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, 2002
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 [ ]
iThe 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, 2002, was $1,097,999,327 (representing 49,171,488 shares).
Indicate the number of shares outstanding of each of the registrant's classes
of Common Stock, as of June 30, 2002.
Common Stock without par value--60,421,178 shares (representing a market
value of $1,349,204,905).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
December 31, 2002, 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 15, 2003, are incorporated by reference into Parts III
and IV.
Exhibit Index may be found on Pages 22 through 28.
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
New 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....................... 13II. PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................ 17
Item 6. Selected Financial Data.................................... 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 17
Item 8. Financial Statements and Supplementary Data................ 18
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................... 18III. Part III.
Item 10. Directors and Executive Officers of the Registrant......... 19
Item 11. Executive Compensation..................................... 19
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 19
Item 13. Certain Relationships and Related Transactions............. 21
Item 14. Controls and Procedures.................................... 21IV. Part IV.
Item 15. Exhibits, Financial Statement Schedules and Reports on
Form 8-K................................................... 22 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 projected or implied in forward-
looking statements made by or on behalf of the company due to a variety of
important factors, such as:
a) 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 changes 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-18 to S-27 in
the Company's Registration Statement and Prospectus Supplement dated
February 11, 2003 relating to the 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 27 countries on six continents, and employed approx-
imately 18,000 people, as of December 31, 2002.
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 adjustment, and approximately $140 million
in common shares for Torrington. The company financed the $700 million cash
component of the Torrington acquisition through a public offering of
12.65 million 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 has been a leader in the bearing industry for over 100 years and
is a leading 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.
Torrington had net sales of $1.2 billion for the year ended December 31,
2002, and, as of December 31, 2002, employed approximately 10,000 people and
operated 27 plants throughout the world. Torrington has two business
divisions: automotive engineered solutions and industrial engineered
solutions.
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
anticipates that its cylindrical and spherical roller bearing capability will
be 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 expects to
become a leading global producer 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, 2002.
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 15% 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 44 of the Annual Report to Shareholders for the year ended
December 31, 2002 is incorporated herein by reference.
Sales and Distribution
______________________
Timken's products in the Automotive Bearings and Industrial Bearings
segments are sold principally by its own internal sales organization.
Timken's sales organization consists of a separate sales force for each bus-
iness segment. The combined bearings sales forces accounted for
approximately 80% of the total sales force in 2002.
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 has also located its sales force in close proximity to its
customers. This will facilitate the integration of the two sales forces as
well as the necessary cross-training efforts.
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 and Australia.
However, a growing number of shipments are made directly from plant
6
Sales and Distribution (cont.)
______________________________
locations. The warehouse inventories are augmented by authorized distrib-
utor and jobber inventories throughout the world that provide local avail-
ability 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 Bearings segment. The company
also has another e-business joint venture in Europe which focuses on infor-
mation and business services for authorized distributors in the Industrial
Bearings segment. 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 15% 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 Bearings, Industrial Bearings and Steel
segments. 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 Bearings, Industrial
Bearings and Steel. Segment information in Note 14 of the Notes to
Consolidated Financial Statements on pages 44 and 45 of the Annual Report
to Shareholders for the year ended December 31, 2002, 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 Bearings' businesses
have historically participated in the global bearing industry, while Steel
has concentrated primarily on U.S. customers. However, over the past few
years, Steel 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.
7
Industry Segments (cont.)
_________________________ Timken's non-U.S. operations are subject to normal international business
risks not generally applicable to domestic business. These risks include
currency fluctuation, changes in tariff restrictions, 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
Engineered Products, Mac Steel, North Star Steel and a wide variety of off-
shore steel producers who import into North America. Competitors in the pre-
cision 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, Romania and Hungary. The ITC determined
that revocation of the anti-dumping duty orders on tapered roller bearings
from those countries was not likely to lead to continuation or recurrence of
material injury to the domestic industry within a reasonably foreseeable
8
Competition (cont.)
___________________
time. The company has filed an appeal of the ITC's decision regarding Japan,
which is still pending. The ITC upheld the anti-dumping duty order against
China.
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 the 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 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 Latrobe Steel subsidiary in Latrobe, Pennsylvania. Steel made
in Mexico, Canada and developing nations is generally exempt from the tariffs
announced.
While the President's decision to implement a Section 201 remedy is not
appealable to U.S. courts, foreign governments may appeal, and some have
appealed, to the World Trade Organization (WTO). The European Union, Japan
and other countries are currently prosecuting these appeals. These dispute
settlement proceedings at the WTO and further appeals to the Appellate Body
of the WTO generally take 15 to 24 months. Moreover, a number of affected
countries have imposed or threatened to impose various retaliatory tariffs
on U.S. steel or other products or have sought various product exemptions
from the imposition of the tariffs.
Continued Dumping and Subsidy Offset Act
In December 2002 and 2001, the company received gross amounts of approx-
imately $54 million and $31 million, respectively, from the U.S. Treasury
Department under the Continued Dumping and Subsidy Offset Act (CDSOA). The
CDSOA payments for 2002 and 2001, net of expenses, were $50.2 million and
$29.6 million, respectively. These payments resulted from the requirement
in the CDSOA that dumping duties collected by the U.S. Customs Service be
distributed to qualifying domestic producers and are related to the
company's Automotive and Industrial Bearings' segments. In September 2002,
the WTO ruled that such payments violate international trade rules. The
U.S. Trade Representative appealed this ruling; however, the WTO upheld the
ruling on January 16, 2003. The company may not receive payments under the
CDSOA in 2003 or future years, and the company cannot predict the amount of
any such payments it may receive.
Torrington received gross payments of approximately $62 million under the
CDSOA in 2001 and approximately $72 million in 2002. Ingersoll-Rand retained
100% of all such payments received in 2001 and 2002. Under the purchase
agreement with Ingersoll-Rand, the Company will be obligated to pay to
Ingersoll-Rand 80% of any payments Torrington receives under the CDSOA in 2003
and 2004.
9 New 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 is expected to begin 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.
Backlog
_______
The backlog of orders of Timken's domestic and overseas operations is
estimated to have been $1.05 billion at December 31, 2002, and $1.01 billion
at December 31, 2001. 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 is 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 increased 12.5% from 1999 to 2000, decreased 19.6% from 2000
to 2001, and increased 8.1% from 2001 to 2002.
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, and 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.
10
Raw Materials (cont.)
_____________________
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; and the facility in Bangelore, India. Expenditures for research,
development and testing amounted to approximately $53 million in 2002,
$54 million in 2001, and $52 million in 2000. 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 2002, 11 of the company's plants had
obtained ISO 14001 certification. Six additional plants are on schedule to
be certified by July of 2003.
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 EPA for site investigation and
remediation at certain sites under the Comprehensive Environmental Response,
Compensation and Liability Act (Superfund). The claims for remediation
have been asserted against numerous other entities, which are believed to
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.
11 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, 2002, Timken had approximately 18,000 associates. Thirty-one
percent of Timken's U.S. associates are covered under collective bargaining
agreements. None of Timken's U.S. associates are covered under
collective bargaining agreements that expire within one year.
As of December 31, 2002, Torrington had approximately 10,000 employees.
Approximately 4% of Torrington'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 Exchange Act are available 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 and Industrial Bearing and Steel manufacturing
facilities at multiple locations in the United States. Timken also has
Automotive and Industrial Bearing and Steel manufacturing facilities in a
number of countries outside the United States. The aggregate floor area of
these facilities worldwide is approximately 13,153,000 square feet, all of
which, except for approximately 834,000 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 Bearing 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 4,195,000 square feet. As part of the
manufacturing strategy initiative announced in April 2001, the company sold
its tooling plant in Ashland, Ohio effective June 20, 2002. The sale of the
plant decreased floor area by approximately 54,000 square feet. In
connection with the Advanced Green Components, LLC, joint venture, the
company contributed the Winchester, Kentucky plant assets to the joint
venture. This transaction decreased floor area by approximately 75,000
square feet.
Timken's Automotive and Industrial Bearing 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 2,961,000 square feet. As part of the manu-
facturing strategy initiative announced in April 2001, the company ceased
manufacturing operations at the Duston, England plant in November 2002,
which decreased floor area by approximately 656,000 square feet.
Timken's Steel 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 5,253,000
square feet.
Timken's Steel manufacturing facilities outside the United States are
located in Leicester and Sheffield, England; and Fougeres and Marnaz, France.
These facilities have an aggregate floor of approximately 743,000 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 and
Australia, and leases several relatively small warehouse facilities in
cities throughout the world.
13 Properties (cont.)
__________________
During 2002, the widespread incentive programs on light-trucks and changing
environmental regulations on heavy trucks drove the increase in North
American demand. Automotive bearing plant utilization was higher in 2002
compared to 2001 as a result of this demand. Additionally, plant utilization
was impacted by the closing of the Duston, England, plant, resulting in
operating inefficiencies and costs incurred to meet higher-than-expected
customer demand. Industrial bearing plant utilization was comparable to
2001. In 2002, steel plant utilization was between 70% and 80%, varying by
business and product, which was slightly better than 2001.
Item 3. Legal Proceedings
__________________________
Not Applicable
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, 2002.
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 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 14, 2003, are as follows:
Current Position and Previous
Name Age Positions During Last Five Years
___________________ ___ ____________________________________________
W. R. Timken, Jr. 64 1997 Chairman, President and Chief
Executive Officer; Director;
1999 Chairman and Chief Executive Officer;
Director;
2002 Chairman - Board of Directors; Director;
Officer since 1968. J. W. Griffith 49 1997 Vice President - Bearings - North
American Automotive, Rail, Asia
Pacific and Latin America;
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; Officer since 1996. 14
Executive Officers of the Registrant (cont.)
____________________________________________
Current Position and Previous
Name Age Positions During Last Five Years
___________________ ___ ____________________________________________
B. J. Bowling 61 1997 Executive Vice President, Chief
Operating Officer and President -
Steel; Officer since 1996.
- Steel; Officer since 1996.
C. J. Andersson 41 1997 General Manager - Mexico Sourcing and
Business Development, GE International
Mexico (General Electric Company);
1999 General Manager - Aviation Information
Services, GE Aircraft Engines (General
Electric Company);
2000 Senior Vice President - e-Business, The
Timken Company;
2001 Senior Vice President - e-Business and
Lean Six Sigma, The Timken Company;
2002 Senior Vice President - Industrial
Integration, The Timken Company;
Officer since 2000. M. C. Arnold 46 1997 Director - Bearing Business Process
Advancement;
1998 Vice President - Bearings - Business
Process Advancement;
2000 President - Industrial; Officer since
2000. S. B. Bailey 43 1997 Director - Finance;
1999 Director - Finance and Treasurer;
2000 Treasurer;
2001 Corporate Controller;
2002 Senior Vice President - Finance and
Controller; Officer since 1999. W. R. Burkhart 37 1997 Legal Counsel - Europe, Africa and West
Asia;
1998 Director of Affiliations and Acquisitions;
2000 Senior Vice President and General Counsel;
Officer since 2000. D. J. Demerling 52 1997 President - MPB Corporation;
2000 President - Aerospace and Super Precision;
2002 Senior Vice President - Supply Chain Trans-
formation; Officer since 2000. 15
Executive Officers of the Registrant (cont.)
____________________________________________
Current Position and Previous
Name Age Positions During Last Five Years
___________________ ___ ____________________________________________
G. A. Eisenberg 41 1997 Executive Vice President and Chief
Financial Officer, United Dominion
Industries;
1998 President - Test Instrumentation Segment;
Executive Vice President and Chief
Financial Officer, United Dominion
Industries;
1999 President and Chief Operating Officer,
United Dominion Industries;
2002 Executive Vice President - Finance and
Administration, The Timken Company;
Officer since 2002. J. T. Elsasser 50 1997 Vice President - Bearings - Europe,
Africa and West Asia;
1998 Group Vice President - Bearings -
Rail, Europe, Africa and West Asia;
1999 Senior Vice President - Corporate
Development;
2002 Senior Vice President - e-Business and
Corporate Planning; Officer since 1996. K. P. Kimmerling 45 1997 Vice President - Manufacturing -
Steel;
1998 Group Vice President - Alloy Steel;
1999 President - Automotive; Officer since
1998. S. J. Miraglia, Jr. 52 1997 Vice President - Bearings - North
American Industrial and Super
Precision;
1998 Group Vice President - Bearings -
North American Industrial and Super
Precision;
1999 Senior Vice President - Technology;
Officer since 1996. H. J. Sack 49 1997 President - Latrobe Steel Company;
1998 Group Vice President - Specialty Steel
and President - Latrobe Steel
Company;
1999 Group Vice President - Specialty Steel
and President - Timken Latrobe Steel;
2000 President - Specialty Steel; Officer
since 1998.
16 Executive Officers of the Registrant (cont.)
____________________________________________
Current Position and Previous
Name Age Positions During Last Five Years
___________________ ___ ____________________________________________
M. J. Samolczyk 47 1997 Vice President - Sales and Marketing -
Industrial - Original Equipment;
1998 Vice President and General Manager -
Precision Steel Components;
2000 President - Precision Steel Components;
2002 Senior Vice President - Automotive
Integration; Officer since 2000. S. A. Scherff 49 1997 Director - Legal Services and Assistant
Secretary;
1999 Corporate Secretary;
2000 Corporate Secretary and Assistant General
Counsel; Officer since 1999. W. J. Timken 60 1997 Vice President; Director; Officer
since 1992. W. J. Timken, Jr. 35 1997 Market Manager - Original Equipment
Distribution - Europe, Africa and West
Asia;
1998 Vice President - Latin America;
2000 Corporate Vice President - Office of the
Chairman;
2002 Corporate Vice President - Office of the
Chairman; Director; Officer since 2000. 17
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, 2002, was 7,719. The estimated number of shareholders at
December 31, 2002, was 44,057.
High and low stock prices and dividends for the last two fiscal years are
presented in the Quarterly Financial Data schedule on Page 1 of the Annual
Report to Shareholders for the year ended December 31, 2002, and are
incorporated herein by reference.
Information regarding the company's stock compensation plans is presented in
Note 10 to the Consolidated Financial Statements on Page 41 of the Annual
Report to Shareholders for the year ended December 31, 2002, and is incor-
porated herein by reference. Information regarding disclosure of the
company's equity compensation plans approved by shareholders is presented in
Item 12.
Item 6. Selected Financial Data
________________________________
The Summary of Operations and Other Comparative Data on Pages 48-49 of the
Annual Report to Shareholders for the year ended December 31, 2002, 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 22-31 of the Annual Report to Shareholders for the year
ended December 31, 2002, is incorporated herein by reference.
On March 20, 2003, the company announced the closing of the bearing plant in
Darlington, England. This plant was acquired as part of the company's
acquisition of Ingersoll-Rand's Engineered Solutions business, which was
effective February 16, 2003. Operations at the Darlington plant are
expected to be phased out during the next 8 to 12 months.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
____________________________________________________________________
Information appearing under the caption "Management's Discussion and
Analysis of Other Information" appearing on Page 29-31 of the Annual
Report to Shareholders for the year ended December 31, 2002, is
incorporated herein by reference.
18
Item 8. Financial Statements and Supplementary Data
____________________________________________________
The Quarterly Financial Data schedule included on Page 1, the
Consolidated Financial Statements of the registrant and its subsidiaries
on Pages 22-32, the Notes to Consolidated Financial Statements on Pages
33-46 and the Report of Independent Auditors on Page 47 of the Annual
Report to Shareholders for the year ended December 31, 2002, are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
____________________________________________________________________
and Financial Disclosure
________________________ Not applicable.
19PART 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 25 of the proxy statement filed in connection with the annual meeting
of shareholders to be held April 15, 2003, and is incorporated herein by
reference. Information regarding the executive officers of the registrant
is included in Part I hereof.
Item 11. Executive Compensation
________________________________
Required information is set forth under the captions "Executive Compensation"
on Pages 11-22 and "Comparison of Five Year Cumulative Total Return" on
Page 23 of the proxy statement filed in connection with the annual meeting
of shareholders to be held April 15, 2003, and is incorporated herein by
reference.
In addition, Joseph F. Toot, Jr., retired President and CEO of the company,
and currently a Director, was paid $100,000 in 2002, for services provided
by Mr. Toot pursuant to the Consulting Agreement between Mr. Toot and the
company effective January 1, 2001, and filed with the Commission on
March 30, 2001. That agreement expired on December 31, 2002. Currently,
Mr. Toot is provided office space and secretarial support, and the company
pays travel and entertainment expenses incurred by Mr. Toot in connection
with maintaining certain company customer relationships. Mr. Toot also
receives a pension from the company.
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 9-10 of the proxy
statement filed in connection with the annual meeting of shareholders to be
held April 15, 2003, and is incorporated herein by reference.
20 Item 12. Security Ownership of Certain Beneficial Owners and Management
________________________________________________________________________
Related Stockholder Matters (cont.)
___________________________________
Equity Compensation Plan Information
The table below sets forth certain information regarding the following equity
compensation plans of the Company as of December 31, 2002: The Timken
Company Long-Term Incentive Plan (As Amended and Restated as of January 30,
2002) (the "LTIP"), and The 1985 Incentive Plan of The Timken Company (the
"Incentive Plan"), pursuant to which the Company has made equity compensation
available to eligible persons. Both plans have been approved by shareholders.
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... 7,310,026 $21.21 2,675,200 (1)/(2)
(1) 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, Performance Shares, and Performance Units. Awards may be credited
with dividend equivalents payable in the form of Company 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, 2002,
736,300 Common Shares remained available for future issuance as Restricted
Shares or Deferred Shares.
(2) 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 Company Common Shares authorized for
issuance under either the LTIP or the Incentive Plan. The table does not
include separate information about these plans because they merely provide
for the deferral, rather than the issuance, of Company Common Shares.
21 Item 13. Certain Relationships and Related Transactions
________________________________________________________
Required information is set forth under the captions "Election of Directors"
on Pages 4-7 and "Executive Loan" on Page 17 of the proxy statement issued in
connection with the annual meeting of shareholders to be held April 15, 2003,
and is incorporated herein by reference.
Item 14. Controls and Procedures
_________________________________
(a). Evaluation of disclosure controls and procedures. Timken
maintains a set of disclosure controls and procedures designed
to ensure that information required to be disclosed by the
company in reports that it files or submits under the Securities
Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. Within the
90-day period prior to the filing of this Form 10-K, an
evaluation was carried out under the supervision and with the
participation of the company's management, including the
principal executive officer and principal financial officer, of
the effectiveness of the company's disclosure controls and
procedures (as defined in Rule 13a-14(c) and 15(d)-14(c) of the
Securities Exchange Act of 1934, as amended). Based on that
evaluation, the principal executive officer and principal
financial officer of the company have each concluded that such
disclosure controls and procedures are effective. (b). Changes in internal controls. Subsequent to the date of their
evaluation, there have not been any significant changes in the
company's internal controls or in other factors that could
significantly affect these controls, including any corrective
action with regard to significant deficiencies and material
weaknesses. 22
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. (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.
23
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 among The Timken
Company, as Borrower, Various Financial Institutions, as Banks,
and Keybank National Association, as Agent. (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. (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. (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. (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.
24 Listing of Exhibits (cont.)
___________________________
Management Contracts and Compensation Plans (cont.)
___________________________________________________ (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. (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.
25 Listing of Exhibits (cont.)
___________________________
Management Contracts and Compensation Plans (cont.)
___________________________________________________ (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 29, 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. (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.
26
Listing of Exhibits (cont.)
___________________________
Management Contracts and Compensation Plans (cont.)
___________________________________________________ (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 April 16, 2002. Each differs
only as to name and date executed and was filed on May 14, 2002
with Form 10-Q (Commission File Number 1-1169), and is
incorporated herein by reference. (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.
27 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. (12) Ratio of Earnings to Fixed Charges.
(13) Annual Report to Shareholders for the year ended December 31,
2002 (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
(99.1) Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
signed on March 28, 2003 by the President and Chief Executive
Officer and the Executive Vice President - Finance and
Administration (99.2) The Consulting Agreement entered into with e-Solutions.biz, LLC
(Thomas W. Strouble, Owner and principal) was filed on
November 13, 2002 with Form 10-Q (Commission File Number
1-1169), and is incorporated herein by reference. (b) Reports on Form 8-K:
On February 18, 2003, the company filed a Form 8-K regarding
Acquisition or Disposition of Assets, which contained information
regarding the company's completion of the acquisition of the Engineered
Solutions Business of Ingersoll-Rand Company Limited. Financial state-
ments for the company and the Engineered Solutions business of
Ingersoll-Rand Company Limited were incorporated by reference into this
Form 8-K. On February 13, 2003, the company filed a Form 8-K regarding Other
Events and Regulation FD disclosure, which contained a press release
announcing the offering of $250 million of 5.75% notes due 2010. No
financial statements were filed. On February 12, 2003, the company filed a Form 8-K regarding Other
Events and Regulation FD disclosure, which contained a press release
announcing the pricing of the offering of 11 million shares of the
company's common stock. No financial statements were filed.
28
Listing of Exhibits (cont.)
___________________________ (b) Reports on Form 8-K (cont.):
On February 7, 2003, the company filed a Form 8-K regarding Other
Events, which contained information regarding the company's pending
acquisition of the Engineered Solutions business of Ingersoll-Rand
Company Limited. Audited combined financial statements of Ingersoll-
Rand Engineered Solutions Business for the years ended December 31,
2002, 2001 and 2000 were filed. On January 29, 2003, the company filed a Form 8-K regarding Other
Events and Regulation FD disclosure, which contained a press release
announcing the company's first quarter and full year 2003 outlook. No
financial statements were filed. On January 22, 2003, the company filed a Form 8-K regarding Other
Events and Regulation FD disclosure, which contained a press release
announcing the company's fourth quarter and 2002 results. No financial
statements were filed. On December 24, 2002, the company filed a Form 8-K regarding Other
Events, which contained information regarding the company's pending
acquisition of the Engineered Solutions business of Ingersoll-Rand
Company Limited. Audited combined financial statements of Ingersoll-
Rand Engineered Solutions Business for the years ended December 31,
2001, 2000 and 1999 and for the nine months ended September 30, 2002
and 2001 were filed. In addition, unaudited pro forma financial
information for the company and the Ingersoll-Rand Engineered Solutions
Business for the year ended December 31, 2001 and the nine months ended
September 30, 2002 was filed. On December 24, 2002, the company filed a Form 8-K regarding Other
Events, which contained informatin regarding the company's change in
method of accounting in accordance with the adoption of Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible
Assets." No financial statements were filed. On November 19, 2002, the company filed a Form 8-K regarding Other
Events and Regulation FD disclosure, which contained estimated market
data and industry trend information relating to a number of industry
segments in which the company sells bearing and steel products. No
financial statements were filed. (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 27, 2003 Date March 27, 2003
________________________________ _______________________________ By /s/ Sallie B. Bailey
________________________________
Sallie B. Bailey
Senior Vice President - Finance
(Principal Accounting Officer)
Date March 27, 2003
_______________________________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/ Ward J. Timken, Jr.*
______________________________ _______________________________
Stanley C. Gault Director Ward J. Timken, Jr. Director
Date March 27, 2003 Date March 27, 2003By /s/ John A. Luke, Jr.* By /s/ W. R. Timken, Jr.*
______________________________ _______________________________
John A. Luke, Jr. Director W. R. Timken, Jr. Director
Date March 27, 2003 Date March 27, 2003 /s/ Robert W. Mahoney* By /s/ Joseph F. Toot, Jr.*
______________________________ _______________________________
Robert W. Mahoney Director Joseph F. Toot, Jr. Director
Date March 27, 2003 Date March 27, 2003By /s/ Jay A. Precourt* By /s/ Martin D. Walker*
______________________________ _______________________________
Jay A. Precourt Director Martin D. Walker Director
Date March 27, 2003 Date March 27, 2003By /s/ John M. Timken, Jr. By /s/ Jacqueline F. Woods*
______________________________ _______________________________
John M. Timken, Jr. Director Jacqueline F. Woods, Director
Date March 27, 2003 Date March 27, 2003By /s/ Ward J. Timken
______________________________
Ward J. Timken Director
Date March 27, 2003 By /s/ Glenn A. Eisenberg
___________________________________
Glenn A. Eisenberg, attorney-in-fact
By authority of Power of Attorney
filed as Exhibit 24 hereto
Date March 27, 2003 CERTIFICATIONS
I, James W. Griffith, certify that:
1. I have reviewed this annual report on Form 10-K of The Timken Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated sub-
sidiaries, is made known to us by others within those entities, particu-
larly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions): a) all significant deficiencies in the design or operation of internal con-
trols which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses. Date: March 27, 2003 BY /s/ James W. Griffith
______________________________________
James W. Griffith,
Chief Executive Officer,
President and Director
I, Glenn A. Eisenberg, certify that:
1. I have reviewed this annual report on Form 10-K of The Timken Company;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated sub-
sidiaries, is made known to us by others within those entities, particu-
larly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions): a) all significant deficiencies in the design or operation of internal con-
trols which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses. Date: March 27, 2003
BY /s/ Glenn A. Eisenberg
______________________________________
Glenn A. Eisenberg
Executive Vice President - Finance and
Administration
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, 2002
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, 2002, are incorporated by
reference in Item 8:
Consolidated statements of operations-Years ended December 31, 2002, 2001 and
2000
Consolidated balance sheets-December 31, 2002 and 2001
Consolidated statements of cash flows-Years ended December 31, 2002, 2001
and 2000
Consolidated statements of shareholders' equity-Years ended December 31, 2002,
2001 and 2000
Notes to consolidated financial statements-December 31, 2002
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 of
The Timken Company
We have audited the accompanying consolidated balance sheets of The Timken
Company and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 2002. 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 and schedule. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement and schedule 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, 2002 and 2001, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 2002, 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 6 to the consolidated financial statements, "Change in
Method of Accounting," The Timken 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 18, 2003
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, 2002:
Reserves and allowances
deducted from asset accounts:
Allowance for
uncollectible accounts $ 14,976 $ 4,752 (1) $ 5,342 (3) $ 14,386
Valuation allowance
on deferred tax assets 34,756 2,547 (2) 19,179 (4) 18,124
______ ______ ______ ______
$ 49,732 $ 7,299 $ 24,521 $ 32,510
====== ====== ====== ======
Year ended December 31, 2001:
Reserves and allowances
deducted from asset accounts:
Allowance for
uncollectible accounts $ 11,259 $ 10,025 (1) $ 6,308 (3) $ 14,976
Valuation allowance
on deferred tax assets 18,084 20,219 (2) 3,547 (4) 34,756
______ ______ ______ ______
$ 29,343 $ 30,244 $ 9,855 $ 49,732
====== ====== ====== ======
Year ended December 31, 2000:
Reserves and allowances
deducted from asset accounts:
Allowance for
uncollectible accounts $ 9,497 $ 2,406 (1) $ 644 (3) $ 11,259
Valuation allowance
on deferred tax assets 15,041 11,543 (2) 8,500 (4) 18,084
______ ______ ______ ______
$ 24,538 $ 13,949 $ 9,144 $ 29,343
====== ====== ====== ======
(1) Provision for uncollectible accounts included in expenses.
(2) Increase in valuation allowance is recorded as a component of the provision for income taxes.
(3) Actual accounts written off against the allowance--net of recoveries.
(4) Reduction in valuation allowance due to utilization of foreign net operating losses previously
reserved or write-off of deferred tax assets that are not realizable in future years.