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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, 2003
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. [X].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). YES [X] NO [ ]
i
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, 2003 was $1,296,756,035 (representing 74,058,026 shares).
Indicate the number of shares outstanding of each of the registrant's classes
of Common Stock, as of February 27, 2004.
Common Stock without par value--89,358,292 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
December 31, 2003, 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 20, 2004, are incorporated by reference into Part III.
Exhibit Index may be found on Pages 20 through 25.
ii
THE TIMKEN COMPANY
INDEX TO FORM 10-K REPORT
PAGE
----
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........................ 15
Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 15
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............. 19
Item 14. Principal Accountant Fees and Services..................... 19
IV. Part IV.
Item 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K................................................... 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, if any,
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; risks associated
with diversion of management's attention from routine operations
during the integration process; and risks associated with the higher
level of debt associated with the acquisition.
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 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; changes resulting from inventory
management and cost reduction initiatives and different levels of
customer demands; the effects of unplanned work stoppages; changes in
the cost of labor and benefits; and the cost and availability of raw
materials and energy.
f) the success of the company's operating plans, including its ability to
achieve the benefits from its global restructuring, manufacturing
transformation, 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 its ability to maintain appropriate relations with unions
that represent company associates in certain locations in order to
avoid disruptions of business.
2
g) 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.
h) 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.
i) additional factors described in greater detail on pages S-20 to S-28 in
the company's Registration Statement and Prospectus Supplement dated
February 12, 2003 relating to the offering of the company's 5.75% notes
due 2010; or on pages S-7 to S-16 in the Prospectus Supplement dated
October 15, 2003 relating to an offering of the company's common shares.
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, 2003.
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, subject to post-closing purchase price adjustments, 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.
3
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.
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.
4
Products (cont.)
________________
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.
5
Products (cont.)
________________
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, 2003.
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, in-
cluding bearings, automotive transmissions, engine crankshafts, oil drilling,
aerospace and other similarly demanding applications. Approximately 13% of
Timken's steel production is consumed in its bearing operations.
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 54 of the Annual Report to Shareholders for the year ended
December 31, 2003 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. 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. Torrington also has located its sales force in close proximity to its
customers.
A major portion of the customer shipments are made directly from Timken's
warehouses located in a number of cities in the United States, Canada, the
United Kingdom, France, Mexico, Singapore, Argentina, Australia, Brazil,
Germany, and China. However, a growing number of shipments are made directly
from plant locations. The warehouse inventories are augmented by authorized
distributor and jobber inventories throughout the world that provide local
6
Sales and Distribution (cont.)
______________________________
availability when service is required. The majority of Torrington shipments
are made directly from plant locations.
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 13% of Timken's steel production is consumed in its bearing
operations. In addition, sales are made to other anti-friction bearing com-
panies 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 54 and 55 of the Annual Report to Shareholders
for the year ended December 31, 2003, 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, in Leicester, England, which specializes in the manufacturing of
seamless mechanical tubing, and Lecheres Industries SAS, the parent company
of Bamarec S.A., 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
7
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 intensely competitive in every country
in which Timken sells products. Substantial downward pricing pressures exist
in the United States and other countries even during periods of significant
demand. Timken competes primarily based on price, quality, timeliness of
delivery and design and the ability to provide engineering support and ser-
vice 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. More than 30 U.S. steel companies have
declared bankruptcy in recent years and have either ceased production or,
more often, been acquired by other companies. Global production overcapacity
is also likely to continue, which, combined with the high levels of steel
imports into the United States, has exerted downward pressure on domestic
steel prices and has resulted in, at times, a dramatic narrowing, or with
many companies, the elimination, of gross margins. Timken's worldwide
competitors for seamless mechanical tubing include Copperweld, Plymouth Tube,
V & M Tube, Sanyo Special Steel, Ovako Steel and Tenaris. Competitors for
steel bar products include North American producers such as Republic,
Mac Steel, North Star Steel and a wide variety of off-shore steel producers
who import into North America. Competitors in the precision steel 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
products 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
8
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 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 filed a court appeal of these decisions, which is still
pending. The court remanded the issue to the ITC in 2003, and the ITC,
upon further consideration, unanimously upheld the continuation of the six
orders. The ITC's further analysis is now back at the court for review as
part of the proceedings. Separately, these six continuing ball bearing anti-
dumping orders will be up for review again starting in 2005.
In June 2001, President Bush directed the ITC to initiate an investigation on
steel imports under Section 201 of the U.S. Trade Act, and called for
multilateral negotiations to reduce global excess steel capacity and to
address market-distorting factors in world steel trade. In late October
2001, the ITC voted and affirmed that injury had been caused by surges of
low-priced imports of hot-rolled and cold-finished steel bars. Hot-rolled
bars are a major product line for the company's Steel Group business, which
also manufactures some cold-finished bar products. On March 5, 2002,
President Bush signed a proclamation imposing tariffs on hot and cold-finished
bar imports. The relief granted with respect to these product categories was
to establish three years of tariffs at 30%, 24% and 18%. The ITC vote on the
presence of injury with respect to tool steels was 3-3, and as a consequence,
no relief was granted with respect to tool steels, which is a major product
line for the Timken Latrobe Steel subsidiary in Latrobe, Pennsylvania. Steel
made in Mexico, Canada and developing nations was generally exempt from the
tariffs announced. In December 2003, President Bush announced an immediate
end to the safeguard remedies.
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. The company reported CDSOA receipts, net of expenses, of
$65.6 million, $50.2 million and $29.6 million in 2003, 2002 and 2001,
respectively. In addition, 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. The amounts received in 2003 related to the
original Timken tapered roller, ball and cylindrical bearing businesses and
the Torrington tapered roller bearing business.
It is expected that in March 2004, Timken will receive a payment delayed from
2003 of $7.7 million relating to Torrington's bearing business other than its
tapered roller bearing business. This is the net amount after taking into
account the terms of the agreement under which the company purchased the
Torrington business, which provided that Timken must deliver to the seller of
the Torrington business 80% of any Torrington-related payments received
relating to 2003 and 2004.
The company cannot predict whether it will receive any payments under CDSOA
later in 2004 or if so, in what amount. In September 2002, the World Trade
Organization (WTO) ruled that such payments are not consistent with
9
Competition (cont.)
___________________
international trade rules. The U.S. Trade Representative appealed this
ruling; however, the WTO upheld the ruling on January 16, 2003.
Joint Ventures
_______________
On April 8, 2002, Timken announced an agreement with NSK Ltd. to form Timken-
NSK Bearings (Suzhou) Co. Ltd. to build a plant near Shanghai, China to manu-
facture certain tapered roller bearing product lines. Construction of the
plant began in December 2002, and production began in the first quarter of
2004. Ownership of this joint venture is divided evenly between NSK Ltd.
and Timken.
On June 27, 2002, Timken announced an agreement with two Japan-based com-
panies, Sanyo Special Steel Co., Ltd. and Showa Seiko Co., Ltd., to form
Advanced Green Components, LLC to supply forged and machined rings for
bearing manufacture. The joint venture operates as an independent manu-
facturing business. It acquired the assets of the company's Winchester,
Kentucky plant and commenced operations at the beginning of November 2002.
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.
Backlog
_______
The backlog of orders of Timken's domestic and overseas operations is
estimated to have been $1.33 billion at December 31, 2003, and $1.05 billion
at December 31, 2002. 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 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, 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 decreased 19.6% from 2000 to 2001, increased 8.1% from 2001
to 2002 and increased 19.2% from 2002 to 2003. Prices for raw materials
and energy resources continue to remain high. The company expects that it
10
Raw Materials (cont.)
_____________________
will be able to pass a portion of these increased costs through to customers
in the form or price increases or raw material surcharges.
Moreover, 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; and Bangelore, India.
Expenditures for research, development and testing amounted to approximately
$53 million in 2003 and 2002 and $54 million in 2001. 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 to protect the environment and comply with environ-
mental 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 worldwide and
to becoming certified under the ISO 14001 standard to meet or exceed
customer requirements. By the end of 2003, 31 of the company's plants had
obtained ISO 14001 certification.
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 has been designated as a potentially responsible party by the EPA
for site investigation and remediation at certain sites under the Comprehen-
sive 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
11
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. Furthermore, the company
believes it has established adequate reserves to cover its environmental
expenses and has a well-established environmental compliance audit program,
which includes a proactive approach to bringing its domestic and
international units to higher standards of environmental performance. This
program measures performance against local laws as well as standards that
have been established for all units worldwide. The company is also conducting
voluntary environmental investigations 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, 2003, Timken had approximately 26,000 associates. Twenty-one
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.
12
Item 2. Properties
___________________
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 19,431,000 square feet, all of which,
except for approximately 1,498,000 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; Randleman and Iron Station, North Carolina;
Carlyle, Illinois; South Bend, Indiana; Gaffney, South Carolina; Keene and
Lebanon, New Hampshire; Mascot, Tennessee; Lenexa, Kansas; Ogden, Utah;
Orange, California; and Sanford, Florida. These facilities, including the
research facility in Canton, Ohio, and warehouses at plant locations, have an
aggregate floor area of approximately 4,380,000 square feet. The
manufacturing facilities acquired in the Torrington acquisition increased
floor area by approximately 3,486,000 square feet and include the following:
Rockford, Illinois; Watertown and Torrington, Connecticut; Syracuse, New York;
Clinton, Union, Honea Path, and Walhalla, South Carolina; Cairo, Norcross,
Sylvania, Ball Ground, and Dahlonega, Georgia; Pulaski, Tennessee; and
Rutherfordton, North Carolina. The company ceased production at the
Rockford, Illinois location during 2003.
Timken's Automotive and Industrial Groups' manufacturing plants outside the
United States are located in Benoni, South Africa; Brescia, Italy; Colmar,
France; Northampton and Wolverhampton, England; Medemblik, The Netherlands;
Ploiesti, Romania; Mexico City, Mexico; Sao Paulo, Brazil; Singapore;
Jamshedpur, India; Sosnowiec, Poland; St. Thomas, Canada; and Yantai, China.
The facilities, including warehouses at plant locations, have an aggregate
floor area of approximately 3,679,000 square feet. The manufacturing
facilities acquired in the Torrington acquisition increased floor area by
approximately 1,746,000 square feet and include the following: Westfalen,
Germany; Olomouc, Czech Republic; Vierzon, Maromme and Moult, France; Bilbao,
Spain; Darlington and Wolverhampton, England; Toronto and Bedford, Canada;
Nova Friburgo, Brazil; and Wuxi, China. The company ceased production at
the Darlington, England location during 2003.
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 5,386,000
square feet.
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 754,000
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.
13
Properties (cont.)
__________________
During 2003, the widespread incentive programs on light trucks and increasing
demand for heavy trucks drove the increase in North American demand.
Automotive plant utilization was higher in 2003 compared to 2002 as a result
of this demand. In 2003, Industrial plant utilizations were between 70% and
80%, comparable to 2002. In 2003, Steel plant utilizations were between 70%
and 85%, varying by business and product, slightly better than 2002.
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.
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, 2003.
Item 4A. Executive Officers of the Registrant
______________________________________________
The officers are elected by the Board of Directors normally for a term
of one year and until the election of their successors. All officers,
except for one, 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 13, 2004, are as follows:
Current Position and Previous
Name Age Positions During Last Five Years
___________________ ___ ____________________________________________
J. W. Griffith 50 1998 Group Vice President - Bearings -
North American Automotive, Asia
Pacific and Latin America;
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 47 1998 Vice President - Bearings - Business
Process Advancement;
2000 President - Industrial Group.
S. B. Bailey 44 1998 Director - Finance;
1999 Director - Finance and Treasurer;
2000 Treasurer;
2001 Corporate Controller;
2002 Senior Vice President - Finance and
Controller.
W. R. Burkhart 38 1998 Director of Affiliations and Acquisitions;
2000 Senior Vice President and General Counsel.
G. A. Eisenberg 42 1998 President - Test Instrumentation Segment;
Executive Vice President and Chief
Financial Officer, United Dominion
Industries, a manufacturer of
proprietary engineered products;
1999 President and Chief Operating Officer,
United Dominion Industries;
2002 Executive Vice President - Finance and
Administration, The Timken Company.
R. W. Lindsay 47 1998 Managing Director - Central and Eastern
Europe;
1999 Vice President - Organizational
Advancement;
2002 Senior Vice President - Human Resources
and Organizational Advancement.
S. J. Miraglia, Jr. 53 1998 Group Vice President - Bearings -
North American Industrial and Super
Precision;
1999 Senior Vice President - Technology.
W. J. Timken, Jr. 36 1998 Vice President - Latin America;
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, 2003, was 7,485. The estimated number of beneficial shareholders
at December 31, 2003, was 42,184.
High and low stock prices and dividends for the last two fiscal years are
presented in the Quarterly Financial Data schedule on Page 59 of the Annual
Report to Shareholders for the year ended December 31, 2003, and are
incorporated herein by reference.
Information regarding the company's stock compensation plan is presented in
Notes 1 and 9 to the Consolidated Financial Statements on Pages 38 and 48 of
the Annual Report to Shareholders for the year ended December 31, 2003, and
is incorporated herein by reference.
Item 6. Selected Financial Data
________________________________
The Summary of Operations and Other Comparative Data on Pages 60-61 of the
Annual Report to Shareholders for the year ended December 31, 2003, is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
________________________________________________________________________
Results of Operations
_____________________
Management's Discussion and Analysis of Financial Condition and Results of
Operations on Pages 21-33 of the Annual Report to Shareholders for the year
ended December 31, 2003, 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 31-33 of the Annual
Report to Shareholders for the year ended December 31, 2003, is
incorporated herein by reference.
16
Item 8. Financial Statements and Supplementary Data
____________________________________________________
The Quarterly Financial Data schedule included on Page 59, the
Consolidated Financial Statements of the registrant and its subsidiaries
on Pages 34-37 and the Notes to Consolidated Financial Statements on Pages
38-57 of the Annual Report to Shareholders for the year ended
December 31, 2003, 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.
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 4-8 and "Section 16(a) Beneficial Ownership Report Compliance" on
Pages 34-35 of the proxy statement filed in connection with the annual meeting
of shareholders to be held April 20, 2004, 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 20, 2004, 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 12-23 and "Comparison of Five Year Cumulative Total Return" on
Page 24 of the proxy statement filed in connection with the annual meeting
of shareholders to be held April 20, 2004, 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 10-11 of the proxy
statement filed in connection with the annual meeting of shareholders to be
held April 20, 2004, and is incorporated herein by reference.
18
Item 12. Security Ownership of Certain Beneficial Owners and Management and
____________________________________________________________________________
Related Stockholder Matters (cont.)
___________________________________
Equity Compensation Plan Information
The table below sets forth certain information regarding the following equity
compensation plan of the company as of December 31, 2003: The Timken
Company Long-Term Incentive Plan, as Amended and Restated as of January 30,
2002 (the "LTIP"), pursuant to which the company has made equity compensation
available to eligible persons. The company does not have any equity
compensation plans that have not been approved by security holders.
Number of
securities remaining
Number of available for future
securities to be Weighted-average issuance under
issued upon exercise exercise price equity compensation
of outstanding of outstanding plans (excluding
Plan category options, warrants options, warrants securities reflected
and rights and rights in column (a))
(a) (b) (c)
Equity compensation
plans approved by
security holders 8,538,270 (1) $18.63 1,555,559 (2)/(3)
(1) The Common Shares set forth in column (a) do not include any payouts that
may be made in connection with the company's Performance Units because such
payouts may be made in cash or, under some circumstances, may not be made at
all.
(2) The Common Shares set forth in column (c) represent those remaining
available under the LTIP, which authorizes the Compensation Committee to make
awards of Option Rights, Appreciation Rights, Restricted Shares, Deferred
Shares, and Performance Shares. Awards may be credited with dividend
equivalents payable in the form of Common Shares. In addition, under the
LTIP nonemployee directors are entitled to awards of Restricted Shares,
Common Shares and Option Rights pursuant to a formula set forth in that plan.
The maximum number of Common Shares that may be issued under the LTIP as
Restricted Shares and Deferred Shares cannot (after taking any forfeitures
into account and excluding automatic awards of Restricted Shares to non-
employee directors) exceed 10% of the 11,700,000 Common Shares previously
authorized for issuance under the LTIP. As of December 31, 2003, 683,810
Common Shares remained available for future issuance as Restricted Shares
or Deferred Shares.
(3) The company also maintains the Director Deferred Compensation Plan and
the Deferred Compensation Plan pursuant to which directors and employees,
respectively, may defer receipt of Common Shares authorized for issuance
under the LTIP. The table does not include separate information about these
plans because they merely provide for the deferral, rather than the issuance,
of Common Shares to be issued under the LTIP.
19
Item 13. Certain Relationships and Related Transactions
________________________________________________________
Required information is set forth under the captions "Election of Directors"
on Pages 4-8 and "Executive Loan" on Page 19 of the proxy statement issued in
connection with the annual meeting of shareholders to be held April 20, 2004,
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, 2003 and 2002 and
the pre-approval policies and procedures of the Audit Committee of the
Company's Board of Directors is set forth on page 34 of the proxy statement
issued in connection with the annual meeting of shareholders to be held
April 20, 2004, and is incorporated herein by reference.
20
PART IV
_______
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
___________________________________________________________________________
(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 Number 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 Number 1-1169), and are incorporated herein by reference.
(4) 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 Number 1-1169), and is incorporated
herein by reference.
(4.1) Credit Agreement dated as of July 10, 1998 among The Timken
Company, as Borrower, Various Financial Institutions, as Banks,
and Keybank National Association, as Agent was filed on
August 13, 1998 with Form 10-Q (Commission File Number 1-1169),
and is incorporated herein by reference.
(4.2) Indenture dated as of April 24, 1998, between The Timken
Company and The Bank of New York, which was filed with
Timken's Form S-3 registration statement which became
effective April 24, 1998 (Registration Number 333-45791),
and is incorporated herein by reference.
(4.3) 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 Number 333-35773), and is incorporated
herein by reference.
(4.4) 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 Number 1-1169), and is incorporated herein by
reference.
21
Listing of Exhibits (cont.)
___________________________
(4.5) First Amendment Agreement dated as of January 1, 2002 among
The Timken Company, as Borrower, Various Financial
Institutions, as Banks, and Keybank National Association, as
Agent was filed on March 28, 2002 with Form 10-K (Commission
File Number 1-1169), and is incorporated herein by reference.
(4.6) Second Amendment Agreement dated as of February 7, 2003 among
The Timken Company, as Borrower, Various Financial
Institutions, as Banks, and Keybank National Association, as
Agent was filed on March 27, 2003 with Form 10-K (Commission
File Number 1-1169), and is incorporated herein by reference.
(4.7) 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 Number 1-1169), and is incorporated
herein by reference.
(4.8) The company is also a party to agreements with respect to other
long-term debt in total amount less than 10% of the
registrant's consolidated total assets. The registrant agrees
to furnish a copy of such agreements upon request.
Management Contracts and Compensation Plans
___________________________________________
(10) The Management Performance Plan of The Timken Company for
Officers and Certain Management Personnel, as revised on
December 18, 2002 was filed on March 27, 2003 with Form 10-K
(Commission File Number 1-1169), and is incorporated herein
by reference.
(10.1) The form of Deferred Compensation Agreement entered into with
James W. Griffith, W. R. Timken, Jr., R. L. Leibensperger and
B. J. Bowling was filed on November 13, 1995 with Form 10-Q
(Commission File Number 1-1169), and is incorporated herein
by reference.
(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
Number 1-1169), and is incorporated herein by reference.
(10.3) 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 Number 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 Number
1-1169), and is incorporated herein by reference.
22
Listing of Exhibits (cont.)
___________________________
Management Contracts and Compensation Plans (cont.)
___________________________________________________
(10.5) 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 Number 1-1169), and is incorporated
herein by reference. Each differs only as to name and date
executed.
(10.6) The form of Death Benefit Agreement entered into with all
Executive Officers of the company was filed on March 30, 1994
with Form 10-K (Commission File Number 1-1169), and is
incorporated herein by reference. Each differs only as to name
and date executed.
(10.7) The form of Indemnification Agreements entered into with all
Directors who are not Executive Officers of the company was
filed on April 1, 1991 with Form 10-K (Commission File Number
1-1169), and is incorporated herein by reference. Each differs
only as to name and date executed.
(10.8) The form of Indemnification Agreements entered into with
all Executive Officers of the company who are not Directors
of the company was filed on April 1, 1991 with Form 10-K
(Commission File Number 1-1169), and is incorporated herein
by reference. Each differs only as to name and date
executed.
(10.9) The form of Indemnification Agreements entered into with
all Executive Officers of the company who are also
Directors of the company was filed on April 1, 1991 with
Form 10-K (Commission File Number 1-1169), and is
incorporated herein by reference. Each differs only as to
name and date executed.
(10.10) The form of Employee Excess Benefits Agreement entered into
with all active Executive Officers, certain retired
Executive Officers, and certain other key employees of the
company was filed on March 27, 1992 with Form 10-K
(Commission File Number 1-1169), and is incorporated herein
by reference. Each differs only as to name and date
executed.
(10.11) 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 Number
1-1169), and is incorporated herein by reference.
(10.12) 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
Number 1-1169), and is incorporated herein by reference.
23
Listing of Exhibits (cont.)
___________________________
Management Contracts and Compensation Plans (cont.)
___________________________________________________
(10.13) The form of The Timken Company Nonqualified Stock Option
Agreement for nontransferable options as adopted on April
18, 2000 was filed on May 12, 2000 with Form 10-Q
(Commission File Number 1-1169), and is incorporated herein
by reference.
(10.14) The form of The Timken Company Nonqualified Stock Option
Agreement for transferable options as adopted on April 16,
2002 was filed on May 14, 2002 with Form 10-Q (Commission
File Number 1-1169), and is incorporated herein by
reference.
(10.15) The form of The Timken Company Nonqualified Stock Option
Agreement for special award options as adopted on April 18,
2000 was filed on May 12, 2000 with Form 10-Q (Commission
File Number 1-1169), and is incorporated herein by
reference.
(10.16) The Timken Company Deferral of Stock Option Gains Plan
effective as of April 21, 1998 was filed on May 14, 1998
with Form 10-Q (Commission File Number 1-1169), and is
incorporated herein by reference.
(10.17) The form of The Timken Company Performance Share Agreement
entered into with W. R. Timken, Jr., R. L. Leibensperger
and B. J. Bowling was filed on March 20, 1998 with Form
10-K (Commission File Number 1-1169), and is incorporated
herein by reference.
(10.18) 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 Number 1-1169),
and is incorporated herein by reference.
(10.19) 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
Number 1-1169), and is incorporated herein by reference.
(10.20) 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 Number 1-1169), and is
incorporated herein by reference.
(10.21) 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 Number 1-1169), and is incorporated
herein by reference.
24
Listing of Exhibits (cont.)
___________________________
Management Contracts and Compensation Plans (cont.)
___________________________________________________
(10.22) 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 Number 1-1169), and is incorporated
herein by reference.
(10.23) Amendment to Employee Excess Benefits Agreement was filed on
May 12, 2000 with Form 10-Q (Commission File Number 1-1169),
and is incorporated herein by reference.
(10.24) 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 Number 1-1169), and is incorporated
herein by reference.
(10.25) Restricted Shares Agreement entered into with Glenn A.
Eisenberg was filed on March 28, 2002 with Form 10-K
(Commission File Number 1-1169), and is incorporated herein
by reference.
(10.26) Restricted Shares Agreement entered into with Curt J.
Andersson was filed on March 28, 2002 with Form 10-K
(Commission File Number 1-1169), and is incorporated herein
by reference.
(10.27) The form of The Timken Company 1996 Deferred Compensation Plan
Election Agreement as adopted on December 17, 2003. Each
differs only as to name and date executed.
(10.28) The form of The Timken Company Restricted Shares Agreement as
adopted on April 16, 2002 was filed on May 14, 2002 with
Form 10-Q (Commission File Number 1-1169), and is incorporated
herein by reference.
(10.29) 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 Number 1-1169), and is incorporated
herein by reference.
(10.30) 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 Number
1-1169), and is incorporated herein by reference.
(10.31) Retirement Agreement entered into as of June 30, 2002 between
the company and Gene E. Little was filed on August 13, 2002
with Form 10-Q (Commission File Number 1-1169), and is
incorporated herein by reference.
25
Listing of Exhibits (cont.)
___________________________
Management Contracts and Compensation Plans (cont.)
___________________________________________________
(10.32) The Consulting Agreement entered into with Joseph F. Toot, Jr.,
effective January 1, 2001 was filed on March 30, 2001 with
Form 10-K (Commission File Number 1-1169), and is incorporated
herein by reference.
(10.33) Executive Severance Agreement entered into with Glenn A.
Eisenberg was filed on March 27, 2003 with Form 10-K
(Commission File Number 1-1169), and is incorporated herein
by reference.
(10.34) 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.
(10.35) Non-Executive Chairman Agreement entered into with
W. R. Timken, Jr.
(10.36) Amendment to The Timken Company 1996 Deferred Compensation Plan.
(12) Ratio of Earnings to Fixed Charges.
(13) Annual Report to Shareholders for the year ended December 31,
2003 (only to the extent expressly incorporated herein by
reference).
(21) A list of subsidiaries of the registrant.
(23) Consent of Independent Auditors.
(24) Power of Attorney.
(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.
(b) Reports on Form 8-K:
On October 17, 2003, the company filed a Form 8-K regarding the
execution of a Purchase Agreement relating to a public offering of
common stock by the company and a selling shareholder.
On October 23, 2003, the company furnished a Form 8-K regarding Results
of Operations and Financial Condition, which contained a press release
announcing the company's third quarter 2003 results.
(c) The exhibits are contained in a separate section of this report.
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 3, 2004 Date March 3, 2004
________________________________ _______________________________
By /s/ Sallie B. Bailey
_________________________________
Sallie B. Bailey
Senior Vice President - Finance
(Principal Accounting Officer)
Date March 3, 2004
_______________________________
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/ Stanley C. Gault* By /s/ John M. Timken, Jr.*
______________________________ _______________________________
Stanley C. Gault Director John M. Timken, Jr. Director
Date March 3, 2004 Date March 3, 2004
By /s/ John A. Luke, Jr.* By /s/ Ward J. Timken*
______________________________ _______________________________
John A. Luke, Jr. Director Ward J. Timken Director
Date March 3, 2004 Date March 3, 2004
/s/ Robert W. Mahoney* By /s/ Ward J. Timken, Jr.*
______________________________ _______________________________
Robert W. Mahoney Director Ward J. Timken, Jr. Director
Date March 3, 2004 Date March 3, 2004
By /s/ Jay A. Precourt* By /s/ W. R. Timken, Jr.*
______________________________ _______________________________
Jay A. Precourt Director W. R. Timken, Jr. Director
Date March 3, 2004 Date March 3, 2004
By /s/ Joseph W. Ralston* By /s/ Joseph F. Toot, Jr.*
______________________________ _______________________________
Joseph W. Ralston Director Joseph F. Toot, Jr. Director
Date March 3, 2004 Date March 3, 2004
By /s/ Frank C. Sullivan* By
______________________________ _______________________________
Frank C. Sullivan Director Martin D. Walker Director
Date March 3, 2004 Date
By /s/ Jacqueline F. Woods*
_______________________________
Jacqueline F. Woods Director
Date March 3, 2004
* By /s/ Glenn A. Eisenberg
___________________________________
Glenn A. Eisenberg, attorney-in-fact
By authority of Power of Attorney
filed as Exhibit 24 hereto
Date March 3, 2004
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, 2003
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, 2003, are incorporated by
reference in Item 8:
Consolidated statements of operations-Years ended December 31, 2003, 2002 and
2001
Consolidated balance sheets-December 31, 2003 and 2002
Consolidated statements of cash flows-Years ended December 31, 2003, 2002
and 2001
Consolidated statements of shareholders' equity-Years ended December 31, 2003,
2002 and 2001
Notes to consolidated financial statements-December 31, 2003
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 Auditors
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, 2003 and 2002, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 2003. 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 auditing standards generally
accepted in the 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, 2003 and 2002, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States. 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.
/s/ ERNST & YOUNG LLP
Canton, Ohio
February 5, 2004
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)
Year ended December 31, 2003:
Reserves and allowances
deducted from asset accounts:
Allowance for
uncollectible accounts $ 14,386 $ 5,392 (1) $ 9,695 (4) $ 5,516 (5) $ 23,957
Allowance for surplus
and obsolete inventory 8,095 5,306 (2) 22,695 (4) 5,113 (6) 30,983
Valuation allowance
on deferred tax assets 22,491 9,090 (3) - - 31,581
______ ______ ______ ______ ______
$ 44,972 $ 19,788 $ 32,390 $ 10,629 $ 86,521
====== ====== ====== ====== ======
Year ended December 31, 2002:
Reserves and allowances
deducted from asset accounts:
Allowance for
uncollectible accounts $ 14,976 $ 4,752 (1) $ 5,342 (5) $ 14,386
Allowance for surplus
and obsolete inventory 6,389 4,986 (2) 3,280 (6) 8,095
Valuation allowance
on deferred tax assets 34,756 6,914 (3) 19,179 (7) 22,491
______ ______ ______ ______
$ 56,121 $ 16,652 $ 27,801 $ 44,972
====== ====== ====== ======
Year ended December 31, 2001:
Reserves and allowances
deducted from asset accounts:
Allowance for
uncollectible accounts $ 11,259 $ 10,025 (1) $ 6,308 (5) $ 14,976
Allowance for surplus
and obsolete inventory 6,999 3,090 (2) 3,700 (6) 6,389
Valuation allowance
on deferred tax assets 18,084 20,219 (3) 3,547 (7) 34,756
______ ______ ______ ______
$ 36,342 $ 33,334 $ 13,555 $ 56,121
====== ====== ====== ======
(1) Provision for uncollectible accounts included in expenses.
(2) Provision for surplus and obsolete inventory included in expenses.
(3) Increase in valuation allowance is recorded as a component of the provision for income taxes.
(4) The opening balance from the Torrington acquisition.
(5) Actual accounts written off against the allowance--net of recoveries.
(6) Inventory items written off against the allowance.
(7) Reduction in valuation allowance due to utilization of foreign net operating losses previously
reserved.