for five or more years, the Employees Surviving Spouse shall be entitled to a monthly benefit equal to 50% of the amount the Employee would have received pursuant to Section 1(c) if the Employee had commenced to receive that monthly benefit at the Surviving Spouses benefit commencement date specified below, determined by taking into account the Employees Final Average Earnings and years of Continuous Service as of the Employees date of death. The surviving spouses benefit payments pursuant to this subsection (ii) will commence on the first day of the month next following the later of (A) the Employees death, or (B) the date on which the Employee would have reached age 55. | ||
(iii) | Monthly payments to a surviving spouse pursuant to this Section 1(d) shall be made until the spouses death. |
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2. | (a) If (i) the Employee voluntarily terminates employment with Timken prior to having been an elected officer of Timken for five or more years, (ii) Timken discharges the Employee or requests that he resign his employment, prior to the Employee having been an elected officer of Timken for five or more years, or (iii) the Employees employment with Timken terminates for Cause, no Excess Benefits shall become due and payable to the Employee and this Agreement shall be considered terminated. |
(b) | For purposes of this Section 2, a termination shall be deemed to have been for Cause only if based on the fact that the Employee has done any of the following acts and such is materially harmful to Timken: |
(i) | An intentional act of fraud, embezzlement or theft in connection with the Employees duties with Timken and resulting or intended to result directly or indirectly in substantial personal gain to the Employee at the expense of Timken; | ||
(ii) | Intentional wrongful disclosure of secret processes or confidential information of Timken or any of its subsidiaries; or | ||
(iii) | Intentional wrongful engagement in any Competitive Activity which would constitute a material breach of the Employees duty of loyalty to Timken. | ||
For purposes of this Section 2, the term Competitive Activity shall mean the Employees participation, without the written consent of an officer of Timken, in the management of any business enterprise if such enterprise engages in substantial and direct competition with Timken and such enterprises sales of any product or service competitive with any product or service of Timken amounted to 25% of such enterprises net sales for its most recently completed fiscal year and if Timkens net sales of said product or service amounted to 25% of Timkens net sales for its most recently completed fiscal year. Competitive Activity shall not include (A) the mere ownership of securities in any enterprise and exercise of rights appurtenant thereto or (B) participation in the management of any enterprise or business operation thereof other than in connection with the competitive operation of such enterprise. | |||
For purposes of this Section 2(b), no act, or failure to act, on the part of the Employee shall be deemed intentional unless done, or omitted to be done, by the Employee not in good faith and without reasonable belief that his action or omission was in or not opposed to the best interest of Timken. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause hereunder unless and until there shall have been delivered to the Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the |
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Directors then in office at a meeting of the Directors called and held for such purpose (after reasonable notice to the Employee and an opportunity for the Employee, together with his counsel, to be heard before the Directors), finding that, in the good faith opinion of the Directors, the Employee had committed an act set forth in subsection (b) of this Section and specifying the particulars thereof in detail. Nothing herein shall limit the right of the Employee or his beneficiaries to contest the validity or propriety of any such determination. |
3. | Notwithstanding any provision of this Agreement to the contrary, if the Employee is a specified employee, determined pursuant to procedures adopted by Timken in compliance with Section 409A of the Code, on the date the Employee Terminates Employment and if any portion of the payments to be received by the Employee are by reason of his Termination of Employment, then to the extent necessary to comply with Section 409A, amounts that would otherwise be payable pursuant to this Agreement during the six-month period immediately following the Employees Termination of Employment will instead be paid or made available on the earlier of (i) the first business day of the seventh month after the date of the Employees Termination of Employment, or (ii) the Employees death. Any benefit payments that are scheduled to be paid more than six months after such Employees Termination of Employment shall not be delayed and shall be paid in accordance with the schedule prescribed by Sections 1(a) and 1(c), as applicable. |
4. | (a) | For purposes of this Agreement, Terminates Employment and Termination of Employment shall mean a termination of employment (within the meaning of Treasury Regulation Section 1.409A-1(h)(1)(ii)) with Timken and any member of its controlled group (as such term is used for purposes of ERISA and the Code, except that a 50% ownership or common control threshold shall be used to determine controlled group status instead of an 80% ownership or common control threshold). For purposes of the preceding sentence a termination of employment shall also include a permanent decrease in the level of bona fide services performed by the Employee after a certain date to a level that is 20% or less of the average level of bona fide services performed by the Employee over the immediately preceding 36-month period. |
(b) | Any references to the Employees Spouse herein shall mean the Employees Spouse at the time of the Employees death or commencement of the Employees Excess Benefits, whichever is applicable, under the Retirement Plans or Savings Plans if the Employee is not a participant in the Retirement Plans, provided that if a qualified domestic relations order provides that a former spouse of the Employee is to be considered the Employees Spouse for purposes of pension benefits, Timken shall consider such former spouse of the Employee to be the Employees Spouse for purposes of this Agreement. |
5. | This Agreement shall be binding upon and shall inure to the benefit of Timken and the Employee and their respective successors and assigns; provided, however, that, except as set forth herein, no rights to any benefit under this Agreement shall be transferable or assignable by the Employee or any other person, or be subject to alienation, encumbrance, garnishment, |
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attachment, execution or levy of any kind, voluntary or involuntary. Any such attempted assignment or transfer shall terminate this Agreement and Timken shall have no further liability hereunder. | ||
6. | Timken is hereby designated as the Named Fiduciary of this Agreement, in accordance with ERISA. The Named Fiduciary shall have the authority to control and manage the operation and administration of this Agreement and is hereby designated as the Agreement Administrator. | |
7. | The obligations of Timken hereunder constitute an unsecured promise of Timken to make payment of the amounts provided for in this Agreement. No property of Timken is or shall be, by reason of this Agreement, held in trust for the Employee, or any other person, and neither the Employee nor any other person shall have, by reason of this Agreement, any rights, title or interest of any kind in or to any property of Timken. | |
Notwithstanding the foregoing paragraph, upon the earlier to occur of (i) a Change of Control that involves a transaction that was not approved by the Board of Directors, and was not recommended to Timkens shareholders by the Board of Directors, (ii) a declaration by the Board of Directors that the trusts under the Employee Excess Benefits Agreements should be funded in connection with a Change of Control that involves a transaction that was approved by the Board of Directors, or was recommended to shareholders by the Board of Directors, or (iii) a declaration by the Board of Directors that a Change of Control is imminent, Timken shall promptly, to the extent it has not previously done so, and in any event within five business days fund a trust established for the sole purpose of the payment of the amounts payable under this Agreement. The amount to be contributed by Timken prior to the Change of Control shall be calculated, using the actuarial assumptions set forth in Exhibit A , by Towers Watson or another independent actuary appointed by Timken. Notwithstanding any provision of this Agreement to the contrary, no amount shall be transferred to a trust in accordance with this paragraph if, pursuant to Section 409A(b)(3)(A) of the Code, such amount would, for purposes of Section 83 of the Code, be treated as property transferred in connection with the performance of services. Upon a Change of Control, the rights of the Employee under this Agreement shall be fully vested and shall be forfeited only if the Employee voluntarily terminates his employment prior to completing five years of service as an elected officer of Timken. | ||
For purposes of this Agreement, Change of Control shall mean the occurrence of any of the following events: |
(a) | The sale or transfer of all or substantially all of the assets of Timken; or the merger, consolidation or reorganization of Timken with or into another corporation or entity with the result that upon the completion of the transaction, less than 51% of the outstanding securities entitled to vote generally in the election of directors or other capital interests of the surviving corporation or entity are owned, directly or indirectly, by the pre-transaction shareholders of Timken; |
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(b) | A Schedule 13D or 14D-1F report (or any successor schedule, form or report promulgated pursuant to the Securities Exchange Act of 1934 (the Exchange Act)), is filed with the United States Securities and Exchange Commission (the SEC) disclosing that any person (including a person as defined in Sections 13(d)(3) or 14(d)(2) of the Exchange Act) has become the beneficial owner (as defined in SEC Rule 13d-3) of securities representing 30% or more of the combined voting power of the outstanding shares of Timken; | ||
(c) | Timken files a report or proxy statement with the SEC that includes a disclosure, including, but not limited to, a disclosure in Item 1 of Form 8-K or Item 6(e) of Schedule 14A, that a change of control of Timken has or may have occurred or will or may occur in the future pursuant to any existing contract or transaction; and | ||
(d) | The individuals who at the beginning of any two consecutive calendar year period constituted the Board of Directors cease for any reason to constitute a majority of the Board of Directors; provided, however, this subsection (d) shall not apply if the nomination of each new Director elected during such two-year period was approved by the vote of at least two-thirds of the Directors of Timken still in office who were Directors of Timken on the first day of such two-year period. |
8. | In the event that, in its discretion, Timken purchases an insurance policy or policies insuring the life of the Employee to allow Timken to recover in whole or in part, the cost of providing the benefits under this Agreement, neither the Employee nor any beneficiary shall have any right whatsoever therein; Timken shall be the sole owner and beneficiary of such insurance policy or policies and shall possess and may exercise all incidents of ownership therein. | |
9. | All questions of interpretation, construction or application arising under this Agreement shall be decided by the Board of Directors of Timken and its decision shall be final and conclusive upon all parties. Timken, in its discretion, shall make all determinations as to rights to benefits under this Agreement. Any decision by Timken denying a claim for benefits under this Agreement shall be stated in writing and delivered or mailed to the Employee or the Employees Spouse. Such decision shall (i) be made and issued in accordance with the claims regulations issued by the Department of Labor, (ii) set forth the specific reasons for the denial of the claim, and (iii) state that the decision may be appealed by the Employee. | |
10. | Nothing contained in this Agreement shall be construed to be a contract of employment nor as conferring upon the Employee the right to continue in the employ of Timken in any capacity. It is expressly understood by the parties hereto that this Agreement relates exclusively to Excess Benefits and is not intended to be an employment contract. | |
11. | This Agreement may not be amended, altered or modified, except by a written instrument signed by the parties hereto. If Timken and the Employee previously entered into an Employee Excess Benefits Agreement, this Agreement shall supersede the provisions of the prior agreement and the Employee shall be entitled to benefits solely under this Agreement. |
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12. | Following Termination of Employment, the Employee shall comply with the Restriction on Competition in paragraph 9 of the Supplemental Plan. If the Employee engages in activity prohibited by this Section, then in addition to all other remedies available to Timken, Timken shall be released from any obligation under this Agreement to pay benefits to the Employee or the Employees Spouse under this Agreement. Any such cessation of payments shall not reduce any monetary damages that may be available to Timken as a result of the Employees breach. | |
13. | The failure at any time to require performance of any provision expressed herein shall in no way affect the right thereafter to enforce such provision; nor shall the waiver of any breach of any provision expressed herein be taken or held to be a waiver of any succeeding breach of any such provision or as a waiver of a provision itself. | |
In the event that any provision or term of this Agreement is finally determined by any judicial, quasi-judicial or administrative body to be void or not enforceable for any reason, it is the agreed upon intent of the parties hereto that all other provisions or terms of the Agreement shall remain in full force and effect and that the Agreement shall be enforceable as if such void or unenforceable provision or term had never been included herein. | ||
14. | Every designation, election, revocation or notice authorized or required hereunder shall be deemed delivered to Timken: (a) on the date it is personally delivered to Timken offices at 1835 Dueber Avenue, S.W., Canton, OH 44706-0927 or (b) three business days after it is sent by registered or certified mail, postage prepaid, addressed to Timken at the offices indicated above. Every designation, election, revocation or notice authorized or required hereunder which is to be delivered to the Employee or a beneficiary shall be deemed delivered to the Employee or beneficiary: (a) on the date it is personally delivered to such individual (either physically or through interactive electronic communication), or (b) three business days after it is sent by registered or certified mail, postage prepaid, addressed to such individual at the last address shown for him on Timken records. Any notice required hereunder may be waived by the person entitled thereto. | |
15. | In the event the Employee or the Employees Spouse is declared incompetent and a guardian, conservator or other person is appointed and legally charged with the care of the person or the persons estate, the payments under this Agreement to which the Employee or the Employees Spouse is entitled shall be paid to such guardian, conservator or other person legally charged with the care of the person or the estate. Except as provided hereinabove, when Timken, in its sole discretion, determines that the Employee or the Employees Spouse is unable to manage his financial affairs, Timken may make distribution(s) of the amounts payable to the Employee or the Employees Spouse to any one or more of the spouse, lineal ascendants or descendants or other closest living relatives of the Employee or the Employees Spouse who demonstrate to the satisfaction of Timken the propriety of making such distribution(s). Any payment so made shall be made at the same time and in the same form as such benefit would be made to the Employee and shall be in complete discharge of |
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any liability under this Agreement for such payment. Timken shall not be required to see to the application of any such distribution made under this Section 15. | ||
16. | This Agreement shall be subject to and construed under the laws of the State of Ohio. |
17. | (a) | To the extent applicable, it is intended that this Agreement (including all amendments thereto) comply with the requirements of Section 409A of the Code and the Treasury regulations and other authoritative guidance issued thereunder (Section 409A). This Agreement shall be administered in a manner consistent with this intent. |
(b) | Notwithstanding any provision of this Agreement to the contrary, in light of the uncertainty with respect to the proper application of Section 409A, Timken reserves the right to make amendments to this Agreement as Timken deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. In any case, the Employee shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on the Employee or for the Employees account in connection with this Agreement and neither Timken nor any of its affiliates shall have any obligation to indemnify or otherwise hold Employee harmless from any or all of such taxes or penalties. |
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THE TIMKEN COMPANY | |||||
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Its: Senior Vice President & General Counsel |
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4.5% of the Employees Gross Earnings (as defined in Timkens Savings and Investment Pension (SIP) Plan as of January 1, 2011 3 for purposes of matching contributions for highly compensated employees) |
The contribution percentage rate of the Core Contribution is based on the sum of the Employees full years of Credited Service and age as of December 31 of the previous calendar year with any fractional portion of a year of Credited Service or age disregarded, and calculated as follows: |
Age Plus Years of Credited Service* | Contribution Percentage Rate | |
0-34 |
1.00% of Gross Earnings**
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35-44 |
2.00% of Gross Earnings**
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45-54 |
3.00% of Gross Earnings**
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55-64 |
3.50% of Gross Earnings**
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65-74 |
4.00% of Gross Earnings**
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75+ |
4.50% of Gross Earnings**
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* | Credited Service has the meaning given to such term in Timkens Savings and Investment Pension (SIP) Plan as of January 1, 2011. 4 | |
** | Gross Earnings has the meaning given to such term in Timkens Savings and Investment Pension (SIP) Plan as of January 1, 2011 5 for purposes of matching contributions for highly compensated employees. | |
3 | If the restatement of the Savings and Investment Plan effective January 1, 2011 has been amended, this date should be reviewed to determine if a more recent version of the Savings and Investment Plan should be cross-referenced. Any changes to the Savings and Investment Plan should be considered to ensure compliance with Section 409A in light of the cross-reference. | |
4 | See footnote 3. | |
5 | See footnote 3. |
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Six Months Ended June 30, | Years Ended December 31, | |||||||||||||||||||||||||||
2011 | 2010 | 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||||||||
Income (loss) from continuing operations
before tax
|
355.0 | 194.8 | 405.5 | (94.2 | ) | 439.6 | 264.7 | 208.6 | ||||||||||||||||||||
Share of undistributed (losses) income from
50%-or-less-owned affiliates, excluding
affiliates with guaranteed debt
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0.3 | | (0.2 | ) | 0.9 | (1.4 | ) | 1.3 | 5.7 | |||||||||||||||||||
Amortization of capitalized interest
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1.0 | 1.5 | 2.0 | 1.9 | 1.8 | 1.4 | 1.2 | |||||||||||||||||||||
Interest expense
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19.1 | 19.6 | 38.2 | 41.9 | 44.4 | 42.3 | 49.0 | |||||||||||||||||||||
Interest portion of rental expense
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3.6 | 4.0 | 8.0 | 8.5 | 8.7 | 7.5 | 5.0 | |||||||||||||||||||||
Earnings (loss)
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379.0 | 219.9 | 453.5 | (41.0 | ) | 493.1 | 317.2 | 269.5 | ||||||||||||||||||||
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Interest
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19.3 | 19.8 | 38.9 | 43.7 | 47.4 | 48.0 | 52.3 | |||||||||||||||||||||
Interest portion of rental expense
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3.6 | 4.0 | 8.0 | 8.5 | 8.7 | 7.5 | 5.0 | |||||||||||||||||||||
Fixed Charges
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22.9 | 23.8 | 46.9 | 52.2 | 56.1 | 55.5 | 57.3 | |||||||||||||||||||||
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Ratio of Earnings to Fixed Charges
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16.55 | 9.24 | 9.67 | (0.79 | ) | 8.79 | 5.72 | 4.70 | ||||||||||||||||||||
Date: August 4, 2011 | By | /s/ James W. Griffith | ||
James W. Griffith, | ||||
President and Chief Executive Officer
(Principal Executive Officer) |
Date: August 4, 2011 | By | /s/ Glenn A. Eisenberg | ||
Glenn A. Eisenberg | ||||
Executive Vice President
Finance
and Administration (Principal Financial Officer) |
(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. |
Date: August 4, 2011 | By | /s/ James W. Griffith | ||
Name: | James W. Griffith | |||
Title: | President and Chief Executive Officer (Principal Executive Officer) | |||
By | /s/ Glenn A. Eisenberg | |||
Name: | Glenn A. Eisenberg | |||
Title: |
Executive Vice President
Finance
and Administration (Principal Financial Officer) |
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