-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VTWhJEaMDBp8PlTzH68dIp8rGDTUL1iZN2z6sug4c94HTPaLNCmAF33FDUWp8VPM V/uXDGfElDAMZ4hF8BYvQQ== 0000098362-98-000013.txt : 19980515 0000098362-98-000013.hdr.sgml : 19980515 ACCESSION NUMBER: 0000098362-98-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIMKEN CO CENTRAL INDEX KEY: 0000098362 STANDARD INDUSTRIAL CLASSIFICATION: BALL & ROLLER BEARINGS [3562] IRS NUMBER: 340577130 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01169 FILM NUMBER: 98619385 BUSINESS ADDRESS: STREET 1: 1835 DUEBER AVE SW CITY: CANTON STATE: OH ZIP: 44706 BUSINESS PHONE: 3304383000 FORMER COMPANY: FORMER CONFORMED NAME: TIMKEN ROLLER BEARING CO DATE OF NAME CHANGE: 19710304 10-Q 1 1. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10Q [X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 1998. Commission File No. 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 (330) 438-3000 Registrant's telephone number, including area code Not Applicable Former name, former address and former fiscal year if changed since last report. 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 ___ ___ Common shares outstanding at March 31, 1998, 62,123,841. PART I. FINANCIAL INFORMATION 2. THE TIMKEN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) Mar. 31 Dec. 31 1998 1997 ASSETS ---------- ---------- Current Assets (Thousands of dollars) Cash and cash equivalents......................... $15,985 $9,824 Accounts receivable, less allowances, (1998-$7,334; 1997-$7,003)........................ 395,105 357,423 Deferred income taxes............................. 49,389 42,071 Inventories (Note 2) ............................. 480,106 445,853 ---------- ---------- Total Current Assets.................... 940,585 855,171 Property, Plant and Equipment..................... 2,704,641 2,677,786 Less allowances for depreciation................. 1,459,839 1,457,270 ---------- ---------- 1,244,802 1,220,516 Costs in excess of net assets of acquired business, less amortization, (1998-$24,628; 1997-$23,448)... 132,280 139,409 Deferred income taxes............................. 15,645 26,605 Other assets...................................... 91,720 84,849 ---------- ---------- Total Assets................................ $2,425,032 $2,326,550 ========== ========== LIABILITIES Current Liabilities Accounts payable and other liabilities............ $234,116 $253,033 Short-term debt and commercial paper.............. 204,869 156,585 Accrued expenses.................................. 170,587 157,343 ---------- ---------- Total Current Liabilities............... 609,572 566,961 Noncurrent Liabilities Long-term debt (Note 3) .......................... 239,814 202,846 Accrued pension cost.............................. 112,225 103,061 Accrued postretirement benefits cost.............. 390,161 389,749 Other noncurrent liabilities...................... 35,140 31,857 ---------- ---------- Total Noncurrent Liabilities............ 777,340 727,513 Shareholders' Equity (Note 4) Common stock...................................... 294,357 321,069 Earnings invested in the business................. 786,911 749,033 Cumulative foreign currency translation adjustment (43,148) (38,026) ---------- ---------- Total Shareholders' Equity.............. 1,038,120 1,032,076 Total Liabilities and Shareholders' Equity.. $2,425,032 $2,326,550 ========== ========== PART I. FINANCIAL INFORMATION 3. Continued THE TIMKEN COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Mar. 31 Mar. 31 1998 1997 ------ ------ (Thousands of dollars, except per share data) Net sales............................................. $707,381 $640,584 Cost of product sold.................................. 533,015 489,155 ------ ------ Gross Profit....................................... 174,366 151,429 Selling, administrative and general expenses.......... 88,141 78,403 ------ ------ Operating Income................................... 86,225 73,026 Interest expense...................................... (5,863) (5,465) Other income (expense)................................ (854) (569) ------ ------ Income Before Income Taxes......................... 79,508 66,992 Provision for Income Taxes (Note 5)................... 30,372 25,926 ------ ------ Net Income......................................... $49,136 $41,066 ====== ====== Earnings Per Share * ............................. $0.79 $0.66 Earnings Per Share - assuming dilution **........ $0.78 $0.64 Dividends Per Share................................ $0.18 $0.165 * Per average shares outstanding..................... 62,481,627 62,448,532 ** Per average shares outstanding - assuming dilution. 63,331,559 63,383,258 PART I. FINANCIAL INFORMATION Continued 4. THE TIMKEN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended Cash Provided (Used) Mar. 31 Mar. 31 1998 1997 ------ ------ OPERATING ACTIVITIES (Thousands of dollars) Net Income............................................. $49,136 $41,066 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................... 33,756 33,205 Provision (credit) for deferred income taxes.......... 1,094 (6,194) Stock issued in lieu of cash to employee benefit plans 10,091 4,095 Changes in operating assets and liabilities: Accounts receivable.................................. (38,721) (35,269) Inventories and other assets......................... (37,270) (11,315) Accounts payable and accrued expenses................ 13,506 29,365 Foreign currency translation......................... 595 (233) ------ ------ Net Cash Provided by Operating Activities........... 32,187 54,720 INVESTING ACTIVITIES Purchases of property, plant and equipment - net...... (65,014) (37,364) Purchase of subsidiaries.............................. 0 (34,747) ------ ------ Net Cash Used by Investing Activities............... (65,014) (72,111) FINANCING ACTIVITIES Cash dividends paid to shareholders................... (11,258) (8,939) Purchase of Treasury Shares........................... (36,803) (9,361) Payments on long-term debt............................ (23,108) 0 Proceeds from issuance of long-term debt.............. 38,228 0 Short-term debt activity - net........................ 71,714 41,742 ------ ------ Net Cash Provided by Financing Activities........... 38,773 23,442 Effect of exchange rate changes on cash................ 215 (419) Increase in Cash and Cash Equivalents.................. 6,161 5,632 Cash and Cash Equivalents at Beginning of Period....... 9,824 5,342 ------ ------ Cash and Cash Equivalents at End of Period............. $15,985 $10,974 ====== ====== PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 5. Note 1 -- Basis of Presentation The accompanying consolidated condensed financial statements (unaudited) for The Timken Company (the "company") been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes included in the company's annual report on Form 10-K for the year ended December 31, 1997. Certain amounts for 1997 have been reclassified to conform with the 1998 presentation. 3/31/98 12/31/97 Note 2 -- Inventories ------- ------- (Thousands of dollars) Finished products $157,849 $144,621 Work-in-process and raw materials 284,887 264,784 Manufacturing supplies 37,370 36,448 ------- ------- $480,106 $445,853 ======= ======= Note 3 -- Long-term Debt 3/31/98 12/31/97 ------- ------- (Thousands of dollars) 7-1/2% State of Ohio Pollution Control Revenue Refunding Bonds, maturing on January 1, 2002. $17,000 $17,000 State of Ohio Water Development Revenue Refunding Bond, maturing on May 1, 2007. The variable interest rate is tied to the bank's tax exempt weekly interest rate. The rate at March 31, 1998 is 3.70%. 8,000 8,000 State of Ohio Air Quality and Water Development Revenue Refunding Bonds, maturing on June 1, 2001. The variable interest rate is tied to the bank's tax exempt weekly interest rate. The rate at March 31, 1998 is 3.70%. 21,700 21,700 State of Ohio Water Development Authority Solid Waste Revenue Bonds, maturing on July 2, 2032. The variable interest rate is tied to the bank's tax exempt weekly interest rate. The rate at March 31, 1998 is 3.70%. 24,000 24,000 Fixed Rate Medium-Term Notes, Series A, due at various dates through January, 2028 with interest rates ranging from 6.20% to 9.10%. 167,000 153,000 Other 3,892 2,766 ------- ------- 241,592 226,466 Less: Current Maturities 1,778 23,620 ------- ------- $239,814 $202,846 ======= ======= PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 6. Continued Note 4 -- Shareholders' Equity 3/31/98 12/31/97 -------- -------- (Thousands of dollars) Class I and Class II serial preferred stock without par value: $0 $0 Authorized -- 10,000,000 shares each class Issued - none Common Stock without par value: Authorized -- 200,000,000 shares Issued (including shares in treasury) 1998 - 63,082,626 shares 1997 - 63,082,626 shares Stated Capital 53,064 53,064 Other paid-in capital 277,617 273,873 Less cost of Common Stock in treasury 36,324 5,868 1998 - 958,784 shares 1997 - 202,627 shares -------- -------- $294,357 $321,069 ======== ======== An analysis of the change in capital and earnings invested in the business is as follows: Common Stock Earnings Accumulated Other Invested Other Stated Paid-In in the Comprehensive Treasury Capital Capital Business Income Stock Total ------- -------- -------- ---------- -------- --------- (Thousands of dollars) Balance December 31, 1997 $53,064 $273,873 $749,033 ($38,026) ($5,868) $1,032,076 Net Income 49,136 49,136 Foreign currency translation adjustment (5,122) (5,122) ------ Total comprehensive income 44,014 Dividends - $.18 per share (11,258) (11,258) Stock Options, employee benefit and dividend reinvestment plans: 3,744 (30,456) (26,712) Treasury -(issued)/acquired 756,157 shares ------- -------- -------- ---------- -------- --------- Balance March 31, 1998 $53,064 $277,617 $786,911 ($43,148) ($36,324) $1,038,120 ======= ======== ======== ========== ======== =========
PART I. NOTES TO FINANCIAL STATEMENTS 7. (Unaudited) Continued Note 5 -- Income Tax Provision Three Months Ended Mar. 31 Mar. 31 1998 1997 ------ ------ U.S. (Thousands of dollars) Federal $24,126 $19,449 State & Local 2,984 3,223 Foreign 3,262 3,254 ------ ------ $30,372 $25,926 ====== ====== Taxes provided exceed the U.S. statutory rate primarily due to state and local taxes and losses without current tax benefits. 8. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The Timken Company reported record sales and earnings for the first quarter of 1998. During the quarter, the company continued to pursue its growth strategies, which included developing new products and entering markets that offer profitable growth. The company also maintained its focus on continuous improvement, which helped it achieve margin improvement. Demand for the company's products remained strong during the quarter. Plant utilization throughout the company was high with the majority of its facilities running at full levels. The company believes that customer demand for its products will remain strong in 1998 in both its bearing and steel businesses. Net sales for the first quarter were $707.4 million, an increase of 10.4% above 1997's first quarter sales of $640.6 million. Demand for the company's products was particularly strong in North America, Europe and Latin America. Gross profit was $174.4 million (24.6% of net sales) in the first quarter of 1998, a 15.2% increase over the $151.4 million (23.6% of net sales) in 1997's first quarter. The higher sales volume and benefits related to the company's on-going continuous improvement efforts contributed to the higher profits. In addition, the company's bearing business realized the benefits from the additional hiring and associated training that occurred during the second half of 1997 to help meet the strong demand levels in the first quarter of 1998. Selling, administrative, and general expenses were $88.1 million (12.5% of net sales) in the first quarter of 1998 compared to $78.4 million (12.2% of net sales) in 1997. These expenses increased, in part, due to the support required for the company's growth strategies, including higher expenses related to the integration of the company's more recent acquisitions. In addition, the expenses for the company's pay for performance plans were higher in the first quarter of 1998 as compared to the first quarter of 1997. These plans link pay directly to company performance levels. Interest expense was $.4 million higher in the first quarter of 1998 compared to the year-ago period. This increase resulted from the higher average level of debt outstanding during the first quarter. Bearing Business net sales were $462.8 million in the first quarter of 1998, an increase of $39.9 million compared to $422.9 million in the year-earlier period. Slightly over half of the higher sales were achieved in the domestic light truck, heavy truck, and industrial equipment markets. Sales in Europe, excluding the company's recent acquisitions, accounted for approximately 25% of the sales increase. The company's recent acquisitions accounted for approximately 13% of the sales volume 9. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) increase. The remaining sales volume increase occurred mainly in Latin America and the North American rail market. Although the Asia Pacific weakness continues, the impact of the economic problems there has not been strongly felt in the company's markets. The impact on the company's financial results has been minor. Bearing Business operating income totaled a record $50.1 million in the first quarter of 1998 compared to $43.4 million in 1997's first quarter. The higher sales volume, improved sales mix, the business' continuous improvement efforts and the benefits from the additional hiring and training in the second half of 1997 contributed to the higher operating income for the Bearing Business in the first quarter. On April 21, 1998, the company announced an additional $12 million investment in its Altavista, Virginia, bearing plant. The $12 million expansion will help ensure adequate supply of the advanced manufactured bearings for the growing light truck and sport utility vehicle markets. This is the third capacity expansion at the Altavista facility since 1991 when the original plant was built. Steel Business sales were $244.6 million in the first quarter of 1998 compared to $217.7 million recorded a year earlier. The company experienced strong demand for both alloy steel products and steel components in all markets. The Steel Business achieved double-digit sales increases in its precision steel components, alloy tubes and bars, and its service center business in the first quarter of 1998 versus the year earlier period. Most of the higher sales were achieved in the tube and bar markets. During the first quarter the business performed at record levels and was able to meet strong customer demand by continuing to produce both steel tubes and bars at higher than expected levels with existing equipment. Steel Business operating income in the first quarter of 1998 rose by $6.5 million to $36.1 million compared to $29.6 million in the year-earlier period. This increase resulted primarily from the higher sales volume and the business' continuous improvement initiatives, which resulted in lower manufacturing costs and new levels of output. The price of recycled scrap metal in the first quarter of 1998 was also higher than the year-ago period and partially offset the increase in operating income achieved through the higher sales and continuous improvement efforts. The Steel Business is currently completing a $55 million rolling mill investment project at its Harrison Steel Plant in Canton, Ohio, which will help position the business to be a premier producer of high-quality, intermediate-size bars. It is anticipated that the new rolling mill will be operational by mid- 1998. Start-up costs associated with bringing the new mill into production will slightly dampen operating income in the second 10. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) and third quarters of 1998. On April 22,1998, the company announced tentative plans for a new steel tube mill that would expand its tubing product line. Plans are contingent upon completion of discussions with all key constituents. The facility would include state-of-the-art piercing, rolling and finishing operations designed to complement the company's existing piercing mills by expanding the wall thickness and size offerings. Timken seamless tubing is used in applications in a multitude of industries, including automotive, bearing and oil country. The location of the facility has not been determined. The company's basic labor agreement with the United Steelworkers of America (AFL-CIO) at its Latrobe Steel subsidiary expired on May 3, 1998. When negotiations ended on May 6, 1998, approximately 450 production and maintenance associates at Latrobe Steel went on strike. The distribution and service portions of the business as well as manufacturing operations located in other communities were not affected. On May 9, 1998, the associates at Latrobe Steel ratified a new 3-year labor contract which ended the 3-day work stoppage. The work stoppage did not materially affect the company's 1998 financial performance. Financial Condition Total assets increased by $98.5 million from December 31, 1997. The increase resulted in part from higher accounts receivable and inventories required to support the higher demand levels. The $38.7 million increase in accounts receivable, as reflected in the Consolidated Condensed Statements of Cash Flows, relates primarily to the increase in sales. The number of days' sales in receivables at March 31, 1998, was lower compared to the year-end 1997 level. Inventories and other assets increased by $37.3 million compared to year-end 1997. The increase in inventories relates primarily to the higher level of activity, although the number of days supply in inventory increased from the December 31, 1997, level. The company continues to recognize the importance of cash flow by improving working capital usage, especially focusing on lowering inventory levels. Debt of $444.7 million at the end of the first quarter of 1998 exceeded the $359.4 million at year-end 1997. During the three months ended March 31, 1998, cash was required to fund working capital and capital expansion and improvement needs, as well as for the purchase of shares under its previously announced 1996 common stock purchase plan. This plan was completed in April, 1998. The company expects debt to remain at current levels during 1998. Any future cash needs that exceed cash generated from operations will be met by short-term borrowing and issuance of medium-term notes. On April 24, 1998, the company's registration statement to register $300 million of medium-term 11. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) notes was declared effective by the Securities and Exchange Commission. On May 8, 1998, the company issued $100 million of 30-year notes, maturing on May 8, 2028, pursuant to this shelf registration. The notes have a coupon rate of 6.875%. The 30% debt to total capital ratio was higher than the 25.8% at year-end 1997. Debt increased by $85.3 million during the first quarter of 1998; total shareholders' equity increased by $6 million. The increase in debt was required to meet the company's working capital needs, its capital expansion and improvement needs, and to help fund its purchase of shares under the 1996 common stock purchase plan. Purchases of property, plant and equipment - net during the three months ended March 31, 1998, were $65.0 million compared to $37.4 million one year earlier. The company continues to invest in activities consistent with the strategies it is pursuing to achieve industry leadership positions. Further capital investments in technologies in the company's plants throughout the world and new acquisitions provide Timken with the opportunity to improve the company's competitiveness and meet the needs of its growing base of customers. Other Information The Timken Company has approached being year 2000 compliant using a defined methodology that includes assessment, strategy definition, development, test, integration and implementation components. Additionally, the company's corporate information systems department has instituted a corporate level reporting and tracking process that encompasses all Timken year 2000 project efforts world-wide. Through the use of this methodology over the past two years, the company is well into its year 2000 conversion effort. Based on current project plans, Timken is striving to have all of its critical systems year 2000 compliant by the last quarter of 1998. The costs associated with this project will not have a material effect on the company's financial position, results of operations or cash flows. The company's financial results are also dependent on the ability of its customers, suppliers and the government to become year 2000 compliant. The company is communicating with its customers and suppliers on this issue in an effort to minimize any potential year 2000 compliance impact. On April 21, 1998, the Board of Directors declared a quarterly cash dividend of 18.0 cents per share payable June 1, 1998, to shareholders of record at the close of business on May 15, 1998. On April 21, 1998, the company announced board approval of the 1998 common stock purchase plan. The company's 1996 common stock purchase plan had authorized the company to buy back, in the open market, up to two million shares of common stock to be held as treasury shares and used for benefit plans. The company has 12. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) purchased all of the two million shares authorized under the 1996 common stock purchase plan. The company's 1998 common stock purchase plan authorizes the company to buy, in the open market on the New York Stock Exchange or otherwise in connection with previously negotiated transactions, at prevailing market prices, up to four million shares of common stock, which are to be held as treasury shares and used for specific purposes. The company may exercise this authorization until December 31, 2001. Shares of common stock purchased pursuant to the 1998 common stock purchase plan can be used as follows: to fund qualified employee benefit plans maintained by the company and its direct and indirect wholly owned domestic subsidiaries; to satisfy the company's obligations under its equity-based incentive plans; for use in making future acquisitions; and to deliver shares under existing and future equity-based compensation arrangements to associates and directors of the company and to associates of direct and indirect subsidiaries of the company. The Timken Company has entered a tentative agreement with Phoenix Environmental Ltd. (PEL) to develop a byproduct processing facility near its Faircrest and Gambrinus Steel Plants in Canton. The facility will employ a newly patented process to convert byproducts of the steel and bearing manufacturing process to industrial materials. The facility will be constructed in three separate phases with Phase I construction scheduled to begin in June 1998. Timken is the first company to employ the patented PEL technology. The operation will convert byproducts of the manufacturing process, such as electric arc furnace dust, metal grindings, and scale from the steel pickling process, to magnetite, which is a form of iron oxide. This fully recyclable magnetite can be sold as a raw material to industrial manufacturers of blasting media, shingle granules, pigments and colorants for paint and concrete, and filler additives for plastics. This cost-efficient method of recycling will enable the company to reduce disposal costs associated with the listed waste materials. Based on the Brazilian three-year cumulative inflation rate being below 100% and the company's evaluation of the Brazilian economy, in January 1998 the company began to consider Brazil a non- hyperinflated economy. The initial adjustment of $6 million to revalue Brazilian assets at current exchange rates was reflected as a reduction of other comprehensive income in the first quarter of 1998. Prospectively, exchange gains or losses on the conversion of net assets also will be reflected in other comprehensive income. Because of the trading relationship between the company and its Mexican subsidiary, the functional currency used for Mexico is the U.S. dollar. Accordingly, the evaluation of the economy in Mexico as hyperinflated does not impact the company's accounting for this subsidiary. Effective in the first quarter 1998, the company adopted the American Institute of Certified Public Accountants Statement of 13. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This SOP offers new guidance concerning the capitalization and/or expensing of costs associated with developing or obtaining internal use software. The adoption of this SOP did not have a material effect on the company's financial position, results of operations or cash flows. The statements set forth in this document that are not historical in nature are forward-looking statements. 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) changes in world economic conditions. This includes, but is not limited to, the potential instability of governments and legal systems in countries in which the company conducts business, significant changes in currency valuations and the effects of year 2000 compliance. b) changes in customer demand on sales and product mix. This includes the effect of customer strikes and the impact of changes in industrial business cycles. c) competitive factors, including changes in market penetration and the introduction of new products by existing and new competitors. d) 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 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. e) the success of the company's operating plans, including its ability to achieve the benefits from its on-going continuous improvement programs, its ability, along with that of its customers and suppliers, to update computer systems to be year 2000 compliant; its ability to integrate acquisitions into company operations, the ability of recently 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. f) unanticipated litigation, claims or assessments. This includes, but is not limited to, claims or problems related to product warranty and environmental issues. 14. Management's Discussion and Analysis of Financial Condition and Results of Operations (Cont.) g) changes in worldwide financial markets to the extent they affect the company's ability or costs to raise capital, have an impact on the overall performance of the company's pension fund investments and cause changes in the economy which affect customer demand. Part II. OTHER INFORMATION 15. Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders (1) The Board of Directors recommended the three individuals set forth below be elected Directors in Class I at the 1998 Annual Meeting of Shareholders of The Timken Company held on April 21, 1998, to serve a term of three years expiring at the Annual Meeting in 2001 (or until their respective successors are elected and qualified). All three individuals had been previously elected as Directors by the shareholders and were re-elected at the 1998 meeting. Affirmative Withheld Ward J. Timken 57,537,213 499,155 Martin D. Walker 57,540,156 496,212 Charles H. West 57,516,706 519,662 Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a). Exhibits 4 Indenture dated as of April 24, 1998, between The Timken Company and The Bank of New York, which was filed with The Timken Company's Form S-3 registration statement which became effective April 24, 1998, and is incorporated herein by reference. 10 The form of The Timken Company Nonqualified Stock Option Agreement for nontransferable options as adopted on April 21, 1998. 16. 10.1 The form of The Timken Company Nonqualified Stock Option Agreement for transferable options as adopted on April 21, 1998. 10.2 The Timken Company Deferral of Stock Option Gains Plan effective as of April 21, 1998. 11 Computation of Per Share Earnings 12 Computation of Ratio of Earnings to Fixed Charges 27 Financial Data Schedule (b). Reports on Form 8-K On May 7, 1998, the company filed a Form 8-K discussing the strike of production and maintenance associates at Latrobe Steel Company, a wholly owned subsidiary of the company. The strike took effect late on May 6, 1998. On May 11, 1998, the company filed a Form 8-K discussing the ratification of the new three-year labor contract on May 9, 1998 for associates at Latrobe Steel Company, which ended the strike that began on May 6, 1998. 17. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Timken Company _______________________________ Date May 14, 1998 BY /s/ W. R. Timken, Jr. ________________________ _______________________________ W. R. Timken, Jr., Director and Chairman; President and Chief Executive Officer Date May 14, 1998 BY /s/ G. E. Little ________________________ _______________________________ G. E. Little Senior Vice President - Finance EX-10 2 EXHIBIT 10 THE TIMKEN COMPANY Nonqualified Stock Option Agreement WHEREAS, _________________________ (the "Optionee") is an employee of The Timken Company (the "Company"); WHEREAS, the execution of a stock option agreement in the form hereof has been authorized by a resolution of the Compensation Committee (the "Committee") of the Board of Directors (the "Board") of the Company that was duly adopted on April 21, 1998 (the "Date of Grant"), and is incorporated herein by this reference; and WHEREAS, the option granted hereby is intended to be a nonqualified stock option and shall not be treated as an "incentive stock option" within the meaning of that term under Section 422 of the Internal Revenue Code of 1986; NOW, THEREFORE, pursuant to the Company's Long-term Incentive Plan (as Amended and Restated as of December 20, 1995) (the "Plan") and subject to the terms and conditions thereof and the terms and conditions hereinafter set forth, the Company hereby grants to the Optionee (i) a nonqualified stock option (the "Option") to purchase _____________ shares of the Company's common stock without par value (the "Common Shares") at the exercise price of thirty-three and three-fourths dollars ($33.75) per Common Share (the "Exercise Price") and (ii) the right to receive dividend equivalents payable in Common Shares on a deferred basis (the "Deferred Dividend Shares") or, at the discretion of the Committee, in cash, with respect to the Common Shares covered by any unexercised portion of the Option. 1. Vesting of Option. (a) Unless terminated as hereinafter provided, the Option shall be exercisable to the extent of one- fourth (1/4th) of the Common Shares covered by the Option after the Optionee shall have been in the continuous employ of the Company or a subsidiary for one full year from the Date of Grant and to the extent of an additional one-fourth (1/4th) thereof after each of the next three successive years thereafter during which the Optionee shall have been in the continuous employ of the Company or a subsidiary. For the purposes of this agreement: "subsidiary" shall mean a corporation, partnership, joint venture, unincorporated association or other entity in which the Company has a direct or indirect ownership or other equity interest; the continuous employment of the Optionee with the Company or a subsidiary shall not be deemed to have been interrupted, and the Optionee shall not be deemed to have ceased to be an employee of the Company or a subsidiary, by reason of the transfer of his employment among the Company and its subsidiaries. (b) Notwithstanding the provisions of Section 1(a) hereof, the Option shall become immediately exercisable in full upon any change in control of the Company that shall occur while the Optionee is an employee of the Company or a subsidiary. For the purposes of this agreement, the term "change in control" shall mean the occurrence of any of the following events: (i) all or substantially all of the assets of the Company are sold or transferred to another corporation or entity, or the Company is merged, consolidated or reorganized into or with another corporation or entity, with the result that upon conclusion of the transaction less than 51 percent of the outstanding securities entitled to vote generally in the election of directors or other capital interests of the acquiring corporation or entity is owned, directly or indirectly, by the shareholders of the Company generally prior to the transaction; or (ii) there is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report thereto), as promulgated pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation thereto under the Exchange Act) of securities representing 30 percent or more of the combined voting power of the then-outstanding voting securities of the Company; or (iii) the Company shall file a report or proxy statement with the Securities and Exchange Commission (the "SEC") pursuant to the Exchange Act disclosing in response to Item 1 of Form 8-K thereunder or Item 5(f) of Schedule 14A thereunder (or any successor schedule, form, report or item thereto) that a change in control of the Company has or may have occurred, or will or may occur in the future, pursuant to any then-existing contract or transaction; or (iv) the individuals who constituted the Board at the beginning of any period of two consecutive calendar years cease for any reason to constitute at least a majority thereof unless the nomination for election by the Company's shareholders of each new member of the Board was approved by a vote of at least two-thirds of the members of the Board still in office who were members of the Board at the beginning of any such period. In the event that any person described in Section 1(b)(ii) hereof files an amendment to any report referred to in Section 1(b)(ii) hereof that shows the beneficial ownership described in Section 1(b)(ii) hereof to have decreased to less than 30 percent, or in the event that any anticipated change in control referred to in Section 1(b)(iii) hereof does not occur following the filing with the SEC of any report or proxy statement described in Section 1(b)(iii) hereof because any contract or transaction referred to in Section 1(b)(iii) hereof is canceled or abandoned, the Committee may nullify the effect of Section 1(b)(ii) or 1(b)(iii) hereof, as the case may be, and reinstate the provisions of Section 1(a) hereof by giving notice thereof to the Optionee; provided, however, that any such action by the Committee shall not prejudice any exercise of the Option that may have occurred prior to the nullification and reinstatement. The provisions of Section 1(b)(ii) hereof shall again become automatically effective following any such nullification of the provisions thereof and reinstatement of the provisions of Section 1(a) hereof in the event that any person described in Section 1(b)(ii) hereof files a further amendment to any report referred to in Section 1(b)(ii) hereof that shows the beneficial ownership described in Section 1(b)(ii) hereof to have again increased to 30 percent or more. (c) Notwithstanding the provisions of Section 1(a) hereof, the Option shall become immediately exercisable in full if the Optionee should die or become permanently disabled(within the meaning of the Company's long-term disability plan) while in the employ of the Company or any subsidiary, or if the Optionee should retire under a retirement plan of the Company or any subsidiary (i) at or after age 62 or (ii) at an earlier age with the consent of the Company. (d) To the extent that the Option shall have become exercisable in accordance with the terms of this agreement, it may be exercised in whole or in part from time to time thereafter. 2. Termination of Option. The Option shall terminate automatically and without further notice on the earliest of the following dates: (a) thirty days after the date upon which the Optionee ceases to be an employee of the Company or a subsidiary, unless the cessation of his employment (i) is a result of his death, disability or retirement with the Company's consent or (ii) follows a change in control; (b) five years after the date upon which the Optionee ceases to be an employee of the Company or subsidiary (i) as a result of his disability, (ii) as a result of his retirement with the Company's consent, unless he is also a director of the Company who continues to serve as such following his retirement with the Company's consent, or (iii) following a change in control, unless the cessation of his employment following a change in control is a result of his death; (c) one year after the date upon which the Optionee ceases to be a director of the Company, but not less than five years after the date upon which he ceases to be an employee of the Company or a subsidiary, if (i) the cessation of his employment is a result of his retirement with the Company's consent and (ii) he continues to serve as a director of the Company following the cessation of his employment; (d) one year after the date of the Optionee's death regardless of whether he ceases to be an employee of the Company or a subsidiary prior to his death (i) as a result of his disability or retirement with the Company's consent or (ii) following a change in control; or (e) ten years after the Date of Grant. For the purposes of this agreement: "retirement with the Company's consent" shall mean the retirement of the Optionee prior to age 62, if the Board or the Committee determines that his retirement is for the convenience of the Company or a subsidiary, or the retirement of the Optionee at or after age 62 under a retirement plan of the Company or a subsidiary; "disability" shall mean that the Optionee has qualified for disability benefits under the Company's Long-Term Disability Program or any successor disability plan or program of the Company. In the event that the Optionee shall intentionally commit an act that the Committee determines to be materially adverse to the interests of the Company or a subsidiary, the Option shall terminate at the time of that determination notwithstanding any other provision of this agreement. 3. Payment of Exercise Price. The Exercise Price shall be payable (a) in cash in the form of currency or check or other cash equivalent acceptable to the Company, (b) by transfer to the Company of nonforfeitable, unrestricted Common Shares that have been owned by the Optionee for at least six months prior to the date of exercise or (c) by any combination of the methods of payment described in Sections 3(a) and 3(b) hereof. Nonforfeitable, unrestricted Common Shares that are transferred by the Optionee in payment of all or any part of the Exercise Price shall be valued on the basis of their fair market value as determined by the Committee from time to time. Subject to the terms and conditions of Section 6 hereof, and subject to any deferral election the Optionee may have made pursuant to any plan or program of the Company, the Company shall cause certificates for any shares purchased hereunder to be delivered to the Optionee upon payment of the Exercise Price in full. 4. Crediting of Deferred Dividend Shares. Each Deferred Dividend Share represents the right of the Optionee to receive one Common Share if and when the Deferred Dividend Share becomes nonforfeitable in accordance with Section 5(a) hereof. Upon the determination by the Committee of the number of Deferred Dividend Shares to be credited in accordance with this Section 4, Deferred Dividend Shares shall be credited annually to the Optionee as of December 31 of each year that the Option remains in effect and any portion thereof remains unexercised. The number of Deferred Dividend Shares to be credited to the Optionee for any calendar year shall be determined as follows: (a) the total amount per share of cash dividends that were paid on the outstanding Common Shares during the calendar year shall be multiplied by the total number of Common Shares then covered by both exercisable and unexercisable portions of the Option, including any Deferred Dividend Shares that shall have been previously credited to the Optionee hereunder and remain subject to forfeiture pursuant to Section 5(a) hereof; (b) the product of the arithmetical operation described in Section 4(a) hereof shall then be divided by the average closing price of the Common Shares, as reported on the New York Stock Exchange or other national market on which the Common Shares are then principally traded, for the 10 trading dates immediately preceding December 31; (c) the quotient of the arithmetical operation described in Section 4(b) hereof shall be the number of Deferred Dividend Shares that shall be credited to the Optionee for the calendar year; provided, however, that no Deferred Dividend Shares shall be credited to the Optionee for any calendar year in which the total net income per share of the outstanding Common Shares is not at least 250 percent of the total amount of cash dividends per share that were paid on the outstanding Common Shares during that calendar year, and no Deferred Dividend Shares shall be credited to the Optionee following the cessation of his employment with the Company or a subsidiary, regardless of the circumstances under which the cessation of his employment occurred and notwithstanding that the term of the Option or any Deferred Dividend Share remains in effect. 5. Vesting and Issuance of Deferred Dividend Shares. (a) A Deferred Dividend Share shall become nonforfeitable upon the earlier to occur of (i) the expiration of a period of four years from the date as of which it is credited to the Optionee on the records of the Company, if the Optionee shall have remained in the continuous employ of the Company or a subsidiary during that period, or (ii) the termination of the Optionee's employment with the Company or a subsidiary following a change in control or as a result of his death, disability or retirement with the Company's consent. If the Optionee ceases to be an employee of the Company or a subsidiary under any circumstances other than those described in Section 5(a)(ii) hereof, any Deferred Dividend Shares that shall have been previously credited to the Optionee hereunder and remain subject to forfeiture at the time of the cessation of his employment shall thereupon be forfeited automatically and without further notice unless otherwise determined by the Committee. (b) Subject to the terms and conditions of Section 6 hereof, and subject to any deferral election the Optionee may have made pursuant to any plan or program of the Company, Deferred Dividend Shares shall be issuable to the Optionee at the time when they become nonforfeitable in accordance with Section 5(a) hereof. 6. Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal and state securities laws; provided, however, notwithstanding any other provision of this agreement, the Option shall not be exercisable and the Company shall not be obligated to issue any Common Shares in payment of Deferred Dividend Shares if the exercise or issuance thereof would result in a violation of any such law. To the extent that the Ohio Securities Act shall be applicable to the Option, the Option shall not be exercisable and the Company shall not be obligated to issue any Common Shares in payment of Deferred Dividend Shares unless the Common Shares or other securities covered by the Option or to be issued in payment of Deferred Dividend Shares are (a) exempt from registration thereunder, (b) the subject of a transaction that is exempt from compliance therewith, (c) registered by description or qualification thereunder or (d) the subject of a transaction that shall have been registered by description thereunder. 7. Transferability and Exercisability. Neither the Option nor any Deferred Dividend Shares, including any interest in either thereof, shall be transferable by the Optionee except by will or the laws of descent and distribution, and the Option shall be exercisable during the lifetime of the Optionee only by him or, in the event of his legal incapacity to do so, by his guardian or legal representative acting on behalf of the Optionee in a fiduciary capacity under state law and court supervision. 8. Adjustments. The Committee shall make any adjustments in the Exercise Price and the number or kind of shares of stock or other securities covered by the Option or to be issued in payment of Deferred Dividend Shares that the Committee may determine to be equitably required to prevent any dilution or expansion of the Optionee's rights under this agreement that otherwise would result from any (a) stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, (b) merger, consolidation, separation, reorganization or partial or complete liquidation involving the Company or (c) other transaction or event having an effect similar to any of those referred to in Section 8(a) or 8(b) hereof. Furthermore, in the event that any transaction or event described or referred to in the immediately preceding sentence shall occur, the Committee may provide in substitution of any or all of the Optionee's rights under this agreement such alternative consideration as the Committee may determine in good faith to be equitable under the circumstances. 9. Withholding Taxes. If the Company shall be required to withhold any federal, state, local or foreign tax in connection with any exercise of the Option or payment of Deferred Dividend Shares, the Optionee shall pay the tax or make provisions that are satisfactory to the Company for the payment thereof. The Optionee may elect to satisfy all or any part of any such withholding obligation by surrendering to the Company a portion of the Common Shares that are issuable to the Optionee upon the exercise of the Option or payment of Deferred Dividend Shares. If such election is made, the shares so surrendered by the Optionee shall be credited against any such withholding obligation at their fair market value (as determined by the Committee from time to time) on the date of such surrender. 10. Right to Terminate Employment. No provision of this agreement shall limit in any way whatsoever any right that the Company or a subsidiary may otherwise have to terminate the employment of the Optionee at any time. 11. Relation to Other Benefits. Any economic or other benefit to the Optionee under this agreement or the Plan shall not be taken into account in determining any benefits to which the Optionee may be entitled under any profit-sharing, retirement or other benefit or compensation plan maintained by the Company or a subsidiary and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or a subsidiary. 12. Amendments. Any amendment to the Plan shall be deemed to be an amendment to this agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall adversely affect the rights of the Optionee with respect to the Option or the Deferred Dividend Shares without the Optionee's consent. 13. Severability. In the event that one or more of the provisions of this agreement shall be invalidated for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable. 14. Governing Law. This agreement is made under, and shall be construed in accordance with, the laws of the State of Ohio. This agreement is executed by the Company on this 21st day of April, 1998. THE TIMKEN COMPANY By ___________________________ Stephen A. Perry Senior Vice President Human Resources, Purchasing &Communications The undersigned Optionee hereby acknowledges receipt of an executed original of this agreement and accepts the Option granted hereunder and the right to receive Deferred Dividend Shares with respect to the Common Shares covered thereby, subject to the terms and conditions of the Plan and the terms and conditions hereinabove set forth. ______________________________ Optionee Date: _________________________ EX-10.1 3 EXHIBIT 10.1 TRANSFERABLE THE TIMKEN COMPANY Nonqualified Stock Option Agreement WHEREAS, _____________(the "Optionee") is an employee of The Timken Company (the "Company"); WHEREAS, the execution of a stock option agreement in the form hereof has been authorized by a resolution of the Compensation Committee (the "Committee") of the Board of Directors (the "Board") of the Company that was duly adopted on April 21, 1998 (the "Date of Grant"), and is incorporated herein by this reference; and WHEREAS, the option granted hereby is intended to be a nonqualified stock option and shall not be treated as an "incentive stock option" within the meaning of that term under Section 422 of the Internal Revenue Code of 1986; NOW, THEREFORE, pursuant to the Company's Long-term Incentive Plan (as Amended and Restated as of December 20, 1995) (the "Plan") and subject to the terms and conditions thereof and the terms and conditions hereinafter set forth, the Company hereby grants to the Optionee (i) a nonqualified stock option (the "Option") to purchase __________ shares of the Company's common stock without par value (the "Common Shares") at the exercise price of thirty-three and three-fourths dollars ($33.75) per Common Share (the "Exercise Price") and (ii) the right to receive dividend equivalents payable in Common Shares on a deferred basis (the "Deferred Dividend Shares") or, at the discretion of the Committee, in cash, with respect to the Common Shares covered by any unexercised portion of the Option. 1. Vesting of Option. (a) Unless terminated as hereinafter provided, the Option shall be exercisable to the extent of one- fourth (1/4th) of the Common Shares covered by the Option after the Optionee shall have been in the continuous employ of the Company or a subsidiary for one full year from the Date of Grant and to the extent of an additional one-fourth (1/4th) thereof after each of the next three successive years thereafter during which the Optionee shall have been in the continuous employ of the Company or a subsidiary. For the purposes of this agreement: "subsidiary" shall mean a corporation, partnership, joint venture, unincorporated association or other entity in which the Company has a direct or indirect ownership or other equity interest; the continuous employment of the Optionee with the Company or a subsidiary shall not be deemed to have been interrupted, and the Optionee shall not be deemed to have ceased to be an employee of the Company or a subsidiary, by reason of the transfer of his employment among the Company and its subsidiaries. (b) Notwithstanding the provisions of Section 1(a) hereof, the Option shall become immediately exercisable in full upon any change in control of the Company that shall occur while the Optionee is an employee of the Company or a subsidiary. For the purposes of this agreement, the term "change in control" shall mean the occurrence of any of the following events: (i) all or substantially all of the assets of the Company are sold or transferred to another corporation or entity, or the Company is merged, consolidated or reorganized into or with another corporation or entity, with the result that upon conclusion of the transaction less than 51 percent of the outstanding securities entitled to vote generally in the election of directors or other capital interests of the acquiring corporation or entity is owned, directly or indirectly, by the shareholders of the Company generally prior to the transaction; or (ii) there is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form or report thereto), as promulgated pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation thereto under the Exchange Act) of securities representing 30 percent or more of the combined voting power of the then-outstanding voting securities of the Company; or (iii) the Company shall file a report or proxy statement with the Securities and Exchange Commission (the "SEC") pursuant to the Exchange Act disclosing in response to Item 1 of Form 8-K thereunder or Item 5(f) of Schedule 14A thereunder (or any successor schedule, form, report or item thereto) that a change in control of the Company has or may have occurred, or will or may occur in the future, pursuant to any then-existing contract or transaction; or (iv) the individuals who constituted the Board at the beginning of any period of two consecutive calendar years cease for any reason to constitute at least a majority thereof unless the nomination for election by the Company's shareholders of each new member of the Board was approved by a vote of at least two-thirds of the members of the Board still in office who were members of the Board at the beginning of any such period. In the event that any person described in Section 1(b)(ii) hereof files an amendment to any report referred to in Section 1(b)(ii) hereof that shows the beneficial ownership described in Section 1(b)(ii) hereof to have decreased to less than 30 percent, or in the event that any anticipated change in control referred to in Section 1(b)(iii) hereof does not occur following the filing with the SEC of any report or proxy statement described in Section 1(b)(iii) hereof because any contract or transaction referred to in Section 1(b)(iii) hereof is canceled or abandoned, the Committee may nullify the effect of Section 1(b)(ii) or 1(b)(iii) hereof, as the case may be, and reinstate the provisions of Section 1(a) hereof by giving notice thereof to the Optionee; provided, however, that any such action by the Committee shall not prejudice any exercise of the Option that may have occurred prior to the nullification and reinstatement. The provisions of Section 1(b)(ii) hereof shall again become automatically effective following any such nullification of the provisions thereof and reinstatement of the provisions of Section 1(a) hereof in the event that any person described in Section 1(b)(ii) hereof files a further amendment to any report referred to in Section 1(b)(ii) hereof that shows the beneficial ownership described in Section 1(b)(ii) hereof to have again increased to 30 percent or more. (c) Notwithstanding the provisions of Section 1(a) hereof, the Option shall become immediately exercisable in full if the Optionee should die or become permanently disabled (within the meaning of the Company's long-term disability plan) while in the employ of the Company or any subsidiary, or if the Optionee should retire under a retirement plan of the Company or any subsidiary (i) at or after age 62 or (ii) at an earlier age with the consent of the Company. (d) To the extent that the Option shall have become exercisable in accordance with the terms of this agreement, it may be exercised in whole or in part from time to time thereafter. 2. Termination of Option. The Option shall terminate automatically and without further notice on the earliest of the following dates: (a) thirty days after the date upon which the Optionee ceases to be an employee of the Company or a subsidiary, unless the cessation of his employment (i) is a result of his death, disability or retirement with the Company's consent or (ii) follows a change in control; (b) five years after the date upon which the Optionee ceases to be an employee of the Company or subsidiary (i) as a result of his disability, (ii) as a result of his retirement with the Company's consent, unless he is also a director of the Company who continues to serve as such following his retirement with the Company's consent, or (iii) following a change in control, unless the cessation of his employment following a change in control is a result of his death; (c) one year after the date upon which the Optionee ceases to be a director of the Company, but not less than five years after the date upon which he ceases to be an employee of the Company or a subsidiary, if (i) the cessation of his employment is a result of his retirement with the Company's consent and (ii) he continues to serve as a director of the Company following the cessation of his employment; (d) one year after the date of the Optionee's death regardless of whether he ceases to be an employee of the Company or a subsidiary prior to his death (i) as a result of his disability or retirement with the Company's consent or (ii) following a change in control; or (e) ten years after the Date of Grant. For the purposes of this agreement: "retirement with the Company's consent" shall mean the retirement of the Optionee prior to age 62, if the Board or the Committee determines that his retirement is for the convenience of the Company or a subsidiary, or the retirement of the Optionee at or after age 62 under a retirement plan of the Company or a subsidiary; "disability" shall mean that the Optionee has qualified for disability benefits under the Company's Long-Term Disability Program or any successor disability plan or program of the Company. In the event that the Optionee shall intentionally commit an act that the Committee determines to be materially adverse to the interests of the Company or a subsidiary, the Option shall terminate at the time of that determination notwithstanding any other provision of this agreement. 3. Payment of Exercise Price. The Exercise Price shall be payable (a) in cash in the form of currency or check or other cash equivalent acceptable to the Company, (b) by transfer to the Company of nonforfeitable, unrestricted Common Shares that have been owned by the Optionee for at least six months prior to the date of exercise or (c) by any combination of the methods of payment described in Sections 3(a) and 3(b) hereof. Nonforfeitable, unrestricted Common Shares that are transferred by the Optionee in payment of all or any part of the Exercise Price shall be valued on the basis of their fair market value as determined by the Committee from time to time. Subject to the terms and conditions of Section 6 hereof, and subject to any deferral election the Optionee may have made pursuant to any plan or program of the Company, the Company shall cause certificates for any shares purchased hereunder to be delivered to the Optionee upon payment of the Exercise Price in full. 4. Crediting of Deferred Dividend Shares. Each Deferred Dividend Share represents the right of the Optionee to receive one Common Share if and when the Deferred Dividend Share becomes nonforfeitable in accordance with Section 5(a) hereof. Upon the determination by the Committee of the number of Deferred Dividend Shares to be credited in accordance with this Section 4, Deferred Dividend Shares shall be credited annually to the Optionee as of December 31 of each year that the Option remains in effect and any portion thereof remains unexercised. The number of Deferred Dividend Shares to be credited to the Optionee for any calendar year shall be determined as follows: (a) the total amount per share of cash dividends that were paid on the outstanding Common Shares during the calendar year shall be multiplied by the total number of Common Shares then covered by both exercisable and unexercisable portions of the Option, including any Deferred Dividend Shares that shall have been previously credited to the Optionee hereunder and remain subject to forfeiture pursuant to Section 5(a) hereof; (b) the product of the arithmetical operation described in Section 4(a) hereof shall then be divided by the average closing price of the Common Shares, as reported on the New York Stock Exchange or other national market on which the Common Shares are then principally traded, for the 10 trading dates immediately preceding December 31; (c) the quotient of the arithmetical operation described in Section 4(b) hereof shall be the number of Deferred Dividend Shares that shall be credited to the Optionee for the calendar year; provided, however, that no Deferred Dividend Shares shall be credited to the Optionee for any calendar year in which the total net income per share of the outstanding Common Shares is not at least 250 percent of the total amount of cash dividends per share that were paid on the outstanding Common Shares during that calendar year, and no Deferred Dividend Shares shall be credited to the Optionee following the cessation of his employment with the Company or a subsidiary, regardless of the circumstances under which the cessation of his employment occurred and notwithstanding that the term of the Option or any Deferred Dividend Share remains in effect. 5. Vesting and Issuance of Deferred Dividend Shares. (a) A Deferred Dividend Share shall become nonforfeitable upon the earlier to occur of (i) the expiration of a period of four years from the date as of which it is credited to the Optionee on the records of the Company, if the Optionee shall have remained in the continuous employ of the Company or a subsidiary during that period, or (ii) the termination of the Optionee's employment with the Company or a subsidiary following a change in control or as a result of his death, disability or retirement with the Company's consent. If the Optionee ceases to be an employee of the Company or a subsidiary under any circumstances other than those described in Section 5(a)(ii) hereof, any Deferred Dividend Shares that shall have been previously credited to the Optionee hereunder and remain subject to forfeiture at the time of the cessation of his employment shall thereupon be forfeited automatically and without further notice unless otherwise determined by the Committee. (b) Subject to the terms and conditions of Section 6 hereof, and subject to any deferral election the Optionee may have made pursuant to any plan or program of the Company, Deferred Dividend Shares shall be issuable to the Optionee at the time when they become nonforfeitable in accordance with Section 5(a) hereof. 6. Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal and state securities laws; provided, however, notwithstanding any other provision of this agreement, the Option shall not be exercisable and the Company shall not be obligated to issue any Common Shares in payment of Deferred Dividend Shares if the exercise or issuance thereof would result in a violation of any such law. To the extent that the Ohio Securities Act shall be applicable to the Option, the Option shall not be exercisable and the Company shall not be obligated to issue any Common Shares in payment of Deferred Dividend Shares unless the Common Shares or other securities covered by the Option or to be issued in payment of Deferred Dividend Shares are (a) exempt from registration thereunder, (b) the subject of a transaction that is exempt from compliance therewith, (c) registered by description or qualification thereunder or (d) the subject of a transaction that shall have been registered by description thereunder. 7. Transferability and Exercisability. (a) Except as provided in Section 7(b) below, neither the Option nor any Deferred Dividend Shares, including any interest in either thereof, shall be transferable by the Optionee except by will or the laws of descent and distribution, and the Option shall be exercisable during the lifetime of the Optionee only by him or, in the event of his legal incapacity to do so, by his guardian or legal representative acting on behalf of the Optionee in a fiduciary capacity under state law and court supervision. (b) Notwithstanding Section 7(a) above, the Option, any Deferred Dividend Shares, or any interest in either thereof, may be transferable by the Optionee, without payment of consideration therefor, to any one or more members of the immediate family of Optionee (as defined in Rule 16a-1(e) under the Exchange Act), or to one or more trusts established solely for the benefit of such members of the immediate family or to partnerships in which the only partners are such members of the immediate family of the Optionee; provided, however, that such transfer will not be effective until notice of such transfer is delivered to the Company; and provided, further, however, that any such transferee is subject to the same terms and conditions hereunder as the Optionee. 8. Adjustments. The Committee shall make any adjustments in the Exercise Price and the number or kind of shares of stock or other securities covered by the Option or to be issued in payment of Deferred Dividend Shares that the Committee may determine to be equitably required to prevent any dilution or expansion of the Optionee's rights under this agreement that otherwise would result from any (a) stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, (b) merger, consolidation, separation, reorganization or partial or complete liquidation involving the Company or (c) other transaction or event having an effect similar to any of those referred to in Section 8(a) or 8(b) hereof. Furthermore, in the event that any transaction or event described or referred to in the immediately preceding sentence shall occur, the Committee may provide in substitution of any or all of the Optionee's rights under this agreement such alternative consideration as the Committee may determine in good faith to be equitable under the circumstances. 9. Withholding Taxes. If the Company shall be required to withhold any federal, state, local or foreign tax in connection with any exercise of the Option or payment of Deferred Dividend Shares, the Optionee shall pay the tax or make provisions that are satisfactory to the Company for the payment thereof. The Optionee may elect to satisfy all or any part of any such withholding obligation by surrendering to the Company a portion of the Common Shares that are issuable to the Optionee upon the exercise of the Option or payment of Deferred Dividend Shares. If such election is made, the shares so surrendered by the Optionee shall be credited against any such withholding obligation at their fair market value (as determined by the Committee from time to time) on the date of such surrender. 10. Right to Terminate Employment. No provision of this agreement shall limit in any way whatsoever any right that the Company or a subsidiary may otherwise have to terminate the employment of the Optionee at any time. 11. Relation to Other Benefits. Any economic or other benefit to the Optionee under this agreement or the Plan shall not be taken into account in determining any benefits to which the Optionee may be entitled under any profit-sharing, retirement or other benefit or compensation plan maintained by the Company or a subsidiary and shall not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or a subsidiary. 12. Amendments. Any amendment to the Plan shall be deemed to be an amendment to this agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall adversely affect the rights of the Optionee with respect to the Option or the Deferred Dividend Shares without the Optionee's consent. 13. Severability. In the event that one or more of the provisions of this agreement shall be invalidated for any reason by a court of competent jurisdiction, any provision so invalidated shall be deemed to be separable from the other provisions hereof, and the remaining provisions hereof shall continue to be valid and fully enforceable. 14. Governing Law. This agreement is made under, and shall be construed in accordance with, the laws of the State of Ohio. This agreement is executed by the Company on this 21st day of April, 1998. THE TIMKEN COMPANY By ___________________________ Stephen A. Perry Senior Vice President Human Resources, Purchasing & Communications The undersigned Optionee hereby acknowledges receipt of an executed original of this agreement and accepts the Option granted hereunder and the right to receive Deferred Dividend Shares with respect to the Common Shares covered thereby, subject to the terms and conditions of the Plan and the terms and conditions hereinabove set forth. ______________________________ Optionee Date: _________________________ EX-10.2 4 EXHIBIT 10.2 THE TIMKEN COMPANY DEFERRAL OF STOCK OPTION GAINS PLAN The Timken Company hereby establishes, effective as of April 21, 1998, the DEFERRAL OF STOCK OPTION GAINS PLAN for the Company. Such Plan provides key executives with the opportunity to defer stock option gains, in accordance with the provisions of this Plan. ARTICLE I DEFINITIONS For the purposes hereof, the following words and phrases shall have the meanings indicated. 1. "Account" shall mean a bookkeeping account in which Gain Shares deferred by a Participant shall be recorded and to which dividends and distributions may becredited in accordance with the Plan. As set forth in Section 4 of Article II of the Plan, a Participant's Account shall consist of two Sub-Accounts -- (i) a "Common Share" Sub-Account and (ii) a "Cash" Sub-Account. 2. "Beneficiary" or "Beneficiaries" shall mean the person or persons designated by a Participant in accordance with the Plan to receive payment of the remaining balance of the Participant's Account in the event of the death of the Participant prior to receipt of the entire amount credited to the Participant's Account. 3. "Board" shall mean the Board of Directors of the Company. 4. "Code" shall mean the Internal Revenue Code of 1986, as amended. 5. "Change in Control" shall have the same meaning as defined in the 1996 Deferred Compensation Plan. 6. "Committee" shall mean the Compensation Committee of the Board or such other Committee as may be authorized by the Board to administer the Plan. 7. "Common Shares" shall mean shares of common stock without par value of the Company or any security into which such Common Shares may be changed by reason of any transaction or event of the type referred to in Section 9 of Article II of the Plan. 8. "Company" shall mean The Timken Company and its successors, including, without limitation, the surviving corporation resulting from any merger or consolidation of The Timken Company with any other corporation or corporations. 9. "1996 Deferred Compensation Plan" shall mean The Timken Company 1996 Deferred Compensation Plan, as amended from time to time. 10. "Disability" shall mean a physical or mental condition of a Participant resulting from a bodily injury, disease or mental disorder which renders him incapable of continuing in the employment of the Company. Such Disability shall be determined by the Committee based upon appropriate medical evidence and examination. 11. "Election Agreement" shall mean an agreement in substantially the form attached hereto as Exhibit A, as modified from time to time by the Company. 12. "Eligible Associate" shall mean an associate of the Company, or a Subsidiary, who is an eligible associate under the 1996 Deferred Compensation Plan. Unless otherwise determined by the Committee, an Eligible Associate shall continue as such until termination of employment. For purposes of the Plan, a "termination of employment" shall not be deemed to occur upon a transfer of employment to a Subsidiary or the Company. 13. "Gain Shares" shall mean a number of Common Shares equal to the difference between the number of Common Shares issuable upon exercise of the related Option and the number of Common Shares delivered by the Participant in satisfaction of the exercise price for such Option. 14. "Long-Term Incentive Plans" shall mean The Timken Company Long-Term Incentive Plan, as amended from time to time, and The Timken Company 1985 Incentive Plan. 15. "Option" shall mean any stock option, other than an "incentive stock option" as defined in section 422 of the Code, granted to an Eligible Associate under the Long-Term Incentive Plans, or any similar plan of the Company. 16. "Participant" shall mean any Eligible Associate who has at any time elected to defer the receipt of Gain Shares in accordance with the Plan. 17. "Plan" shall mean this deferral plan, which shall be known as the Deferral of Stock Option Gains Plan for The Timken Company. 18. "Subsidiary" shall mean any corporation, joint venture, partnership, unincorporated association or other entity in which the Company has a direct or indirect ownership or other equity interest and directly or indirectly owns or controls more than 50 percent of the total combined voting or other decision-making power. ARTICLE II ELECTION TO DEFER 1. Election to Defer. An Eligible Associate who desires to defer Gain Shares pursuant to this Plan must complete and deliver an Election Agreement to the Director of Compensation and Benefits of the Company specifying the number of shares and award date(s) of the Option(s) to which the Election Agreement applies. By delivering an Election Agreement, the Participant irrevocably waives his rights under the related Option to (i) exercise the Option for cash at any time when the Participant is an Eligible Associate and (ii) exercise the Option in any manner during the period commencing on the date of the Election Agreement and ending six months thereafter; provided, however, that such waiver shall be null and void in the event that during such six-month period (a) the Participant's employment is terminated by the Company, (b) the Participant's employment terminates as a result of his death or Disability, or (c) there is a Change in Control of the Company. 2. Effect of Election. In order to exercise Options with respect to which an Election Agreement is in effect, the Participant must tender, in satisfaction of the option exercise price, Common Shares which the Participant has owned for at least 6 months having a fair market value as of the exercise date equal to the aggregate exercise price for the Options exercised. Upon such exercise, the Company shall (i) deliver to the Participant a number of Common Shares equal to the number of Common Shares surrendered by the Participant in payment of the exercise price and (ii) credit the Gain Shares to the Participant's Account. 3. Period of Deferral. The delivery of Gain Shares to a Participant shall be deferred until (i) the date the Participant ceases to be an associate by death, retirement or otherwise or (ii) the date otherwise specified by the Participant in the Election Agreement, including a date determined by reference to the date the Participant ceases to be an associate by death, retirement or otherwise. 4. Accounts. The Account of a Participant shall consist of two Sub-Accounts -- (i) the "Common Share" Sub-Account and (ii) the "Cash" Sub-Account. The Common Share Sub-Account, on the exercise date of the related Option, shall be credited with the number of Gain Shares. Such Sub-Account shall be deemed to be invested in Common Shares and shall be credited with stock dividends declared thereon. In the case of cash or other property dividends, a Participant shall elect in the manner described in Subsection 4(c) of this Article whether such dividends are credited to a Participant's Common Share Sub- Account or Cash Sub-Account. a) To the extent investment in the Participant's Common Share Sub-Account is elected, on each dividend payment date, the Participant's Common Share Sub-Account shall be credited with an additional number of Common Shares determined as follows. First, the amount of the cash (or fair market value of other property) dividend paid per Common Share shall be multiplied by the number of Common Shares covered by the Common Share Sub-Account dividend election as of the record date of the corresponding dividend. Then, that amount shall be divided by the fair market value of one Common Share on the dividend payment date to arrive at the additional number of Common Shares to credit to the Participant's Common Share Sub-Account. b) To the extent investment in the Cash Sub-Account is elected, on each dividend payment date, the Participant's Cash Sub-Account shall be credited with an amount equal to the amount of the cash (or fair market value of other property) dividend paid per Common Share multiplied by the number of Common Shares covered by the Cash Sub-Account dividend election as of the record date for the corresponding dividend. The Cash Sub-Account will be credited with interest computed quarterly (based on calendar quarters) on the lowest balance in such Sub-Account during each quarter at such rate and in such manner as determined from time to time by the Committee. Unless otherwise determined by the Committee, interest to be credited hereunder shall be credited at the prime rate in effect according to the Wall Street Journal on the last day of each calendar quarter plus one percent. Interest for a calendar quarter shall be credited to the Cash Sub-Account as of the first day of the following quarter. c) Each Participant in his or her Election Agreement shall specify whether cash or other property dividends shall be invested in his or her Common Share Sub-Account or Cash Sub- Account. Until revoked, this election between investment in a Participant's Common Share Sub-Account or Cash Sub-Account applies to the Gain Shares resulting from this Election Agreement and any additional Common Shares attributable to such Gain Shares. In order to be effective to revoke an election made pursuant to this subsection, the revocation must be in writing and delivered to the Director of Compensation and Benefits of the Company prior to 30 days before a dividend payment date. 5. Payment of Accounts. The number of Common Shares in a Participant's Common Share Sub-Account shall be issued or transferred to the Participant in one installment or in a number of approximately equal quarterly installments, as designated by the Participant in the Election Agreement. Unless a participant makes arrangements satisfactory to the Company for the payment of any required withholding taxes, the number of Common Shares issued or transferred in a lump sum or each installment shall be reduced by a number of Common Shares having a fair market value equal to the amount of any taxes required to be withheld with respect to such lump sum or installment The one installment or first quarterly installment, as the case may be, shall be made as soon as practicable following the end of the period of deferral as specified in Section 3 of this Article. All amounts credited to a Participant's Cash Sub-Account in respect of dividends, distributions and interest thereon as provided in Section 4 of this Article shall likewise be paid to the Participant at the same time the shares causing the dividend, distribution or interest are transferred to the Participant. 6. Death of a Participant. In the event of the death of a Participant, the amount of the Participant's Account shall be paid to the Beneficiary or Beneficiaries designated in a writing substantially in the form attached hereto as Exhibit B (the "Beneficiary Designation"), in accordance with the Participant's Election Agreement and Section 5 of this Article. A Participant's Beneficiary Designation may be changed at any time prior to his or her death by the execution and delivery of a new Beneficiary Designation. The Beneficiary Designation on file with the Company that bears the latest date at the time of the Participant's death shall govern. In the absence of a Beneficiary Designation or the failure of any Beneficiary to survive the Participant, the amount of the Participant's Account shall be paid to the Participant's estate in a lump sum 90 days after the appointment of an executor or administrator. In the event of the death of the Beneficiary or Beneficiaries after the death of a Participant, the remaining amount of the Account shall be paid in a lump sum to the estate of the last Beneficiary to receive payments 90 days after the appointment of an executor or administrator. 7. Small Payments. Notwithstanding the foregoing, if installment payments elected by a Participant would result in a payment with a value of less than $500, the entire amount of the Participant's Account may at the discretion of the Committee be paid in a lump sum in accordance with Section 5 of this Article. 8. Acceleration. Notwithstanding the provisions of the foregoing: (i) if a Change in Control occurs, the amount of each Participant's Account shall immediately be paid to the Participant in full; (ii) in the event of an unforeseeable emergency, as defined in section 1.457-2(h)(4) and (5) of the Income Tax Regulations, that is caused by an event beyond the control of the Participant or Beneficiary and that would result in severe financial hardship to the individual if acceleration were not permitted, the Committee may in its sole discretion accelerate the payment to the Participant or Beneficiary of the amount of his or her Account, but only up to the amount necessary to meet the emergency. 9. Adjustments. The Committee may make or provide for such adjustments in the numbers of Common Shares credited to Participants' Accounts, and in the kind of shares so credited, as the Committee in its sole discretion, exercised in good faith, may determine is equitably required to prevent dilution or enlargement of the rights of Participants that otherwise would result from (i) any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, or (ii) any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or (iii) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Committee, in its discretion, may provide in substitution for any or all Common Shares deliverable under this Plan such alternative consideration as it, in good faith, may determine to be equitable in the circumstances. 10. Fractional Shares. The Company shall not be required to issue any fractional Common Shares pursuant to this Plan. The Committee may provide for the elimination of fractions or for the settlement of fractions in cash. ARTICLE III ADMINISTRATION The Company, through the Committee, shall be responsible for the general administration of the Plan and for carrying out the provisions hereof. The Committee shall have all such powers as may be necessary to carry out the provisions of the Plan, including the power to (i) determine all questions relating to eligibility for participation in the Plan and the amount in the Account of any Participant and all questions pertaining to claims for benefits and procedures for claim review, (ii) resolve all other questions arising under the Plan, including any questions of construction, and (iii) take such further action as the Company shall deem advisable in the administration of the Plan. The actions taken and the decisions made by the Committee hereunder shall be final and binding upon all interested parties. In accordance with the provisions of Section 503 of the Employee Retirement Income Security Act of 1974, the Committee shall provide a procedure for handling claims of Participants or their Beneficiaries under this Plan. Such procedure shall be in accordance with regulations issued by the Secretary of Labor and shall provide adequate written notice within a reasonable period of time with respect to the denial of any such claim as well as a reasonable opportunity for a full and fair review by the Committee of any such denial. ARTICLE IV AMENDMENT AND TERMINATION The Company reserves the right to amend or terminate the Plan at any time by action of the Board; provided, however, that no such action shall adversely affect any Participant or Beneficiary who has an Account, or result in the acceleration of payment of the amount of any Account (except as otherwise permitted under the Plan), without the consent of the Participant or Beneficiary. ARTICLE V MISCELLANEOUS 1. Non-alienation of Deferred Compensation. Except as permitted by this Plan, no right or interest under this Plan of any Participant or Beneficiary shall, without the written consent of the Company, be (i) assignable or transferable in any manner, (ii) subject to alienation, anticipation, sale, pledge, encumbrance, attachment, garnishment or other legal process or (iii) in any manner liable for or subject to the debts or liabilities of the Participant or Beneficiary. 2. Interest of Associate. The obligation of the Company under the Plan to make payment of amounts reflected in an Account merely constitutes the unsecured promise of the Company to make payments from its general assets or in the form of its Common Shares, as the case may be, as provided herein, and no Participant or Beneficiary shall have any interest in, or a lien or prior claim upon, any property of the Company. Nothing in this Plan shall be construed as guaranteeing future employment to Eligible Associates, and nothing in this Plan shall be considered in any manner a contract of employment. It is the intention of the Company that the Plan be unfunded for tax purposes and for purposes of Title I of ERISA. The Company may create a trust to hold funds, Common Shares or other securities to be used in payment of its obligations under the Plan, and may fund such trust; provided, however, that any funds contained therein shall remain liable for the claims of the Company's general creditors. 3. Claims of Other Persons. The provisions of the Plan shall in no event be construed as giving any other person, firm or corporation any legal or equitable right as against the Company or any Subsidiary or the officers, employees or directors of the Company or any Subsidiary, except any such rights as are specifically provided for in the Plan or are hereafter created in accordance with the terms and provisions of the Plan. 4. Severability. The invalidity and unenforceability of any particular provision of the Plan shall not affect any other provision hereof, and the Plan shall be construed in all respects as if such invalid or unenforceable provision were omitted herefrom. 5. Governing Law. Except to the extent preempted by federal law, the provisions of the Plan shall be governed and construed in accordance with the laws of the State of Ohio. 6. Relationship to Other Plans. This Plan is intended to serve the purposes of and to be consistent with the Long-Term Incentive Plans and any similar plan approved by the Committee for purposes of this Plan. The issuance or transfer of Common Shares pursuant to this Plan shall be subject in all respects to the terms and conditions of the Long-Term Incentive Plans and any other such plan. Without limiting the generality of the foregoing, Common Shares credited to the Accounts of Participants pursuant to this Plan shall be taken into account for purposes of Section 3 of the Long-Term Incentive Plans (Shares Available Under the Plan) and for purposes of the corresponding provisions of any other such plan. EXHIBIT A DEFERRAL OF STOCK OPTION GAINS PLAN THE TIMKEN COMPANY ELECTION AGREEMENT I, ____________________________, hereby elect to participate in the Deferral of Stock Option Gains Plan for The Timken Company (the "Plan") as follows: I. DEFERRAL OF GAIN SHARES 1. Number of Common Shares that I am entitled to receive upon exercise of the Option to which this Election Agreement applies (in the event of a partial exercise of an Option, this Election Agreement applies to the Common Shares that would be the first to be received): _______ Common Shares 2. Grant date(s) of Option: _____________________ 3. Please make payment of the Gain Shares resulting from the exercise of the Option to which this Election Agreement applies, together with all cash accumulated in my Cash Sub-Account attributable to such Gain Shares and any additional Common Shares in my Common Share Sub- Account attributable to such Gain Shares, as follows: a. Pay in lump sum [ ] b. Pay in ______ approximately equal quarterly installments [ ] 4. Please defer payment or make payment of first installment as follows: a. Defer until the date I cease to be an associate [ ] b. Defer until _______ [ ] (specify date or number of years following termination of employment) II. DIVIDENDS 1. Please credit cash or other non-stock property dividends earned with respect to the Gain Shares, as well as additional Common Shares attributable to such Gain Shares, reflected in my Common Share Sub-Account as follows: a. Reinvest in Commmon Shares in my Common Share Sub-Account [ ] b. Credit to my Cash Sub-Account [ ] III. SIGNATURE/AUTHORIZATION I acknowledge that I have reviewed the Plan and understand that my participation will be subject to the terms and conditions contained in the Plan. Capitalized terms used, but not otherwise defined, in this Election Agreement shall have the respective meanings assigned to them in the Plan. I understand that my election under that my election under Part II relating to dividends applies to the Gain Shares resulting from this Election Agreement and any additional Common Shares attributable to such Gain Shares reflected in my Common Shares Sub-Account. I understand that, in order to revoke or modify this dividend election, the revocation or modification must be in writing and delivered to the Director - Compensation and Benefits prior to 30 days before a dividend payment date. I acknowledge that I have been advised to consult with my own financial, tax, estate planning and legal advisors before making this election to defer in order to determine the tax effects and other implications of my participation in the Plan. Dated this ______ day of _____, 1998. ________________________________ _________________________ (Signature) (Print or type name) EXHIBIT B THE TIMKEN COMPANY DEFERRAL OF STOCK OPTION GAINS PLAN BENEFICIARY DESIGNATIONS In accordance with the terms and conditions of the Deferral of Stock Option Gains Plan (the "Plan"), I hereby designate the person(s) indicated below as my beneficiary(ies) to receive the amounts payable under said Plan. Name _______________________________ Address_______________________________ _______________________________ _______________________________ Social Sec. Nos. of Beneficiary(ies) _______________________ Relationship(s) _____________________________________ Date(s) of Birth _____________________________________ In the event that the above-named beneficiary(ies) predecease(s) me, I hereby designate the following person as beneficiary(ies); Name _______________________________ Address______________________________ _______________________________ _______________________________ Social Sec. Nos. of Beneficiary(ies) _______________________ Relationship(s) _____________________________________ Date(s) of Birth _____________________________________ I hereby expressly revoke all prior designations of beneficiary(ies), reserve the right to change the beneficiary(ies) herein designated and agree that the rights of said beneficiary(ies) shall be subject to the terms of the Plan. In the event that there is no beneficiary living at the time of my death, I understand that the amounts payable under the Plan will be paid to my estate. ___________________________ _________________________ Date (Signature) _________________________ (Print or type name) EX-11 5 Exhibit 11 - COMPUTATION OF PER SHARE EARNINGS (Thousands of dollars, except per share data)
Three Months Ended March 31 1998 1997 ---------- ---------- BASIC Average shares outstanding 62,481,627 62,448,532 Net income $49,136 $41,066 Per-share amount $0.79 $0.66 ===== ===== DILUTED Average shares outstanding 62,481,627 62,448,532 Effect of dilutive securities based on the treasury stock method using the average market price if higher than the exercise price 849,932 934,726 ---------- ---------- 63,331,559 63,383,258 Net income $49,136 $41,066 Per-share amount $0.78 $0.64 ===== =====
EX-12 6 EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Three Months Ended Mar. 31 Mar. 31 1998 1997 ------- ------- (Thousands of dollars) Income before income taxes, extraordinary item and cumulative effect of accounting changes. $79,508 $66,992 Amortization of capitalized interest 610 530 Interest expense 5,863 5,465 Interest portion of rental expense 607 655 ------- ------- Earnings $86,588 $73,642 ======= ======= Interest $ 7,076 $ 5,692 Interest portion of rental expense 607 655 ------- ------- Fixed Charges $ 7,683 $ 6,347 ======= ======= Ratio of Earnings to Fixed Charges 11.27 11.60 ======= ======= EX-27 7
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED BALANCE SHEET AND PROFIT & LOSS FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1998 MAR-31-1998 15,985 0 402,439 7,334 480,106 940,585 2,704,641 1,459,839 2,425,032 609,572 239,814 0 0 294,357 743,763 2,425,032 707,381 707,381 533,015 533,015 0 0 5,863 79,508 30,372 49,136 0 0 0 49,136 .79 .78
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