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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, 2004
Commission File Number 1-1169
THE TIMKEN COMPANY
______________________________________________________
(Exact name of registrant as specified in its charter)
Ohio 34-0577130
________________________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1835 Dueber Avenue, S.W., Canton, Ohio 44706-2798
________________________________________ ___________________
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code (330)438-3000
___________________
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock without par value New York Stock Exchange
______________________________ _______________________
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). YES [X] NO [ ]
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, 2004 was $2,095,658,125 (representing 79,111,292 shares).
Indicate the number of shares outstanding of each of the registrant's classes
of Common Stock, as of February 28, 2005.
Common Stock without par value-- 91,337,823 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
December 31, 2004, are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual meeting of shareholders to
be held on April 19, 2005, are incorporated by reference into Part III.
Exhibit Index may be found on Pages 20 through 26.
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........................ 16
Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 16
Item 8. Financial Statements and Supplementary Data................ 16
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................... 16
Item 9A. Controls and Procedures.................................... 16
III. Part III.
Item 10. Directors and Executive Officers of the Registrant......... 17
Item 11. Executive Compensation..................................... 17
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters................. 17
Item 13. Certain Relationships and Related Transactions............. 18
Item 14. Principal Accountant Fees and Services..................... 18
IV. Part IV.
Item 15. Exhibits and Financial Statement Schedules................. 20
PART 1 1
______
Item 1. Description of Business
________________________________
Certain statements set forth in this document (including the company's fore-
casts, beliefs and expectations) that are not historical in nature are
"forward-looking" statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The company cautions readers that actual
results may differ materially from those expressed or implied in forward-
looking statements made by or on behalf of the company due to a variety of
important factors, such as:
a) risks associated with the acquisition of Torrington, including the
uncertainties in both timing and amount of actual benefits that may
be realized as a result of the integration of the Torrington
business with the company's operations and the timing and amount of
the resources required to achieve those benefits.
b) changes in world economic conditions, including additional adverse
effects from terrorism or hostilities. This includes, but is not
limited to, political risks associated with the potential instability
of governments and legal systems in countries in which the company or
its customers conduct business and significant changes in currency
valuations.
c) the effects of fluctuations in customer demand on sales, product mix and
prices in the industries in which the company operates. This includes
the ability of the company to respond to the rapid improvements in the
industrial market, the effects of customer strikes, the impact of changes
in industrial business cycles and whether conditions of fair trade
continue in the U.S. market.
d) competitive factors, including changes in market penetration,
increasing price competition by existing or new foreign and domestic
competitors, the introduction of new products by existing and new
competitors and new technology that may impact the way the company's
products are sold or distributed.
e) changes in operating costs. This includes: the effect of changes in
the company's manufacturing processes; changes in costs associated
with varying levels of operations; higher cost and availability of raw
materials and energy; the company's ability to mitigate the impact of
higher material costs through surcharges and/or price increases; changes
resulting from inventory management and cost reduction initiatives and
different levels of customer demands; the effects of unplanned work
stoppages; and changes in the cost of labor and benefits.
f) the success of the company's operating plans, including its ability to
achieve the benefits from its manufacturing and administrative cost
reduction initiatives as well as its ongoing continuous improvement and
rationalization programs; the ability of acquired companies to achieve
satisfactory operating results; and the company's ability to maintain
appropriate relations with unions that represent company associates in
certain locations in order to avoid disruptions of business.
2
g) the success of the company's plans concerning the transfer of bearing
production from Canton, including the possibility that the transfer of
production will not achieve the desired results, the possibility of
disruption in the supply of bearings during the process, and the outcome
of the company's discussions with the union that represents company
associates at the affected facilities.
h) unanticipated litigation, claims or assessments. This includes, but
is not limited to, claims or problems related to intellectual property,
product liability or warranty and environmental issues.
i) changes in worldwide financial markets, including interest rates to the
extent they affect the company's ability to raise capital or increase
the company's cost of funds, have an impact on the overall performance
of the company's pension fund investments and/or cause changes in the
economy which affect customer demand.
Additional risks relating to the company's business, the industries in which
the company operates or the company's common stock may be described from
time to time in the company's filings with the SEC. All of these risk
factors are difficult to predict, are subject to material uncertainties that
may affect actual results and may be beyond the company's control.
Except as required by the federal securities laws, the company undertakes no
obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
General
_______
As used herein, the term "Timken" or the "company" refers to The Timken
Company and its subsidiaries unless the context otherwise requires. Timken,
an outgrowth of a business originally founded in 1899, was incorporated
under the laws of the state of Ohio in 1904.
Timken is a leading global manufacturer of highly engineered bearings, alloy
and specialty steel and related components. The company is the world's
largest manufacturer of tapered roller bearings and alloy seamless mechani-
cal steel tubing and the largest North American-based bearings manufacturer.
Timken had facilities in 29 countries on six continents, and employed approx-
imately 26,000 people, as of December 31, 2004.
On February 18, 2003, the company completed the acquisition of the Engineered
Solutions business of Ingersoll-Rand Company Limited, including certain of
its joint venture interests, operating assets and subsidiaries, including
The Torrington Company. This business, referred to as Torrington, is a
leading worldwide producer of needle roller, heavy-duty roller and ball
bearings and motion control components and assemblies. Timken paid
$700 million in cash and issued $140 million of its common stock
(9,395,973 shares) for Torrington. The company financed the $700 million
cash component of the Torrington acquisition through a public offering of
12,650,000 common shares, an offering of $250 million seven-year senior
unsecured notes, a five-year revolving credit facility and a $125 million
securitized accounts receivable facility.
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.
Tapered Roller Bearings. In the bearing industry, Timken is best known for
the tapered roller bearing, which was originally patented by the company
founder, Henry Timken. The tapered roller bearing is Timken's principal
product in the anti-friction industry segment. It consists of four
components: (1) the cone or inner race, (2) the cup or outer race, (3) the
tapered rollers, which roll between the cup and cone, and (4) the cage,
which serves as a retainer and maintains proper spacing between the rollers.
Timken manufactures or purchases these four components and then sells them in
a wide variety of configurations and sizes.
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, 2004.
Steel. Steel products include steels of low and intermediate alloy, vacuum-
processed alloys, tool steel and some carbon grades. These products are
available in a wide range of solid and tubular sections with a variety of
lengths and finishes. These steel products are used in a wide array of
applications, including bearings, automotive transmissions, engine
crankshafts, oil drilling, aerospace and other similarly demanding
applications.
Timken also produces custom-made steel products, including alloy and steel
components for automotive and industrial customers. This business has pro-
vided the company with the opportunity to further expand its market for
tubing and capture higher value-added steel sales. This also enables
Timken's traditional tubing customers in the automotive and bearing
industries to take advantage of higher performing components that cost less
than current alternative products. Customizing of products is a growing
portion of the company's steel business.
Geographical Financial Information
__________________________________
Information appearing under the caption "Geographic Financial Information,"
on Page 58 of the Annual Report to Shareholders for the year ended
December 31, 2004 is incorporated herein by reference.
Sales and Distribution
______________________
Timken's products in the Automotive Group and Industrial Group are sold
principally by its own internal sales organization. A portion of the
Industrial Group's sales are made through authorized distributors. Timken's
sales organization consists of a separate sales force for each business Group.
Traditionally, a main focus of the company's sales strategy has consisted of
collaborative projects with customers. For this reason, Timken's sales
forces are primarily located in close proximity to its customers rather than
at production sites. In some instances, the sales forces are located inside
customer facilities. Timken's sales force is highly trained and knowledge-
able regarding all bearings products and associates assist customers during
the development and implementation phases and provide support on an ongoing
basis.
6
Sales and Distribution (cont.)
______________________________
The company has a joint venture in North America focused on joint logistics
and e-business services. This alliance is called Colinx, and was founded by
Timken, SKF, INA and Rockwell Automation. The e-business service was
launched in April 2001, and is focused on information and business services
for authorized distributors in the Industrial Group. The company also has
another e-business joint venture in Europe which focuses on information and
business services for authorized distributors in the Industrial Group. This
alliance, which Timken founded together with SKF AB, Sandvik AB, Industriewerk
Schaffler INA-Ingenieurdienst GmBH and Reliance is called Endorsia.com
International AB.
Timken's steel products are sold principally by its own sales organization.
Most orders are customized to satisfy customer-specific applications and are
shipped directly to customers from Timken's steel manufacturing plants.
Approximately 12% of Timken's Steel Group net sales are intersegment sales.
In addition, sales are made to other anti-friction bearing companies and to
the aircraft, automotive and truck, construction, forging, oil and gas
drilling, and tooling industries. Sales are also made to steel service
centers.
Timken has entered into individually negotiated contracts with some of
its customers in its Automotive Group, Industrial Group and Steel Group.
These contracts may extend for one or more years and, if a price is fixed for
any period extending beyond current shipments, customarily include a
commitment by the customer to purchase a designated percentage of its
requirements from Timken. Contracts extending beyond one year that are not
subject to price adjustment provisions do not represent a material portion of
Timken's sales. Timken does not believe that there is any significant loss
of earnings risk associated with any given contract.
Industry Segments
_________________
The company has three reportable segments: Automotive Group, Industrial Group
and Steel Group. Segment information in Note 14 of the Notes to Consolidated
Financial Statements on pages 58 and 59 of the Annual Report to Shareholders
for the year ended December 31, 2004, is incorporated herein by reference.
Export sales from the U.S. and Canada are less than 10% of revenue. The
company's Automotive and Industrial Groups' businesses have historically
participated in the global bearing industry, while the Steel Group has
concentrated primarily on U.S. customers. However, over the past few years,
the Steel Group has acquired non-U.S. companies, such as Timken Alloy Steel
Europe Limited, in Leicester, England, which specializes in the manufacturing
of seamless mechanical tubing, and Timken Precision Components Europe, a
precision component manufacturer based in France.
Timken's non-U.S. operations are subject to normal international business
risks not generally applicable to domestic business. These risks include
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 highly competitive in every country
in which Timken sells products. Timken competes primarily based on price,
quality, timeliness of delivery, and product design and the ability to provide
engineering support and service on a global basis. The company competes with
domestic manufacturers and many foreign manufacturers of anti-friction
bearings, including SKF, INA-Holding Schaeffler KG, NTN Corporation, Koyo
Seiko Co., Ltd. and NSK Ltd.
Competition within the steel industry, both domestically and globally, is
intense and is expected to remain so. However, the recent combination of a
weakened U.S. dollar, worldwide rationalization of uncompetitive capacity, raw
material cost increases, and North American and global market strength have
allowed steel industry prices to increase and margins to improve. Timken's
worldwide competitors for seamless mechanical tubing include Copperweld,
Plymouth Tube, Michigan Seamless Tube, V & M Tube, Sanyo Special Steel, Ovako
Steel and Tenaris. Competitors for steel bar products include North American
producers such as Republic Engineered Products, Mac Steel, Ispat Inland, Steel
Dynamics and a wide variety of off-shore steel producers who import into
North America. Competitors in the precision steel components market include
Metaldyne, Linamar and overseas companies such as Showa Seiko, SKF and
FormFlo. In the specialty steel category, manufacturers compete for sales of
high-speed, tool and die, and aerospace steels. High-speed steel competitors
in North America and Europe include Erasteel, Bohler and Crucible. Tool and
die steel competitors include Crucible, Carpenter Technologies and Thyssen.
The principal competitors for Timken's aerospace steels include Ellwood
Specialty, Slater/Atlas and Patriot (formerly Republic Technologies, Inc.).
Maintaining high standards of product quality and reliability while keeping
production costs competitive is essential to Timken's ability to compete
with domestic and foreign manufacturers in both the anti-friction bearing
and steel businesses.
Trade Law Enforcement
In the second quarter of 2000, the U.S. International Trade Commission (ITC)
voted to revoke the bearing industry's anti-dumping orders on imports of
tapered roller bearings from Japan. The ITC determined that revocation of
the anti-dumping duty orders on tapered roller bearings from Japan was not
likely to lead to continuation or recurrence of material injury to the
domestic industry within a reasonably foreseeable time. The company has
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 tapered roller bearings
from China, which will be up for review again starting in 2005.
Also in the second quarter of 2000, the ITC voted to continue the bearing
industry's anti-dumping orders on imports of ball bearings from France,
Germany, Italy, Japan, Singapore, and the United Kingdom. Some producers in
those six countries attempted court appeals of these decisions, some of which
are still pending. Separately, these six continuing ball bearing anti-
dumping orders will be up for review again starting in 2005.
Continued Dumping and Subsidy Offset Act
The Continued Dumping and Subsidy Offset Act (CDSOA) provides for distribution
of monies collected by U.S. Customs from antidumping cases to qualifying
domestic producers where the domestic producers have continued to invest in
their technology, equipment and people. The company reported CDSOA receipts,
net of expenses, of $44.4 million, $65.6 million and $50.2 million in 2004,
2003 and 2002, respectively. Amounts received in 2003 were net of a one-time
repayment, due to a miscalculation by the U.S. Treasury Department, of funds
received by the company in 2002.
Amounts for 2003 and 2004 were net of the amounts that Timken delivered to the
seller of the Torrington business, pursuant to the terms of the agreement
under which the company purchased Torrington. In 2003 and 2004, Timken
delivered to the seller of the Torrington business 80% of the CDSOA payments
received in 2003 and 2004 for Torrington's bearing business. Timken is under
no further obligation to transfer any CDSOA payments to the seller of the
Torrington business.
The company cannot predict whether it will receive any payments under CDSOA
in 2005 or if so, in what amount. In September 2002, the World Trade
Organization (WTO) ruled that such payments are not consistent with
international trade rules. The U.S. Trade Representative appealed this
ruling; however, the WTO upheld the ruling on January 16, 2003. CDSOA
continues to be in effect in the United States at this time.
9
Joint Ventures
_______________
As part of the Torrington acquisition, several additional equity interests
were acquired, one of which was a needle bearing manufacturing venture in
Japan, NTC, that had been operated by NSK Ltd. and Torrington. In July 2003,
the company sold its interest in NTC to NSK for approximately $146.3 million,
pre-tax.
During 2000, the company's Steel Group invested in a joint venture, PEL
Technologies LLC (PEL), to commercialize a proprietary technology that
converts iron units into engineered iron oxides for use in pigments, coatings
and abrasives. In the fourth quarter of 2003, the company concluded its
investment in PEL was impaired due to the following indicators of impairment:
history of negative cash flow and losses; 2004 operating plan with continued
losses and negative cash flow; and the continued required support from the
company or another party. In the fourth quarter of 2003, the company reported
a non-cash impairment loss of $45.7 million, which is reported in other
expense-net on the consolidated statement of income.
The company concluded that PEL is a variable interest entity and that the com-
pany is the primary beneficiary. In accordance with FASB Interpretation No.
46 "Consolidation of Variable Interest Entities, an interpretation of
Accounting Research Bulletion No. 51," (FIN 46), the company consolidated PEL
effective March 31, 2004. The adoption of FIN 46 resulted in a charge,
representing the cumulative effect of change in accounting principle, of
$0.9 million, which is reported in other expense-net on the consolidated
statement of income. Also, the adoption of FIN 46 increased the consolidated
balance sheet as follows: current assets by $1.7 million; property, plant and
equipment by $11.3 million; short-term debt by $11.6 million; accounts payable
and other liabilities by $0.7 million and other non-current liabilities by
$1.7 million. All of PEL's assets are collateral for its obligations. Except
for PEL's indebtedness for which the company is a guarantor, PEL's creditors
have no recourse to the general credit of the company.
Backlog
_______
The backlog of orders of Timken's domestic and overseas operations is
estimated to have been $1.76 billion at December 31, 2004, and $1.33 billion
at December 31, 2003. Actual shipments are dependent upon ever-changing
production schedules of the customer. Accordingly, Timken does not believe
that its backlog data and comparisons thereof as of different dates are
reliable indicators of future sales or shipments.
Raw Materials
_____________
The principal raw materials used by Timken in its North American bearing
plants to manufacture bearings are its own steel tubing and bars, purchased
strip steel and energy resources. Outside North America, the company
purchases raw materials from local sources with whom it has worked closely
to assure steel quality according to its demanding specifications. In
addition, Timken Alloy Steel Europe Limited in Leicester, England is a major
source of raw materials for the Timken plants in Western Europe.
The principal raw materials used by Timken in steel manufacturing are scrap
metal, nickel and other alloys. The availability and prices of raw
materials and energy resources are subject to curtailment or change due to,
among other things, new laws or regulations, changes in demand levels,
suppliers' allocations to other purchasers, interruptions in production by
suppliers, changes in exchange rates and prevailing price levels. For
example, the weighted average price of scrap metal increased 8.1% from 2001
to 2002, increased 19.2% from 2002 to 2003, and increased 87.1% from 2003 to
2004. Prices for raw materials and energy resources continue to remain high.
10
Raw Materials (cont.)
_____________________
The company continues to expect that it will be able to pass a portion of
these increased costs through to customers in the form of price increases or
raw material surcharges.
Disruptions in the supply of raw materials or energy resources could
temporarily impair the company's ability to manufacture its products for its
customers or require the company to pay higher prices in order to obtain
these raw materials or energy resources from other sources, which could
thereby affect the company's sales and profitability. Any increase in the
prices for such raw materials or energy resources could materially affect
the company's costs and therefore its earnings.
Timken believes that the availability of raw materials and alloys are
adequate for its needs, and, in general, it is not dependent on any single
source of supply.
Research
________
Timken's major research center, located in Canton, Ohio near its world head-
quarters, is engaged in research on bearings, steels, manufacturing methods
and related matters. Research facilities are also located at the Timken
Aerospace & Super Precision Bearings New Hampshire plants; the Colmar, France
plant; the Latrobe, Pennsylvania plant; the Ploiesti, Romania plant; the
Vierzon, France plant; the Kunsebeck, Germany plant; and facilities in
Norcross, Georgia; Torrington, Connecticut; Bangelore, India; and Brno, Czech
Republic. Expenditures for research, development and testing amounted to
approximately $58.5 million, $55.7 million and $57.0 million in 2004, 2003 and
2002, respectively. Of these amounts, $8.4 million, $3.3 million and
$5.6 million, respectively, were funded by others. The company's research
program is committed to the development of new and improved bearing and steel
products, as well as more efficient manufacturing processes and techniques
and the expansion of applications for existing products.
Environmental Matters
_____________________
The company continues its efforts to protect the environment and comply with
environmental protection laws. Additionally, it has invested in pollution
control equipment and updated plant operational practices. The company is
committed to implementing a documented environmental management system world-
wide and to becoming certified under the ISO 14001 standard where appropriate
to meet or exceed customer requirements. By the end of 2004, 33 of the
company's plants had obtained ISO 14001 certification.
The company believes it has established adequate reserves to cover its
environmental expenses and has a well-established environmental compliance
audit program, which includes a proactive approach to bringing its domestic
and international units to higher standards of environmental performance.
This program measures performance against applicable laws, as well as
standards that have been established for all units worldwide. It is
difficult to assess the possible effect of compliance with future
requirements that differ from existing ones. As previously reported, the
company is unsure of the future financial impact to the company that could
result from the United States Environmental Protection Agency's (EPA's) final
rules to tighten the National Ambient Air Quality Standards for fine
particulate and ozone.
The company and certain of its U.S. subsidiaries have been designated as
potentially responsible parties by the United States EPA for site
investigation and remediation at certain sites under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), known
as the Superfund, or state laws similar to CERCLA. The claims for remediation
have been asserted against numerous other entities, which are believed to
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. The company is also conducting
voluntary environmental investigations and/or remediations at a number of
current or former operating sites. Any liability with respect to such
investigations and remediations, in the aggregate, is not expected to be
material to the operations or financial position of the company.
New laws and regulations, stricter enforcement of existing laws and
regulations, the discovery of previously unknown contamination or the
imposition of new clean-up requirements may require the company to incur
costs or become the basis for new or increased liabilities that could have a
material adverse effect on Timken's business, financial condition or results
of operations.
Patents, Trademarks and Licenses
________________________________
Timken owns a number of U.S. and foreign patents, trademarks and licenses
relating to certain of its products. While Timken regards these as items
of importance, it does not deem its business as a whole, or any industry
segment, to be materially dependent upon any one item or group of items.
Employment
__________
At December 31, 2004, Timken had 25,931 associates. Twenty percent of
Timken's U.S. associates are covered under collective bargaining agreements.
Available Information
_____________________
Timken's annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
are available, free of charge, on Timken's website at www.timken.com as soon
as reasonably practicable after electronically filing such material with the
Securities and Exchange Commission.
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 19,298,000 square feet, all of which,
except for approximately 1,848,000 square feet, is owned in fee. The
facilities not owned in fee are leased. The buildings occupied by Timken
are principally made of brick, steel, reinforced concrete and concrete block
construction. All buildings are in satisfactory operating condition in which
to conduct business.
Timken's Automotive and Industrial Groups' manufacturing facilities in the
United States are located in Bucyrus, Canton, New Philadelphia, and Niles,
Ohio; Altavista, Virginia; Watertown and Torrington, Connecticut; Randleman,
Iron Station and Rutherfordton, North Carolina; Carlyle, Illinois; South Bend,
Indiana; Gaffney, Clinton, Union, Honea Path and Walhalla, South Carolina;
Cairo, Norcross, Sylvania, Ball Ground, and Dahlonega, Georgia; Pulaski and
Mascot, Tennessee; Keene and Lebanon, New Hampshire; Lenexa, Kansas; Ogden,
Utah. These facilities, including the research facility in Canton, Ohio, and
warehouses at plant locations, have an aggregate floor area of approximately
7,696,000 square feet. In 2004, the company divested its plant facility
in Syracuse, New York.
Timken's Automotive and Industrial Groups' manufacturing plants outside the
United States are located in Benoni, South Africa; Brescia, Italy; Colmar,
Vierzon, Maromme and Moult, France; Northampton and Wolverhampton, England;
Medemblik, The Netherlands; Bilbao, Spain; Westfalen, Germany; Olomouc, Czech
Republic; Ploiesti, Romania; Mexico City, Mexico; Sao Paulo and Nova Friburgo,
Brazil; Singapore; Jamshedpur, India; Sosnowiec, Poland; St. Thomas and
Bedford, Canada; and Yantai and Wuxi, China. The facilities, including ware-
houses at plant locations, have an aggregate floor area of approximately
5,521,000 square feet. In 2004, the company divested its plant facility in
Toronto, Canada.
Timken's Steel Group's manufacturing facilities in the United States are
located in Canton, Eaton, Wauseon, Wooster, and Vienna, Ohio; Columbus, North
Carolina; White House, Tennessee; and Franklin and Latrobe, Pennsylvania.
These facilities have an aggregate floor area of approximately 5,342,000
square feet. The manufacturing facility in Columbus, North Carolina ceased
operations in November of 2004.
Timken's Steel Group's manufacturing facilities outside the United States are
located in Leicester and Sheffield, England; and Fougeres and Marnaz, France.
These facilities have an aggregate floor area of approximately 739,000
square feet.
In addition to the manufacturing and distribution facilities discussed
above, Timken owns warehouses and steel distribution facilities in the
United States, United Kingdom, France, Singapore, Mexico, Argentina,
Australia, Brazil, Germany, and China, and leases several relatively small
warehouse facilities in cities throughout the world.
13
Properties (cont.)
__________________
During 2004, the widespread incentive programs on light trucks, increasing
demand for heavy trucks and new business from new platforms drove an increase
in North American demand. Automotive plant utilizations were between 75% and
85%, which was higher than 2003. In 2004, as a result of the higher
industrial global demand, Industrial plant utilizations were between 80% and
85%, which was higher than 2003. Also, in 2004, Steel plant utilization
operated at near capacity and was higher than 2003. Capacity for many steel
products was allocated to customers based on recent order history.
Item 3. Legal Proceedings
__________________________
The company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate dis-
position of these matters will not have a material adverse effect on the
company's consolidated financial position or results of operations.
The company is currently in discussions with the State of Ohio concerning
a violation of Ohio air pollution control laws which was discovered by the
company and voluntarily disclosed to the State of Ohio approximately eight
years ago. Although no final settlement has been reached, the company
believes that the final settlement will not be material to the company or
have a material adverse effect on the company's consolidated financial
position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
____________________________________________________________
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 2004.
Item 4A. Executive Officers of the Registrant
______________________________________________
The executive officers are elected by the Board of Directors normally for a
term of one year and until the election of their successors. All executive
officers, except for two, have been employed by Timken or by a subsidiary of
the company during the past five-year period. The executive officers of the
company as of February 28, 2005, are as follows:
Current Position and Previous
Name Age Positions During Last Five Years
___________________ ___ ____________________________________________
J. W. Griffith 51 1999 President and Chief Operating Officer;
Director;
2002 President and Chief Executive Officer;
Director.
14
Executive Officers of the Registrant (cont.)
____________________________________________
Current Position and Previous
Name Age Positions During Last Five Years
___________________ ___ ____________________________________________
M. C. Arnold 48 2000 President - Industrial Group.
S. B. Bailey 45 2000 Treasurer;
2001 Corporate Controller;
2002 Senior Vice President - Finance and
Controller.
W. R. Burkhart 39 2000 Senior Vice President and General Counsel.
J. A. Dedo 43 2000 Sales, Marketing and Customer Enablement
Executive, Covisint LLC;
2001 Vice President and General Manager World-
wide Market Operations, Motorola;
2004 President - Automotive Group, The Timken
Company.
G. A. Eisenberg 43 1999 President and Chief Operating Officer,
United Dominion Industries;
2002 Executive Vice President - Finance and
Administration, The Timken Company.
S. J. Miraglia, Jr. 54 1999 Senior Vice President - Technology.
W. J. Timken, Jr. 37 2000 Corporate Vice President - Office of the
Chairman;
2002 Corporate Vice President - Office of the
Chairman; Director;
2003 Executive Vice President and President -
Steel Group; Director.
15
PART II
_______
Item 5. Market for Registrant's Common Equity and Related Stockholder
______________________________________________________________________
Matters
_______
The company's common stock is traded on the New York Stock Exchange (TKR).
The estimated number of record holders of the company's common stock at
December 31, 2004, was 7,410. The estimated number of beneficial shareholders
at December 31, 2004, was 42,484.
High and low stock prices and dividends for the last two fiscal years are
presented in the Quarterly Financial Data schedule on Page 65 of the Annual
Report to Shareholders for the year ended December 31, 2004, and are
incorporated herein by reference.
Issuer Purchases of Common Stock:
The following table provides information about purchases by the company
during the quarter ended December 31, 2004 of its common stock.
Total Number Maximum
of Shares Number of
Purchased as Shares that
Part of May Yet Be
Publicly Purchased
Total Number Average Announced Under the
of Shares Price Paid Plans or Plans or
Period Purchased (1) per Share (2) Programs Programs
------ ------------- ------------- ------------ -----------
10/1/04-
10/31/04 - - - -
11/1/04-
11/30/04 149 $23.17 - -
12/1/04-
12/31/04 - - - -
------------- ------------- ------------ -----------
Total 149 $23.17 - -
============= ============= ============ ===========
(1) The company repurchases shares of its common stock that are owned
and tendered by employees to satisfy tax withholding obligations
on the vesting of restricted shares.
(2) The average price paid per share is calculated using the daily high
and low of the company's common stock as quoted on the New York
Stock Exchange at the time the employee tenders the shares.
Information regarding the company's stock compensation plan is presented in
Notes 1 and 9 to the Consolidated Financial Statements on Pages 42 and 52 of
the Annual Report to Shareholders for the year ended December 31, 2004, and
is incorporated herein by reference.
Item 6. Selected Financial Data
________________________________
The Summary of Operations and Other Comparative Data on Pages 66-67 of the
Annual Report to Shareholders for the year ended December 31, 2004, is
incorporated herein by reference.
16
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 18-37 of the Annual Report to Shareholders for the year
ended December 31, 2004, is incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
____________________________________________________________________
Information appearing under the caption "Management's Discussion and
Analysis of Other Information" appearing on Pages 36 and 37 of the Annual
Report to Shareholders for the year ended December 31, 2004, is
incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
____________________________________________________
The Quarterly Financial Data schedule included on Page 65, the
Consolidated Financial Statements of the registrant and its subsidiaries
on Pages 38-41, the Notes to Consolidated Financial Statements on Pages
42-61, and the Report of Management on Internal Control Over Financial
Reporting on Page 62 of the Annual Report to Shareholders for the year
ended December 31, 2004, are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
____________________________________________________________________
and Financial Disclosure
________________________
Not applicable.
Item 9A. Controls and Procedures
__________________________________
As of the end of the period covered by this report, the Company carried out
an evaluation, under the supervision and with the participation of the
Company's management, including the Company's principal executive officer
and principal financial officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15(e). Based upon that evaluation, the principal
executive officer and principal financial officer concluded that the
Company's disclosure controls and procedures were effective as of the end of
the period covered by this report. There have been no significant changes in
the Company's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting during the Company's most recent
fiscal quarter.
The Report of Management on Internal Control Over Financial Reporting is set
forth in Exhibit 13 of this Annual Report on Form 10-K and is incorporated
herein by reference. The attestation report of the company's independent
registered public accounting firm is included in this Annual Report on Form
10-K in Item 15.
17
PART III
________
Item 10. Directors and Executive Officers of the Registrant
____________________________________________________________
Required information is set forth under the captions "Election of Directors"
on Pages 4-7 and "Section 16(a) Beneficial Ownership Report Compliance" on
Page 30 of the proxy statement filed in connection with the annual meeting
of shareholders to be held April 19, 2005, and is incorporated herein by
reference. Information regarding the executive officers of the registrant
is included in Part I hereof. Information regarding the Company's Audit
Committee and its Audit Committee Financial Expert is set forth on page 8 of
the proxy statement filed in connection with the annual meeting of share-
holders to be held April 19, 2005, and is incorporated herein by reference.
The General Policies and Procedures of the Board of Directors of the Company
and the charters of its Audit Committee, Compensation Committee and Nominating
and Governance Committee are also available on its website at www.timken.com
and are available to any shareholder upon request to the Corporate Secretary.
The information on the Company's website is not incorporated by reference
into this Annual Report on Form 10-K.
The Company has adopted a code of ethics that applies to all of its employees,
including its principal executive officer, principal financial officer and
principal accounting officer, as well as its directors. The Company's code
of ethics, The Timken Company Standards of Business Ethics Policy, is
available on its website at www.timken.com. The Company intends to disclose
any amendment to, or waiver from, the code of ethics that applies to its
principal executive officer, principal financial officer or principal
accounting officer otherwise required to be disclosed under Item 10 of
Form 8-K by posting such amendment or waiver, as applicable, on its website.
Item 11. Executive Compensation
________________________________
Required information is set forth under the captions "Executive Compensation"
on Pages 13-25 and "Comparison of Five Year Cumulative Total Return" on
Page 26 of the proxy statement filed in connection with the annual meeting
of shareholders to be held April 19, 2005, and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
____________________________________________________________________________
Related Stockholder Matters
___________________________
Required information, including with respect to institutional investors
owning more than 5% of the company's Common Stock, is set forth under the
caption "Beneficial Ownership of Common Stock" on Pages 11-12 of the proxy
statement filed in connection with the annual meeting of shareholders to be
held April 19, 2005, and is incorporated herein by reference.
18
Item 12. Security Ownership of Certain Beneficial Owners and Management and
____________________________________________________________________________
Related Stockholder Matters (cont.)
___________________________________
Required information is set forth under the caption "Equity Compensation Plan
Information" on Page 18 of the proxy statement issued in connection with the
annual meeting of shareholders to be held April 19, 2005, and is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
________________________________________________________
Required information is set forth under the caption "Election of Directors"
on Pages 4-7 of the proxy statement issued in connection with the annual
meeting of shareholders to be held April 19, 2005, and is incorporated herein
by reference.
Item 14. Principal Accountant Fees and Services
_________________________________________________
Required information regarding fees paid to and services provided by the
Company's independent auditor during the years ended December 31, 2004 and
2003 and the pre-approval policies and procedures of the Audit Committee of
the Company's Board of Directors is set forth on page 29 of the proxy
statement issued in connection with the annual meeting of shareholders to be
held April 19, 2005, and is incorporated herein by reference.
The Company's independent registered public accountant, Ernst & Young LLP
("E&Y"), has recently advised the SEC, the Public Company Accounting Oversight
Board and the Company's audit committee and board of directors that certain
non-audit work it has performed in China has raised questions regarding E&Y's
independence with respect to its performance of audit services to some of its
clients, including the Company.
E&Y has disclosed to the Company's audit committee that through August 2003,
E&Y's affiliate in China ("E&Y China") provided tax calculation, preparation
and remittance services for two subsidiaries of the Company and a small number
of employees located in China. These services included processing cash
disbursements on behalf of these subsidiaries and employees, which is not
permitted under SEC auditor independence rules. Total payments processed by
E&Y China on behalf of these subsidiaries and employees from 2001 through 2003
were not significant and all of such payments were paid to Chinese tax
authorities. In connection with the performance of these tax services,
including the cash processing services, the fees which E&Y China received
were not significant. The processing of cash disbursements ceased in August
2003.
E&Y has also disclosed to the Company's audit committee that a contingent fee
arrangement for a 2000 research tax credit study that it performed for the
Company has raised questions regarding E&Y's independence with respect to its
performance of audit services to the Company. In July 2001, the Company
engaged E&Y to provide a research tax credit study in connection with the
original filing of the Company's federal tax return for 2000. A portion of
E&Y's fee was a contingent performance bonus based on a percentage of the
Company's net tax savings for 2000. At the time E&Y was engaged for the tax
credit study, contingent fee arrangements with audit clients were prohibited
19
Item 14. Principal Accountant Fees and Services (cont.)
_________________________________________________________
by the SEC auditor independence rules and AICPA Ethics Rule 302, except when
the fee was for tax services and determined based on the findings of a
governmental agency. An AICPA interpretation of Rule 302 provided that a fee
is considered to be based on findings of a governmental agency if there is a
reasonable expectation, at the time of the fee arrangement, of substantive
review by a governmental agency, such as the IRS. However, because the tax
credit study was for an original return, under AICPA guidance, the contingent
fee arrangement with E&Y did not fall within the exception provided by
Rule 302.
The audit committee and E&Y have discussed E&Y's independence with respect to
the Company in light of the foregoing. E&Y has confirmed to the audit
committee that it is independent under applicable independence standards. The
audit committee has concurred that there has been no impairment of E&Y's
independence. In making this determination with respect to the cash
processing services, the audit committee considered that: the amount of funds
involved were de minimis; the services were ministerial in nature and have
been discontinued; the operations conducted at the locations involved were not
material to the consolidated financial statements of the Company; none of
E&Y's personnel that are members of the Company's audit team were involved in
providing these tax services; and E&Y concluded that its independence was not
impaired under the applicable independence standards. In making this
determination with respect to the contingent fee arrangement, the audit
committee considered that: the tax credit study did not place E&Y in a
position of auditing its own work because both the Company and E&Y expected
the Company's return to be audited by the IRS (which it was) and the Company
had its own tax department that was responsible for both the preparation of
the Company's tax returns and the income tax provision included in the
Company's financial statements; the work plans and processes of the tax credit
study were based on techniques and tools developed solely by E&Y, and
therefore E&Y did not act as management or as an employee of the Company; the
tax credit study did not place E&Y in a position of being an advocate for the
Company; and E&Y concluded that its independence was not impaired under the
applicable independence standards.
The audit committee and E&Y continue to evaluate and review matters relevant
to the maintenance of E&Y's independence.
20
PART IV
_______
Item 15. Exhibits and Financial Statement Schedules.
___________________________________________________________________________
(a)(1) and (2) - The response to this portion of Item 15 is submitted
as a separate section of this report.
Schedules I, III, IV and V are not applicable to the company and, therefore,
have been omitted.
(3) Listing of Exhibits
Exhibit
_______
(3)(i) Amended Articles of Incorporation of The Timken Company
(Effective April 16, 1996) were filed with Form S-8 dated
April 16, 1996 (Registration No. 333-02553), and are
incorporated herein by reference.
(3)(ii) Amended Regulations of The Timken Company effective April 21,
1987, were filed on March 29, 1993 with Form 10-K (Commission
File No. 1-1169), and are incorporated herein by reference.
(4.0) Credit Agreement dated as of December 31, 2002 among The Timken
Company, as Borrower, Various Financial Institutions, as Banks,
and Bank of America, N.A. and Keybank National Association, as
Co-Administrative Agents was filed on March 27, 2003 with
Form 10-K (Commission File No. 1-1169), and is incorporated
herein by reference.
(4.1) Amendment dated as of September 3, 2004 to the Credit Agreement
dated as of December 31, 2002 among The Timken Company, as
Borrower, Various Financial Institutions, as Banks, and Bank of
America , N.A. and Keybank National Association, as
Co-Administrative Agents.
(4.2) Indenture dated as of July 1, 1990, between Timken and
Ameritrust Company of New York, which was filed with
Timken's Form S-3 registration statement dated July 12,
1990 (Registration No. 333-35773), and is incorporated
herein by reference.
(4.3) First Supplemental Indenture, dated as of July 24, 1996,
by and between The Timken Company and Mellon Bank, N.A.
was filed on November 13, 1996 with Form 10-Q (Commission
File No. 1-1169), and is incorporated herein by
reference.
21
Listing of Exhibits (cont.)
___________________________
(4.4) Indenture dated as of February 18, 2003, between The Timken
Company and The Bank of New York, as Trustee, Providing for
Issuance of Notes in Series was filed on March 27, 2003 with
Form 10-K (Commission File No. 1-1169), and is incorporated
herein by reference.
(4.5) The company is also a party to agreements with respect to other
long-term debt in total amount less than 10% of the
registrant's consolidated total assets. The registrant agrees
to furnish a copy of such agreements upon request.
Management Contracts and Compensation Plans
___________________________________________
(10.0) The Management Performance Plan of The Timken Company for
Officers and Certain Management Personnel, as revised on
December 18, 2002 was filed on March 27, 2003 with Form 10-K
(Commission File No. 1-1169), and is incorporated herein by
reference.
(10.1) The Management Performance Plan of The Timken Company for
Officers and Certain Management Personnel, as revised on
January 31, 2005.
(10.2) The Timken Company 1996 Deferred Compensation Plan for officers
and other key employees, amended and restated as of April 20,
1999 was filed on May 13, 1999 with Form 10-Q (Commission File
No. 1-1169), and is incorporated herein by reference.
(10.3) Amendment to The Timken Company 1996 Deferred Compensation Plan
was filed on March 3, 2004 with Form 10-K (Commission File No.
1-1169), and is incorporated herein by reference.
(10.4) The 1985 Incentive Plan of The Timken Company for Officers and
other key employees as amended through December 17, 1997 was
filed on March 20, 1998 with Form 10-K (Commission File No.
1-1169), and is incorporated herein by reference.
(10.5) The Timken Company Long-Term Incentive Plan for directors,
officers and other key employees as amended and restated as of
January 30, 2002 and approved by shareholders on April 16, 2002
was filed as Appendix A to Proxy Statement filed on
February 22, 2002 (Commission File No. 1-1169), and is
incorporated herein by reference.
(10.6) The Timken Company Long-Term Incentive Plan for directors,
officers and other key employees as amended and restated as of
February 6, 2004 and approved by shareholders on April 20, 2004
was filed as Appendix A to Proxy Statement filed on March 1,
2004 (Commission File No. 1-1169), and is incorporated herein
by reference.
22
Listing of Exhibits (cont.)
___________________________
Management Contracts and Compensation Plans (cont.)
___________________________________________________
(10.7) The form of Severance Agreement entered into with all Executive
Officers of the company was filed on March 27, 1997 with
Form 10-K (Commission File No. 1-1169), and is incorporated
herein by reference. Each differs only as to name and date
executed.
(10.8) The form of Death Benefit Agreement entered into with all
Executive Officers of the company was filed on March 30, 1994
with Form 10-K (Commission File No. 1-1169), and is incorporated
herein by reference. Each differs only as to name and date
executed. Currently applicable only to those Executive Officers
who retired prior to January 1, 2004.
(10.9) The amended form of Death Benefit Agreement entered into with
Executive Officers and certain key employees of the company who
held such positions as of October 1, 2003 was filed on August 6,
2004 with Form 10-Q (Commission File No. 1-1169), and is
incorporated herein by reference. Each differs only as to name
and date executed.
(10.10) The form of Indemnification Agreements entered into with all
Directors who are not Executive Officers of the company was
filed on April 1, 1991 with Form 10-K (Commission File No.
1-1169), and is incorporated herein by reference. Each differs
only as to name and date executed.
(10.11) The form of Indemnification Agreements entered into with
all Executive Officers of the company who are not Directors
of the company was filed on April 1, 1991 with Form 10-K
(Commission File No. 1-1169), and is incorporated herein
by reference. Each differs only as to name and date
executed.
(10.12) The form of Indemnification Agreements entered into with
all Executive Officers of the company who are also
Directors of the company was filed on April 1, 1991 with
Form 10-K (Commission File No. 1-1169), and is
incorporated herein by reference. Each differs only as to
name and date executed.
(10.13) The form of Employee Excess Benefits Agreement entered into with
all active Executive Officers, certain retired Executive
Officers, and certain other key employees of the company was
filed on March 27, 1992 with Form 10-K (Commission File No.
1-1169), and is incorporated herein by reference. Each differs
only as to name and date executed.
(10.14) Amendment to Employee Excess Benefits Agreement was filed on
May 12, 2000 with Form 10-Q (Commission File No. 1-1169),
and is incorporated herein by reference.
23
Listing of Exhibits (cont.)
___________________________
Management Contracts and Compensation Plans (cont.)
___________________________________________________
(10.15) The amended form of Employee Excess Benefits Agreement entered
into with certain Executive Officers and certain key employees
of the company was filed on August 6, 2004 with Form 10-Q
(Commission File No. 1-1169), and is incorporated herein
by reference. Each differs only as to name and date
executed.
(10.16) Amended form of Excess Benefits Agreement entered into with the
President & Chief Executive Officer and Senior Vice President -
Technology was filed on August 6, 2004 with Form 10-Q
(Commission File No. 1-1169), and is incorporated herein by
reference.
(10.17) The Amended and Restated Supplemental Pension Plan of
The Timken Company as adopted March 16, 1998 was filed
on March 20, 1998 with Form 10-K (Commission File No.
1-1169), and is incorporated herein by reference.
(10.18) Amendment to the Amended and Restated Supplemental Pension
Plan of the Timken Company executed on December 29, 1998
was filed on March 30, 1999 with Form 10-K (Commission File
No. 1-1169), and is incorporated herein by reference.
(10.19) The form of The Timken Company Nonqualified Stock Option
Agreement for nontransferable options without dividend credit
as adopted on April 17, 2001 was filed on May 14, 2001 with
Form 10-Q (Commission File No. 1-1169), and is incorporated
herein by reference.
(10.20) The form of The Timken Company Nonqualified Stock Option
Agreement for transferable options (Officers) as adopted on
April 16, 2002 was filed on May 14, 2002 with Form 10-Q
(Commission File No. 1-1169), and is incorporated herein by
reference.
(10.21) The form of The Timken Company Nonqualified Stock Option
Agreement for special award options (performance vesting) as
adopted on April 18, 2000 was filed on May 12, 2000 with Form
10-Q (Commission File No. 1-1169), and is incorporated herein by
reference.
(10.22) The form of Non-Qualified Stock Option Agreement for Officers
adopted on January 31, 2005 was filed on February 4, 2005 as
an exhibit to Form 8-K (Commission File No. 1-1169), and is
incorporated herein by reference.
(10.23) The form of The Timken Company Performance Share Agreement
entered into with W. R. Timken, Jr., was filed on March 20,
1998 with Form 10-K (Commission File No. 1-1169), and is
incorporated herein by reference.
24
Listing of Exhibits (cont.)
___________________________
Management Contracts and Compensation Plans (cont.)
___________________________________________________
(10.24) The Timken Company Senior Executive Management Performance
Plan effective January 1, 1999, and approved by shareholders
April 20, 1999 was filed as Appendix A to Proxy Statement
filed on February 28, 1999 (Commission File No. 1-1169), and
is incorporated herein by reference.
(10.25) The Timken Company Nonqualified Stock Option Agreement entered
into with James W. Griffith and adopted on December 16, 1999
was filed on March 29, 2000 with Form 10-K (Commission File
No. 1-1169), and is incorporated herein by reference.
(10.26) The Timken Company Promissory Note entered into with James W.
Griffith and dated December 17, 1999 was filed on March 29,
2000 with Form 10-K (Commission File No. 1-1169), and is
incorporated herein by reference.
(10.27) The Timken Company Director Deferred Compensation Plan
effective as of February 4, 2000 was filed on May 12, 2000 with
Form 10-Q (Commission File No. 1-1169), and is incorporated
herein by reference.
(10.28) The form of The Timken Company Deferred Shares Agreement as
adopted on April 18, 2000 was filed on May 12, 2000 with Form
10-Q (Commission File No. 1-1169), and is incorporated herein
by reference.
(10.29) The amended form of The Timken Company Deferred Shares Agreement
was filed on August 6, 2004 with Form 10-Q (Commission File
No. 1-1169), and is incorporated herein by reference.
(10.30) The form of The Timken Company Restricted Share Agreement as
adopted on April 16, 2002 was filed on May 14, 2002 with Form
10-Q (Commission File No. 1-1169), and is incorporated herein by
reference
(10.31) The form of The Timken Company Restricted Share Agreement as
adopted on January 31, 2005 was filed on February 4, 2005 as an
exhibit to Form 8-K (Commission File No. 1-1169), and is
incorporated herein by reference.
(10.32) The form of The Timken Company Performance Unit Agreement as
adopted on April 16, 2002 was filed on May 14, 2002 with Form
10-Q (Commission File No. 1-1169), and is incorporated herein
by reference.
(10.33) The form of The Timken Company Performance Unit Agreement as
adopted on January 31, 2005 was filed on February 4, 2005 as
an exhibit to Form 8-K (Commission File No. 1-1169), and is
incorporated herein by reference.
25
Listing of Exhibits (cont.)
___________________________
Management Contracts and Compensation Plans (cont.)
___________________________________________________
(10.34) The form of The Timken Company Restricted Share Agreement for
Non-Employee Directors as adopted on January 31, 2005.
(10.35) The form of The Timken Company Non-Qualified Stock Option
Agreement for Non-Employee Directors as adopted on
January 31, 2005.
(10.36) Restricted Shares Agreement entered into with Glenn A.
Eisenberg was filed on March 28, 2002 with Form 10-K
(Commission File No. 1-1169), and is incorporated herein
by reference.
(10.37) Executive Severance Agreement entered into with Glenn A.
Eisenberg was filed on March 27, 2003 with Form 10-K
(Commission File No. 1-1169), and is incorporated herein
by reference.
(10.38) The form of The Timken Company 1996 Deferred Compensation
Plan Election Agreement as adopted on December 17, 2003
was filed on March 3, 2004 with Form 10-K (Commission File
No. 1-1169), and is incorporated herein by reference.
(10.39) The form of Associate Election Agreement under the 1996
Deferred Compensation Plan was filed on February 4, 2005 as an
exhibit to Form 8-K (Commission File No. 1-1169), and is
incorporated herein by reference.
(10.40) The form of The Timken Company 1996 Deferred Compensation Plan
Election Agreement for Deferral of Restricted Shares was filed
on August 13, 2002 with Form 10-Q (Commission File No. 1-1169),
and is incorporated herein by reference.
(10.41) The form of The Timken Company Director Deferred Compensation
Plan Election Agreement was filed on May 15, 2003 with Form
10-Q (Commission File Number 1-1169), and is incorporated
herein by reference. Each differs only as to name and date
executed.
(10.42) The form of Non-employee Director Election Agreement under the
1996 Deferred Compensation Plan was filed on February 4, 2005 as
an exhibit to Form 8-K (Commission File No. 1-1169), and is
incorporated herein by reference.
(10.43) Non-Executive Chairman Agreement entered into with
W. R. Timken, Jr. was filed on March 3, 2004 with Form 10-K
(Commission File No. 1-1169), and is incorporated herein by
reference.
(12) Computation of Ratio of Earnings to Fixed Charges.
26
Listing of Exhibits (cont.)
___________________________
(13) Annual Report to Shareholders for the year ended December 31,
2004 (only to the extent expressly incorporated herein by
reference).
(21) A list of subsidiaries of the registrant.
(23) Consent of Independent Registered Public Accounting Firm.
(24) Power of Attorney.
(31.1) Principal Executive Officer's Certifications pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2) Principal Financial Officer's Certifications pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(32) Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE TIMKEN COMPANY
By /s/ James W. Griffith By /s/ Glenn A. Eisenberg
________________________________ ________________________________
James W. Griffith Glenn A. Eisenberg
Chief Executive Officer and Executive Vice President - Finance
Director and Administration (Principal
Financial Officer)
Date March 15, 2005 Date March 15, 2005
________________________________ _______________________________
By /s/ Sallie B. Bailey
_________________________________
Sallie B. Bailey
Senior Vice President - Finance
(Principal Accounting Officer)
Date March 15, 2005
_______________________________
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
By /s/ Phillip R. Cox* By /s/ Frank C. Sullivan*
______________________________ _______________________________
Phillip R. Cox Director Frank C. Sullivan Director
Date March 15, 2005 Date March 15, 2005
By /s/ Jerry J. Jasinowski* By /s/ John M. Timken, Jr.*
______________________________ _______________________________
Jerry J. Jasinowski Director John M. Timken, Jr. Director
Date March 15, 2005 Date March 15, 2005
By /s/ John A. Luke, Jr.* By /s/ Ward J. Timken*
______________________________ _______________________________
John A. Luke, Jr. Director Ward J. Timken Director
Date March 15, 2005 Date March 15, 2005
By /s/ Robert W. Mahoney* By /s/ Ward J. Timken, Jr.*
______________________________ _______________________________
Robert W. Mahoney Director Ward J. Timken, Jr. Director
Date March 15, 2005 Date March 15, 2005
By /s/ Jay A. Precourt* By /s/ W. R. Timken, Jr.*
______________________________ _______________________________
Jay A. Precourt Director W. R. Timken, Jr. Director
Date March 15, 2005 Date March 15, 2005
By /s/ Joseph W. Ralston* By /s/ Joseph F. Toot, Jr.*
______________________________ _______________________________
Joseph W. Ralston Director Joseph F. Toot, Jr. Director
Date March 15, 2005 Date March 15, 2005
By /s/ Jacqueline F. Woods*
_______________________________
Jacqueline F. Woods Director
Date March 15, 2005
* By /s/ Glenn A. Eisenberg
___________________________________
Glenn A. Eisenberg, attorney-in-fact
By authority of Power of Attorney
filed as Exhibit 24 hereto
Date March 15, 2005
ANNUAL REPORT ON FORM 10-K
ITEM 15(a)(1) AND (2), (c) AND (d)
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 2004
THE TIMKEN COMPANY
CANTON, OHIO
FORM 10-K-ITEM 15(a)(1) AND (2)
THE TIMKEN COMPANY AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of The Timken Company and
subsidiaries, included in the annual report of the registrant to its
shareholders for the year ended December 31, 2004, are incorporated by
reference in Item 8:
Consolidated statements of income-Years ended December 31, 2004, 2003 and
2002
Consolidated balance sheets-December 31, 2004 and 2003
Consolidated statements of cash flows-Years ended December 31, 2004, 2003
and 2002
Consolidated statements of shareholders' equity-Years ended December 31, 2004,
2003 and 2002
Notes to consolidated financial statements-December 31, 2004
The consolidated financial statement Schedule II-Valuation and qualifying
accounts of The Timken Company and subsidiaries is included in Item 15(d).
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
Report of Independent Registered Public Accounting Firm
To The Board of Directors and Shareholders
The Timken Company
We have audited management's assessment, included in the accompanying Report of
Management on Internal Control Over Financial Reporting, that The Timken Company
maintained effective internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). The Timken Company's management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the company's internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assessment that The Timken Company maintained
effective internal control over financial reporting as of December 31, 2004,
is fairly stated, in all material respects, based on the COSO criteria. Also,
in our opinion, The Timken Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2004,
based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
The Timken Company as of December 31, 2004 and 2003, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 2004 of The Timken Company
and our report dated February 28, 2005 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
February 28, 2005
Report of Independent Registered Public Accounting Firm
To The Board of Directors and Shareholders
The Timken Company
We have audited the accompanying consolidated balance sheets of The Timken
Company and subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 2004. Our audits also
included the financial statement schedule listed in the Index at Item 15(a).
These financial statements and schedule are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Timken Company
and subsidiaries at December 31, 2004 and 2003, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2004, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 8 to the consolidated financial statements, "Goodwill and
Other Intangible Assets," the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" effective January 1,
2002.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of The Timken
Company's internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 28, 2005 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
February 28, 2005
II--VALUATION AND QUALIFYING ACCOUNTS
THE TIMKEN COMPANY AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E
Additions
Balance at Charged to Charged to Other
Beginning of Costs and Accounts-- Deductions-- Balance at End
Description Period Expenses Describe Describe of Period
(Thousands of dollars)
Year ended December 31, 2004:
Reserves and allowances
deducted from asset accounts:
Allowance for
uncollectible accounts $ 23,957 $ 8,703 (1) $ (623) (4) $ 7,085 (6) $ 24,952
Allowance for surplus
and obsolete inventory 30,983 12,514 (2) (7,974) (4) 12,010 (7) 23,513
Valuation allowance
on deferred tax assets 100,851 28,360 (3) 860 (5) 743 (8) 129,328
______ ______ _______ ______ ______
$155,791 $ 49,577 $ (7,737) $ 19,838 $177,793
======= ====== ======= ====== =======
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 (6) $ 23,957
Allowance for surplus
and obsolete inventory 8,095 5,306 (2) 22,695 (4) 5,113 (7) 30,983
Valuation allowance
on deferred tax assets 64,573 9,360 (3) 26,918 (5) - 100,851
______ ______ ________ ______ _______
$ 87,054 $ 20,058 $ 59,308 $ 10,629 $155,791
====== ====== ======= ====== =======
Year ended December 31, 2002:
Reserves and allowances
deducted from asset accounts:
Allowance for
uncollectible accounts $ 14,976 $ 4,752 (1) - $ 5,342 (6) $ 14,386
Allowance for surplus
and obsolete inventory 6,389 4,986 (2) - 3,280 (7) 8,095
Valuation allowance
on deferred tax assets 57,250 6,914 (3) 19,588 (5) 19,179 (9) 64,573
______ ______ ________ ______ ______
$ 78,615 $ 16,652 $ 19,588 $ 27,801 $ 87,054
====== ====== ====== ====== ======
(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 acquisitions, primarily Torrington.
(5) Deferred tax asset with full valuation allowance with no impact to the income statement or
net deferred tax asset.
(6) Actual accounts written off against the allowance--net of recoveries.
(7) Inventory items written off against the allowance.
(8) Expiration of state and local tax credits previously reserved.
(9) Reduction in valuation allowance due to utilization of foreign net operating losses previously
reserved.