10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C.  20549

                                   FORM 10-K

   (Mark One)

   [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

   For the fiscal year ended December 31, 2003
   Commission File Number 1-1169

                               THE TIMKEN COMPANY
              ______________________________________________________
              (Exact name of registrant as specified in its charter)

             Ohio                                             34-0577130
  ________________________________________                ___________________
  (State or other jurisdiction of                          (I.R.S. Employer
   incorporation or organization)                         Identification No.)

  1835 Dueber Avenue, S.W., Canton, Ohio                       44706-2798
  ________________________________________                ___________________
  (Address of principal executive offices)                      (Zip Code)

  Registrants telephone number, including area code          (330)438-3000
                                                          ___________________

  Securities registered pursuant to Section 12(b) of the Act:

                                                      Name of Each Exchange
        Title of Each Class                              on Which Registered

  Common Stock without par value                      New York Stock Exchange
  ______________________________                      _______________________

  Securities registered pursuant to Section 12(g) of the Act:  None.

  Indicate by check mark whether the registrant (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the Securities Exchange Act
  of 1934 during the preceding 12 months, and (2) has been subject to such
  filing requirements for the past 90 days.
  YES [X]       NO [ ]

  Indicate by check mark if disclosure of delinquent filers pursuant to Item
  405 of Regulation S-K is not contained herein, and will not be contained,
  to the best of registrant's knowledge, in definitive proxy or information
  statements incorporated by reference in Part III of this Form 10-K or any
  amendment to this Form 10-K. [X].

  Indicate by check mark whether the registrant is an accelerated filer (as
  defined in Exchange Act Rule 12b-2).  YES [X]       NO [ ]
                                                                        i

The aggregate market value of the voting stock held by all shareholders
other than shareholders identified under Item 12 of this Form 10-K as of
June 30, 2003 was $1,296,756,035 (representing 74,058,026 shares).

Indicate the number of shares outstanding of each of the registrant's classes
of Common Stock, as of February 27, 2004.

Common Stock without par value--89,358,292 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders for the year ended
December 31, 2003, are incorporated by reference into Parts I and II.

Portions of the proxy statement for the annual meeting of shareholders to
be held on April 20, 2004, are incorporated by reference into Part III.

Exhibit Index may be found on Pages 20 through 25.


                                                                         ii

                               THE TIMKEN COMPANY

                           INDEX TO FORM 10-K REPORT

                                                                          PAGE
                                                                          ----
I.   PART I.

     Item 1.  Description of Business....................................   1
                General..................................................   2
                Products.................................................   3
                Geographical Financial Information.......................   5
                Sales and Distribution...................................   5
                Industry Segments........................................   6
                Competition..............................................   7
                Joint Ventures...........................................   9
                Backlog..................................................   9
                Raw Materials............................................   9
                Research.................................................  10
                Environmental Matters....................................  10
                Patents, Trademarks and Licenses.........................  11
                Employment...............................................  11
                Available Information....................................  11

     Item 2.  Properties.................................................  12
     Item 3.  Legal Proceedings..........................................  13
     Item 4.  Submission of Matters to a Vote of Security Holders........  13
     Item 4A. Executive Officers of the Registrant.......................  13

II.  PART II.

     Item 5.  Market for Registrant's Common Equity and Related
              Stockholder Matters........................................  15
     Item 6.  Selected Financial Data....................................  15
     Item 7.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations........................  15
     Item 7A. Quantitative and Qualitative Disclosures about Market Risk.  15
     Item 8.  Financial Statements and Supplementary Data................  16
     Item 9.  Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure...................................  16
     Item 9A. Controls and Procedures....................................  16

III. Part III.

     Item 10. Directors and Executive Officers of the Registrant.........  17
     Item 11. Executive Compensation.....................................  17
     Item 12. Security Ownership of Certain Beneficial Owners and
              Management and Related Stockholder Matters.................  17
     Item 13. Certain Relationships and Related Transactions.............  19
     Item 14. Principal Accountant Fees and Services.....................  19

IV.  Part IV.

     Item 15. Exhibits, Financial Statement Schedules and Reports on
              Form 8-K...................................................  20

PART 1                                                                   1
 ______
  Item 1.  Description of Business
  ________________________________
  Certain statements set forth in this document (including the company's fore-
  casts, beliefs and expectations) that are not historical in nature are
  "forward-looking" statements within the meaning of the Private Securities
  Litigation Reform Act of 1995.  The company cautions readers that actual
  results may differ materially from those expressed or implied in forward-
  looking statements made by or on behalf of the company due to a variety of
  important factors, such as:

   a)  risks associated with the acquisition of Torrington, including the
       uncertainties in both timing and amount of actual benefits, if any,
       that may be realized as a result of the integration of the Torrington
       business with the company's operations and the timing and amount of
       the resources required to achieve those benefits; risks associated
       with diversion of management's attention from routine operations
       during the integration process; and risks associated with the higher
       level of debt associated with the acquisition.

   b)  changes in world economic conditions, including additional adverse
       effects from terrorism or hostilities.  This includes, but is not
       limited to, political risks associated with the potential instability
       of governments and legal systems in countries in which the company or
       its customers conduct business and significant changes in currency
       valuations.

   c)  the effects of fluctuations in customer demand on sales, product mix and
       prices in the industries in which the company operates.  This includes
       the effects of customer strikes, the impact of changes in industrial
       business cycles and whether conditions of fair trade continue in the
       U.S. market.

   d)  competitive factors, including changes in market penetration,
       increasing price competition by existing or new foreign and domestic
       competitors, the introduction of new products by existing and new
       competitors and new technology that may impact the way the company's
       products are sold or distributed.

   e)  changes in operating costs.  This includes the effect of changes in
       the company's manufacturing processes; changes in costs associated
       with varying levels of operations; changes resulting from inventory
       management and cost reduction initiatives and different levels of
       customer demands; the effects of unplanned work stoppages; changes in
       the cost of labor and benefits; and the cost and availability of raw
       materials and energy.

   f)  the success of the company's operating plans, including its ability to
       achieve the benefits from its global restructuring, manufacturing
       transformation, and administrative cost reduction initiatives as well
       as its ongoing continuous improvement and rationalization programs; the
       ability of acquired companies to achieve satisfactory operating
       results; and its ability to maintain appropriate relations with unions
       that represent company associates in certain locations in order to
       avoid disruptions of business.
                                                                        2

   g)  unanticipated litigation, claims or assessments.  This includes, but
       is not limited to, claims or problems related to intellectual property,
       product liability or warranty and environmental issues.

   h)  changes in worldwide financial markets, including interest rates to the
       extent they affect the company's ability to raise capital or increase
       the company's cost of funds, have an impact on the overall performance
       of the company's pension fund investments and/or cause changes in the
       economy which affect customer demand.

   i)  additional factors described in greater detail on pages S-20 to S-28 in
       the company's Registration Statement and Prospectus Supplement dated
       February 12, 2003 relating to the offering of the company's 5.75% notes
       due 2010; or on pages S-7 to S-16 in the Prospectus Supplement dated
       October 15, 2003 relating to an offering of the company's common shares.

  Additional risks relating to the company's business, the industries in which
  the company operates or the company's common stock may be described from
  time to time in the company's filings with the SEC.  All of these risk
  factors are difficult to predict, are subject to material uncertainties that
  may affect actual results and may be beyond the company's control.

  Except as required by the federal securities laws, the company undertakes no
  obligation to publicly update or revise any forward-looking statement,
  whether as a result of new information, future events or otherwise.

  General
  _______

  As used herein, the term "Timken" or the "company" refers to The Timken
  Company and its subsidiaries unless the context otherwise requires.  Timken,
  an outgrowth of a business originally founded in 1899, was incorporated
  under the laws of the state of Ohio in 1904.

  Timken is a leading global manufacturer of highly engineered bearings, alloy
  and specialty steel and related components.  The company is the world's
  largest manufacturer of tapered roller bearings and alloy seamless mechani-
  cal steel tubing and the largest North American-based bearings manufacturer.
  Timken had facilities in 29 countries on six continents, and employed approx-
  imately 26,000 people, as of December 31, 2003.

  On February 18, 2003, the company completed the acquisition of the Engineered
  Solutions business of Ingersoll-Rand Company Limited,  including certain of
  its joint venture interests, operating assets and subsidiaries, including
  The Torrington Company.  This business, referred to as Torrington, is a
  leading worldwide producer of needle roller, heavy-duty roller and ball
  bearings and motion control components and assemblies.  Timken paid
  $700 million in cash, subject to post-closing purchase price adjustments, and
  issued $140 million of its common stock (9,395,973 shares) for Torrington.
  The company financed the $700 million cash component of the Torrington
  acquisition through a public offering of 12,650,000 common shares, an offering
  of $250 million seven-year senior unsecured notes, a five-year revolving
  credit facility and a $125 million securitized accounts receivable facility.

                                                                        3

  Torrington is a leading global manufacturer of needle roller bearings. It
  produces a wide range of bearings sold under a number of brand names,
  including Torrington needle roller bearings, Torrington heavy-duty roller
  bearings, Nadella precision needle roller bearings and linear motion
  solutions and Fafnir ball bearings and housed units.  Torrington also
  produces a variety of precision motion control components and assemblies,
  such as steering shaft assemblies and steering column shafts. Torrington
  sells its products directly or through authorized distributors to automotive
  and industrial manufacturers, as well as to aftermarket users throughout the
  world.

  The Torrington automotive business manufactures a variety of products,
  including roller and needle bearings and other components used in an auto-
  mobile's transmission, chassis, steering column and engine. Many of these
  products, such as column locks and rotary tilt products for steering
  columns, are highly engineered with precision technology, and are specially
  designed through collaborative efforts between Torrington and its customers.
  These products are primarily sold to original equipment manufacturers, or
  OEMs, including large automobile manufacturers, and their principal
  suppliers.

  The Torrington industrial business produces a broad range of products,
  including roller bearings, needle bearings, wider inner ring ball bearings
  and housed units, radial ball bearings, super precision ball bearings,
  airframe control bearings, precision machined bearings and precision
  components and assemblies. These products are sold to OEMs, as well as
  through a global aftermarket network.

  Products
  ________

  The Timken Company manufactures two basic product lines:  anti-friction
  bearings and steel products.  Differentiation in these two product lines
  comes in two different ways:  (1) differentiation by bearing type or steel
  type, and (2) differentiation in the applications of bearings and steel.

  In the bearing industry, Timken is best known for the tapered roller
  bearing, which was originally patented by the company founder, Henry Timken.
  The tapered roller bearing is Timken's principal product in the anti-friction
  industry segment.  It consists of four components:  (1) the cone or inner
  race, (2) the cup or outer race, (3) the tapered rollers, which roll between
  the cup and cone, and (4) the cage, which serves as a retainer and maintains
  proper spacing between the rollers.  Timken manufactures or purchases these
  four components and then sells them in a wide variety of configurations and
  sizes.

 
                                                                         4
  Products (cont.)
  ________________

  The tapered rollers permit ready absorption of both radial and axial load
  combinations.  For this reason, tapered roller bearings are particularly well
  adapted to reducing friction where shafts, gears or wheels are used.  The
  applications for tapered roller bearings have diversified from the original
  application on horse-drawn wagons to applications on passenger cars, light
  and heavy trucks, and trains, as well as a wide range of industrial applica-
  tions, ranging from very small gear drives to bearings over two meters in
  diameter for wind energy machines.  Further differentiation has come in the
  form of adding sensors to these bearings, which measure parameters such as
  speed, load, temperature or overall bearing condition.

  Matching bearings to the specific requirements of customers' applications
  requires engineering, and often sophisticated analytical techniques.  The
  design of Timken's tapered roller bearing permits distribution of unit
  pressures over the full length of the roller.  This fact, combined with high
  precision tolerance, proprietary internal geometry and premium quality
  material, provides Timken bearings with high load carrying capacity,
  excellent friction-reducing qualities and long life.

  Precision Cylindrical and Ball Bearings.  Timken's aerospace and super pre-
  cision facilities produce high-performance ball and cylindrical bearings for
  ultra high-speed and/or high-accuracy applications in the aerospace, medical
  and dental, computer disk drive and other industries.  These bearings
  utilize ball and straight rolling elements and are in the super precision
  end of the general ball and straight roller bearing product range in the
  bearing industry.  A majority of Timken's aerospace and super precision
  bearings products are custom-designed bearings and spindle assemblies.  They
  often involve specialized materials and coatings for use in applications
  that subject the bearings to extreme operating conditions of speed and temp-
  erature.

  Spherical and Cylindrical Bearings.  Timken Romania produces spherical and
  cylindrical roller bearings for large gear drives, rolling mills and other
  process industry and infrastructure development applications.  Timken's
  cylindrical and spherical roller bearing capability has been significantly
  enhanced with the acquisition of Torrington's broad range of spherical and
  heavy-duty cylindrical roller bearings for standard industrial and specialized
  applications.  These products are sold worldwide to OEMs, and industrial
  distributors serving major industries, including construction and mining,
  natural resources, defense, pulp and paper production, rolling mills and
  general industrial goods.

  Needle Bearings.  With the acquisition of Torrington, the company has become
  a leading global manufacturer of highly engineered needle roller bearings.
  Torrington produces a broad range of radial and thrust needle roller bearings,
  as well as bearing assemblies, which are sold to OEMs and industrial
  distributors worldwide. Major applications include products for the
  automotive, consumer product, construction and agriculture and general
  industrial goods industries.

                                                                        5
  Products (cont.)
  ________________

  Bearing Reconditioning.  A small part of the business involves providing
  bearing reconditioning services for industrial and railroad customers, both
  internationally and domestically.  These services account for less than 5%
  of the company's net sales for the year ended December 31, 2003.

  Steel products include steels of low and intermediate alloy, vacuum-processed
  alloys, tool steel and some carbon grades.  These products are available in a
  wide range of solid and tubular sections with a variety of lengths and
  finishes.  These steel products are used in a wide array of applications, in-
  cluding bearings, automotive transmissions, engine crankshafts, oil drilling,
  aerospace and other similarly demanding applications.  Approximately 13% of
  Timken's steel production is consumed in its bearing operations.

  Timken also produces custom-made steel products, including alloy and steel
  components for automotive and industrial customers.  This business has pro-
  vided the company with the opportunity to further expand its market for
  tubing and capture higher value-added steel sales.  This also enables
  Timken's traditional tubing customers in the automotive and bearing
  industries to take advantage of higher performing components that cost less
  than current alternative products.  Customizing of products is a growing
  portion of the company's steel business.

  Geographical Financial Information
  __________________________________

  Information appearing under the caption "Geographic Financial Information,"
  on Page 54 of the Annual Report to Shareholders for the year ended
  December 31, 2003 is incorporated herein by reference.

  Sales and Distribution
  ______________________

  Timken's products in the Automotive Group and Industrial Group are sold
  principally by its own internal sales organization.  Timken's sales
  organization consists of a separate sales force for each business Group.

  Traditionally, a main focus of the company's sales strategy has consisted of
  collaborative projects with customers.  For this reason, Timken's sales
  forces are primarily located in close proximity to its customers rather than
  at production sites.  In some instances, the sales forces are located inside
  customer facilities.  Timken's sales force is highly trained and knowledge-
  able regarding all bearings products and associates assist customers during
  the development and implementation phases and provide support on an ongoing
  basis.  Torrington also has located its sales force in close proximity to its
  customers.

  A major portion of the customer shipments are made directly from Timken's
  warehouses located in a number of cities in the United States, Canada, the
  United Kingdom, France, Mexico, Singapore, Argentina, Australia, Brazil,
  Germany, and China.  However, a growing number of shipments are made directly
  from plant locations.  The warehouse inventories are augmented by authorized
  distributor and jobber inventories throughout the world that provide local
 

                                                                         6
  Sales and Distribution (cont.)
  ______________________________

  availability when service is required.  The majority of Torrington shipments
  are made directly from plant locations.

  The company has a joint venture in North America focused on joint logistics
  and e-business services.  This alliance is called Colinx, and was founded by
  Timken, SKF, INA and Rockwell Automation.  The e-business service was
  launched in April 2001, and is focused on information and business services
  for authorized distributors in the Industrial Group.  The company also has
  another e-business joint venture in Europe which focuses on information and
  business services for authorized distributors in the Industrial Group.  This
  alliance, which Timken founded together with SKF AB, Sandvik AB, Industriewerk
  Schaffler INA-Ingenieurdienst GmBH and Reliance is called Endorsia.com
  International AB.

  Timken's steel products are sold principally by its own sales organization.
  Most orders are customized to satisfy customer-specific applications and are
  shipped directly to customers from Timken's steel manufacturing plants.
  Approximately 13% of Timken's steel production is consumed in its bearing
  operations.  In addition, sales are made to other anti-friction bearing com-
  panies and to the aircraft, automotive and truck, construction,
  forging, oil and gas drilling, and tooling industries.  Sales are also made
  to steel service centers.

  Timken has entered into individually negotiated contracts with some of
  its customers in its Automotive Group, Industrial Group and Steel Group.
  These contracts may extend for one or more years and, if a price is fixed for
  any period extending beyond current shipments, customarily include a
  commitment by the customer to purchase a designated percentage of its
  requirements from Timken.  Contracts extending beyond one year that are not
  subject to price adjustment provisions do not represent a material portion of
  Timken's sales.  Timken does not believe that there is any significant loss
  of earnings risk associated with any given contract.

  Industry Segments
  _________________

  The company has three reportable segments:  Automotive Group, Industrial Group
  and Steel Group.  Segment information in Note 14 of the Notes to Consolidated
  Financial Statements on pages 54 and 55 of the Annual Report to Shareholders
  for the year ended December 31, 2003, is incorporated herein by reference.
  Export sales from the U.S. and Canada are less than 10% of revenue.  The
  company's Automotive and Industrial Groups' businesses have historically
  participated in the global bearing industry, while the Steel Group has
  concentrated primarily on U.S. customers.  However, over the past few years,
  the Steel Group has acquired non-U.S. companies, such as Timken Alloy Steel -
  Europe, in Leicester, England, which specializes in the manufacturing of
  seamless mechanical tubing, and Lecheres Industries SAS, the parent company
  of Bamarec S.A., a precision component manufacturer based in France.

  Timken's non-U.S. operations are subject to normal international business
  risks not generally applicable to domestic business.  These risks include
 

                                                                         7
  Industry Segments (cont.)
  _________________________

  currency fluctuation, changes in tariff restrictions, difficulties in
  establishing and maintaining relationships with local distributors and
  dealers, import and export licensing requirements, difficulties in staffing
  and managing geographically diverse operations, and restrictive regulations
  by foreign governments, including price and exchange controls.

  Competition
  ___________

  The anti-friction bearing business is intensely competitive in every country
  in which Timken sells products.  Substantial downward pricing pressures exist
  in the United States and other countries even during periods of significant
  demand.  Timken competes primarily based on price, quality, timeliness of
  delivery and design and the ability to provide engineering support and ser-
  vice on a global basis.  The company competes with domestic manufacturers and
  many foreign manufacturers of anti-friction bearings, including SKF, INA-
  Holding Schaeffler KG, NTN Corporation, Koyo Seiko Co., Ltd. and NSK Ltd.

  Competition within the steel industry, both domestically and globally, is
  intense and is expected to remain so.  More than 30 U.S. steel companies have
  declared bankruptcy in recent years and have either ceased production or,
  more often, been acquired by other companies.  Global production overcapacity
  is also likely to continue, which, combined with the high levels of steel
  imports into the United States, has exerted downward pressure on domestic
  steel prices and has resulted in, at times, a dramatic narrowing, or with
  many companies, the elimination, of gross margins.  Timken's worldwide
  competitors for seamless mechanical tubing include Copperweld, Plymouth Tube,
  V & M Tube, Sanyo Special Steel, Ovako Steel and Tenaris.  Competitors for
  steel bar products include North American producers such as Republic,
  Mac Steel, North Star Steel and a wide variety of off-shore steel producers
  who import into North America.  Competitors in the precision steel market
  include Metaldyne, Linamar and overseas companies such as Showa Seiko, SKF
  and FormFlo.  In the specialty steel category, manufacturers compete for
  sales of high-speed, tool and die and aerospace steels.  High-speed steel
  competitors in North America and Europe include Erasteel, Bohler and
  Crucible.  Tool and die steel competitors include Crucible, Carpenter
  Technologies and Thyssen.  The principal competitors for Timken's aerospace
  products include Ellwood Specialty, Slater/Atlas and Patriot (formerly
  Republic Technologies, Inc.).

  Maintaining high standards of product quality and reliability while keeping
  production costs competitive is essential to Timken's ability to compete
  with domestic and foreign manufacturers in both the anti-friction bearing
  and steel businesses.

   Trade Law Enforcement

  In the second quarter of 2000, the U.S. International Trade Commission (ITC)
  voted to revoke the bearing industry's anti-dumping orders on imports of
  tapered roller bearings from Japan.  The ITC determined that revocation of
  the anti-dumping duty orders on tapered roller bearings from Japan was not
  likely to lead to continuation or recurrence of material injury to the
  domestic industry within a reasonably foreseeable time.  The company has

                                                                        8
  Competition (cont.)
  ___________________

  filed an appeal of the ITC's decision regarding Japan, which is still pending.
  The ITC upheld the anti-dumping duty order against China, which will be up
  for review again starting in 2005.

  Also in the second quarter of 2000, the ITC voted to continue the bearing
  industry's anti-dumping orders on imports of ball bearings from France,
  Germany, Italy, Japan, Singapore, and the United Kingdom.  Some producers in
  those six countries filed a court appeal of these decisions, which is still
  pending.  The court remanded the issue to the ITC in 2003, and the ITC,
  upon further consideration, unanimously upheld the continuation of the six
  orders.  The ITC's further analysis is now back at the court for review as
  part of the proceedings.  Separately, these six continuing ball bearing anti-
  dumping orders will be up for review again starting in 2005.

  In June 2001, President Bush directed the ITC to initiate an investigation on
  steel imports under Section 201 of the U.S. Trade Act,  and called for
  multilateral negotiations to reduce global excess steel capacity and to
  address market-distorting factors in world steel trade.  In late October
  2001, the ITC voted and affirmed that injury had been caused by surges of
  low-priced imports of hot-rolled and cold-finished steel bars.  Hot-rolled
  bars are a major product line for the company's Steel Group business, which
  also manufactures some cold-finished bar products.  On March 5, 2002,
  President Bush signed a proclamation imposing tariffs on hot and cold-finished
  bar imports.  The relief granted with respect to these product categories was
  to establish three years of tariffs at 30%, 24% and 18%.  The ITC vote on the
  presence of injury with respect to tool steels was 3-3, and as a consequence,
  no relief was granted with respect to tool steels, which is a major product
  line for the Timken Latrobe Steel subsidiary in Latrobe, Pennsylvania.  Steel
  made in Mexico, Canada and developing nations was generally exempt from the
  tariffs announced.  In December 2003, President Bush announced an immediate
  end to the safeguard remedies.

   Continued Dumping and Subsidy Offset Act

  The Continued Dumping and Subsidy Offset Act (CDSOA) provides for distribution
  of monies collected by U.S. Customs from antidumping cases to qualifying
  domestic producers.  The company reported CDSOA receipts, net of expenses, of
  $65.6 million, $50.2 million and $29.6 million in 2003, 2002 and 2001,
  respectively.  In addition, amounts received in 2003 were net of a one-time
  repayment, due to a miscalculation by the U.S. Treasury Department, of funds
  received by the company in 2002.  The amounts received in 2003 related to the
  original Timken tapered roller, ball and cylindrical bearing businesses and
  the Torrington tapered roller bearing business.

  It is expected that in March 2004, Timken will receive a payment delayed from
  2003 of $7.7 million relating to Torrington's bearing business other than its
  tapered roller bearing business.  This is the net amount after taking into
  account the terms of the agreement under which the company purchased the
  Torrington business, which provided that Timken must deliver to the seller of
  the Torrington business 80% of any Torrington-related payments received
  relating to 2003 and 2004.

  The company cannot predict whether it will receive any payments under CDSOA
  later in 2004 or if so, in what amount.  In September 2002, the World Trade
  Organization (WTO) ruled that such payments are not consistent with

                                                                        9
  Competition (cont.)
  ___________________

  international trade rules.  The U.S. Trade Representative appealed this
  ruling; however, the WTO upheld the ruling on January 16, 2003.

  Joint Ventures
  _______________

  On April 8, 2002, Timken announced an agreement with NSK Ltd. to form Timken-
  NSK Bearings (Suzhou) Co. Ltd. to build a plant near Shanghai, China to manu-
  facture certain tapered roller bearing product lines.  Construction of the
  plant began in December 2002, and production began in the first quarter of
  2004.  Ownership of this joint venture is divided evenly between NSK Ltd.
  and Timken.

  On June 27, 2002, Timken announced an agreement with two Japan-based com-
  panies, Sanyo Special Steel Co., Ltd. and Showa Seiko Co., Ltd., to form
  Advanced Green Components, LLC to supply forged and machined rings for
  bearing manufacture.  The joint venture operates as an independent manu-
  facturing business.  It acquired the assets of the company's Winchester,
  Kentucky plant and commenced operations at the beginning of November 2002.

  As part of the Torrington acquisition, several additional equity interests
  were acquired, one of which was a needle bearing manufacturing venture in
  Japan, NTC, that had been operated by NSK Ltd. and Torrington.  In July 2003,
  the company sold its interest in NTC to NSK for approximately $146.3 million,
  pre-tax.

  Backlog
  _______

  The backlog of orders of Timken's domestic and overseas operations is
  estimated to have been $1.33 billion at December 31, 2003, and $1.05 billion
  at December 31, 2002.  Actual shipments are dependent upon ever-changing
  production schedules of the customer.  Accordingly, Timken does not believe
  that its backlog data and comparisons thereof as of different dates are
  reliable indicators of future sales or shipments.

  Raw Materials
  _____________

  The principal raw materials used by Timken in its North American bearing
  plants to manufacture bearings are its own steel tubing and bars, purchased
  strip steel and energy resources. Outside North America, the company
  purchases raw materials from local sources with whom it has worked closely
  to assure steel quality according to its demanding specifications.  In
  addition, Timken Alloy Steel Europe in Leicester, England is a major source
  of raw materials for the Timken plants in Western Europe.

  The principal raw materials used by Timken in steel manufacturing are scrap
  metal, nickel and other alloys.  The availability and prices of raw
  materials and energy resources are subject to curtailment or change due to,
  among other things, new laws or regulations, suppliers' allocations to other
  purchasers, interruptions in production by suppliers, changes in exchange
  rates and prevailing price levels.  For example, the weighted average price
  of scrap metal decreased 19.6% from 2000 to 2001, increased 8.1% from 2001
  to 2002 and increased 19.2% from 2002 to 2003.  Prices for raw materials
  and energy resources continue to remain high.  The company expects that it

                                                                        10

  Raw Materials (cont.)
  _____________________

  will be able to pass a portion of these increased costs through to customers
  in the form or price increases or raw material surcharges.

  Moreover, disruptions in the supply of raw materials or energy resources
  could temporarily impair the company's ability to manufacture its products
  for its customers or require the company to pay higher prices in order to
  obtain these raw materials or energy resources from other sources, which could
  thereby affect the company's sales and profitability.  Any increase in the
  prices for such raw materials or energy resources could materially affect
  the company's costs and therefore its earnings.

  Timken believes that the availability of raw materials and alloys are
  adequate for its needs, and, in general, it is not dependent on any single
  source of supply.

  Research
  ________

  Timken's major research center, located in Canton, Ohio near its world head-
  quarters, is engaged in research on bearings, steels, manufacturing methods
  and related matters.  Research facilities are also located at the Timken
  Aerospace & Super Precision Bearings New Hampshire plants; the Colmar, France
  plant; the Latrobe, Pennsylvania plant; the Ploiesti, Romania plant; the
  Vierzon, France plant; the Kunsebeck, Germany plant; and facilities in
  Norcross, Georgia; Torrington, Connecticut; and Bangelore, India.
  Expenditures for research, development and testing amounted to approximately
  $53 million in 2003 and 2002 and $54 million in 2001.  The company's research
  program is committed to the development of new and improved bearing and steel
  products, as well as more efficient manufacturing processes and techniques
  and the expansion of applications for existing products.

  Environmental Matters
  _____________________

  The company continues to protect the environment and comply with environ-
  mental protection laws.  Additionally, it has invested in pollution control
  equipment and updated plant operational practices.  The company is committed
  to implementing a documented environmental management system worldwide and
  to becoming certified under the ISO 14001 standard to meet or exceed
  customer requirements.  By the end of 2003, 31 of the company's plants had
  obtained ISO 14001 certification.

  It is difficult to assess the possible effect of compliance with future
  requirements that differ from existing ones.  As previously reported,
  the company is unsure of the future financial impact to the company that
  could result from the United States Environmental Protection Agency's
  (EPA's) final rules to tighten the National Ambient Air Quality Standards
  for fine particulate and ozone.

  The company has been designated as a potentially responsible party by the EPA
  for site investigation and remediation at certain sites under the Comprehen-
  sive Environmental Response, Compensation and Liability Act (CERCLA), known
  as the Superfund, or state laws similar to CERCLA. The claims for remediation
  have been asserted against numerous other entities, which are believed to

                                                                        11

  Environmental Matters (cont.)
  _____________________________

  be financially solvent and are expected to fulfill their proportionate share
  of the obligation.  Management believes any ultimate liability with respect
  to all pending actions will not materially affect the company's operations,
  cash flows or consolidated financial position.  Furthermore, the company
  believes it has established adequate reserves to cover its environmental
  expenses and has a well-established environmental compliance audit program,
  which includes a proactive approach to bringing its domestic and
  international units to higher standards of environmental performance.  This
  program measures performance against local laws as well as standards that
  have been established for all units worldwide. The company is also conducting
  voluntary environmental investigations or remediations at a number of current
  or former operating sites.  Any liability with respect to such investigations
  and remediations, in the aggregate, is not expected to be material to the
  operations or financial position of the company.

  New laws and regulations, stricter enforcement of existing laws and
  regulations, the discovery of previously unknown contamination or the
  imposition of new clean-up requirements may require the company to incur
  costs or become the basis for new or increased liabilities that could have a
  material adverse effect on Timken's business, financial condition or results
  of operations.

  Patents, Trademarks and Licenses
  ________________________________

  Timken owns a number of U.S. and foreign patents, trademarks and licenses
  relating to certain of its products.  While Timken regards these as items
  of importance, it does not deem its business as a whole, or any industry
  segment, to be materially dependent upon any one item or group of items.

  Employment
  __________

  At December 31, 2003, Timken had approximately 26,000 associates. Twenty-one
  percent of Timken's U.S. associates are covered under collective bargaining
  agreements.

  Available Information
  _____________________

  Timken's annual report on Form 10-K, quarterly reports on Form 10-Q, current
  reports on Form 8-K, and amendments to those reports filed or furnished
  pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
  are available, free of charge, on Timken's website at www.timken.com as soon
  as reasonably practicable after electronically filing such material with the
  Securities and Exchange Commission.

                                                                        12
  Item 2.  Properties
  ___________________

  Timken has Automotive Group, Industrial Group and Steel Group manufacturing
  facilities at multiple locations in the United States and in a number of
  countries outside the United States.  The aggregate floor area of these
  facilities worldwide is approximately 19,431,000 square feet, all of which,
  except for approximately 1,498,000 square feet, is owned in fee.  The
  facilities not owned in fee are leased.  The buildings occupied by Timken
  are principally made of brick, steel, reinforced concrete and concrete block
  construction.  All buildings are in satisfactory operating condition in which
  to conduct business.

  Timken's Automotive and Industrial Groups' manufacturing facilities in the
  United States are located in Bucyrus, Canton, New Philadelphia, and Niles,
  Ohio; Altavista, Virginia; Randleman and Iron Station, North Carolina;
  Carlyle, Illinois; South Bend, Indiana; Gaffney, South Carolina; Keene and
  Lebanon, New Hampshire; Mascot, Tennessee; Lenexa, Kansas; Ogden, Utah;
  Orange, California; and Sanford, Florida.  These facilities, including the
  research facility in Canton, Ohio, and warehouses at plant locations, have an
  aggregate floor area of approximately 4,380,000 square feet.  The
  manufacturing facilities acquired in the Torrington acquisition increased
  floor area by approximately 3,486,000 square feet and include the following:
  Rockford, Illinois; Watertown and Torrington, Connecticut; Syracuse, New York;
  Clinton, Union, Honea Path, and Walhalla, South Carolina; Cairo, Norcross,
  Sylvania, Ball Ground, and Dahlonega, Georgia; Pulaski, Tennessee; and
  Rutherfordton, North Carolina.  The company ceased production at the
  Rockford, Illinois location during 2003.

  Timken's Automotive and Industrial Groups' manufacturing plants outside the
  United States are located in Benoni, South Africa; Brescia, Italy; Colmar,
  France; Northampton and Wolverhampton, England; Medemblik, The Netherlands;
  Ploiesti, Romania; Mexico City, Mexico; Sao Paulo, Brazil; Singapore;
  Jamshedpur, India; Sosnowiec, Poland; St. Thomas, Canada; and Yantai, China.
  The facilities, including warehouses at plant locations, have an aggregate
  floor area of approximately 3,679,000 square feet.  The manufacturing
  facilities acquired in the Torrington acquisition increased floor area by
  approximately 1,746,000 square feet and include the following: Westfalen,
  Germany; Olomouc, Czech Republic; Vierzon, Maromme and Moult, France; Bilbao,
  Spain; Darlington and Wolverhampton, England; Toronto and Bedford, Canada;
  Nova Friburgo, Brazil; and Wuxi, China.  The company ceased production at
  the Darlington, England location during 2003.

  Timken's Steel Group's manufacturing facilities in the United States are
  located in Canton, Eaton, Wauseon, Wooster, and Vienna, Ohio; Columbus, North
  Carolina; White House, Tennessee; and Franklin and Latrobe, Pennsylvania.
  These facilities have an aggregate floor area of approximately 5,386,000
  square feet.

  Timken's Steel Group's manufacturing facilities outside the United States are
  located in Leicester and Sheffield, England; and Fougeres and Marnaz, France.
  These facilities have an aggregate floor area of approximately 754,000
  square feet.

  In addition to the manufacturing and distribution facilities discussed
  above, Timken owns warehouses and steel distribution facilities in the
  United States, United Kingdom, France, Singapore, Mexico, Argentina,
  Australia, Brazil, Germany, and China, and leases several relatively small
  warehouse facilities in cities throughout the world.
                                                                        13

  Properties (cont.)
  __________________

  During 2003, the widespread incentive programs on light trucks and increasing
  demand for heavy trucks drove the increase in North American demand.
  Automotive plant utilization was higher in 2003 compared to 2002 as a result
  of this demand.  In 2003, Industrial plant utilizations were between 70% and
  80%, comparable to 2002.  In 2003, Steel plant utilizations were between 70%
  and 85%, varying by business and product, slightly better than 2002.

  Item 3.  Legal Proceedings
  __________________________

  The company is involved in various claims and legal actions arising in the
  ordinary course of business.  In the opinion of management, the ultimate dis-
  position of these matters will not have a material adverse effect on the
  company's consolidated financial position or results of operations.

  Item 4.  Submission of Matters to a Vote of Security Holders
  ____________________________________________________________

  No matters were submitted to a vote of security holders during the
  fourth quarter of the fiscal year ended December 31, 2003.

  Item 4A.  Executive Officers of the Registrant
  ______________________________________________

  The officers are elected by the Board of Directors normally for a term
  of one year and until the election of their successors.  All officers,
  except for one, have been employed by Timken or by a subsidiary of the
  company during the past five-year period.  The Executive Officers of the
  company as of February 13, 2004, are as follows:

                                       Current Position and Previous
   Name                Age             Positions During Last Five Years
   ___________________ ___     ____________________________________________

   J. W. Griffith      50      1998  Group Vice President - Bearings -
                                        North American Automotive, Asia
                                        Pacific and Latin America;
                               1999  President and Chief Operating Officer;
                                        Director;
                               2002  President and Chief Executive Officer;
                                        Director.

                                                                        14

  Executive Officers of the Registrant (cont.)
  ____________________________________________

                                       Current Position and Previous
   Name                Age             Positions During Last Five Years
   ___________________ ___     ____________________________________________

   M. C. Arnold        47      1998  Vice President - Bearings - Business
                                        Process Advancement;
                               2000  President - Industrial Group.

   S. B. Bailey        44      1998  Director - Finance;
                               1999  Director - Finance and Treasurer;
                               2000  Treasurer;
                               2001  Corporate Controller;
                               2002  Senior Vice President - Finance and
                                        Controller.

   W. R. Burkhart      38      1998  Director of Affiliations and Acquisitions;
                               2000  Senior Vice President and General Counsel.

   G. A. Eisenberg     42      1998  President - Test Instrumentation Segment;
                                        Executive Vice President and Chief
                                        Financial Officer, United Dominion
                                        Industries, a manufacturer of
                                        proprietary engineered products;
                               1999  President and Chief Operating Officer,
                                        United Dominion Industries;
                               2002  Executive Vice President - Finance and
                                        Administration, The Timken Company.

   R. W. Lindsay       47      1998  Managing Director - Central and Eastern
                                        Europe;
                               1999  Vice President - Organizational
                                        Advancement;
                               2002  Senior Vice President - Human Resources
                                        and Organizational Advancement.

   S. J. Miraglia, Jr. 53      1998  Group Vice President - Bearings -
                                        North American Industrial and Super
                                        Precision;
                               1999  Senior Vice President - Technology.

   W. J. Timken, Jr.   36      1998  Vice President - Latin America;
                               2000  Corporate Vice President - Office of the
                                        Chairman;
                               2002  Corporate Vice President - Office of the
                                        Chairman; Director;
                               2003  Executive Vice President and President -
                                        Steel Group; Director.

                                                                        15
PART II
_______

  Item 5.  Market for Registrant's Common Equity and Related Stockholder
  ______________________________________________________________________
           Matters
           _______

  The company's common stock is traded on the New York Stock Exchange (TKR).
  The estimated number of record holders of the company's common stock at
  December 31, 2003, was 7,485. The estimated number of beneficial shareholders
  at December 31, 2003, was 42,184.

  High and low stock prices and dividends for the last two fiscal years are
  presented in the Quarterly Financial Data schedule on Page 59 of the Annual
  Report to Shareholders for the year ended December 31, 2003, and are
  incorporated herein by reference.

  Information regarding the company's stock compensation plan is presented in
  Notes 1 and 9 to the Consolidated Financial Statements on Pages 38 and 48 of
  the Annual Report to Shareholders for the year ended December 31, 2003, and
  is incorporated herein by reference.

  Item 6.  Selected Financial Data
  ________________________________

  The Summary of Operations and Other Comparative Data on Pages 60-61 of the
  Annual Report to Shareholders for the year ended December 31, 2003, is
  incorporated herein by reference.

  Item 7.  Management's Discussion and Analysis of Financial Condition and
  ________________________________________________________________________
           Results of Operations
           _____________________

  Management's Discussion and Analysis of Financial Condition and Results of
  Operations on Pages 21-33 of the Annual Report to Shareholders for the year
  ended December 31, 2003, is incorporated herein by reference.

  Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
  ____________________________________________________________________

  Information appearing under the caption "Management's Discussion and
  Analysis of Other Information" appearing on Pages 31-33 of the Annual
  Report to Shareholders for the year ended December 31, 2003, is
  incorporated herein by reference.


                                                                         16

  Item 8.  Financial Statements and Supplementary Data
  ____________________________________________________

  The Quarterly Financial Data schedule included on Page 59, the
  Consolidated Financial Statements of the registrant and its subsidiaries
  on Pages 34-37 and the Notes to Consolidated Financial Statements on Pages
  38-57 of the Annual Report to Shareholders for the year ended
  December 31, 2003, are incorporated herein by reference.

  Item 9.  Changes in and Disagreements with Accountants on Accounting
  ____________________________________________________________________
           and Financial Disclosure
           ________________________

  Not applicable.

  Item 9A.  Controls and Procedures
  __________________________________

  As of the end of the period covered by this report, the Company carried out
  an evaluation, under the supervision and with the participation of the
  Company's management, including the Company's principal executive officer
  and principal financial officer, of the effectiveness of the design and
  operation of the Company's disclosure controls and procedures pursuant to
  Exchange Act Rule 13a-15(e).  Based upon that evaluation, the principal
  executive officer and principal financial officer concluded that the
  Company's disclosure controls and procedures were effective as of the end of
  the period covered by this report.  There have been no significant changes in
  the Company's internal control over financial reporting that have materially
  affected, or are reasonably likely to materially affect, the Company's
  internal control over financial reporting during the Company's most recent
  fiscal quarter.


                                                                         17

PART III
________

  Item 10.  Directors and Executive Officers of the Registrant
  ____________________________________________________________

  Required information is set forth under the captions "Election of Directors"
  on Pages 4-8 and "Section 16(a) Beneficial Ownership Report Compliance" on
  Pages 34-35 of the proxy statement filed in connection with the annual meeting
  of shareholders to be held April 20, 2004, and is incorporated herein by
  reference.  Information regarding the executive officers of the registrant
  is included in Part I hereof.  Information regarding the Company's Audit
  Committee and its Audit Committee Financial Expert is set forth on page 8 of
  the proxy statement filed in connection with the annual meeting of share-
  holders to be held April 20, 2004, and is incorporated herein by reference.

  The General Policies and Procedures of the Board of Directors of the Company
  and the charters of its Audit Committee, Compensation Committee and Nominating
  and Governance Committee are also available on its website at www.timken.com
  and are available to any shareholder upon request to the Corporate Secretary.
  The information on the Company's website is not incorporated by reference
  into this Annual Report on Form 10-K.

  The Company has adopted a code of ethics that applies to all of its employees,
  including its principal executive officer, principal financial officer and
  principal accounting officer, as well as its directors.  The Company's code
  of ethics, The Timken Company Standards of Business Ethics Policy, is
  available on its website at www.timken.com.  The Company intends to disclose
  any amendment to, or waiver from, the code of ethics that applies to its
  principal executive officer, principal financial officer or principal
  accounting officer otherwise required to be disclosed under Item 10 of
  Form 8-K by posting such amendment or waiver, as applicable, on its website.

  Item 11.  Executive Compensation
  ________________________________

  Required information is set forth under the captions "Executive Compensation"
  on Pages 12-23 and "Comparison of Five Year Cumulative Total Return" on
  Page 24 of the proxy statement filed in connection with the annual meeting
  of shareholders to be held April 20, 2004, and is incorporated herein by
  reference.

  Item 12.  Security Ownership of Certain Beneficial Owners and Management and
  ____________________________________________________________________________

            Related Stockholder Matters
            ___________________________

  Required information, including with respect to institutional investors
  owning more than 5% of the company's Common Stock, is set forth under the
  caption "Beneficial Ownership of Common Stock" on Pages 10-11 of the proxy
  statement filed in connection with the annual meeting of shareholders to be
  held April 20, 2004, and is incorporated herein by reference.


                                                                         18

  Item 12.  Security Ownership of Certain Beneficial Owners and Management and
  ____________________________________________________________________________

            Related Stockholder Matters (cont.)
            ___________________________________

                      Equity Compensation Plan Information

  The table below sets forth certain information regarding the following equity
  compensation plan of the company as of December 31, 2003:  The Timken
  Company Long-Term Incentive Plan, as Amended and Restated as of January 30,
  2002 (the "LTIP"), pursuant to which the company has made equity compensation
  available to eligible persons.  The company does not have any equity
  compensation plans that have not been approved by security holders.

                                                                Number of
                                                           securities remaining
                     Number of                             available for future
                   securities to be     Weighted-average      issuance under
                 issued upon exercise    exercise price     equity compensation
                   of outstanding        of outstanding      plans (excluding
Plan category     options, warrants    options, warrants  securities reflected
                     and rights             and rights        in column (a))

                         (a)                  (b)                   (c)
Equity compensation
 plans approved by
 security holders     8,538,270 (1)        $18.63            1,555,559 (2)/(3)

  (1)  The Common Shares set forth in column (a) do not include any payouts that
  may be made in connection with the company's Performance Units because such
  payouts may be made in cash or, under some circumstances, may not be made at
  all.

  (2)  The Common Shares set forth in column (c) represent those remaining
  available under the LTIP, which authorizes the Compensation Committee to make
  awards of Option Rights, Appreciation Rights, Restricted Shares, Deferred
  Shares, and Performance Shares.  Awards may be credited with dividend
  equivalents payable in the form of Common Shares.  In addition, under the
  LTIP nonemployee directors are entitled to awards of Restricted Shares,
  Common Shares and Option Rights pursuant to a formula set forth in that plan.
  The maximum number of Common Shares that may be issued under the LTIP as
  Restricted Shares and Deferred Shares cannot (after taking any forfeitures
  into account and excluding automatic awards of Restricted Shares to non-
  employee directors) exceed 10% of the 11,700,000 Common Shares previously
  authorized for issuance under the LTIP.  As of December 31, 2003, 683,810
  Common Shares remained available for future issuance as Restricted Shares
  or Deferred Shares.

  (3)  The company also maintains the Director Deferred Compensation Plan and
  the Deferred Compensation Plan pursuant to which directors and employees,
  respectively, may defer receipt of Common Shares authorized for issuance
  under the LTIP.  The table does not include separate information about these
  plans because they merely provide for the deferral, rather than the issuance,
  of Common Shares to be issued under the LTIP.


                                                                         19

  Item 13.  Certain Relationships and Related Transactions
  ________________________________________________________

  Required information is set forth under the captions "Election of Directors"
  on Pages 4-8 and "Executive Loan" on Page 19 of the proxy statement issued in
  connection with the annual meeting of shareholders to be held April 20, 2004,
  and is incorporated herein by reference.

  Item 14.  Principal Accountant Fees and Services
  _________________________________________________

  Required information regarding fees paid to and services provided by the Company's
  independent auditor during the years ended December 31, 2003 and 2002 and
  the pre-approval policies and procedures of the Audit Committee of the
  Company's Board of Directors is set forth on page 34 of the proxy statement
  issued in connection with the annual meeting of shareholders to be held
  April 20, 2004, and is incorporated herein by reference.

                                                                        20
PART IV
_______

  Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
  ___________________________________________________________________________

  (a)(1) and (2) - The response to this portion of Item 15 is submitted
                    as a separate section of this report.

  Schedules I, III, IV and V are not applicable to the company and, therefore,
  have been omitted.

    (3)  Listing of Exhibits

             Exhibit
             _______

        (3)(i)  Amended Articles of Incorporation of The Timken Company
                (Effective April 16, 1996) were filed with Form S-8 dated
                April 16, 1996 (Registration Number 333-02553) and are
                incorporated herein by reference.

        (3)(ii) Amended Regulations of The Timken Company effective April 21,
                1987, were filed on March 29, 1993 with Form 10-K (Commission
                File Number 1-1169), and are incorporated herein by reference.

        (4)     Credit Agreement dated as of December 31, 2002 among The Timken
                Company, as Borrower, Various Financial Institutions, as Banks,
                and Bank of America, N.A. and Keybank National Association, as
                Co-Administrative Agents was filed on March 27, 2003 with
                Form 10-K (Commission File Number 1-1169), and is incorporated
                herein by reference.

        (4.1)   Credit Agreement dated as of July 10, 1998 among The Timken
                Company, as Borrower, Various Financial Institutions, as Banks,
                and Keybank National Association, as Agent was filed on
                August 13, 1998 with Form 10-Q (Commission File Number 1-1169),
                and is incorporated herein by reference.

        (4.2)   Indenture dated as of April 24, 1998, between The Timken
                Company and The Bank of New York, which was filed with
                Timken's Form S-3 registration statement which became
                effective April 24, 1998 (Registration Number 333-45791),
                and is incorporated herein by reference.

        (4.3)   Indenture dated as of July 1, 1990, between Timken and
                Ameritrust Company of New York, which was filed with
                Timken's Form S-3 registration statement dated July 12,
                1990 (Registration Number 333-35773), and is incorporated
                herein by reference.

        (4.4)   First Supplemental Indenture, dated as of July 24, 1996,
                by and between The Timken Company and Mellon Bank, N.A.
                was filed on November 13, 1996 with Form 10-Q (Commission
                File Number 1-1169), and is incorporated herein by
                reference.


                                                                         21

   Listing of Exhibits (cont.)
   ___________________________

        (4.5)   First Amendment Agreement dated as of January 1, 2002 among
                The Timken Company, as Borrower, Various Financial
                Institutions, as Banks, and Keybank National Association, as
                Agent was filed on March 28, 2002 with Form 10-K (Commission
                File Number 1-1169), and is incorporated herein by reference.

        (4.6)   Second Amendment Agreement dated as of February 7, 2003 among
                The Timken Company, as Borrower, Various Financial
                Institutions, as Banks, and Keybank National Association, as
                Agent was filed on March 27, 2003 with Form 10-K (Commission
                File Number 1-1169), and is incorporated herein by reference.

        (4.7)   Indenture dated as of February 18, 2003, between The Timken
                Company and The Bank of New York, as Trustee, Providing for
                Issuance of Notes in Series was filed on March 27, 2003 with
                Form 10-K (Commission File Number 1-1169), and is incorporated
                herein by reference.

        (4.8)   The company is also a party to agreements with respect to other
                long-term debt in total amount less than 10% of the
                registrant's consolidated total assets.  The registrant agrees
                to furnish a copy of such agreements upon request.

                Management Contracts and Compensation Plans
                ___________________________________________

        (10)    The Management Performance Plan of The Timken Company for
                Officers and Certain Management Personnel, as revised on
                December 18, 2002 was filed on March 27, 2003 with Form 10-K
                (Commission File Number 1-1169), and is incorporated herein
                by reference.

        (10.1)  The form of Deferred Compensation Agreement entered into with
                James W. Griffith, W. R. Timken, Jr., R. L. Leibensperger and
                B. J. Bowling was filed on November 13, 1995 with Form 10-Q
                (Commission File Number 1-1169), and is incorporated herein
                by reference.

        (10.2)  The Timken Company 1996 Deferred Compensation Plan for officers
                and other key employees, amended and restated as of April 20,
                1999 was filed on May 13, 1999 with Form 10-Q (Commission File
                Number 1-1169), and is incorporated herein by reference.

        (10.3)  The Timken Company Long-Term Incentive Plan for directors,
                officers and other key employees as amended and restated as of
                January 30, 2002 and approved by shareholders on April 16, 2002
                was filed as Appendix A to Proxy Statement filed on
                February 22, 2002 (Commission File Number 1-1169), and is
                incorporated herein by reference.

        (10.4)  The 1985 Incentive Plan of The Timken Company for Officers and
                other key employees as amended through December 17, 1997 was
                filed on March 20, 1998 with Form 10-K (Commission File Number
                1-1169), and is incorporated herein by reference.

                                                                        22

   Listing of Exhibits (cont.)
   ___________________________

                Management Contracts and Compensation Plans (cont.)
                ___________________________________________________

        (10.5)  The form of Severance Agreement entered into with all Executive
                Officers of the company was filed on March 27, 1997 with
                Form 10-K (Commission File Number 1-1169), and is incorporated
                herein by reference.  Each differs only as to name and date
                executed.

        (10.6)  The form of Death Benefit Agreement entered into with all
                Executive Officers of the company was filed on March 30, 1994
                with Form 10-K (Commission File Number 1-1169), and is
                incorporated herein by reference.  Each differs only as to name
                and date executed.

        (10.7)  The form of Indemnification Agreements entered into with all
                Directors who are not Executive Officers of the company was
                filed on April 1, 1991 with Form 10-K (Commission File Number
                1-1169), and is incorporated herein by reference.  Each differs
                only as to name and date executed.

        (10.8)  The form of Indemnification Agreements entered into with
                all Executive Officers of the company who are not Directors
                of the company was filed on April 1, 1991 with Form 10-K
                (Commission File Number 1-1169), and is incorporated herein
                by reference.  Each differs only as to name and date
                executed.

        (10.9)  The form of Indemnification Agreements entered into with
                all Executive Officers of the company who are also
                Directors of the company was filed on April 1, 1991 with
                Form 10-K (Commission File Number 1-1169), and is
                incorporated herein by reference.  Each differs only as to
                name and date executed.

        (10.10) The form of Employee Excess Benefits Agreement entered into
                with all active Executive Officers, certain retired
                Executive Officers, and certain other key employees of the
                company was filed on March 27, 1992 with Form 10-K
                (Commission File Number 1-1169), and is incorporated herein
                by reference.  Each differs only as to name and date
                executed.

        (10.11) The Amended and Restated Supplemental Pension Plan of
                The Timken Company as adopted March 16, 1998 was filed
                on March 20, 1998 with Form 10-K (Commission File Number
                1-1169), and is incorporated herein by reference.

        (10.12) Amendment to the Amended and Restated Supplemental Pension
                Plan of the Timken Company executed on December 29, 1998
                was filed on March 30, 1999 with Form 10-K (Commission File
                Number 1-1169), and is incorporated herein by reference.

                                                                        23

   Listing of Exhibits (cont.)
   ___________________________

                Management Contracts and Compensation Plans (cont.)
                ___________________________________________________

        (10.13) The form of The Timken Company Nonqualified Stock Option
                Agreement for nontransferable options as adopted on April
                18, 2000 was filed on May 12, 2000 with Form 10-Q
                (Commission File Number 1-1169), and is incorporated herein
                by reference.

        (10.14) The form of The Timken Company Nonqualified Stock Option
                Agreement for transferable options as adopted on April 16,
                2002 was filed on May 14, 2002 with Form 10-Q (Commission
                File Number 1-1169), and is incorporated herein by
                reference.

        (10.15) The form of The Timken Company Nonqualified Stock Option
                Agreement for special award options as adopted on April 18,
                2000 was filed on May 12, 2000 with Form 10-Q (Commission
                File Number 1-1169), and is incorporated herein by
                reference.

        (10.16) The Timken Company Deferral of Stock Option Gains Plan
                effective as of April 21, 1998 was filed on May 14, 1998
                with Form 10-Q (Commission File Number 1-1169), and is
                incorporated herein by reference.

        (10.17) The form of The Timken Company Performance Share Agreement
                entered into with W. R. Timken, Jr., R. L. Leibensperger
                and B. J. Bowling was filed on March 20, 1998 with Form
                10-K (Commission File Number 1-1169), and is incorporated
                herein by reference.

        (10.18) The Timken Company Senior Executive Management Performance
                Plan effective January 1, 1999, and approved by shareholders
                April 20, 1999 was filed as Appendix A to Proxy Statement
                filed on February 28, 1999 (Commission File Number 1-1169),
                and is incorporated herein by reference.

        (10.19) The Timken Company Nonqualified Stock Option Agreement entered
                into with James W. Griffith and adopted on December 16, 1999
                was filed on March 29, 2000 with Form 10-K (Commission File
                Number 1-1169), and is incorporated herein by reference.

        (10.20) The Timken Company Promissory Note entered into with James W.
                Griffith and dated December 17, 1999 was filed on March 29,
                2000 with Form 10-K (Commission File Number 1-1169), and is
                incorporated herein by reference.

        (10.21) The Timken Company Director Deferred Compensation Plan
                effective as of February 4, 2000 was filed on May 12, 2000 with
                Form 10-Q (Commission File Number 1-1169), and is incorporated
                herein by reference.


                                                                         24
   Listing of Exhibits (cont.)
   ___________________________

                Management Contracts and Compensation Plans (cont.)
                ___________________________________________________

        (10.22) The form of The Timken Company Deferred Shares Agreement as
                adopted on April 18, 2000 was filed on May 12, 2000 with Form
                10-Q (Commission File Number 1-1169), and is incorporated
                herein by reference.

        (10.23) Amendment to Employee Excess Benefits Agreement was filed on
                May 12, 2000 with Form 10-Q (Commission File Number 1-1169),
                and is incorporated herein by reference.

        (10.24) The form of The Timken Company Nonqualified Stock Option
                Agreement for nontransferable options without dividend credit
                as adopted on April 17, 2001 was filed on May 14, 2001 with
                Form 10-Q (Commission File Number 1-1169), and is incorporated
                herein by reference.

        (10.25) Restricted Shares Agreement entered into with Glenn A.
                Eisenberg was filed on March 28, 2002 with Form 10-K
                (Commission File Number 1-1169), and is incorporated herein
                by reference.

        (10.26) Restricted Shares Agreement entered into with Curt J.
                Andersson was filed on March 28, 2002 with Form 10-K
                (Commission File Number 1-1169), and is incorporated herein
                by reference.

        (10.27) The form of The Timken Company 1996 Deferred Compensation Plan
                Election Agreement as adopted on December 17, 2003.  Each
                differs only as to name and date executed.

        (10.28) The form of The Timken Company Restricted Shares Agreement as
                adopted on April 16, 2002 was filed on May 14, 2002 with
                Form 10-Q (Commission File Number 1-1169), and is incorporated
                herein by reference.

        (10.29) The form of The Timken Company Performance Unit Agreement as
                adopted on April 16, 2002 was filed on May 14, 2002 with
                Form 10-Q (Commission File Number 1-1169), and is incorporated
                herein by reference.

        (10.30) The form of The Timken Company 1996 Deferred Compensation Plan
                Election Agreement for Deferral of Restricted Shares was filed
                on August 13, 2002 with Form 10-Q (Commission File Number
                1-1169), and is incorporated herein by reference.

        (10.31) Retirement Agreement entered into as of June 30, 2002 between
                the company and Gene E. Little was filed on August 13, 2002
                with Form 10-Q (Commission File Number 1-1169), and is
                incorporated herein by reference.
                                                                        25

   Listing of Exhibits (cont.)
   ___________________________

                Management Contracts and Compensation Plans (cont.)
                ___________________________________________________
        (10.32) The Consulting Agreement entered into with Joseph F. Toot, Jr.,
                effective January 1, 2001 was filed on March 30, 2001 with
                Form 10-K (Commission File Number 1-1169), and is incorporated
                herein by reference.

        (10.33) Executive Severance Agreement entered into with Glenn A.
                Eisenberg was filed on March 27, 2003 with Form 10-K
                (Commission File Number 1-1169), and is incorporated herein
                by reference.

        (10.34) The form of The Timken Company Director Deferred Compensation
                Plan Election Agreement was filed on May 15, 2003 with Form
                10-Q (Commission File Number 1-1169), and is incorporated
                herein by reference.  Each differs only as to name and date
                executed.

        (10.35) Non-Executive Chairman Agreement entered into with
                W. R. Timken, Jr.

        (10.36) Amendment to The Timken Company 1996 Deferred Compensation Plan.

        (12)    Ratio of Earnings to Fixed Charges.

        (13)    Annual Report to Shareholders for the year ended December 31,
                2003 (only to the extent expressly incorporated herein by
                reference).

        (21)    A list of subsidiaries of the registrant.

        (23)    Consent of Independent Auditors.

        (24)    Power of Attorney.

        (31.1)  Principal Executive Officer's Certifications pursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002.

        (31.2)  Principal Financial Officer's Certifications pursuant to
                Section 302 of the Sarbanes-Oxley Act of 2002.

        (32)    Certification pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

   (b)  Reports on Form 8-K:

        On October 17, 2003, the company filed a Form 8-K regarding the
        execution of a Purchase Agreement relating to a public offering of
        common stock by the company and a selling shareholder.

        On October 23, 2003, the company furnished a Form 8-K regarding Results
        of Operations and Financial Condition, which contained a press release
        announcing the company's third quarter 2003 results.

   (c)  The exhibits are contained in a separate section of this report.

                                SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                             THE TIMKEN COMPANY

By   /s/ James W. Griffith              By  /s/ Glenn A. Eisenberg
     ________________________________       ________________________________
     James W. Griffith                      Glenn A. Eisenberg
     Chief Executive Officer and            Executive Vice President - Finance
     Director                               and Administration (Principal
                                            Financial Officer)
Date          March 3, 2004             Date            March 3, 2004
     ________________________________       _______________________________

                                        By  /s/ Sallie B. Bailey
                                            _________________________________
                                             Sallie B. Bailey
                                             Senior Vice President - Finance
                                             (Principal Accounting Officer)
                                        Date            March 3, 2004
                                            _______________________________

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.

By  /s/ Stanley C. Gault*                By  /s/ John M. Timken, Jr.*
    ______________________________           _______________________________
    Stanley C. Gault      Director           John M. Timken, Jr.    Director
Date          March 3, 2004          Date               March 3, 2004

By  /s/ John A. Luke, Jr.*               By  /s/ Ward J. Timken*
    ______________________________           _______________________________
    John A. Luke, Jr.     Director           Ward J. Timken         Director
Date          March 3, 2004          Date               March 3, 2004

    /s/ Robert W. Mahoney*               By  /s/ Ward J. Timken, Jr.*
    ______________________________           _______________________________
    Robert W. Mahoney     Director           Ward J. Timken, Jr.    Director
Date          March 3, 2004          Date               March 3, 2004

By  /s/ Jay A. Precourt*                 By  /s/ W. R. Timken, Jr.*
    ______________________________           _______________________________
    Jay A. Precourt       Director           W. R. Timken, Jr.      Director
Date          March 3, 2004          Date               March 3, 2004

By  /s/ Joseph W. Ralston*               By  /s/ Joseph F. Toot, Jr.*
    ______________________________           _______________________________
    Joseph W. Ralston     Director           Joseph F. Toot, Jr.    Director
Date          March 3, 2004          Date               March 3, 2004

By  /s/ Frank C. Sullivan*               By
    ______________________________           _______________________________
    Frank C. Sullivan     Director           Martin D. Walker       Director
Date          March 3, 2004          Date

                                         By  /s/ Jacqueline F. Woods*
                                             _______________________________
                                             Jacqueline F. Woods    Director
                                     Date               March 3, 2004

                                       * By  /s/ Glenn A. Eisenberg
                                         ___________________________________
                                         Glenn A. Eisenberg, attorney-in-fact
                                         By authority of Power of Attorney
                                         filed as Exhibit 24 hereto
                                         Date           March 3, 2004

                           ANNUAL REPORT ON FORM 10-K

                       ITEM 15(a)(1) AND (2), (c) AND (d)

                        LIST OF FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULE

                                CERTAIN EXHIBITS

                          FINANCIAL STATEMENT SCHEDULE

                          YEAR ENDED DECEMBER 31, 2003

                               THE TIMKEN COMPANY

                                  CANTON, OHIO

FORM 10-K-ITEM 15(a)(1) AND (2)

THE TIMKEN COMPANY AND SUBSIDIARIES

LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE

The following consolidated financial statements of The Timken Company and
subsidiaries, included in the annual report of the registrant to its
shareholders for the year ended December 31, 2003, are incorporated by
reference in Item 8:

 Consolidated statements of operations-Years ended December 31, 2003, 2002 and
  2001

 Consolidated balance sheets-December 31, 2003 and 2002

 Consolidated statements of cash flows-Years ended December 31, 2003, 2002
  and 2001

 Consolidated statements of shareholders' equity-Years ended December 31, 2003,
  2002 and 2001

 Notes to consolidated financial statements-December 31, 2003

The consolidated financial statement Schedule II-Valuation and qualifying
accounts of The Timken Company and subsidiaries is included in Item 15(d).

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.

                         Report of Independent Auditors

To the Board of Directors and Shareholders
The Timken Company

We have audited the accompanying consolidated balance sheets of The Timken
Company and subsidiaries as of December 31, 2003 and 2002, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 2003.  Our audits
also included the financial statement schedule listed in the Index at Item
15(a).  These financial statements and schedule are the responsibility of
the company's management.  Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States.  Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Timken
Company and subsidiaries at December 31, 2003 and 2002, and the consolidated
results of their operations and their cash flows for each of the three years
in the period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States.  Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

As discussed in Note 8 to the consolidated financial statements, "Goodwill and
Other Intangible Assets," the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" effective
January 1, 2002.

                                                      /s/  ERNST & YOUNG LLP

Canton, Ohio
February 5, 2004
                                       II--VALUATION AND QUALIFYING ACCOUNTS

                                      THE TIMKEN COMPANY AND SUBSIDIARIES

         COL. A               COL. B                 COL. C                COL. D        COL. E
                                                    Additions
                             Balance at    Charged to   Charged to Other
                            Beginning of    Costs and      Accounts--    Deductions--  Balance at End
       Description             Period       Expenses       Describe         Describe     of Period
                                                     (Thousands of dollars)
Year ended December 31, 2003:
 Reserves and allowances
  deducted from asset accounts:
   Allowance for
     uncollectible accounts $ 14,386     $   5,392  (1)    $  9,695 (4)  $  5,516 (5)    $ 23,957
   Allowance for surplus
     and obsolete inventory    8,095         5,306  (2)      22,695 (4)     5,113 (6)      30,983
   Valuation allowance
     on deferred tax assets   22,491         9,090  (3)         -              -           31,581
                              ______        ______           ______        ______          ______
                            $ 44,972     $  19,788         $ 32,390      $ 10,629        $ 86,521
                              ======        ======           ======        ======          ======
Year ended December 31, 2002:
 Reserves and allowances
  deducted from asset accounts:
   Allowance for
     uncollectible accounts $ 14,976      $  4,752 (1)                   $  5,342 (5)    $ 14,386
   Allowance for surplus
     and obsolete inventory    6,389         4,986 (2)                      3,280 (6)       8,095
   Valuation allowance
     on deferred tax assets   34,756         6,914 (3)                     19,179 (7)      22,491
                              ______        ______                         ______          ______
                            $ 56,121      $ 16,652                       $ 27,801        $ 44,972
                              ======        ======                         ======          ======
Year ended December 31, 2001:
 Reserves and allowances
  deducted from asset accounts:
   Allowance for
     uncollectible accounts $ 11,259      $ 10,025 (1)                   $  6,308 (5)    $ 14,976
   Allowance for surplus
     and obsolete inventory    6,999         3,090 (2)                      3,700 (6)       6,389
   Valuation allowance
     on deferred tax assets   18,084        20,219 (3)                      3,547 (7)      34,756
                              ______        ______                         ______          ______
                            $ 36,342      $ 33,334                       $ 13,555        $ 56,121
                              ======        ======                         ======          ======
(1)  Provision for uncollectible accounts included in expenses.
(2)  Provision for surplus and obsolete inventory included in expenses.
(3)  Increase in valuation allowance is recorded as a component of the provision for income taxes.
(4)  The opening balance from the Torrington acquisition.
(5)  Actual accounts written off against the allowance--net of recoveries.
(6)  Inventory items written off against the allowance.
(7)  Reduction in valuation allowance due to utilization of foreign net operating losses previously
     reserved.

EX-10.27

                                 EXHIBIT 10.27

                        1996 DEFERRED COMPENSATION PLAN
                               THE TIMKEN COMPANY
                               ELECTION AGREEMENT

     I, _____________________________, hereby elect to participate in the 1996
Deferred Compensation Plan for The Timken Company (the "Plan") adopted with
respect to the compensation that I may receive beginning January 1, 2004.  (You
may complete any or all of the Sections numbered I through V below, but you must
complete Section VI.)

     I hereby elect to defer payment of the compensation that
I otherwise would be entitled to receive as follows:

I.   DEFERRAL OF BASE SALARY
     1.  Percentage or dollar amount of Base Salary for 2004:

         25%  [    ]   50%  [    ]   ____%  [    ]     $ ______ [    ] per month

2.   Please make payment of the above specified cash compensation together with
     all accrued interest reflected in my Account as follows:

a.   Pay in lump sum  [    ]

b.   Pay in ____ approximately equal quarterly installments [    ]

c.   Pay pursuant to the following alternate payment schedule (subject to the
     approval of the Director - Total Rewards) [    ]

     ______________________________________________________
     ______________________________________________________
     ______________________________________________________

3.   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.  DEFERRAL OF ANNUAL BONUS

     1.  Percentage or dollar amount of bonus, if any, payable under the
         Management Performance Plan for 2004 (to be paid in Feb. 2005):

         25% [    ]  50% [    ]  100 % [    ]   ____% [    ]  $ ______ [    ]

     2.  Please make payment of the above specified cash compensation together
         with all accrued interest reflected in my Account as follows:

         a.  Pay in lump sum  [    ]

         b.  Pay in ____ approximately equal quarterly installments [    ]

         c.  Pay pursuant to the following alternate payment schedule
             (subject to the approval of the Director - Total Rewards) [    ]

             ______________________________________________________
             ______________________________________________________
             ______________________________________________________

     3.  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)

III.  DEFERRAL OF SAVINGS AND INVESTMENT PENSION (SIP) PLAN AMOUNTS THAT EXCEED
      IRS LIMITATIONS

      1.  Percentage or dollar amount, if any, that would otherwise be
          contributed to the Post-Tax Savings and Investment Pension (SIP) Plan
          Employee (Contributions and Match) in 2004:

          25% [    ]   50% [    ]  100% [    ]   ____% [    ]   $ ______ [    ]

      2.  Please make payment of the above specified cash compensation together
          with all accrued interest reflected in my Account as follows:

          a.  Pay in lump sum [    ]

          b.  Pay in ____ approximately equal quarterly installments [    ]

          c.  Pay pursuant to the following alternate payment schedule (subject
              to the approval of the Director - Total Rewards) [    ]

              ______________________________________________________
              ______________________________________________________
              ______________________________________________________

                                         2


      3.  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)

IV.   DEFERRAL OF COMMON SHARES PAYABLE PURSUANT TO PERFORMANCE UNITS EARNED
      UNDER THE LONG-TERM INCENTIVE PLAN

      1.  Percentage or number of Common Shares, if any, payable as a result of
          the earning of Performance Units (as defined in the Long-Term
          Incentive Plan) for 2004, 2005 and 2006 (to be paid in 2007):

          25%[    ] 50%[    ] 100%[    ]  ____%[    ] # of shares ______[    ]

      2.  Please make payment of the above Common Shares together with all
          accrued amounts in my Account as follows:

          a.  Pay in lump sum [    ]

          b.  Pay in _____ approximately equal quarterly installments [    ]

          c.  Pay pursuant to the following alternate payment schedule (subject
              to the approval of the Director - Total Rewards) [    ]

              ______________________________________________________
              ______________________________________________________
              ______________________________________________________

      3.  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)

V.    DEFERRAL OF CASH AMOUNTS PAYABLE PURSUANT TO PERFORMANCE UNITS EARNED
      UNDER THE LONG-TERM INCENTIVE PLAN

      1.  Percentage or dollar amount, if any, payable as a result of the
          earning of Performance Units for 2004, 2005 and 2006
          (to be paid in 2007):

          25% [    ]  50% [    ]  ____ % [    ]   ____% [    ]  $ ______ [    ]

                                       3


     2.  Please make payment of the above specified cash compensation together
          with all accrued interest reflected in my Account as follows:

          a.  Pay in lump sum  [    ]

          b.  Pay in ____ approximately equal quarterly installments [    ]

          c.  Pay pursuant to the following alternate payment schedule (subject
              to the approval of the Director - Total Rewards) [    ]

              ______________________________________________________
              ______________________________________________________
              ______________________________________________________

      3.  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)

VI.   DEFERRAL OF VESTED EXCESS CORE CONTRIBUTIONS

      1.  Percentage or dollar amount of any Vested Excess Core Contribution(s)
          for 2004:

          25% [    ]   50% [    ]   ____ % [    ]   ____ % [    ]

          $ ______ [    ] per contribution

      2.  Please make payment of the above specified cash compensation together
          with all accrued interest reflected in my Account as follows:

          a. Pay in lump sum  [    ]

          b. Pay in ____ approximately equal quarterly installments [    ]

          c. Pay pursuant to the following alternate payment schedule (subject
             to the approval of the Director - Total Rewards) [    ]

             ______________________________________________________
             ______________________________________________________
             ______________________________________________________

      3.  Please defer payment or make payment of first installments 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)

                                     4


VII.  DEFERRAL OF UNVESTED EXCESS CORE CONTRIBUTIONS

      1.  Percentage or dollar amount of any Unvested Excess Core
          Contribution(s) for 2004:

          25% [    ] 50%  [    ] ____%  [    ]  $ ______ [    ] per contribution

      2.  Please make payment of the above specified cash compensation together
          with all accrued interest reflected in my Account as follows:

          a.  Pay in lump sum  [    ]

          b.  Pay in ____ approximately equal quarterly installments [    ]

          c.  Pay pursuant to the following alternate payment schedule (subject
              to the approval of the Director - Total Rewards) [    ]

              ______________________________________________________
              ______________________________________________________
              ______________________________________________________

      3.  Please defer payment or make payment of first installment as follows:1

          a.  Defer until the date I cease to be an associate [    ]

          b.  Defer until _________ [    ] (specify date or number of years
              following termination of employment)

VIII. 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 this Election Agreement applies only to the compensation
earned by me during the periods specified above and will not apply to
compensation earned in subsequent years.

      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.

                                   5

1     Note that with respect to any Unvested Excess Core Contributions, the
      period of deferral can end no sooner than the date on which the Eligible
      Associate has achieved three Years of Service (as defined in and
      determined under the Savings and Investment Pension Plan).


Dated this ________ day of _______________, 2003.

___________________________________
(Signature)

___________________________________
(Print or type name)

EX-10.35

                                 EXHIBIT 10.35

                                   AGREEMENT

     This Agreement (the "Agreement") is made by and between The Timken Company
(the "Company") and W.R. Timken, Jr. (the "Chairman"), an individual employed by
the Company.

                                  WITNESSETH

     WHEREAS, the Chairman has provided services of great and lasting value to
the Company over the past five years, including, but not limited to, the
development of the Executive Leadership Team which shall assume the leadership
of the Company upon the Chairman's retirement, the execution of the 2000
Transformation, and the completion of the Torrington acquisition; and

     WHEREAS, the Chairman has informed the Company that he wishes to retire
from his position as an executive officer of the Company effective
December 31, 2003; and

     WHEREAS, the Chairman has agreed to continue to serve as the Chairman of
the Board of Directors of the Company ("Non-Executive Chairman") following his
retirement as an executive officer of the Company, and the Chairman has agreed
further to provide additional services of great value to the Company, including,
but not limited to, continuing to represent the Company publicly in order to
ensure the continued identification of the Chairman and his family with the
"Timken" brand, continuing the support of the transition to the new Executive
Leadership Team and performing additional consulting services for the Company
(the "Continuing Services"); and

     WHEREAS, the Chairman has agreed to refrain from competing with the Company
during the period of time that he serves as Non-Executive Chairman and provides
the Continuing Services, and for a period of time thereafter; and

     WHEREAS, the Company desires to provide compensation to the Chairman in
consideration of the Chairman's contributions to the Company and his agreement
to serve as Non-Executive Chairman, to provide the Continuing Services and to
refrain from competing with the Company.

     NOW, THEREFORE, the Company and the Chairman, both intending to be legally
bound, agree as follows:

                                   Article I
                                    Duties

1.1  General.

     The Chairman agrees to serve as Non-Executive Chairman for such period of
     time as he is a member of the Board of Directors of the Company and is
     elected to such position.  The Chairman agrees to perform the Continuing


     Services during the period that he serves as Non-Executive Chairman and for
     such further period of time as the Company and the Chairman mutually agree
     (the "Service Period").

1.2  Public Representation.

     During the Service Period, the Chairman will continue to represent the
     Company publicly in accordance with the wishes of the Board of Directors
     of the Company (the "Board"), and the Chairman will take such other actions
     as the Board or its designee may reasonably request in order to ensure the
     continued identification of the Chairman's family and its values with the
     "Timken" brand.  Such actions may include, without limitation, attendance
     at the annual meeting of the Company's shareholders, participation in
     employee events, appearance at promotional events, and participation in
     high-level meetings with customers and prospective customers of the
     Company.

1.3  Consulting Services.

     During the Service Period, the Chairman shall perform such other Continuing
     Services, including consulting services and support for the transition to
     the new Executive Leadership Team, as may be reasonably requested by the
     Board from time to time.

                                   Article II
                                  Compensation

2.1  General.

     As long as the Chairman complies with Sections 3.1 and 3.2, the Chairman
     will be entitled to receive the compensation set forth in this Article II
     (at such times as set forth in this Article II).

2.2  Bonus.

     The Chairman shall be entitled to a bonus payment of $1,500,000 in
     consideration of his agreement to provide the Continuing Services.  The
     bonus payment shall be paid as follows:  (a) $800,000 of the bonus payment
     shall be paid to the Chairman in a lump sum on January 1, 2004, and
     (b) $700,000 of the bonus payment shall be paid to the Chairman in a lump
     sum on January 1, 2005.  The Company shall add to each payment described in
     the preceding sentence the amount necessary to provide the Chairman, net of
     all taxes, with an amount equal to fifty percent of any self-employment tax
     due under the Internal Revenue Code with respect to such payments, taking
     into account the value to the Chairman of the federal income tax deduction
     for fifty percent of such self-employment taxes.

                                     2


2.3  Non-Executive Chairman Fee.

     During the period that the Chairman serves as Non-Executive Chairman, he
     shall receive monthly compensation equal to $40,000 per month, payable in
     accordance with the Company's normal practices for compensating members of
     its Board of Directors.  This compensation shall be in lieu of the cash
     compensation paid to non-employee directors generally.

2.4  Consulting Fee.

     During any period that the Chairman provides Continuing Services and does
     not serve as Non-Executive Chairman, he shall receive compensation at the
     rate of $100,000 per year, payable in quarterly payments on the last day of
     each calendar quarter.  This compensation shall be in lieu of the cash
     compensation paid to non-employee directors generally.

2.5  Supplemental Compensation.

     Beginning January 1, 2004, the Company shall pay to the Chairman a monthly
     amount determined under the following formula:

                                  $285,000.00

                                   reduced by

     10% of the Chairman's incentive payment for 2003 performance under the
                       Senior Executive Management Retirement Plan

                                   divided by

                                       12

     The amount payable under this Section 2.5 shall be paid for the Chairman's
     lifetime, with 50% continuing upon his death to the Chairman's spouse on
     the date of this Agreement for the remainder of her lifetime.
     Notwithstanding the foregoing sentence, in the event that the Chairman
     desires to have more or less continue to his spouse upon death, he shall
     elect to do so before payments begin to the Chairman, and the payments
     shall be actuarially adjusted to reflect the chosen form of payment.  In no
     event may the Chairman elect to receive the present value of payments
     provided in this Section 2.5 in the form of a lump sum payment.

     The spouse of the Chairman shall be entitled to a monthly payment if the
     Chairman dies prior to the date that payments commence to the Chairman
     under this Section 2.5.  For purposes of this Paragraph, the payment will
     be payable for the lifetime of the surviving spouse in the amount of 50% of
     the amount that would have been payable to the Chairman if he had survived
     until January 1, 2004.

                                     3


2.6  Office.

     During the Service Period, the Company will supply the Chairman with an
     office and such administrative support as required by the Chairman during
     the Service Period.

2.7  Travel.

     The Chairman is expected to travel extensively for the Company and will
     have access to Company aircraft services during the Service Period for
     such travel.  In addition, the Company will reimburse the Chairman for any
     travel expenses incurred by the Chairman and his spouse during the Service
     Period with respect to any and all Company related travel.

2.8  Expenses.

     The Company will reimburse the Chairman for all reasonable and necessary
     expenses incurred in the performance of the Continuing Services.

                                  Article III
                        Confidentiality; Non-Competition

3.1  Confidentiality.

     The Chairman acknowledges that the information, observations and data
     obtained by him while employed by the Company and during the continuance
     of the Service Period pursuant to this Agreement, concerning the business
     or affairs of the Company or any of its subsidiaries or affiliates or any
     predecessor (unless and except to the extent the foregoing become generally
     known to and available for use by the public other than as a result of the
     Chairman's acts or omissions to act, "Confidential Information") are the
     property of the Company or such subsidiary or affiliate.  Therefore, the
     Chairman agrees that during the Service Period and thereafter, the Chairman
     will not disclose any Confidential Information without the prior written
     consent of the Board unless and except to the extent that such disclosure
     is (a) made in the ordinary course of the Chairman's performance of his
     duties under this Agreement or (b) required by any subpoena or other legal
     process (in which event the Chairman will give the Company prompt notice of
     such subpoena or other legal process in order to permit the Company to seek
     appropriate protective orders), and that the Chairman will not use any
     Confidential Information for his own account or for the benefit of any
     other person or entity without the prior written consent of the Board.
     The Chairman will deliver to the Company at the termination of the Service
     Period, or at any other time the Company may reasonably request, all
     memoranda, notes, plans, records, reports, computer tapes and software and
     other documents and data (and copies thereof) relating to the Confidential
     Information, or to the work product or the business of the Company or any
     of its subsidiaries or affiliates which the Chairman may then possess or
     have under his control.  Nothing in this Section 3.1 will be deemed to

                                     4


     limit or otherwise affect any confidentiality or other similar covenant or
     obligation imposed on the Chairman under any other agreement with, or plan
     or arrangement of, the Company.

3.2  Noncompetition.

     (a)   The Chairman acknowledges that in the course of his employment with
           the Company and during the continuance of the Service Period; (i) the
           Chairman will become familiar, and during the course of the
           Chairman's employment by the Company or any of its subsidiaries or
           affiliates or any predecessor prior to the date of this Agreement,
           the Chairman has become familiar, with trade secrets and customer
           lists of and proprietary information regarding the business of the
           Company and its subsidiaries and affiliates and predecessors;
           (ii) such trade secrets and customer lists of and proprietary
           information regarding the business of the Company and its
           subsidiaries and affiliates and predecessors are confidential and the
           exclusive property of the Company; and (iii) the Chairman's services
           have been and will be of special, unique and extraordinary value to
           the Company.  The Chairman agrees that he will not disclose, divulge,
           discuss, copy or otherwise use or cause to be used in any manner in
           competition with, or contrary to the interests of, the Company, the
           trade secrets and customer lists of and proprietary information
           regarding the business of the Company and its subsidiaries and
           affiliates and predecessors.

     (b)   The Chairman agrees that during the Service Period and until five
           years after termination of the Service Period, the Chairman will not
           in any manner, directly or indirectly, through any person, firm or
           corporation, alone or as a member of a partnership or as an officer,
           director, shareholder, investor or employee of or in any other
           corporation or enterprise or otherwise, engage or be engaged in, or
           assist any other person, firm, corporation or enterprise in engaging
           or being engaged in, any business then actively being conducted by
           the Company or any of its subsidiaries or affiliates or any business
           similar to the businesses then conducted or contemplated to be
           conducted by the Company or any of its subsidiaries or affiliates.

     (c)   Nothing in this Section 3.2 will prohibit the Chairman from being:
           (i) a shareholder in a mutual fund or a diversified investment
           company or (ii) a passive owner of not more than 5% of the
           outstanding equity securities of any class of a corporation or other
           entity which is publicly traded, so long as the Chairman has no
           active participation in the business of such corporation or other
           entity.

     (d)   In the event the Chairman violates any legally enforceable provision
           of this Agreement as to which there is a specific time period during
           which the Chairman is prohibited from taking certain actions or from
           engaging in certain activities, as set forth in this Agreement, then,
           in such event, the violation shall toll the running of such time

                                     5


           period from the date of such violation until the violation ceases.

     (e)   The Chairman acknowledges that he has carefully considered the nature
           and extent of the restrictions on the Chairman and the rights and
           remedies conferred on the Company under this Agreement.  The Chairman
           further acknowledges and agrees that the same are reasonable in time
           and territory, are designed to eliminate competition which would
           otherwise be unfair to the Company, do not stifle the Chairman's
           inherent skill and experience, would not operate as a bar to the
           Chairman's sole means of support, are fully required to protect the
           legitimate interests of the Company and do not confer a benefit upon
           the Company disproportionate to the Chairman's detriment.

     (f)   If, at the time of enforcement of this Section 3.2, a court holds
           that the restrictions stated in this Section 3.2 are unreasonable
           under circumstances then existing, the Chairman and the Company agree
           that the maximum period, scope or geographical area reasonable under
           such circumstances will be substituted for the stated period, scope
           or area and that the court will be allowed to revise the restrictions
           contained in this Section 3.2 to cover the maximum period, scope and
           area permitted by law.

     (g)   Nothing in this Section 3.2 will be deemed to limit or otherwise
           affect any noncompetition or nonsolicitation or other similar
           covenant or obligation imposed on the Chairman under any other
           agreement with, or plan or arrangement of, the Company.

3.3  Enforcement.

     Because the Chairman's services are unique and because the Chairman has
     access to Confidential Information and work product, the Chairman agrees
     that the Company would be damaged irreparably in the event any of the
     provisions of Sections 3.1 or 3.2 were not performed in accordance with
     their specific terms or were otherwise breached and that money damages
     would be an inadequate remedy for any such non-performance or breach.
     Therefore, the Company or its successors or assigns will be entitled, in
     addition to other rights and remedies existing in their favor, to an
     injunction or injunctions to prevent any non-performance, breach or
     threatened breach of any of such provisions and to enforce such provisions
     specifically (without posting a bond or other security).

                                  Article IV
                                Miscellaneous

4.1  Assignment

     This Agreement shall be binding upon and shall inure to the benefit of the
     Company and the Chairman and their respective successors and assigns;

                                     6


     provided, however, that, except as set forth herein, no rights to any
     benefit under this Agreement shall, without the written consent of the
     Company, be transferable or assignable by the Chairman or any other person,
     or be subject to alienation, encumbrance, garnishment, attachment,
     execution or levy of any kind, voluntary or involuntary.

4.2  Interpretation

     All questions of interpretation, construction or application arising under
     this Agreement shall be decided by the Board and its decision shall be
     final and conclusive upon all parties.

4.3  Savings Clause

     In the event that any provision or term of this Agreement is finally
     determined by any judicial, quasi-judicial or administrative body to be
     void or not enforceable for any reason, it is the agreed upon intent of the
     parties hereto that all other provisions or terms of the Agreement shall
     remain in full force and effect and that the Agreement shall be enforceable
     as if such void or unenforceable provision or term had never been included
     herein.

4.4  Governing Law

     This Agreement shall be construed in accordance with and governed by the
     laws of the State of Ohio.

4.5  Funding and Change of Control

     The obligations of the Company hereunder constitute an unsecured promise of
     the Company to make payment of the amounts provided for in this Agreement.
     No property of the Company is or shall be, by reason of this Agreement,
     held in trust for the Chairman, or any other person, and neither the
     Chairman nor any other person shall have, by reason of this Agreement, any
     rights, title or interest of any kind in or to any property of the Company.

     Prior to a Change of Control, the Company shall fund a trust established
     for the sole purpose of the payment of the amounts described in Section 2.5.
     The amount to be contributed by the Company prior to the Change of Control
     shall be calculated, using reasonable actuarial assumptions, by Watson
     Wyatt & Company or another independent actuary appointed by the Company.
     For purposes of this Agreement, "Change of Control" shall mean the
     occurrence of any of the following events:

     (a)  The sale or transfer of all or substantially all of the assets of the
          Company; or the merger, consolidation or reorganization of the Company
          with or into another corporation or entity with the result that upon
          the completion of the transaction, less than 51% of the outstanding
          securities entitled to vote generally in the election of directors or

                                     7


          other capital interests of the surviving corporation or entity are
          owned, directly or indirectly, by the pre-transaction shareholders of
          the Company;

     (b)  A Schedule 13D or 14D-1F report (or any successor schedule, form or
          report promulgated pursuant to the Securities Exchange Act of 1934
          (the "Exchange Act")), is filed with the United States Securities and
          Exchange Commission (the "SEC") disclosing that any person (including
          a person as defined in Sections 13(d)(3) or 14(d)(2) of the Exchange
          Act) has become the beneficial owner (as defined in SEC Rule 13d-3) of
          securities representing 30% or more of the combined voting power of
          the outstanding shares of the Company;

     (c)  The Company files a report or proxy statement with the SEC that
          includes a disclosure, including, but not limited to, a disclosure in
          Item 1 of Form 8-K or Item 6(e) of Schedule 14A, that a change of
          control of the Company has or may have occurred or will or may occur
          in the future pursuant to any existing contract or transaction; and

     (d)  The individuals who at the beginning of any two consecutive calendar
          year period constituted the Board of Directors cease for any reason to
          constitute a majority of the Board of Directors; provided, however,
          this subsection (d) shall not apply if the nomination of each new
          Director elected during such two-year period was approved by the vote
          of at least two-thirds of the Directors of the Company still in office
          who were Directors of the Company on the first day of such two-year
          period.

4.6  Incapacity of Chairman

     In the event the Chairman or his beneficiary is declared incompetent and a
     guardian, conservator or other person is appointed and legally charged with
     the care of the person or the person's estate, the payments described in
     Article II to which the Chairman or his beneficiary is entitled shall be
     paid to such guardian, conservator or other person legally charged with the
     care of the person or the estate.  Except as provided hereinabove, when the
     Company, in its sole discretion, determines that the Chairman or his
     beneficiary is unable to manage his financial affairs, the Company may make
     distribution(s) of the amounts payable to the Chairman or his beneficiary
     to any one or more of the lineal ascendants or descendants or other closest
     living relatives of the Chairman or his beneficiary who demonstrate to the
     satisfaction of the Company the propriety of making such distribution(s).
     Any payment so made shall be in complete discharge of any liability under
     this Agreement for such payment.  The Company shall not be required to see
     to the application of any such distribution made under this Section 4.6.

4.7  Elections, Applications and Notices

     Every designation, election, revocation or notice authorized or required
     hereunder shall be deemed delivered to the Company: (a) on the date it is

                                     8


     personally delivered to the President of the Company at the Company's
     offices at 1835 Dueber Avenue, S.W., Canton, OH 44706-0927 or (b) three
     business days after it is sent by registered or certified mail, postage
     prepaid, addressed to the President of the Company at the offices indicated
     above.  Every designation, election, revocation or notice authorized or
     required hereunder which is to be delivered to the Chairman or his
     beneficiary shall be deemed delivered to the Chairman or his beneficiary:
     (a) on the date it is personally delivered to such individual (either
     physically or through interactive electronic communication), or (b) three
     business days after it is sent by registered or certified mail, postage
     prepaid, addressed to such individual at the last address shown for such
     individual on the Company's records.  Any notice required hereunder may be
     waived by the person entitled thereto.

4.8  Representations.

     The Chairman represents and warrants to the Company that (a) the execution,
     delivery and performance of this Agreement by the Chairman does not and
     will not conflict with, breach, violate or cause a default under any
     contract, agreement, instrument, order, judgment or decree to which the
     Chairman is a party or by which the Chairman is bound, (b) the Chairman is
     not a party to or bound by any employment agreement, noncompete agreement
     or confidentiality agreement with any other person or entity and (c) upon
     the execution and delivery of this Agreement by the Company, this Agreement
     will be the valid and binding obligation of the Chairman, enforceable in
     accordance with its terms.

4.9  Survival.

     Subject to any limits on applicability, Sections 3.1 and 3.2 will survive
     and continue in full force in accordance with their terms notwithstanding
     the termination of the Service Period.

4.10 Complete Agreement.

     This Agreement embodies the complete agreement and understanding between
     the parties with respect to the subject matter in this Agreement and
     effective as of its date supersedes and preempts any prior understandings,
     agreements or representations by or between the parties, written or oral,
     which may have related to the subject matter in this Agreement in any way.

4.11 Counterparts.

     This Agreement may be executed in separate counterparts, each of which will
     be deemed to be an original and both of which taken together will
     constitute one and the same agreement.

                                     9


4.12 Amendment and Waiver.

     This Agreement may be amended only with the prior written consent of the
     parties, and no course of conduct or failure or delay in enforcing the
     provisions of this Agreement will affect the validity, binding effect or
     enforceability of this Agreement.

     IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
set forth below.

The Timken Company

     /s/ William R. Burkhart                             /s/ W.R. Timken, Jr.
By: __________________________                          ________________________
                                                        W.R. Timken, Jr.

       December 18, 2003                                 December 18, 2003
Date: ________________________                          ________________________
                                                        Date

EX-10.36

                          Exhibit 10.36

                                                 Amended as of December 17, 2003

                                   AMENDMENT NO. 2
                                        TO
                                 THE TIMKEN COMPANY
                         1996 DEFERRED COMPENSATION PLAN

     The Timken Company hereby adopts this Amendment No. 2 to the 1996 Deferred

Compensation Plan for The Timken Company (the "Plan"), effective as of

December ___, 2003. Words and phrases used herein with initial capital letters

that are defined in the Plan are used herein as so defined, provided, however,

in the case where a word or phrase used herein with initial capital letters is

specifically identified as being used herein as defined in The Timken Company -

Latrobe Steel Company Savings and Investment Pension Plan (referred to herein as

the "Savings and Investment Pension Plan"), the word or phrase shall be used

herein as so defined in the Savings and Investment Pension Plan.

     Article VI of the Plan is hereby added to the Plan to read as follows:

                                   ARTICLE VI

                           EXCESS CORE CONTRIBUTIONS

     1.  Purpose.  The purpose of this Article VI is to amend the Plan such that

certain contributions designated by the Company (referred to herein as "Excess

Core Contributions") may be deferred and paid to Eligible Associates under the

terms of the Plan.  The provisions of this Article VI shall supercede the

provisions of Article II with respect to Excess Core Contributions.  All other

provisions of the Plan shall apply to Excess Core Contributions.

     2.  Designation of Excess Core Contributions.  Prior to the beginning of a

Year in which the Company may make an Excess Core Contribution(s) with respect


to an Eligible Associate, the General Manager - Total Rewards of the Company (or

other Company administrative representative as may be designated by the

Committee) shall notify the Eligible Associate of the formula to determine the

amount of the Excess Core Contribution(s) for the Eligible Associate and timing

of such Excess Core Contribution(s).

     3.  Vested Excess Core Contributions and Unvested Excess Core

Contributions.  In the case of an Eligible Associate with at least three Years

of Service (as defined in and determined under the Savings and Investment

Pension Plan) ("Years of Service") as of the date an Excess Core Contribution is

made with respect thereto, such Excess Core Contribution shall be referred to

herein as a "Vested Excess Core Contribution".  In the case of an Eligible

Associate with less than three Years of Service as of the date an Excess Core

Contribution is made with respect thereto, such Excess Core Contribution shall

be referred to herein as an "Unvested Excess Core Contribution".

     4. Election to Defer.  An Eligible Associate who desires to defer all or

part of his or her Vested or Unvested Excess Core Contribution(s) for a Year

pursuant to this Plan must complete and deliver an Election Agreement to the

General Manager - Total Rewards of the Company (or other Company administrative

representative as may be designated by the Committee) prior to the beginning of

the Year for which the Excess Core Contribution(s) are made.  Notwithstanding

the preceding sentence, (i) with respect to any Excess Core Contribution(s) for

2004, an Eligible Associate may deliver an Election Agreement within 30 days of

the Company's adoption of this Amendment No. 2, (ii) in the first Year in which

an individual becomes an Eligible Associate, the individual may deliver an

Election Agreement, with respect to any Excess Core Contribution(s) made

subsequent to filing of such Election Agreement, within 30 days after the

individual becomes an Eligible Associate and (iii) an Eligible Associate with

                                -2-


less than three Years of Service as of the date of an Excess Core Contribution

shall elect, or (in the absence of a properly filed Election Agreement) shall be

deemed to have elected, to defer all of his or her Unvested Excess Core

Contribution for a Year (and any Election Agreement to the contrary shall be

disregarded and treated as not properly filed hereunder).  An Eligible Associate

who defers Excess Core Contribution(s) pursuant to the terms of the Plan shall

be a Participant.  In order to be effective to revoke or modify an election to

defer Excess Core Contribution(s) for any particular Year, a revocation or

modification must be delivered prior to the beginning of the Year for which the

Excess Core Contribution(s) are made.

     5.  Amount Deferred; Period of Deferral.  A Participant shall designate on

the  Election Agreement the percentage or the dollar amount of his or her Excess

Core Contribution(s) that is to be deferred.  The applicable percentage(s) or

dollar amount(s) of Excess Core Contribution(s) 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; provided, however,

that with respect to the deferral of any Unvested Excess Core Contribution(s),

the period of deferral can end no sooner than the date on which the Eligible

Associate has achieved three Years of Service.

     6.  Accounts.  An Excess Core Contribution that a Participant defers under

this Plan shall be treated as if it was credited to an Account on the date the

Excess Core Contribution is made.  A separate Account shall be maintained with

respect to Vested Excess Core Contribution(s) and Unvested Excess Core

Contribution(s).  All accounts will be credited with interest computed quarterly

(based on calendar quarters) on the lowest balance in the Account during each

                                -3-


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 Account as of

the first day of the following quarter.

     7.  Forefeiture of Accounts.  If as of the date of a Participant's

termination of employment the Participant has not achieved three Years of

Service (as defined in and determined under the Savings and Investment Pension

Plan), the Participant shall forfeit his or her Account relating to any Unvested

Excess Core Contribution(s), including any interest credited to such Account.

Notwithstanding the preceding sentence, a Participant shall not forfeit  his or

her Account relating to any Unvested Excess Core Contribtion(s) if the

Participant's termination of service is due to death, Disability (as defined in

the Savings and Investment Pension Plan) or Retirement (as defined in the

Savings and Investment Pension Plan).  Except as described above, a

Participant's Account(s) shall be nonforfeitable.

     8.  Payment of Accounts.  Unless forfeited pursuant to Section 7 of this

Article, the amount of a Participant's Account(s) attributable to Excess Core

Contribution(s) shall be paid to the Participant in a lump sum or in a number

of approximately equal quarterly installments, not to exceed 40, as designated

by the Participant in the Election Agreement.  The amount of such Account(s)

remaining unpaid shall continue to bear interest, as provided in Section 6 of

this Article.  The lump sum payment or the 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 5 of this Article.

                                -4-


     9.  Failure to Timely File Election.  If in the case of a Vested Excess

Core Contribution an Eligible Associate fails to timely file an Election

Agreement, the Company within a reasonable period of time after the close of

the Year for which the Vested Excess Core Contribution was made shall pay to the

Eligible Associate in a lump sum an amount equal to the Vested Excess Core

Contribution without interest.  If in the case of an Unvested Core Contribution

an Eligible Associate fails to file properly an Election Agreement, the Eligible

Associate nevertheless shall be deemed as if the Eligible Associate had timely

filed an Election Agreement electing a lump sum payment to be made within a

reasonable time after the Eligible Associate has achieved three Years of

Service.

     10.  Death of a Participant.  In the event of the death of a Participant,

the amount of the Participant's Account(s) shall be paid to the Beneficiary or

Beneficiaries designated in writing by the Participant (the "Beneficiary

Designation") in accordance with the Participant's Election Agreement and

Section 8 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(s) 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(s) 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.

                                -5-


     11.  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(s) may at the

discretion of the Company be paid in a lump sum in accordance with Section 8 of

this Article.

     12.  Acceleration.  Notwithstanding the provisions of the foregoing, 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(s), but only up to the amount necessary to

meet the emergency.

     Executed as of the _____ day of __________, 2003.

                                                THE TIMKEN COMPANY

                                                By:  ___________________________
                                                Name:  _________________________
                                                Title:  ________________________

                                -6-

EX-12

                                  EXHIBIT 12

               COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

                                       Twelve Months Ended   Three Months Ended
                                       Dec. 31    Dec. 31   Dec. 31    Dec. 31
                                        2003       2002      2003       2002
                                      --------   --------  --------   --------
                                   (Thousands of Dollars, except ratio amounts)
Income before income taxes and
  cumulative effect of accounting
  change                              $ 60,802   $ 85,518  $ 37,494   $ 58,173
Share of undistributed losses from
  50%-or-less-owned affiliates,
  excluding affiliates with
  guaranteed debt                        4,827        -       1,995        -
Amortization of capitalized interest     2,702      2,872       591        708
Interest expense                        48,401     31,540    12,757      7,544
Interest portion of rental expense       1,513      1,391       588        278
                                      --------   --------  --------   --------
Earnings                              $118,245   $121,321  $ 53,425   $ 66,703
                                      ========   ========  ========   ========

Interest                              $ 48,401   $ 31,975  $ 12,952   $  7,740
Interest portion of rental expense       1,513      1,391       588        278
Interest expense relating to
  guaranteed debt of 50%-or-less-
  owned affiliates                         464        -         106        -
                                      --------   --------  --------   --------
Fixed Charges                         $ 50,378   $ 33,366  $ 13,646   $  8,018
                                      ========   ========  ========   ========

Ratio of Earnings to Fixed Charges        2.35       3.64      3.92       8.32
                                      ========   ========  ========   ========

EX-13

EXHIBIT 13

ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 2003

Financial Summary

2003		2002
(Thousands of dollars, except per share data)
Net sales Impairment and restructuring charges Income before income taxes and cumulative effect  of change in accounting principle Provision for income taxes Income before cumulative effect of change  in accounting principle Net income Earnings per share Earnings per share - assuming dilution Dividends per share	$ 3,788,097 19,154   60,802 24,321   $ 36,481 $ 36,481 $ .44 $ .44 $ .52	$ 2,550,075 32,143   85,518 34,067   $ 51,451 $ 38,749 $ .63 $ .62 $ .52

 

1

THE TIMKEN COMPANY

 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

OVERVIEW Introduction The Timken Company is a leading global manufacturer of highly engineered antifriction bearings and alloy steels and a provider of related products and services. Timken employed approximately 26,000 associates in 29 countries as of December 31, 2003. Timken operates under three segments: Automotive Group, Industrial Group and Steel Group. The Automotive and Industrial Groups design, manufacture and distribute a range of bearings and related products and services. Automotive Group customers include original equipment manufacturers of passenger cars and trucks, ranging from light- and medium-duty to heavy-duty trucks and their suppliers. Industrial Group customers include both original equipment manufacturers and distributors for agriculture, construction, mining, energy, mill, machine tooling, aerospace, and rail applications. The Automotive and Industrial Groups each represent approximately 40% of the company's sales. In 2003, Timken acquired The Torrington Company (Torrington), also a leading bearing manufacturer. The strategic acquisition strengthened Timken's market position among global bearing manufacturers while expanding Timken's product line with complementary products and services and offering significant cost savings opportunities for the combined organization. The Steel Group represents approximately 20% of the company's 2003 sales. Steel Group products include different alloys in both solid and tubular sections as well as custom-made steel products all for both automotive and industrial applications, including bearings. Financial Overview In 2003, The Timken Company reported record sales of approximately $3.8 billion, an increase of approximately 49% from 2002, driven by the $840 million strategic acquisition of Torrington on February 18, 2003. For 2003, Torrington added sales and a broad range of complementary products and services. Despite higher sales, earnings decreased from 2002 levels due to the performance of the Automotive and Steel Groups. Automotive Group profitability was negatively impacted by additional costs associated with the restructuring of manufacturing plants in 2003. In the fourth quarter, the Automotive Group experienced some improvement from rationalization initiatives and the company anticipates continuing improvement in 2004. Industrial Group profitability increased due to the Torrington acquisition, the effect of the company's continued manufacturing improvement initiatives, improved results in Europe and the rail business and exiting of low-margin business. Until very late in 2003, there was little evidence of any industrial recovery in the company's major markets. In 2004, the company expects slow growth from 2003 levels for the North American industrial markets and strong growth in emerging markets. Despite challenging market conditions, the Steel Group increased sales in 2003 from the prior year due to penetration gains in industrial markets and increased demand from automotive and industrial customers. However, costs for scrap steel - used in steel production - continued at record high levels through 2003. The Steel Group also faced very high costs for natural gas and alloys. The company raised steel prices, implemented raw material surcharges and increased productivity during the year. However, these actions were not sufficient to offset the high costs and the Steel Group recorded a loss in 2003. The company expects raw material and energy costs to remain high in 2004. The acquisition of Torrington leveraged the company's balance sheet higher, with total debt peaking at $1.017 billion at June 30, 2003. The company reduced debt from this peak by $282 million to $735 million at year-end. The company raised $375 million in proceeds, before expenses, from equity offerings throughout the year. During the year, the company divested non-strategic assets and received a payment of $65.6 million under the U.S. Continued Dumping and Subsidy Offset Act (CDSOA), net of related expenses and a repayment of a portion of amounts received in 2002.

THE STATEMENT OF OPERATIONS

2003 compared to 2002
Overview:

2003		2002	$ Change	% Change
(Dollars in millions, except earnings per share) Net sales Income before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle, net of tax Net income Earnings per share before cumulative effect of change in   accounting principle - diluted Cumulative effect of change in accounting principle, net of tax Earnings per share - diluted Average number of shares - diluted	$ 3,788.1 $ 36.5 $ - $ 36.5   $ 0.44 $ - $ 0.44 83,159,321	$ 2,550.1 $ 51.4 $ (12.7) $ 38.7   $ 0.83 $ (0.21) $ 0.62 61,635,339	$ 1,283.0 $ (14.9) $ 12.7 $ (2.2)   $ (0.39) $ 0.21 $ (0.18) N/A	48.6% (29.1)% N/A (5.9)%   (47.0)% N/A (29.0)% N/A

In 2002, the cumulative effect of change in accounting principle related to the adoption of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." The goodwill impairment charge related to the company's Specialty Steel business.

 

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Sales by Segment:

2003		2002	$ Change	% Change
(Dollars in millions, and exclude intersegment sales) Automotive Group Industrial Group Steel Group	$ 1,396.1 $ 1,498.8 $ 893.2	$ 752.8 $ 971.5 $ 825.8	$ 643.3 $ 527.3 $ 67.4	85.5% 54.3% 8.2%
Total company	$ 3,788.1	$ 2,550.1	$ 1,238.0	48.6%

The increases in net sales for both the Automotive and the Industrial Groups were primarily the result of the Torrington acquisition. The Automotive Group's net sales further benefited from the launch of new product platforms, the increasing demand in the medium and heavy truck markets, and favorable foreign currency exchange. In addition to the effect of the Torrington acquisition, the Industrial Group's net sales increased due to favorable foreign currency exchange and improved sales to industrial distributors. The increase in the Steel Group's net sales was due primarily to penetration gains in industrial markets and increased demand from automotive and industrial customers.

Gross Profit:

2003		2002	$ Change	% Change
(Dollars in millions) Gross profit Gross profit % to net sales Reorganization and integration charges included in cost of products sold	$ 631.6 16.7% $ 3.4	$ 469.6 18.4% $ 8.5	$ 162.0 N/A $ (5.1)	34.5% (1.7)% (60.0)%

Gross profit increased primarily due to the incremental sales volume from the Torrington acquisition. Gross profit for the Automotive Group benefited from the additional sales volume resulting from the Torrington acquisition; however, it was negatively impacted by additional costs associated with the restructuring of its manufacturing plants. During the last six months of 2003, the Automotive Group reduced employment by more than 750 associates. This action, along with others, improved the Automotive Group's productivity in the fourth quarter of 2003. In addition to the increased sales volume from the Torrington acquisition, gross profit for the Industrial Group benefited from improved performance in Europe that was largely due to favorable foreign currency exchange, exiting of low-margin businesses and manufacturing cost reductions. Steel Group gross profit was negatively impacted by extremely high costs for scrap steel, natural gas and alloys which more than offset increased sales, raw material surcharges passed on to customers and higher capacity utilization. In 2003, reorganization and integration charges included in cost of products sold related primarily to charges associated with the integration of Torrington in the amount of $9.3 million and costs incurred for the Duston, England plant closure in the amount of $4.0 million. These charges were partially offset by curtailment gains in the amount of $9.9 million resulting from the redesign of the company's U.S.-based employee benefit plans.

Selling, Administrative and General Expenses:

2003		2002	$ Change	% Change
(Dollars in millions) Selling, administrative and general expenses Selling, administrative and general expenses % to net sales Reorganization and integration charges included in selling,   administrative and general expenses	$ 514.2 13.6%   $ 30.5	$ 358.9 14.1%   $ 9.9	$ 155.3 N/A   $ 20.6	43.3% (0.5)%   208.0%

Selling, administrative and general expenses in 2003 increased primarily due to the Torrington acquisition, costs incurred in the integration of Torrington and currency exchange rates. The company continues its efforts to control spending on selling, administrative and general expenses. Even though the amount of selling, administrative and general expenses in 2003 increased from 2002, and 2003 included $30.5 million in reorganization and integration charges, as a result of higher net sales, the percentage of selling, administrative and general expenses to net sales decreased to 13.6% in 2003, from 14.1% in 2002. In 2003, reorganization and integration charges included in selling, administrative and general expenses included integration costs for the Torrington acquisition of $27.6 million and curtailment losses resulting from the redesign of the company's U.S.-based employee benefit plans of $2.9 million.

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 Impairment and Restructuring Charges:

2003		2002	$ Change
(Dollars in millions) Impairment charges Severance and related benefit costs Exit costs	$ 12.5 $ 2.9 $3.7	$ 17.9 $ 10.2 $ 4.0	$ (5.4) $ (7.3) $ (0.3)
Total	$ 19.1	$ 32.1	$ (13.0)

In 2003, impairment charges represented the write-off of the remaining goodwill for the Steel Group in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," of $10.2 million and impairment charges for the Columbus, Ohio plant of $2.3 million. The severance and related benefit costs of $2.9 million related to associates who exited the company as a result of the integration of Torrington and other actions taken by the company to reduce costs. The exit costs were comprised of $3.0 million for the Columbus, Ohio plant and $0.7 million for the Duston, England plant. The Duston and Columbus plants were part of the company's manufacturing strategy initiative (MSI). The additional costs that were incurred in 2003 for these two projects were the result of changes in estimates. In 2002, the impairment charges and exit costs were related to the Duston, England, and Columbus, Ohio plant closures. The severance and curtailment expenses related primarily to a salaried workforce reduction throughout the company.

Interest Expense and Income:

2003		2002	$ Change
(Dollars in millions) Interest expense Interest income	$ 48.4 $ 1.1	$ 31.5 $ 1.7	$ 16.9 $ (0.6)

The increase in interest expense was due to the additional debt incurred as a result of the Torrington acquisition. Interest income was not significant in either year.

Other Income and Expense:

2003		2002	$ Change
(Dollars in millions) CDSOA receipts, net of expenses Impairment charge - equity investment Other expense, net	$ 65.6 $ (45.7) $ (10.0)	$ 50.2 $ - $ (13.4)	$ 15.4 $ (45.7) $ 3.4

CDSOA receipts are reported net of applicable expenses. In addition, amounts received in 2003 are net of a one-time repayment, due to a miscalculation by the U.S. Treasury Department of funds received by the company in 2002. CDSOA provides for distribution of monies collected by U.S. Customs from antidumping cases to qualifying domestic producers where the domestic producers have continued to invest in their technology, equipment and people. The amounts received in 2003 related to the original Timken tapered roller, ball and cylindrical bearing businesses and the Torrington tapered roller bearing business. It is expected that in February, 2004, Timken will receive a payment delayed from 2003 of $7.7 million relating to Torrington's bearing business other than its tapered roller bearing business. This is a net amount after taking into account the terms of the agreement under which the company purchased the Torrington business, which provided that Timken must deliver to the seller of the Torrington business 80% of any Torrington-related payments received relating to 2003 and 2004. The company cannot predict whether it will receive any payments under CDSOA later in 2004 or if so, in what amount. In September 2002, the World Trade Organization (WTO) ruled that such payments violate international trade rules. The U.S. Trade Representatives appealed this ruling; however, the WTO upheld the ruling on January 16, 2003. During 2000, the company's Steel Group invested in a joint venture, PEL Technologies (PEL), to commercialize a proprietary technology that converts iron units into engineered iron oxides for use in pigments, coatings and abrasives. The company previously accounted for its investment in PEL, which is a development stage company, using the equity method. In the fourth quarter of 2003, the company concluded that its investment in PEL was impaired due to the following indicators of impairment: history of negative cash flow and losses; 2004 operating plan with continued losses and negative cash flow; and the continued required support from the company or another party. Accordingly, the company recorded a non-cash impairment charge totaling $45.7 million, which is comprised of the PEL indebtedness that the company has guaranteed of $26.5 million and the write-off of the advances to and investments in PEL that the company has made of $19.2 million. Refer to Note 12 - Equity Investments in the notes to the consolidated financial statements for additional discussion. In 2003, other expense, net included losses from other equity investments, losses from the sale of assets, foreign currency exchange gains (including acquisition-related currency exchange gains), and one-time net gains from the sales of non-strategic assets. In 2002, other expense, net included foreign currency exchange losses, losses on the disposal of assets and losses from equity investments.

 

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Income Tax Expense:

The effective tax rates were 40.0% and 39.8% for the years ended December 31, 2003 and 2002, respectively. The effective tax rate for both years exceeded the U.S. statutory tax rate as a result of taxes paid to state and local jurisdictions, withholding taxes on foreign remittances, recognition of losses in jurisdictions that were not available to reduce overall tax expense, additional taxes on foreign income, and the aggregate effect of other permanently non-deductible expenses. The unfavorable tax rate adjustments were partially mitigated by benefits from extraterritorial income.

Business Segments:

Beginning in the first quarter of 2003, the company reorganized two of its reportable segments - the Automotive and Industrial Groups. Timken's automotive aftermarket business is now part of its Industrial Group, which manages the combined distribution operations. The company's sales to emerging markets, principally in central and eastern Europe and Asia, previously were all reported as part of the Industrial Group. Emerging market sales to automotive original equipment manufacturers are now included in the Automotive Group. The segment results that follow for both 2003 and 2002 reflect the reporting reorganization described above. The primary measurement used by management to measure the financial performance of each Group is adjusted EBIT (earnings before interest and taxes excluding special items such as impairment and restructuring, reorganization and integration costs, one-time gains or losses on sales of assets, allocated receipts received or payments made under the CDSOA, acquisition-related currency exchange gains, and other items similar in nature). Refer to Note 14 - Segment Information in the notes to the consolidated financial statements for the reconciliation of adjusted EBIT by Group to consolidated income before income taxes and cumulative effect of change in accounting principle.

Automotive Group:

2003		2002	$ Change	% Change
(Dollars in millions) Net sales, including intersegment sales Adjusted EBIT Adjusted EBIT margin	$ 1,396.1 $ 15.7 1.1%	$ 752.8 $ 11.1 1.5%	$ 643.3 $ 4.6 N/A	85.5% 41.4% (0.4)%

The Automotive Group includes sales of bearings and other products and services (other than steel) to automotive original equipment manufacturers. The increase in sales between years was primarily the result of the acquisition of Torrington. Strengthening medium and heavy truck markets, new product introductions and favorable foreign currency exchange rates further benefited the Automotive Group's net sales. The Automotive Group's results in 2003 reflected higher costs due to issues in the execution of the restructuring of its automotive plants and expenditures related to new ventures in China and a U.S.-based joint venture, Advanced Green Components. However, the Automotive Group began to see some improvement from the rationalization initiatives in the fourth quarter of 2003 and expects this trend to continue in 2004. In 2004, the company anticipates a slight improvement in North American automotive production and further strengthening in medium and heavy truck production.

Industrial Group:

2003		2002	$ Change	% Change
(Dollars in millions) Net sales, including intersegment sales Adjusted EBIT Adjusted EBIT margin	$ 1,499.7 $ 128.0 8.5%	$ 971.5 $ 73.0 7.5%	$ 528.2 $ 55.0 N/A	54.4% 75.3% 1.0%

Sales by the Industrial Group include global sales of bearings and other products and services (other than steel) to a diverse customer base, including: industrial equipment; off-highway; rail; and aerospace and defense customers. The Industrial Group also includes the financial results for Timken's aftermarket distribution operations for products other than steel. The sales increase between years was primarily the result of the acquisition of Torrington. Many of the markets served by the Industrial Group remained relatively flat during 2003. The Industrial Group benefited from improved performance in Europe that was largely due to favorable foreign currency exchange rates and improved results in the rail business, strong aftermarket sales to industrial distributors, exiting of low-margin business, and manufacturing cost reductions. In 2004, the company expects a slow increase from 2003 levels for the North American industrial markets and strong growth for the emerging markets. The company anticipates lower levels of sales to distributors in 2004 as the Industrial Group and its distributors work to reduce inventory levels, which relates primarily to Torrington-branded products.

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Steel Group:

2003		2002	$ Change	% Change
(Dollars in millions) Net sales, including intersegment sales Adjusted EBIT (loss) Adjusted EBIT (loss) margin	$ 1,026.5 $ (6.0) (0.6)%	$ 981.3 $ 32.5 3.3%	$ 45.2 $ (38.5) N/A	4.6% N/A N/A

The increase in the Steel Group's net sales was primarily the result of penetration gains in industrial markets and increased demand from automotive and industrial customers, partially offset by lower intersegment sales. The Steel Group's results were negatively impacted by extremely high costs for scrap steel, natural gas and alloys, partially offset by increased sales, higher capacity utilization, implementation of new raw material surcharges and price increases. In 2004, the company expects raw material and energy costs to continue to be high.

2002 compared to 2001

Net sales for 2002 were $2.550 billion, an increase of 4.2% from $2.447 billion in 2001. The company's 2002 results for the Automotive and Steel Groups benefited from increased demand in the automotive industry. North American light truck production was strong throughout the year, and heavy truck demand remained strong throughout 2002 because of more strict emissions standards for heavy trucks enacted in the fourth quarter of 2002, which were anticipated by the market and its customers. However, industrial markets around the world showed few signs of recovery. Both rail and global aerospace demand remained weak. Gross profit in 2002 was $469.6 million (18.4% of net sales), an increase of 17.2% from $400.7 million (16.4% of net sales) in 2001. The improvement was the result of higher sales volume, higher productivity, cost containment and savings generated from MSI. Partially offsetting these positive items were increased costs due to manufacturing issues caused by capacity constraints related to MSI equipment rationalization and higher raw material costs. In addition, the discontinuation of goodwill amortization, which had a pretax effect of $6.1 million in 2001, favorably impacted 2002 gross profit. Gross profit was reduced by $8.6 million and $7.7 million in reorganization expenses in 2002 and 2001, respectively. Selling, administrative and general expenses decreased to $358.9 million (14.1% of net sales) in 2002, compared to $363.7 million (14.9% of net sales) in 2001. Reorganization costs included in selling, administrative and general expenses were $9.9 million in 2002, compared to $4.9 million in 2001. Reorganization costs increased by $5.0 million in 2002, and employee performance-based compensation was higher in 2002 because of the company's improved performance. However, the increase was more than offset by the salaried headcount and business costs reductions achieved through MSI and a salaried workforce reduction. Operating income for 2002 was $78.6 million, compared to a loss of $17.6 million in 2001. In 2002, the company recorded $32.1 million in restructuring costs and $18.5 million in reorganization costs, compared to $54.7 million in restructuring costs and $12.6 million in reorganization costs in 2001. In December 2002, the company completed the second phase of the strategic global refocusing of its manufacturing operations announced in April 2001 to enable the company to more profitably execute its business strategies. MSI included: creating focused factories for each product line or component; reducing fixed costs; increasing production at the company's lower-cost plants; and implementing more efficient, higher product quality manufacturing processes to continue to improve product quality and productivity. As part of MSI in 2001, the company announced its intention to close bearing plants in Columbus, Ohio, and Duston, England; to sell a tooling plant in Ashland, Ohio; and to reduce employment by approximately 1,500 by the end of 2002. In August 2001, the company announced and implemented additional cost-saving actions by reducing capital spending, delaying or scaling back certain projects and reducing salaried employment. The reductions affected approximately 300 salaried associates concentrated in North America and Western Europe and were in addition to the 1,500 previously announced. These additional salaried associates exited the company by the end of 2001. Manufacturing operations at the Columbus and Duston bearing plants ceased in November 2001 and September 2002, respectively. Additionally, on June 30, 2002, the company sold its Ashland plant. In total for 2001 and 2002, the company incurred $107.4 million in cumulative restructuring, impairment and reorganization charges related to MSI and salaried workforce reduction programs, compared to a target of $100-$110 million. For the year ended December 31, 2002, the company incurred $50.6 million in restructuring and reorganization charges. A breakdown of these expenses is as follows:

(Dollars in millions) Impairment expense Severance expense Curtailment loss Exit costs Reorganization expense:   Cost of products sold   Selling, administrative and general expenses	$ 17.9 3.5 6.7 4.0   8.6 9.9
Total expenses	$ 50.6

 

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The $17.9 million in impairment expense and $4.0 million in exit costs were related to the Duston and Columbus plant closures. The severance and curtailment expenses related primarily to a salaried workforce reduction throughout the company. From the announcement in April 2001 through the end of 2002, 1,824 associates left the company as a result of actions taken through MSI and the salaried workforce reduction. Of that number, 1,304 people were primarily associates from the Duston and Columbus plants, as well as associates included in the worldwide salaried workforce reduction program for whom severance was paid. In addition, 99 associates left the company as a result of the sale of the Ashland plant. The remaining 421 associates retired or voluntarily left the company, and their positions were eliminated. Refer to Note 6 - Impairment and Restructuring Charges in the notes to the consolidated financial statements for additional discussion. The company received gross amounts of approximately $54 million and $31 million in 2002 and 2001, respectively, from the U.S. Treasury Department under the CDSOA. CDSOA payments for 2002 and 2001, net of expenses, were $50.2 million and $29.6 million. Other expense increased in 2002 primarily as a result of the decrease in income from gains on sales of properties from 2001. Foreign currency translation losses related to non-hyperinflationary economies totaled $1.3 million in 2002, compared to $0.4 million in 2001. The company's subsidiary in Romania is considered to operate in a highly inflationary economy. In 2002, the company recorded unrealized exchange losses of $0.9 million related to the translation of Timken Romania's financial statements, compared to $2.3 million in 2001. The 2002 effective tax rate was higher than the statutory tax rate as a result of taxes paid to state and local jurisdictions, withholding taxes on foreign remittances, additional taxes on foreign income and the aggregate effect of other permanently non-deductible expenses. Although the company recorded a loss before income taxes for 2001, a consolidated tax provision was recorded because the company generated income in certain jurisdictions where taxes must be provided and, in other jurisdictions, losses which were not available to reduce overall tax expense. The 2002 income before cumulative effect of change in accounting principle was $51.4 million, compared to a loss in 2001 of $41.7 million for the reasons as described above. The diluted earnings per share for income before cumulative effect of change in accounting principle was $0.83, compared to a loss of $0.69 per diluted share in 2001. In accordance with the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," the company recorded a transitional impairment loss of $12.7 million, net of an income tax benefit of $7.8 million, which relates to the Specialty Steel business. This transitional impairment loss was recorded as a non-cash charge and is reflected as the cumulative effect of a change in accounting principle. Net income for 2002 was $38.7 million, compared to a net loss of $41.7 million in 2001. The 2002 diluted earnings per share was $0.62, compared to a loss of $0.69 per diluted share in 2001.

THE BALANCE SHEET

Total assets as shown on the Consolidated Balance Sheet at December 31, 2003 increased by $941.4 million from December 31, 2002. The majority of this increase related to the acquisition of Torrington, which was purchased on February 18, 2003 for $840 million, before expenses and certain post-closing adjustments.

Current Assets:

12/31/03		12/31/02	$ Change	% Change
(Dollars in millions) Cash and cash equivalents Accounts receivable, net Deferred income taxes Inventories	$ 28.6 $ 602.3 $ 50.3 $ 695.9	$ 82.1 $ 361.3 $ 36.0 $ 488.9	$ (53.5) $ 241.0 $ 14.3 $ 207.0	(65.1)% 66.7% 39.6% 42.3%
Total current assets	$ 1,377.1	$ 968.3	$ 408.8	42.2%

Refer to the Consolidated Statement of Cash Flows for an explanation of the decrease in cash and cash equivalents. The increase in accounts receivable was due primarily to the acquisition of Torrington, foreign currency translation and timing of sales. The increase in inventories was due primarily to the acquisition of Torrington and foreign currency translation, partially offset by lower Steel Group inventories and lower production volumes in the Industrial Group during the fourth quarter of 2003 to reduce inventories at December 31, 2003.

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Property, Plant and Equipment - Net:

12/31/03		12/31/02	$ Change	% Change
(Dollars in millions) Property, plant and equipment - cost Less: allowances for depreciation	$ 3,501.6 $ (1,893.0)	$ 2,945.0 $ (1,718.8)	$ 556.6 $ (174.2)	18.9% (10.1)%
Property, plant and equipment - net	$ 1,608.6	$ 1,226.2	$ 382.4	31.2%

The increase in property, plant and equipment - net was due primarily to the acquisition of Torrington and foreign currency translation, partially offset by depreciation expense in excess of capital expenditures. Based on a third-party valuation, the property, plant and equipment from the Torrington acquisition was recorded at its fair value as of the acquisition date, which was $434.7 million. The company estimates the annual depreciation expense in 2004 for the property, plant and equipment acquired in the Torrington acquisition to be approximately $63.5 million. The depreciation expense recorded in 2003 for the property, plant and equipment acquired in the Torrington acquisition in February 2003 was $55.6 million.

Other Assets:

12/31/03		12/31/02	$ Change	% Change
(Dollars in millions) Goodwill Other intangible assets Intangible pension assets Miscellaneous receivables and other assets Deferred income taxes Deferred charges and prepaid expenses	$ 173.1 $ 91.5 $ 106.5 $ 130.1 $ 148.8 $ 54.1	$ 129.9 $ 5.2 $ 129.0 $ 95.4 $ 169.1 $ 25.2	$ 43.2 $ 86.3 $ (22.5) $ 34.7 $ (20.3) $ 28.9	33.2% 1,653.4% (17.4)% 36.4% (12.0)% 114.7%
Total other assets	$ 704.1	$ 553.8	$ 150.3	27.1%

The increase in goodwill was due primarily to the preliminary goodwill from the Torrington acquisition of $47.0 million at December 31, 2003, partially offset by the non-cash impairment charge to the remaining Steel Group goodwill of $10.2 million. The increase in other intangible assets was due to the Torrington acquisition. Based on a third-party valuation, the company recorded the fair value of the intangible assets acquired in the Torrington acquisition, which was $91.7 million with a weighted average useful life of 12 years. These intangible assets include customer relationships, patents, unpatented technology, engineering drawings, and trademarks. The company estimates the annual amortization expense in 2004 for the intangible assets acquired in the Torrington acquisition to be approximately $8.5 million. The increase in miscellaneous receivables and other assets was primarily the result of the Torrington acquisition, partially offset by the non-cash impairment charge to the company's investment in the PEL joint venture (refer to Note 12 - Equity Investments in the notes to the consolidated financial statements for additional discussion). The increase in deferred charges and prepaid expenses was due primarily to the Torrington acquisition.

 

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Current Liabilities:

12/31/03		12/31/02	$ Change	% Change
(Dollars in millions) Commercial paper Short-term debt Accounts payable and other liabilities Salaries, wages and benefits Income taxes Current portion of long-term debt	$ - $ 114.5 $ 425.2 $ 429.7 $ 78.5 $ 6.7	$ 9.0 $ 78.4 $ 296.5 $ 222.5 $ 3.9 $ 23.8	$ (9.0) $ 36.1 $ 128.7 $ 207.2 $ 74.6 $ (17.1)	N/A 46.1% 43.4% 93.1% 1,940.9% (71.7)%
Total current liabilities	$ 1,054.6	$ 634.1	$ 420.5	66.3%

The increase in short-term debt was due primarily to the company's recording of guarantees of certain indebtedness of PEL (refer to Note 12 - Equity Investments in the notes to the consolidated financial statements for additional discussion). The increase in accounts payable and other liabilities was due primarily to the Torrington acquisition and foreign currency translation. The increase in salaries, wages and benefits was due primarily to an increase in the current portion of accrued pension cost and the acquisition of Torrington. The increase in income taxes payable was due primarily to the Torrington acquisition.

Non-Current Liabilities:

12/31/03		12/31/02	$ Change	% Change
(Dollars in millions) Long-term debt Accrued pension cost Accrued postretirement benefits cost Other non-current liabilities	$ 613.4 $ 424.4 $ 477.0 $ 30.8	$ 350.1 $ 723.2 $ 411.3 $ 20.6	$ 263.3 $ (298.8) $ 65.7 $ 10.2	75.2% (41.3)% 16.0% 49.2%
Total non-current liabilities	$ 1,545.6	$ 1,505.2	$ 40.4	2.7%

The increase in debt was due primarily to the remaining debt incurred for the Torrington acquisition. Despite pension plan contributions of $174 million, the company was able to reduce debt with the proceeds from two public equity offerings, the sale of non-strategic assets, and receipts from CDSOA. The debt-to-total-capital ratio was 40.3% at December 31, 2003, compared to 43.1% at December 31, 2002. The decrease in accrued pension cost was due primarily to contributions to the company's pension plans totaling $174 million and the movement of the current portion of accrued pension cost to current liabilities. The increase in accrued postretirement benefits cost was due primarily to the additional liability incurred for plans related to active employees in connection with the Torrington acquisition.

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Shareholders' Equity:

12/31/03		12/31/02	$ Change	% Change
(Dollars in millions) Common stock Earnings invested in the business Accumulated other comprehensive loss Treasury shares	$ 689.3 $ 758.9 $ (358.4) $ (0.2)	$ 311.1 $ 764.4 $ (465.7) $ (0.7)	$ 378.2 $ (5.5) $ 107.3 $ 0.5	121.6% (0.7)% 23.0% (76.2)%
Total shareholders' equity	$ 1,089.6	$ 609.1	$ 480.5	78.9%

The increase in common stock was the result of the issuance of 22,045,973 shares in connection with the Torrington acquisition and an additional public equity offering of 3,500,000 shares in October 2003. Earnings invested in the business were decreased by dividends declared of $42.1 million and increased by net income of $36.5 million. The decrease in accumulated other comprehensive loss was due primarily to a decrease in the foreign currency translation adjustment of $75.1 million, which was largely the result of the strength of the Euro and a decrease to the minimum pension liability of $31.8 million, net of income taxes.

CASH FLOWS

2003		2002	$ Change
(Dollars in millions) Net cash provided by operating activities Net cash used by investing activities Net cash provided (used) by financing activities Effect of exchange rate changes on cash (Decrease) increase in cash and cash equivalents	$ 202.6 $ (662.7) $ 401.9 $ 4.8 $ (53.4)	$ 206.1 $ (79.4) $ (80.5) $ 2.5 $ 48.7	$ (3.5) $ (583.3) $ 482.4 $ 2.3 N/A

The decrease in net cash provided by operating activities was $3.5 million. This decrease was primarily the result of higher cash contributions to the company's pension plans in 2003 of $174.0 million, compared to $57.8 million in 2002. The cash flow impact of the increased pension plan contributions was partially offset by higher net income adjusted for non-cash items equaling $313.4 million in 2003 as compared to $212.8 of similar non-cash items in 2002. The non-cash items include cumulative effect of change in accounting principle, depreciation and amortization expense, loss on disposals of property, plant and equipment, deferred income tax provision, common stock issued in lieu of cash and impairment and restructuring charges. Net cash provided by operating activities was also impacted by improved cash generated from changes in operating assets and liabilities of $63.2 million in 2003, compared to $51.1 million in 2002. The increase in net cash used by investing activities was the result of the cash portion of the Torrington acquisition and higher capital expenditures, partially offset by proceeds of $146.3 million from the sale of the company's interest in a joint venture acquired in the Torrington acquisition and proceeds from the sales of other non-strategic assets. Net cash provided by financing activities increased due primarily to the additional debt incurred in connection with the Torrington acquisition and the public equity offerings of the company's common stock, partially offset by dividends paid and debt repayments. In 2004, the company expects the amounts of its pension contributions and capital expenditures to be similar to 2003.

 

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THE TIMKEN COMPANY

LIQUIDITY AND CAPITAL RESOURCES

The debt-to-total-capital ratio was 40.3% at December 31, 2003, compared to 43.1% at December 31, 2002. Total debt was $734.6 million at December 31, 2003, compared to $461.2 million at December 31, 2002. Debt of $520 million was incurred in connection with the Torrington acquisition, the components of which were as follows: $250 million of seven-year unsecured notes; $145 million drawn from a new $500 million five-year senior credit facility with a syndicate of financial institutions; and $125 million from an asset securitization facility put in place at the end of 2002. Amounts outstanding under both the company's senior credit facility and the accounts receivable securitization were fully repaid by December 31, 2003. The company expects that any cash requirements in excess of cash generated from operating activities will be met by the availability under the accounts receivable securitization facility and the senior credit facility. At December 31, 2003, the company had outsta nding letters of credit totaling $64.1 million, which reduced the availability under the $500 million senior credit facility to $435.9 million. Also, the company had availability of $125 million under the accounts receivable securitization facility. Under the $500 million senior credit facility, the company has three financial covenants: consolidated net worth; a leverage ratio; and a fixed charge coverage ratio. These financial covenants became effective for the quarter ending on June 30, 2003. At December 31, 2003, the company was in compliance with the covenants under its senior credit facility and its other debt agreements. In September 2003, Standard & Poor's Ratings Services placed the company's BBB- corporate credit and its other ratings on the company on CreditWatch with negative implications. In January 2004, Standard & Poor's Rating Services reaffirmed its BBB- rating. In October 2003, Moody's Investors Services lowered its rating of the company's debt from Baa3 to Ba1. The ratings are on the company's senior unsecured debt and senior implied and senior unsecured issuer ratings. The impact of the lowered ratings by Moody's on the company's earnings has been minimal, with only a slight increase in the interest rate under the company's senior credit facility. The company has no significant long-term debt payments due in the next two years and believes it has sufficient liquidity to meet its obligations.

The company's contractual debt obligations and contractual commitments outstanding as of December 31, 2003 are as follows:

Payments due by Period

Contractual Obligations	Total	Less than 1 year	1-3 years	3-5 years	More than 5 years
(Dollars in millions)Long-term debt Short-term debt Operating leases Supply agreement	$ 620.2 $ 114.5 $ 81.1 $ 13.9	$ 6.7 $ 114.5 $ 15.7 $ 6.4	$ 94.5 0 $ 24.9 $ 7.5	$ 25.8 0 $ 15.0 0	$ 493.2 0 $ 25.5 0
Total	$ 829.7	$ 143.3	$ 126.9	$ 40.8	$ 518.7

The company's capital lease obligations are immaterial. The company is also the guarantor of $27.0 million in debt for PEL. During 2003, the company recorded the amounts outstanding at December 31, 2003 on the debts underlying the guarantees of $26.5 million, which is reported as short-term debt on the consolidated balance sheet. Refer to Note 12 - Equity Investments in the notes to the consolidated financial statements for additional discussion. Additionally, the company guarantees an operating lease of a subsidiary's warehouse facility, which had future rental commitments of $15.9 million at December 31, 2003. In connection with the sale of the company's Ashland tooling plant in 2002, the company entered into a $25.9 million four-year supply agreement, which expires on June 30, 2006, pursuant to which the company purchases tooling. During 2003, the company did not purchase any shares of its common stock as authorized under the company's 2000 common stock purchase plan. This plan authorizes the company to buy in the open market or in privately negotiated transactions up to 4 million shares of common stock, which are to be held as treasury shares and used for specified purposes. The company may exercise this authorization until December 31, 2006. The company does not expect to be active in repurchasing shares under this plan in the near-term. The company does not have any off-balance sheet arrangements with unconsolidated entities or other persons.

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THE TIMKEN COMPANY

OTHER INFORMATION

Recent Accounting Pronouncements:

In June 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at the fair value only when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. SFAS No. 146 has no effect on charges recorded for exit activities begun prior to 2003. As such, the company con tinued to recognize restructuring costs in connection with the manufacturing strategy initiative (MSI) in accordance with EITF Issue No. 94-3. The adoption of this statement did not have a material effect on the company's financial position or results of operations. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." Interpretation No. 45's disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. Interpretation No. 45 requires certain guarantees to be recorded at fair value. The guarantor's previous accounting for guarantees issued prior to the date of initial application should not be revised or restated. In 2003, the company recorded its guarantee of certain of PEL's indebtedness, which totaled $26.5 million. Refer to Note 12 - Equity Investments in the notes to the consolidated financial statements for further discussion. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51" (the Interpretation). The Interpretation requires the consolidation of variable interest entities in which an enterprise is the primary beneficiary. The primary beneficiary absorbs a majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other financial interest in the entity. Currently, entities are generally consolidated by an enterprise that has a controlling financial interest through ownership of a majority voting interest in the entity. In December 2003, the FASB issued a revised Interpretation that, among other things, deferred the implementation date of the Interpretation until periods ending after March 15, 2004 for variable interest entities, other than those entities commonly referred to as special purpose entities. Refer to Note 12 - Equity Investments in the notes to the consolidated financial statements for further discussion. In January 2004, the FASB issued FASB Staff Position (FSP) 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" (the Act). The FSP permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Act. Regardless of whether a sponsor elects that deferral, the FSP requires certain disclosures pending further consideration of the underlying accounting issues. The company has elected to defer accounting for the effects of the Act. The company is currently evaluating the impact of the Act on its financial position and results of operations. Critical Accounting Policies and Estimates: The company's financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The following paragraphs include a discussion of some critical areas that require a higher degree of judgment, estimates and complexity. The company's revenue recognition policy is to recognize revenue when title passes to the customer. This occurs generally at the shipping point, except for certain exported goods, for which it occurs when the goods reach their destination. Selling prices are fixed, based on purchase orders or contractual arrangements. Write-offs of accounts receivable historically have been low. As noted above, it is the company's policy to recognize restructuring costs in accordance with EITF 94-3 for exit and disposal activities that are initiated prior to or on December 31, 2002 or SFAS 146 for exit and disposal activities that are initiated after December 31, 2002, and the SEC Staff Accounting Bulletin No. 100, "Restructuring and Impairment Charges." Detailed contemporaneous documentation is maintained and updated on a monthly basis to ensure that accruals are properly supported. If management determines that there is a change in estimate, the accruals are adjusted to reflect this change.

 

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THE TIMKEN COMPANY

 

The company sponsors a number of defined benefit pension plans, which cover many associates, except for those at certain international locations who are covered by government plans. The company also sponsors several unfunded postretirement plans that provide health care and life insurance benefits for eligible retirees and dependents. The measurement of liabilities related to these plans is based on management's assumptions related to future events, including return on pension plan assets, rate of compensation increases and health care cost trend rates. The discount rate is determined using a model that matches corporate bond securities against projected future pension and postretirement disbursements. Actual pension plan asset performance either reduces or increases net actuarial gains or losses in the current year, which ultimately affects net income in subsequent years. For expense purposes in 2003, the company applied a discount rate of 6.6% and an expected rate of return of 8.75% for the company's pension plan assets. For 2004 expense, the company reduced the discount rate to 6.3%. The assumption for expected rate of return on plan assets was not changed from 8.75% for 2004. The lower discount rate will result in an increase in 2004 pretax pension expense of approximately $5.2 million. A 0.25% reduction in the discount rate would increase pension expense by approximately $4.4 million for 2004. A 0.25% reduction in the expected rate of return would increase pension expense by approximately $3.6 million for 2004. During 2003, the company made revisions, which became effective on January 1, 2004, to certain of its benefit programs for its U.S.-based employees. Depending on an associate's combined age and years of service with the company on January 1, 2004, defined benefit pension plan benefits were reduced or replaced by a new defined contribution plan. The company will no longer subsidize retiree medical coverage for those associates who did not meet a threshold of combined age and years of service with the company on January 1, 2004. For measurement purposes, the company assumed a weighted-average annual rate of increase in the per capita cost (health care cost trend rate) for medical benefits of 7.5% for 2004, declining gradually to 6.0% in 2006 and thereafter for pre-age 65 benefits; 6.0% for post-age 65 benefits for all years; and 13.5% for 2004, declining gradually to 6.0% in 2014 and thereafter for prescription drug benefits. The assumed health care cost trend rate has a significant effect on the amounts reported. A one-percentage-point increase in the assumed health care cost trend rate would have increased the 2003 total service and interest components by $2.5 million and would have increased the postretirement obligation by $37.0 million. A one-percentage-point decrease would provide corresponding reductions of $2.2 million and $32.5 million, respectively. SFAS No. 109, "Accounting for Income Taxes," requires that a valuation allowance be established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The company estimates actual current tax due and assesses temporary differences resulting from the treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities that are included within the balance sheet. Based on known and projected earnings information and prudent tax planning strategies, the company then assesses the likelihood that the deferred tax assets will be recovered. To the extent that the company believes recovery is not likely, a valuation allowance is established. In the event that the company determines the realizability of deferred tax assets in the future is in excess of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period in which such determination was made. Likewise, if the company deter mines that it is unlikely that all or part of the net deferred tax asset will be realized in the future, an adjustment to the deferred tax asset would be charged to expense in the period in which such determination was made. Net deferred tax assets relate primarily to pension and postretirement benefits and tax loss and credit carryforwards, which the company believes will result in future tax benefits. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against net deferred tax assets. Historically, actual results have not differed significantly from those determined using the estimates described above.

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THE TIMKEN COMPANY

Other Matters:

Changes in short-term interest rates related to several separate funding sources impact the company's earnings. These sources are borrowings under an accounts receivable securitization program, borrowings under the $500 million senior credit facility, floating rate tax-exempt U.S. municipal bonds with a weekly reset mode, and short-term bank borrowings at international subsidiaries. If the market rates for short-term borrowings increased by 1% around the globe, the impact would be an increase in interest expense of $1.5 million with a corresponding decrease in income before taxes of the same amount. The amount was determined by considering the impact of hypothetical interest rates on the company's borrowing cost, year-end debt balances by category and an estimated impact on the tax-exempt municipal bonds' interest rates. Fluctuations in the value of the U.S. dollar compared to foreign currencies, predominately in European countries, also impact the company's earnings. The greatest risk relates to products shipped between the company's European operations and the United States. Foreign currency forward contracts and options are used to hedge these intercompany transactions. Additionally, hedges are used to cover third-party purchases of product and equipment. As of December 31, 2003, there were $145.6 million of hedges in place. A uniform 10% weakening of the dollar against all currencies would have resulted in a change of $8.6 million on these hedges. In addition to the direct impact of the hedged amounts, changes in exchange rates also affect the volume of sales or foreign currency sales price as competitors' products become more or less attractive. On March 5, 2002, pursuant to Section 201 of the U.S. Trade Act of 1974, President Bush signed a proclamation imposing increased tariffs for a three-year period on imports of hot-rolled and cold-finished steel bar imports, in response to the International Trade Commission finding that the U.S. steel industry was being injured as a result of excessive imports by international competitors. The remedy for these product categories was three years of tariffs at 30%, 24% and 18%. In December 2003, President Bush announced an immediate repeal of the Section 201 safeguard remedies. Because the remedies were imposed on products that represented only approximately 30% of the company's Steel Group sales and many emerging markets countries were excluded from the remedies, the company does not expect the repeal of the remedies to have a significant impact on its results of operations, cash flows or financial position. The company continues its efforts to protect the environment and comply with environmental protection laws. Additionally, it has invested in pollution control equipment and updated plant operational practices. The company is committed to implementing a documented environmental management system worldwide and to becoming certified under the ISO 14001 standard to meet or exceed customer requirements. By the end of 2003, thirty-one of the company's plants had obtained ISO 14001 certification. The company believes it has established adequate reserves to cover its environmental expenses and has a well-established environmental compliance audit program, which includes a proactive approach to bringing its domestic and international units to higher standards of environmental performance. This program measures performance against local laws, as well as standards that have been established for all units worldwide. It is difficult to assess the possible effect of compliance with future requirements that differ from existing ones. As previously reported, the company is unsure of the future financial impact to the company that could result from the United States Environmental Protection Agency's (EPA's) final rules to tighten the National Ambient Air Quality Standards for fine particulate and ozone. The company and certain of its U.S. subsidiaries have been designated as potentially responsible parties by the United States EPA for site investigation and remediation at certain sites under the Comprehensive Environmental Response, Compensation and Liability Act (Superfund). The claims for remediation have been asserted against numerous other entities, which are believed to be financially solvent and are expected to fulfill their proportionate share of the obligation. Management believes any ultimate liability with respect to all pending actions will not materially affect the company's results of operations, cash flows or financial position. On February 6, 2004, the company's board of directors declared a quarterly cash dividend of $0.13 per share. The dividend is payable on March 2, 2004 to shareholders of record as of February 20, 2004. This will be the 327th consecutive dividend paid on the common stock of the company.

 

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THE TIMKEN COMPANY

CONSOLIDATED STATEMENT OF OPERATIONS

	Year Ended December 31
2003		2002	2001
(Thousands of dollars, except per share data)
Net sales Cost of products sold	$ 3,788,097 3,156,475	$ 2,550,075 2,080,498	$ 2,447,178 2,046,458
Gross Profit   Selling, administrative and general expenses Impairment and restructuring charges	631,622   514,221 19,154	469,577   358,866 32,143	400,720   363,683 54,689
Operating Income (Loss)   Interest expense Interest income Receipt of Continued Dumping & Subsidy Offset Act (CDSOA) payment Other expense - net	98,247   (48,401) 1,123 65,559 (55,726)	78,568   (31,540) 1,676 50,202 (13,388)	(17,652)   (33,401) 2,109 29,555 (7,494)
Income (Loss) Before Income Taxes and Cumulative Effect  of Change in Accounting Principle Provision for income taxes	60,802 24,321	85,518 34,067	(26,883) 14,783
Income (Loss) Before Cumulative Effect of Change   in Accounting Principle	$ 36,481	$ 51,451	$ (41,666)
Cumulative effect of change in accounting principle  (net of income tax benefit of $7,786)	-	(12,702)	-
Net Income (Loss)   Earnings Per Share:  Income (loss) before cumulative effect of change   in accounting principle  Cumulative effect of change in accounting principle	$ 36,481         $ 0.44 -	$ 38,749         $ 0.84 (0.21)	$ (41,666)         $ (0.69) -
Earnings Per Share   Earnings Per Share - Assuming Dilution:  Income (loss) before cumulative effect of change   in accounting principle  Cumulative effect of change in accounting principle	$ 0.44         $ 0.44 -	$ 0.63         $ 0.83 (0.21)	$ (0.69)         $ (0.69) -
Earnings Per Share - Assuming Dilution	$ 0.44	$ 0.62	$ (0.69)

See accompanying Notes to Consolidated Financial Statements on pages 38 through 57.

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THE TIMKEN COMPANY

CONSOLIDATED BALANCE SHEET

	December 31
2003		2002
(Thousands of dollars) ASSETS Current Assets    Cash and cash equivalents    Accounts receivable, less allowances: 2003–$23,957; 2002–$14,386    Deferred income taxes    Inventories:       Manufacturing supplies       Work in process and raw materials       Finished products	$ 28,626 602,262 50,271   42,052 323,439 330,455	$ 82,050 361,316 36,003   34,493 243,485 210,945
Total Inventories	695,946	488,923
Total Current Assets   Property, Plant and Equipment    Land and buildings    Machinery and equipment	1,377,105     601,108 2,900,443	968,292     482,878 2,462,198
Less allowances for depreciation	3,501,551 1,892,957	2,945,076 1,718,832
Property, Plant and Equipment-Net   Other Assets    Goodwill    Other intangible assets    Miscellaneous receivables and other assets    Deferred income taxes    Deferred charges and prepaid expenses	1,608,594     173,099 197,993 130,081 148,802 54,115	1,226,244     129,943 134,259 95,356 169,051 25,211
Total Other Assets	704,090	553,820
Total Assets	$ 3,689,789	$ 2,748,356
LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities    Commercial paper    Short-term debt    Accounts payable and other liabilities    Salaries, wages and benefits    Income taxes    Current portion of long-term debt	$ - 114,469 425,157 429,691 78,514 6,725	$ 8,999 78,354 296,543 222,546 3,847 23,781
Total Current Liabilities   Non-Current Liabilities    Long-term debt    Accrued pension cost    Accrued postretirement benefits cost    Other non-current liabilities	1,054,556     613,446 424,414 476,966 30,780	634,070     350,085 723,188 411,304 20,623
Total Non-Current Liabilities	1,545,606	1,505,200
Shareholders’ Equity    Class I and II Serial Preferred Stock without par value:       Authorized–10,000,000 shares each class, none issued    Common stock without par value:       Authorized–200,000,000 shares       Issued (including shares in treasury) (2003 – 89,076,114 shares;        2002 – 63,451,916 shares)       Stated capital       Other paid-in capital    Earnings invested in the business    Accumulated other comprehensive loss    Treasury shares at cost (2003 – 10,601 shares; 2002 – 40,074 shares)	-         53,064 636,272 758,849 (358,382) (176)	-         53,064 257,992 764,446 (465,677) (739)
Total Shareholders’ Equity	1,089,627	609,086
Total Liabilities and Shareholders’ Equity	$ 3,689,789	$ 2,748,356

See accompanying Notes to Consolidated Financial Statements on pages 38 through 57.

 

35

THE TIMKEN COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS

	Year Ended December 31
2003		2002	2001
(Thousands of dollars) CASH PROVIDED (USED) Operating Activities    Net income (loss)    Adjustments to reconcile net income (loss) to net cash       provided by operating activities:          Cumulative effect of change in accounting principle          Depreciation and amortization          Loss (gain) on disposals of property, plant and equipment          Deferred income tax provision          Common stock issued in lieu of cash          Impairment and restructuring charges          Changes in operating assets and liabilities: Accounts receivable Inventories Other assets Accounts payable and accrued expenses Foreign currency translation (gain) loss	$ 36,481     - 208,851 4,944 4,406 2,744 55,967   (27,543) 33,229 (30,229) (83,982) (2,234)	$ 38,749     12,702 146,535 5,904 17,250 5,217 (13,564)   (43,679) (50,611) (3,198) 80,761 10,037	$ (41,666)     - 152,467 (2,233) 23,013 1,441 41,832   44,803 51,247 (16,897) (72,483) (3,886)
Net Cash Provided by Operating Activities   Investing Activities    Purchases of property, plant and equipment–net    Proceeds from disposals of property, plant and equipment    Proceeds from disposals of equity investments    Acquisitions	202,634     (116,276) 32,321 146,335 (725,120)	206,103     (85,277) 12,616 - (6,751)	177,638     (90,501) 6,357 - (12,957)
Net Cash Used by Investing Activities   Financing Activities    Cash dividends paid to shareholders    Purchases of treasury shares    Accounts receivable securitization financing borrowings    Accounts receivable securitization financing payments    Proceeds from issuance of common stock    Common stock issued to finance acquisition    Proceeds from issuance of long-term debt    Payments on long-term debt    Short-term debt activity–net	(662,740)     (42,078) - 127,000 (127,000) 54,985 180,010(1) 629,800 (379,790) (41,082)	(79,412)     (31,713) - - - - - - (37,296) (11,498)	(97,101)     (40,166) (2,931) - - - - 80,766 (2,176) (90,980)
Net Cash Provided (Used) by Financing Activities Effect of exchange rate changes on cash	401,845 4,837	(80,507) 2,474	(55,487) (2,585)
(Decrease) Increase In Cash and Cash Equivalents Cash and cash equivalents at beginning of year	(53,424) 82,050	48,658 33,392	22,465 10,927
Cash and Cash Equivalents at End of Year	$ 28,626	$ 82,050	$ 33,392

See accompanying Notes to Consolidated Financial Statements on pages 38 through 57.
(1) Excluding $140 million of common stock (9,395,973 shares) issued to Ingersoll-Rand Company, in conjunction with the acquisition.

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THE TIMKEN COMPANY

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

		Common Stock		Earnings Invested in the Business	Accumulated Other Comprehensive Loss
	Total	Stated Capital	Other Paid-In Capital			Treasury Stock
(Thousands of dollars, except per share data) Year Ended December 31, 2001 Balance at January 1, 2001 Net loss Foreign currency translation adjustments   (net of income tax of $963) Minimum pension liability adjustment   (net of income tax of $61,892) Change in fair value of derivative financial   instruments net of reclassifications Total comprehensive loss Dividends–$0.67 per share Purchase of 206,300 shares for treasury Issuance of 97,225 shares from treasury(1)	$ 1,004,682 (41,666)   (15,914)   (122,520)           (1,191) (181,291) (40,166) (2,931) 1,441	$ 53,064	$ 256,873                     (450)	$ 839,242 (41,666)               (40,166)	$ (84,913)     (15,914)   (122,520)   (1,191)	$ (59,584)                   (2,931) 1,891
Balance at December 31, 2001	$ 781,735	$ 53,064	$ 256,423	$ 757,410	$ (224,538)	$ (60,624)
Year Ended December 31, 2002 Net income Foreign currency translation adjustments   (net of income tax of $2,843) Minimum pension liability adjustment   (net of income tax of $147,303) Change in fair value of derivative financial   instruments net of reclassifications Total comprehensive loss Dividends–$0.52 per share Issuance of 3,186,470 shares from treasury(1) Issuance of 369,290 shares from authorized(1)	38,749   14,050   (254,318)           (871) (202,390) (31,713) 57,747 3,707		(2,138) 3,707	38,749               (31,713)	14,050   (254,318)    (871)	59,885
Balance at December 31, 2002	$ 609,086	$ 53,064	$ 257,992	$ 764,446	$ (465,677)	$ (739)
Year Ended December 31, 2003 Net income Foreign currency translation adjustments   (net of income tax of $1,638) Minimum pension liability adjustment   (net of income tax of $19,164) Change in fair value of derivative   financial instruments net of    reclassifications Total comprehensive income Dividends–$0.52 per share Tax benefit from exercise of stock options Issuance of 29,473 shares from treasury(1) Issuance of 25,624,198 shares from authorized(1)(2)	36,481   75,062   31,813               420 143,776 (42,078) 1,104 301 377,438		1,104 (262) 377,438	36,481                 (42,078)	75,062   31,813     420	563
Balance at December 31, 2003	$ 1,089,627	$ 53,064	$ 636,272	$ 758,849	$ (358,382)	$ (176)

(1) Share activity was in conjunction with employee benefit and stock option plans. See accompanying Notes to Consolidated Financial Statements on pages 38 through 57.
(2) Share activity includes the issuance of 22,045,973 shares in connection with the Torrington acquisition and an additional public equity offering of 3,500,000 shares in October 2003.

 

37

THE TIMKEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Thousands of dollars, except per share data)
1 Significant Accounting Policies

Principles of Consolidation: The consolidated financial statements include the accounts and operations of the company and its subsidiaries. All significant intercompany accounts and transactions are eliminated upon consolidation. Investments in affiliated companies are accounted for by the equity method. Revenue Recognition: The company recognizes revenue when title passes to the customer. This is FOB shipping point except for certain exported goods, which is FOB destination. Selling prices are fixed based on purchase orders or contractual arrangements. Write-offs of accounts receivable historically have been low. Shipping and handling costs are included in cost of products sold in the consolidated statement of operations. Cash Equivalents: The company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Inventories: Inventories are valued at the lower of cost or market, with 59.3% valued by the last-in, first-out (LIFO) method. If all inventories had been valued at current costs, inventories would have been $147,524 and $136,063 greater at December 31, 2003 and 2002, respectively. In 2003, the inventory acquired in the Torrington acquisition was valued by the first-in, first-out (FIFO) method. Effective in 2004, this inventory will be valued using the LIFO method. During 2002, inventory quantities were reduced as a result of ceasing manufacturing operations in Duston, England (see Note 6). This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years, compared to the cost of current purchases, the effect of which increased income (loss) before cumulative effect of change in accounting principle by approximately $5,700 or $0.09 per diluted share. Property, Plant and Equipment: Property, plant and equipment is valued at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred. Provision for depreciation is computed principally by the straight-line method based upon the estimated useful lives of the assets. The useful lives are approximately 30 years for buildings, 5 to 7 years for computer software and 3 to 20 years for machinery and equipment. Impairment of long-lived assets is recognized when events or changes in circumstances indicate that the carrying amount of the asset or related group of assets may not be recoverable. If the expected future undiscounted cash flows are less than the carrying amount of the asset, an impairment loss is recognized at that time to reduce the asset to the lower of its fair value or its net book value. Income Taxes: Deferred income taxes are provided for the temporary differences between the financial reporting basis and tax basis of the company's assets and liabilities. The company plans to reinvest undistributed earnings of all non-U.S. subsidiaries. The amount of undistributed earnings that is considered to be indefinitely reinvested for this purpose was approximately $141,000 at December 31, 2003. Accordingly, U.S. income taxes have not been provided on such earnings. If these earnings were repatriated, such distributions would result in additional tax expense of $52,000. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions are reviewed and updated regularly to reflect recent experience. Foreign Currency Translation: Assets and liabilities of subsidiaries, other than those located in highly inflationary countries, are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rates of exchange prevailing during the year. The related translation adjustments are reflected as a separate component of accumulated other comprehensive loss. Foreign currency gains and losses resulting from transactions and the translation of financial statements of subsidiaries in highly inflationary countries are included in results of operations. The company recorded foreign currency exchange losses of $2,666 in 2003, $5,143 in 2002 and $3,211 in 2001. Stock-Based Compensation: On December 31, 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148, "Accounting for Stock-Based Compensation – Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," by providing alternative methods of transition to SFAS No. 123's fair value method of accounting for stock-based compensation. SFAS No. 148 also amends the disclosure requirements of SFAS No. 123. The company has elected to follow Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock options to key associates and directors. Under APB Opinion No. 25, if the exercise price of the company's stock options equals the market price of the underlying common stock on the date of grant, no compensation expense is required. The effect on net income (loss) and earnings per share as if the company had applied the fair value recognition provisions of SFAS No. 123 is as follows for the years ended December 31:

2003		2002	2001
Net income (loss), as reported Add: Stock-based employee compensation expense, net of related taxes Deduct: Stock-based employee compensation expense determined under fair value based methods for all awards, net of related taxes	$ 36,481     1,488           (6,131)	$ 38,7491,170           (6,609)	$ (41,666)587           (6,318)
Pro forma net   income (loss)	$ 31,838	$ 33,310	$ (47,397)
Earnings per share:   Basic - as reported   Basic - pro forma   Diluted - as reported   Diluted - pro forma	$ 0.44 $ 0.38 $ 0.44 $ 0.38	$ 0.63 $ 0.54 $ 0.62 $ 0.54	$ (0.69) $ (0.79) $ (0.69) $ (0.79)

38

THE TIMKEN COMPANY

Earnings Per Share: Earnings per share are computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the year. Earnings per share - assuming dilution are computed by dividing net income (loss) by the weighted-average number of common shares outstanding adjusted for the dilutive impact of potential common shares for options. Derivative Instruments: In 2001, the company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. The statement required the company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not designated as hedges must be adjusted to fair value through earnings. If the derivative is designated and qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. Certain of the company's holdings of forward foreign exchange contracts have been deemed derivatives pursuant to the criteria established in SFAS No. 133, of which the company has designated certain of those derivatives as hedges. The critical terms, such as the notional amount and timing of the f orward contract and forecasted transaction, coincide resulting in no significant hedge ineffectiveness. Recent Accounting Pronouncements In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at the fair value only when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. SFAS No. 146 has no effect on charges recorded for exit activities begun prior to 2003. As such, the company cont inued to recognize restructuring costs in connection with the manufacturing strategy initiative (MSI) in accordance with EITF Issue No. 94-3. The adoption of this statement did not have a material effect on the company's financial position or results of operations. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." Interpretation No. 45's disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. Interpretation No. 45 requires certain guarantees to be recorded at fair value. The guarantor's previous accounting for guarantees issued prior to the date of initial application should not be revised or restated. In 2003, the company recorded its guarantee of certain of PEL's indebtedness, which totaled $26,500. Refer to Note 12 - Equity Investments in the notes to the consolidated financial statements for further discussion. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51" (the Interpretation). The Interpretation requires the consolidation of variable interest entities in which an enterprise is the primary beneficiary. The primary beneficiary absorbs a majority of the entity's expected losses, receives a majority of the entity's expected residual returns, or both, as a result of ownership, contractual or other financial interest in the entity. Currently, entities are generally consolidated by an enterprise that has a controlling financial interest through ownership of a majority voting interest in the entity. In December 2003, the FASB issued a revised Interpretation that, among other things, deferred the implementation date of the Interpretation until periods ending after March 15, 2004 for variable interest entities, other than those entities commonly referred to as special purpose entities. Refer to Note 12 - Equity Investments in the notes to the consolidated financial statements for further discussion. In January 2004, the FASB issued FASB Staff Position (FSP) 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" (the Act). The FSP permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Act. Regardless of whether a sponsor elects that deferral, the FSP requires certain disclosures pending further consideration of the underlying accounting issues. The company has elected to defer accounting for the effects of the Act. The company is currently evaluating the impact of the Act on its financial position and results of operations. Reclassifications: Certain minor amounts reported in the 2002 and 2001 financial statements have been reclassified to conform to the 2003 presentation.

39

THE TIMKEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Thousands of dollars, except per share data)
2 Acquisitions

On February 18, 2003, the company acquired Ingersoll-Rand Company Limited's (IR's) Engineered Solutions business, a leading worldwide producer of needle roller, heavy-duty roller and ball bearings, and motion control components and assemblies for approximately $840,000 plus $24,414 of acquisition costs incurred in connection with the acquisition. IR's Engineered Solutions business, was comprised of certain operating assets and subsidiaries, including The Torrington Company. With the strategic acquisition of IR's Engineered Solutions business, hereafter referred to as Torrington, the company is able to expand its global presence and market share as well as broaden its product base in addition to reducing costs through realizing economies of scale, rationalizing facilities and eliminating duplicate processes. The company's consolidated financial statements include the results of operations of Torrington since the date of the acquisition. The company paid IR $700,000 in cash, subject to post-closing purchase price adjustments, and issued $140,000 of its common stock (9,395,973 shares) to Ingersoll-Rand Company, a subsidiary of IR. To finance the cash portion of the transaction the company utilized, in addition to cash on hand: $180,010, net of underwriting discounts and commissions, from a public offering of 12,650,000 shares of common stock at $14.90 per common share; $246,900, net of underwriting discounts and commissions, from a public offering of $250,000 of 5.75% senior unsecured notes due 2010; $125,000 from its Asset Securitization facility; and approximately $86,000 from its senior credit facility. The final purchase price for the acquisition of Torrington is subject to adjustment upward or downward based on the differences for both net working capital and net debt as of December 31, 2001 and February 15, 2003, both calculated in a manner as set forth in The Stock and Asset Purchase Agreement. These adjustments have not been finalized as of December 31, 2003. The preliminary allocation of the purchase price has been performed based on the assignment of fair values to assets acquired and liabilities assumed. Fair values are based primarily on appraisals performed by an independent appraisal firm. Items that may affect the ultimate purchase price allocation include finalization of integration initiatives or plant rationalizations that qualify for accrual in the opening balance sheet and other information that provides a better estimate of the fair value of assets acquired and liabilities assumed. The company continues to evaluate possible plant rationalizations for sites that it acquired in the Torrington acquisition. In March 2003, the company announced the planned closing of its plant in Darlington, England. This plant has ceased manufacturing as of December 31, 2003. In July 2003, the company announced that it would close its plant in Rockford, Illinois. As of December 31, this plant has closed, and the fixed assets have been either sold or scrapped. The building has not yet been sold and is classified as an "asset held for sale" in miscellaneous receivables and other assets on the consolidated balance sheet. In October 2003, the company announced that it reached an agreement in principle with Roller Bearing Company of America, Inc. for the sale of the com pany's airframe business, which includes certain assets at its Standard plant in Torrington, Connecticut. This transaction closed on December 22, 2003. In connection with the Torrington integration efforts, the company incurred severance, exit and other related costs of $16,325 for former Torrington associates, which are considered to be costs of the acquisition and are included in the purchase price allocation. Severance, exit and other related costs associated with former Timken associates have been expensed during 2003 and are not included in the purchase price allocation. Refer to footnote 6 for further discussion of impairment and restructuring charges. In accordance with FASB EITF Issue No. 95-3, "Recognition of Liabilities in Connection with a Purchase Business Combination," the company recorded accruals of $8,536 for severance costs, $2,530 for exit costs and $5,259 for relocation costs in the purchase price allocation. In 2003, payments were made for: severance of $4,631; exit costs of $205; and relocation costs of $3,362. The remaining accrual balance at December 31, 2003 was $8,127. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. While the third-party valuations have been completed, the allocation of the purchase price is subject to further refinement through the first quarter of 2004.

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THE TIMKEN COMPANY

At February 18, 2003
Accounts receivable Inventory Other current assets Property, plant & equipment In-process research and development Intangible assets subject to amortization - (12-year weighted average useful life) Goodwill Equity investment in needle bearing joint venture Other non-current assets, including deferred taxes	$ 177,112 195,466 2,429 434,740 1,800 91,674 46,951 146,335 36,217
Total Assets Acquired	$ 1,132,724
Accounts payable and other current liabilities Non-current liabilities, including accrued postretirement benefits cost	177,129 91,181
Total Liabilities Assumed	$ 268,310
Net Assets Acquired	$ 864,414

There is no tax basis goodwill associated with the Torrington acquisition. The $1,800 related to in-process research and development was written off at the date of acquisition in accordance with FASB Interpretation No. 4, "Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method." The write-off is included in selling, administrative and general expenses in the consolidated statement of operations. The fair value assigned to the in-process research and development was determined by an independent valuation using the discounted cash flow method. In July 2003, the company sold to NSK Ltd. its interest in a needle bearing manufacturing venture in Japan that had been operated by NSK and Torrington for $146,335 before taxes, which approximated the carrying value at the time of the sale. The following unaudited pro forma financial information presents the combined results of operations of the company and Torrington as if the acquisition had occurred at the beginning of the periods presented. The unaudited pro forma financial information does not purport to be indicative of the results that would have been obtained if the acquisition had occurred as of the beginning of the periods presented or that may be obtained in the future:

	Unaudited Year Ended December 31
2003		2002
Net sales Income before cumulative effect of change in accounting principle Net income Earnings per share - assuming dilution:   Income before cumulative effect of change in accounting principle   Cumulative effect of change in accounting principle	$3,939,340 29,629 29,629   $ 0.36 $ -	$3,756,652 104,993 92,291   $ 1.25 $ (0.15)
Earnings per share - assuming dilution	$ 0.36	$ 1.10

In October 2003, the company completed a public offering of 3,500,000 shares of common stock at $15.85 per common share. The 2003 earnings per share impact from these additional shares did not affect the calculation of the pro forma financial results for 2002.

Other Acquisitions in 2002 and 2001

During 2002 and 2001, the company finalized several acquisitions. The total cost of these acquisitions amounted to $6,751 in 2002 and $12,957 in 2001. The purchase price was allocated to the assets and liabilities acquired, based on their fair values at the dates of acquisition. The fair value of the assets was $6,751 in 2002 and $25,408 in 2001; and the fair value of the liabilities assumed was $6,751 in 2002 and $16,396 in 2001. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill. The acquisitions were accounted for as purchases. The company's consolidated financial statements include the results of operations of the acquired businesses for the periods subsequent to the effective dates of the acquisitions. Pro forma results of operations have not been presented because the effect of these acquisitions was not significant.

 

41

THE TIMKEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Thousands of dollars, except per share data)
3 Earnings Per Share

The following table sets forth the reconciliation of the numerator and the denominator of earnings per share and earnings per share - assuming dilution for the years ended December 31:

2003		2002	2001
Numerator:   Net income (loss) for earnings per share and earnings per share - assuming     dilution – income available to common shareholders Denominator:   Denominator for earnings per share – weighted-average shares   Effect of dilutive securities:     Stock options and awards – based on the treasury stock method	$ 36,481   82,945,174   214,147	$ 38,749   61,128,005   507,334	$ (41,666)   59,947,568    (1)
Denominator for earnings per share - assuming dilution – adjusted   weighted-average shares	83,159,321	61,635,339	59,947,568
Earnings per share	$ 0.44	$ 0.63	$ (0.69)
Earnings per share - assuming dilution	$ 0.44	$ 0.62	$ (0.69)

(1) Addition of 161,211 shares would result in antidilution.

The exercise prices for certain of the stock options that the company has awarded exceed the average market price of the company's common stock. Such stock options are antidilutive and were not included in the computation of diluted earnings per share. The antidilutive stock options outstanding were 4,414,626 and 4,083,100 at December 31, 2003 and 2002, respectively. Under the performance unit component of the company's long-term incentive plan, the Compensation Committee of the Board of Directors can elect to make payments that become due in the form of cash or shares of the company's common stock (refer to Note 9 - Stock Compensation Plans for additional discussion). Performance units granted if fully earned would represent 452,344 shares of the company's common stock at December 31, 2003.

4 Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists of the following:

2003		2002	2001
Foreign currency translation adjustment Minimum pension liability adjustment Fair value of open foreign currency cash flow hedges	$ (5,458) (351,282) (1,642)	$ (80,520) (383,095) (2,062)	$ (94,570) (128,777) (1,191)
	$ (358,382)	$ (465,677)	$ (224,538)

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THE TIMKEN COMPANY

5 Financing Arrangements

Long-term debt at December 31, 2003 and 2002 was as follows:

2003		2002
Fixed-rate Medium-Term Notes, Series A, due at various dates through   May 2028, with interest rates ranging from 6.20% to 7.76% Variable-rate State of Ohio Air Quality and Water Development   Revenue Refunding Bonds, maturing on November 1, 2025     (1.12% at December 31, 2003) Variable-rate State of Ohio Pollution Control Revenue Refunding   Bonds, maturing on June 1, 2033 (1.12% at December 31, 2003) Variable-rate State of Ohio Water Development Revenue   Refunding Bonds, maturing May 1, 2007 (1.15% at December 31, 2003) Variable-rate State of Ohio Water Development Authority Solid Waste   Revenue Bonds, maturing on July 1, 2032 (1.18% at December 31, 2003) Fixed-rate Unsecured Notes, maturing on February 15, 2010 with an interest rate of 5.75% Other	$ 287,000     21,700   17,000   8,000   24,000 250,000 12,471	$ 292,000     21,700   17,000   8,000   24,000 - 11,166
Less current maturities	620,171 6,725	373,866 23,781
Long-tem debt	$ 613,446	$ 350,085

The maturities of long-term debt for the five years subsequent to December 31, 2003, are as follows: 2004–$6,725; 2005–$3,400; 2006–$91,106; 2007–$8,538; and 2008–$17,299. Interest paid was approximately $43,000 in 2003 and $33,000 in 2002 and 2001. This differs from interest expense due to timing of payments and interest capitalized of $0 in 2003; $436 in 2002; and $1,400 in 2001 as a part of major capital additions. The weighted-average interest rate on commercial paper borrowings during the year was 1.7% in 2003, 2.1% in 2002 and 4.3% in 2001. The weighted-average interest rate on short-term debt, the majority of which related to foreign debt, was 4.1% in 2003, 4.8% in 2002 and 5.8% in 2001. In connection with the Torrington acquisition, the company entered into new $875 million senior credit facilities on December 31, 2002, with a syndicate of financial institutions, comprised of a five-year revolving credit facility of up to $500 million and a one-year term loan facility of up to $375 million. The one-year term loan facility expired unused on February 18, 2003. The new revolving facility replaced the company's then existing senior credit facility. Proceeds of the new senior credit facility were used to repay the amounts outstanding under the then existing credit facility. Under the $500 million senior credit facility, the company has three financial covenants: consolidated net worth; leverage ratio; and fixed charge coverage ratio. At December 31, 2003, the company was in compliance with the covenants under its senior credit facility and its other debt agreements. At December 31, 2003, the company had outstanding letters of credit totaling $64.1 million, which reduced the availability under the $500 million senior credit facility to $435.9 million. On December 19, 2002, the company entered into an Accounts Receivable Securitization financing agreement (Asset Securitization), which provides for borrowings up to $125 million, limited to certain borrowing base calculations, and is secured by certain trade receivables. Under the terms of the Asset Securitization, the company sells, on an ongoing basis, certain domestic trade receivables to Timken Receivables Corporation, a wholly owned consolidated subsidiary, that in turn uses the trade receivables to secure the borrowings, which are funded through a vehicle that issues commercial paper in the short-term market. As of December 31, 2003, there were no amounts outstanding under this facility. Any amounts outstanding under this facility would be reported on the company's consolidated balance sheet in short-term debt. The yield on the commercial paper, which is the commercial paper rate plus program fees, is considered a financing cost, and is included in interest expense on the consolidated statement of operations. This rate was 1.56% at December 31, 2003. The company and its subsidiaries lease a variety of real property and equipment. Rent expense under operating leases amounted to $19,374, $14,536, and $16,799 in 2003, 2002 and 2001, respectively. At December 31, 2003, future minimum lease payments for noncancelable operating leases totaled $81,052 and are payable as follows: 2004–$15,726; 2005–$14,747; 2006–$10,142; 2007–$8,050; 2008–$6,933; and $25,454 thereafter.

 

43

THE TIMKEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Thousands of dollars, except per share data)
6 Impairment and Restructuring Charges

Impairment and restructuring charges are comprised of the following:

2003		2002	2001
(Amounts in millions) Impairment charges Severance expense and related benefit costs Exit costs	$ 12.5 2.9 3.7	$ 17.9 10.2 4.0	$ 5.3 48.0 1.4
Total	$ 19.1	$ 32.1	$ 54.7

In 2003, impairment charges represented the write-off of the remaining goodwill for the Steel Group in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," of $10.2 million and impairment charges for the Columbus, Ohio plant of $2.3 million. The severance and related benefit costs of $2.9 million related to associates who exited the company as a result of the integration of Torrington and other actions taken by the company to reduce costs. The exit costs were comprised of $3.0 million for the Columbus, Ohio plant and $0.7 million for the Duston, England plant as a result of changes in estimates for these two projects. Manufacturing operations at Columbus and Duston ceased in 2001 and 2002, respectively. In 2002, the impairment charges and exit costs were related to the Duston, England and Columbus, Ohio plant closures. The severance and related benefit costs related primarily to a salaried workforce reduction throughout the company. In 2001, the impairment charges and exit costs were related primarily to the Duston, England and Columbus, Ohio plant closures. The severance and related benefit costs were related to the Duston, England and Columbus, Ohio plant closures and a salaried workforce reduction.

 Impairment and restructuring charges by segment are as follows:

Year ended December 31, 2003:

Auto		Industrial	Steel	Total
(Dollars in millions) Impairment charges Severance expense and related benefit costs Exit costs	$ - 0.5 0.7	$ 2.3 2.2 3.0	$ 10.2 0.2 -	$ 12.5 2.9 3.7
Total	$ 1.2	$ 7.5	$ 10.4	$ 19.1

Year ended December 31, 2002:

Auto		Industrial	Steel	Total
(Dollars in millions) Impairment charges Severance expense and related benefit costs Exit costs	$ 14.2 0.9 3.9	$ 3.7 5.5 0.1	$ - 3.8 -	$ 17.9 10.2 4.0
Total	$ 19.0	$ 9.3	$ 3.8	$ 32.1

Year ended December 31, 2001:

Auto		Industrial	Steel	Total
(Dollars in millions) Impairment charges Severance expense and related benefit costs Exit costs	$ 1.1 25.8 0.4	$ 3.8 20.9 1.0	$ 0.4 1.3 -	$ 5.3 48.0 1.4
Total	$ 27.3	$ 25.7	$ 1.7	$ 54.7

As of December 31, 2003, the remaining accrual balance for severance and exit costs was $4.5 million. The activity for 2003 included expense accrued of $6.1 million, payments of $6.5 million and accrual reversals of $1.1 million. In 2003, the restructuring accrual balance was reduced for severance that was accrued, but not paid as a result of certain associates retiring or finding other employment. As of December 31, 2002, the accrual balance was $6.0 million.

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THE TIMKEN COMPANY

7 Contingencies

The company and certain of its U.S. subsidiaries have been designated as potentially responsible parties (PRPs) by the United States Environmental Protection Agency for site investigation and remediation under the Comprehensive Environmental Response, Compensation and Liability Act (Superfund) with respect to certain sites. The claims for remediation have been asserted against numerous other entities which are believed to be financially solvent and are expected to fulfill their proportionate share of the obligation. In addition, the company is subject to various lawsuits, claims and proceedings which arise in the ordinary course of its business. The company accrues costs associated with environmental and legal matters when they become probable and reasonably estimable. Accruals are established based on the estimated undiscounted cash flows to settle the obligations and are not reduced by any potential recoveries from insurance or other indemnification claims. Management believes that any ultima te liability with respect to these actions, in excess of amounts provided, will not materially affect the company's consolidated operations, cash flows or financial position. The company is the guarantor of $27,000 in debt for PEL Technologies, LLC, (PEL) an equity investment of the company. A $23,500 letter of credit was provided by the company to secure payment on Ohio Water Development Authority revenue bonds held by PEL, as well as a guarantee for a $3,500 bank loan. In case of default by PEL on either obligation, the company agrees to pay existing balances due as of the date of default. The letter of credit expires on July 30, 2004. The bank loan obligation expires on the earlier of March 27, 2012 or on the date that PEL maintains a certain debt coverage ratio for a specified period. During 2003, the company recorded the amounts outstanding at December 31, 2003 on the debts underlying the guarantees, which totaled $26,500 and approximated the fair value of the guarantees. Refer to Note 12 – Equity Investments for additional discussion. The company is a guarantor of an operating lease for a subsidiary located in Vienna, Ohio. In case of a default, the company is obligated to pay the remaining balance due. This guarantee expires on June 1, 2016. The total future lease payments related to this lease are $15,900 as of December 31, 2003. This amount has been included in the company's future minimum lease payment disclosure in Note 5 Financing Arrangements. In connection with the Ashland plant sale, the company entered into a four-year supply agreement with the buyer. The company agrees to purchase a fixed amount each year ranging from $8,500 in the first year to $4,650 in year four or an aggregate total of $25,900. The agreement also details the payment terms and penalties assessed if the buyer does not meet the company's performance standards as outlined. This agreement expires on June 30, 2006.

45

THE TIMKEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Thousands of dollars, except per share data)
8 Goodwill and Other Intangible Assets

Effective January 2002, the company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." In accordance with SFAS No. 142, goodwill and indefinite lived intangible assets are no longer amortized but are reviewed at least annually for impairment. Intangible assets that are separable and have a definite life continue to be amortized over the estimated useful lives. As part of the adoption, the company evaluated the impairment of indefinite lived intangible assets and determined that none were impaired based on estimations in market value. The company completed the required transitional goodwill impairment analysis for SFAS No. 142 adoption purposes and recorded a $12.7 million impairment loss, net of tax benefits of $7.8 million, relating to its Specialty Steel business, which was treated as a cumulative effect of a change in accounting principle. The company engages an independent valuation firm and performs its annual impairment test during the fourth quarter after the annual forecasting process is completed. Due to recent trends in the steel industry, the guideline company values for the Steel reporting unit have been revised downward. The valuation which uses the guideline company method results in a fair market value that is less than the carrying value for the company's Steel reporting unit. Accordingly, the company has concluded that the entire amount of goodwill for its Steel reporting unit is impaired and has recorded a pre-tax impairment loss of $10.2 million which is reported in impairment and restructuring charges. If SFAS No. 142 had been adopted in 2001, ceasing goodwill amortization would have reduced the net loss in 2001 by $4.8 million or $0.08 per diluted share.

Changes in the carrying value of goodwill are as follows:
Year ended December 31, 2003

	Beginning Balance	Impairment	Acquisitions	Other	Ending Balance
Goodwill: Automotive Industrial Steel	$ 1,633 119,440 8,870	$ - - (10,237)	$ 39,614 7,337 -	$ 4,367 708 1,367	$ 45,614 127,485 -
Totals	$ 129,943	$ (10,237)	$ 46,951	$ 6,442	$ 173,099

Year ended December 31, 2002

	Beginning Balance	Impairment	Acquisitions	Other	Ending Balance
Goodwill: Automotive Industrial Steel	$ 1,577 120,426 28,038	$ - - (20,488)	$ - - -	$ 56 (986) 1,320	$ 1,633 119,440 8,870
Totals	$ 150,041	$ (20,488)	$ -	$ 390	$ 129,943

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THE TIMKEN COMPANY

The following table displays intangible assets as of December 31:

	2003			2002
	Gross Carrying Amount	Accumulated Amortization	Net Carrying Amount	Gross Carrying Amount	Accumulated Amortization	Net Carrying Amount
Intangible assets subject to amortization: Automotive:   Customer relationships   Engineering drawings   Land use rights   Patents   Technology use   Trademarks   Unpatented technology   Industrial:   Customer relationships   Engineering drawings   Know-how transfer   Land use rights   Patents   Trademarks   Unpatented technology Steel trademarks	$ 21,960 3,000 622 18,094 11,654 2,295 10,800     14,640 2,000 417 4,484 646 1,492 7,200 450	$ 960 616 24 1,685 927 507 945     641 411 360 1,075 94 366 630 112	$ 21,000 2,384 598 16,409 10,727 1,788 9,855     13,999 1,589 57 3,409 552 1,126 6,570 338	- - - - - - -     - - 417 4,484 - 712 - -	- - - - - - -     - - 341 905 - 213 - -	- - - - - - -     - - 76 3,579 - 499 - -
	$ 99,754	$ 9,353	$ 90,401	$ 5,613	$ 1,459	$ 4,154
Intangible assets not subject to amortization: Goodwill Intangible pension asset Automotive land use rights Industrial license agreements	$ 173,099 106,518 115 959	$ - - - -	$ 173,099 106,518 115 959	$ 129,943 129,042 112 951	$ - - - -	$ 129,943 129,042 112 951
	$ 280,691	-	$ 280,691	$ 260,048	$ -	$ 260,048
Total intangible assets	$ 380,445	$ 9,353	$ 371,092	$ 265,661	$ 1,459	$ 264,202

Amortization expense for intangible assets was approximately $7,900 and $288 for the years ended December 31, 2003 and 2002, and is estimated to be approximately $8,700 annually for the next five years. The other intangible assets that are subject to amortization acquired in the Torrington acquisition have useful lives ranging from 2 to 20 years with a weighted average useful life of 12 years.

 

47

THE TIMKEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Thousands of dollars, except per share data)
9 Stock Compensation Plans

Under the company's stock option plans, shares of common stock have been made available to grant at the discretion of the Compensation Committee of the Board of Directors to officers and key associates in the form of stock options, stock appreciation rights, restricted shares, performance units, and deferred shares. In addition, shares can be awarded to directors not employed by the company. The options have a ten-year term and vest in 25% increments annually beginning twelve months after the date of grant. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the company had accounted for its associate stock options under the fair value method of SFAS No. 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model. For purposes of pro forma disclosures, the estimated fair value of the options granted under the plan is amortized to expense over the options' vesting periods.

Following are the related assumptions under the Black-Scholes method:

2003		2002	2001
Assumptions:   Risk-free interest rate   Dividend yield   Expected stock volatility   Expected life - years	3.94% 3.69% 0.504 8	5.29% 3.57% 0.506 8	6.32% 3.36% 0.480 8

A summary of activity related to stock options for the above plans is as follows for the years ended December 31:

	2003		2002		2001
	Options	Weighted- Average Exercise Price	Options	Weighted- Average Exercise Price	Options	Weighted- Average Exercise Price
Outstanding - beginning of year Granted Exercised Canceled or expired	7,310,026 1,491,230 (93,325) (373,011)	$21.21 17.56 15.65 20.02	6,825,412 1,118,175 (499,372) (134,189)	$20.22 25.01 16.30 20.61	5,720,990 1,367,400 (54,528) (208,450)	$21.41 15.05 14.67 20.35
Outstanding - end of year	8,334,920	$18.63	7,310,026	$21.21	6,825,412	$20.22
Options exercisable	5,771,810		4,397,590		3,745,131

 

The company sponsors a performance target option plan that is contingent upon the company's common shares reaching specified fair market values. Under the plan, no awards were issued in 2003 and 2001 and 20,000 shares were awarded in 2002. No compensation expense was recognized in 2003, 2002 or 2001. Exercise prices for options outstanding as of December 31, 2003, range from $15.02 to $19.56, $22.06 to $26.44 and $33.75; the number of options outstanding at December 31, 2003 that correspond to these ranges are 5,377,684, 2,196,636 and 760,600, respectively; and the number of options exercisable at December 31, 2003 that correspond to these ranges are 3,402,154, 1,609,056 and 760,600, respectively. The weighted-average remaining contractual life of these options is 6 years. The estimated weighted-average fair values of stock options granted during 2003, 2002 and 2001 were $6.78, $10.36 and $6.36, respectively. At December 31, 2003, a total of 203,950 restricted stock rights, restricted shares or deferred shares have been awarded under the above plans and are not vested. The company distributed 125,967, 100,947 and 61,301 common shares in 2003, 2002 and 2001, respectively, as a result of awards of restricted stock rights, restricted shares and deferred shares. The company offers a performance unit component under its long-term incentive plan to certain employees in which grants are earned based on company performance measured by several metrics over a three-year performance period. The Compensation Committee of the Board of Directors can elect to make payments that become due in the form of cash or shares of the company's common stock. 48,225 and 44,375 performance units have been granted in 2003 and 2002, respectively. Each performance unit has a cash value of $100. The number of shares available for future grants for all plans at December 31, 2003, including stock options, is 1,555,559.

 48

THE TIMKEN COMPANY

10 Financial Instruments

As a result of the company's worldwide operating activities, it is exposed to changes in foreign currency exchange rates, which affect its results of operations and financial condition. The company and certain subsidiaries enter into forward exchange contracts to manage exposure to currency rate fluctuations, primarily related to anticipated purchases of inventory and equipment. At December 31, 2003 and 2002, the company had forward foreign exchange contracts, all having maturities of less than eighteen months, with notional amounts of $145,590 and $72,070, and fair values of $4,416 and $2,503, respectively. The forward foreign exchange contracts were entered into primarily by the company's domestic entity to manage Euro exposures relative to the U.S. dollar and its European subsidiaries to manage Euro and U.S. dollar exposures. The realized and unrealized gains and losses on these contracts are deferred and included in inventory or property, plant and equipment, depending on the transaction. These deferred gains and losses are reclassified from accumulated other comprehensive loss and recognized in earnings when the future transactions occur, or through depreciation expense. The carrying value of cash and cash equivalents, accounts receivable, commercial paper, short-term borrowings and accounts payable are a reasonable estimate of their fair value due to the short-term nature of these instruments. The fair value of the company's fixed-rate debt, based on quoted market prices, was $533,000 and $325,000 at December 31, 2003 and 2002, respectively. The carrying value of this debt was $546,000 and $308,000.

11 Research and Development

Expenditures committed to research and development amounted to approximately $53,000 in 2003 and 2002; and $54,000 in 2001. Such expenditures may fluctuate from year to year depending on special projects and needs.

12 Equity Investments

The company, prior to the Torrington acquisition, owned equity interests in certain joint ventures. As part of the Torrington acquisition, several additional equity interests were acquired. The balances related to investments accounted for under the equity method are reported in miscellaneous receivables and other assets on the consolidated balance sheets, which were approximately $34,000 and $25,100 at December 31, 2003 and 2002, respectively. Equity investments are reviewed for impairment when circumstances (such as lower than expected financial performance or change in strategic direction) indicate that the carrying value of the investment may not be recoverable. If an impairment does exist, the equity investment is written down to its fair value with a corresponding charge to the consolidated statement of operations. During 2000, the company's Steel Group invested in a joint venture, PEL, to commercialize a proprietary technology that converts iron units into engineered iron oxides for use in pigments, coatings and abrasives. In the fourth quarter of 2003, the company concluded its investment in PEL was impaired due to the following indicators of impairment: history of negative cash flow and losses; 2004 operating plan with continued losses and negative cash flow; and the continued required support from the company or another party. In the fourth quarter of 2003, the company recorded a non-cash impairment loss of $45,700, which is reported in other expense-net on the consolidated statement of operations. The company has guaranteed certain of PEL's indebtedness. Refer to Note 7-Contingencies. The amounts outstanding on the debts underlying these guarantees totaled $26,500 at December 31, 2003, which approximates their fair value. During the fourth quarter of 2003, the company recorded these guarantees and has reported them in short-term debt on the consolidated balance sheet at December 31, 2003. Additionally, during its involvement with PEL that began in 2000, the company made advances to and investments in PEL, the net balance of which totaled $19,200, exclusive of the debt guarantees. Through December 31, 2003, the company recorded its proportional share (20.5%) of PEL's operating results using the equity method since the company does not own a majority voting interest in PEL. The company is currently evaluating the effects of the FASB Interpretation No. 46 on the accounting for its ownership interest in PEL. Based on its preliminary analysis, the company has concluded that PEL is a variable interest entity and that the company is the primary beneficiary. The company will adopt Interpretation No. 46 during the first quarter of 2004. The company does not expect that the adoption of FASB Interpretation No. 46 will have a material effect on the company's financial position, results of operations or cash flows.

 

49

THE TIMKEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Thousands of dollars, except per share data)
13 Retirement and Postretirement Benefit Plans

The company sponsors defined contribution retirement and savings plans covering substantially all associates in the United States and certain salaried associates at non-U.S. locations. The company contributes Timken Company common stock to certain plans based on formulas established in the respective plan agreements. At December 31, 2003, the plans had 13,019,194 shares of Timken Company common stock with a fair value of $261,165. Company contributions to the plans, including performance sharing, amounted to $21,029 in 2003; $14,603 in 2002; and $13,289 in 2001. The company paid dividends totaling $6,763 in 2003; $6,407 in 2002; and $8,192 in 2001, to plans holding common shares. The company and its subsidiaries sponsor several unfunded postretirement plans that provide health care and life insurance benefits for eligible retirees and dependents. Depending on retirement date and associate classification, certain health care plans contain contributions and cost-sharing features such as deductibles and coinsurance. The remaining health care and life insurance plans are noncontributory. The company and its subsidiaries sponsor a number of defined benefit pension plans, which cover many of their associates except those at certain locations who are covered by government plans. As part of the Torrington purchase agreement, the company agreed to prospectively provide former Torrington associates with substantially comparable retirement benefits for a specified period of time. The active Torrington associates became part of Timken's defined benefit pension plans, but prior service liabilities and defined benefit plan assets remained with IR for the U.S.-based pension plans; however, the company did assume prior service liabilities for certain non-U.S.-based pension plans. During 2003, the company made revisions, which became effective on January 1, 2004, to certain of its benefit programs for its U.S.-based employees resulting in a pre-tax curtailment gain of $10,720. Depending on an associate's combined age and years of service with the company, defined benefit pension plan benefits were reduced or replaced by a new defined contribution plan. The company will no longer subsidize retiree medical coverage for those associates who do not meet a threshold of combined age and years of service with the company.

50

THE TIMKEN COMPANY

The company uses a measurement date of December 31 to determine pension and other postretirement benefit measurements for the pension plans and other postretirement benefit plans.

The following tables set forth the change in benefit obligation, change in plan assets, funded status and amounts recognized in the consolidated balance sheet of the defined benefit pension and postretirement benefits as of December 31, 2003 and 2002:

	Defined Benefit Pension Plans		Postretirement Plans
	2003	2002	2003	2002
Change in benefit obligation Benefit obligation at beginning of year Service cost Interest cost Amendments Actuarial losses Associate contributions Acquisition International plan exchange rate change Curtailment loss (gain) Benefits paid	$ 2,117,144 47,381 137,242 (2,350) 111,230 821 34,905 33,278 1,066 (142,995)	$ 1,825,602 36,115 132,846 4,165 223,763 936 - 20,791 6,706 (133,780)	$ 720,675 6,765 49,459 (3,586) 20,228 - 65,516 479 (8,097) (49,221)	$ 640,701 4,357 47,505 - 77,224 - - 29 980 (50,121)
Benefit obligation at end of year	$ 2,337,722	$ 2,117,144	$ 802,218	$ 720,675
Change in plan assets(1) Fair value of plan assets at beginning of year Actual return on plan assets Associate contributions Company contributions Acquisition International plan exchange rate change Benefits paid	$ 1,198,351 287,597 821 173,990 7,009 22,349 (141,975)	$ 1,295,214 (91,994) 936 112,297 - 15,678 (133,780)
Fair value of plan assets at end of year	$ 1,548,142	$ 1,198,351
Funded status Projected benefit obligation in excess of plan assets Unrecognized net actuarial loss Unrecognized net asset at transition dates, net of amortization Unrecognized prior service cost (benefit)	$ (789,580) 657,781 (660) 109,421	$ (918,793) 711,396 (1,102) 131,173	$ (802,218) 307,003 - (37,701)	$ (720,675) 306,520 - (45,335)
Accrued benefit cost	$ (23,038)	$ (77,326)	$ (532,916)	$ (459,490)
Amounts recognized in the consolidated balance sheet Accrued benefit liability Intangible asset Minimum pension liability included in accumulated    other comprehensive loss	$ (674,502) 106,518   544,946	$ (802,327) 129,042   595,959	$ (532,916) -   -	$ (459,490) -   -
Net amount recognized	$ (23,038)	$ (77,326)	$ (532,916)	$ (459,490)

(1) Plan assets are primarily invested in listed stocks and bonds and cash equivalents.

The current portion of accrued pension cost, which is included in salaries, wages and benefits on the consolidated balance sheet, was $250,088 and $79,139 at December 31, 2003 and 2002, respectively. The current portion of accrued postretirement benefit cost, which is included in salaries, wages and benefits on the consolidated balance sheet, was $55,950 and $48,186 at December 31, 2003 and 2002, respectively.

 

51

THE TIMKEN COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Thousands of dollars, except share data)
13 Retirement and Postretirement Benefit Plans (continued)

In 2003, improved investment performance, which primarily reflected higher stock market returns, increased the company's pension fund asset values. At the same time, the company's defined benefit pension liability also increased as a result of lowering the discount rate from 6.6% to 6.3% and the Torrington acquisition. The accumulated benefit obligations at December 31, 2003 exceeded the market value of plan assets for the majority of the company's plans. For these plans, the projected benefit obligation was $2,312,000; the accumulated benefit obligation was $2,206,000; and the fair value of plan assets was $1,527,000 at December 31, 2003. In 2003, improved investment performance more than offset the increase in the company's defined benefit pension liability. As a result, the company's minimum pension liability decreased by $73,501 and a non-cash aftertax benefit of $31,813 was recorded to accumulated other comprehensive loss. For 2004 expense, the company's discount rate has been reduced from 6.6% to 6.3%. This change will result in an increase in 2004 pretax pension expense of approximately $5,000. On September 10, 2002, the company issued 3,000,000 shares of its common stock to The Timken Company Collective Investment Trust for Retirement Trusts (Trust) as a contribution to three company-sponsored pension plans. The fair market value of the 3,000,000 shares of common stock contributed to the Trust was approximately $54,500, which consisted of 2,766,955 shares of the company's treasury stock and 233,045 shares issued from authorized common stock. As of December 31, 2003, the company's defined benefit pension plans held 2,393,000 common shares with fair value of $48,003. The company paid dividends totaling $1,309 in 2003 to plans holding common shares.

The following table summarizes the assumptions used by the consulting actuary and the related benefit cost information:

	Pension Benefits			Postretirement Benefits
	2003	2002	2001	2003	2002	2001
Assumptions Discount rate Future compensation assumption Expected long-term return on plan assets	6.3% 3% to 4% 8.75%	6.6% 3% to 4% 9.5%	7.5% 3% to 4% 9.5%	6.3%	6.6%	7.5%
Components of net periodic benefit cost Service cost Interest cost Expected return on plan assets Amortization of prior service cost Recognized net actuarial loss (gain) Curtailment loss (gain) Amortization of transition asset	$ 47,381 137,242 (133,474) 18,506 19,197 560 (574)	$ 36,115 132,846 (135,179) 19,725 473 6,706 (1,143)	$ 35,313 126,809 (126,882) 19,919 (292) 6,333 (982)	$ 6,765 49,459 - (5,700) 14,997 (8,856) -	$ 4,357 47,505 - (6,408) 11,827 - 871	$ 4,047 48,380 - (4,376) 9,646 8,738 -
Net periodic benefit cost	$ 88,838	$ 59,543	$ 60,218	$ 56,665	$ 58,152	$ 66,435

 

For measurement purposes, the company assumed a weighted-average annual rate of increase in the per capita cost (health care cost trend rate) for medical benefits of 7.5% for 2004; declining gradually to 6.0% in 2006 and thereafter for pre-age 65 benefits; 6.0% for post-age 65 benefits for all years; and 13.5% for 2004, declining gradually to 6.0% in 2014 and thereafter for prescription drug benefits. The assumed health care cost trend rate has a significant effect on the amounts reported. A one-percentage-point increase in the assumed health care cost trend rate would increase the 2003 total service and interest cost components by $2,492 and would increase the postretirement benefit obligation by $36,953. A one-percentage-point decrease would provide corresponding reductions of $2,182 and $32,507, respectively.

52

THE TIMKEN COMPANY

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. In accordance with FASB Staff Position 106-1, any measures of the APBO or net periodic postretirement benefit cost in the financial statements or accompanying notes do not reflect the effects of the Act on the plan, and specific authoritative guidance on the accounting for the federal subsidy is pending. When guidance is issued, previously reported information may be required to change.

Plan Assets:

The company's pension asset allocation at December 31, 2003 and 2002, and target allocation are as follows:

	Current Target Allocation	Percentage of Pension Plan Assets at December 31
Asset Category	2004	2003	2002
Equity securities Debt securities   Total	60% - 70% 30% - 40% 100%	70% 30% 100%	67% 33% 100%

The company recognizes its overall responsibility to ensure that the assets of its various pension plans are managed effectively and prudently and in compliance with its policy guidelines and all applicable laws. Preservation of capital is important; however, the company also recognizes that appropriate levels of risk are necessary to allow its investment managers to achieve satisfactory long-term results consistent with the objectives and the fiduciary character of the pension funds. Asset allocation is established in a manner consistent with projected plan liabilities, benefit payments and expected rates of return for various asset classes. The expected rate of return for the investment portfolio is based on expected rates of return for various asset classes as well as historical asset class and fund performance.

Cash Flows: Employer Contributions to Defined Benefit Plans
2002 2003 2004 (expected)	$ 57,797(1) $ 173,990 $ 175,000

Benefit Payments:

Pension Benefits		Other Benefits
2002 2003	$133,780 $142,995	$50,121 $49,221

(1)In addition to the cash contribution of $57,797, the company contributed 3,000,000 shares of its common stock, which had a fair market value of approximately $54,500 at the time of the contribution.

The accumulated benefit obligation was $2,227,003 and $2,006,019 at December 31, 2003 and 2002, respectively.

 

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Thousands of dollars, except share data)
14 Segment Information
Description of types of products and services from which each
reportable segment derives its revenues

The company's reportable segments are business units that target different industry segments. Each reportable segment is managed separately because of the need to specifically address customer needs in these different industries. The company has three reportable segments: Automotive, Industrial and Steel Groups. Beginning in the first quarter of 2003, the company reorganized two of its reportable segments – the Automotive and Industrial Groups. Timken's automotive aftermarket business is now part of the Industrial Group, which manages the combined distribution operations. The company's sales to emerging markets, principally in central and eastern Europe and Asia, previously were reported as part of the Industrial Group. Emerging market sales to automotive original equipment manufacturers are now included in the Automotive Group. The Automotive Group includes sales of bearings and other products and services (other than steel) to automotive original equipment manufacturers for passenger cars, trucks and trailers. The Industrial Group includes sales of bearings and other products and services (other than steel) to a diverse customer base, including: industrial equipment; off-highway; rail; and aerospace and defense customers. The company's bearing products are used in a variety of products and applications including passenger cars, trucks, aircraft wheels, locomotive and railroad cars, machine tools, rolling mills and farm and construction equipment, in aircraft, missile guidance systems, computer peripherals and medical instruments. Steel Group includes sales of intermediate alloy, vacuum processed alloys, tool steel and some carbon grades. These are available in a wide range of solid and tubular sections with a variety of finishes. The company also manufactures custom-made steel products, including precision steel components. A significant portion of the company's steel is consumed in its bearing operations. In addition, sales are made to other anti-friction bearing companies and to aircraft, automotive, forging, tooling, oil and gas drilling industries and steel service centers. Tool steels are sold through the company's distribution facilities. Measurement of segment profit or loss and segment assets
The company evaluates performance and allocates resources based on return on capital and profitable growth. The primary measurement used by management to measure the financial performance of each Group is adjusted EBIT (earnings before interest and taxes excluding special items such as impairment and restructuring, reorganization and integration costs, one-time gains or losses on sales of assets, allocated receipts received or payments made under the CDSOA, acquisition-related currency exchange gains, and other items similar in nature). The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are recorded at values based on market prices, which creates intercompany profit on intersegment sales or transfers. Factors used by management to identify the enterprise's
reportable segments
Geographical entities as defined here are not reflective of how the Automotive, Industrial and Steel Groups are operated by the company. Europe information presented reflects shipments from European locations. The information does not include product manufactured by facilities located outside Europe and shipped directly to customers located in Europe.

 

Geographic Financial Information	United States	Europe	Other Countries	Consolidated
2003 Net sales Non-current assets	$ 2,790,359 1,753,221	$ 674,188 365,969	$ 323,550 193,494	$ 3,788,097 2,312,684
2002 Net sales Non-current assets	$ 1,987,499 1,472,680	$ 365,460 223,348	$ 197,116 84,036	$ 2,550,075 1,780,064
2001 Net sales Non-current assets	$ 1,906,823 1,402,780	$ 351,242 232,105	$ 189,113 69,819	$ 2,447,178 1,704,704

54

THE TIMKEN COMPANY

 

Segment Financial Information	2003	2002	2001
Automotive Group Net sales to external customers Depreciation and amortization EBIT (loss), as adjusted Capital expenditures Assets employed at year-end	$ 1,396,104 82,958 15,685 69,040 1,180,867	$ 752,763 33,866 11,095 34,948 663,864	$ 642,943 36,381 (28,795) 36,427 583,891
Industrial Group Net sales to external customers Intersegment sales Depreciation and amortization EBIT, as adjusted Capital expenditures Assets employed at year-end	$ 1,498,832 837 61,018 128,031 33,724 1,617,568	$ 971,534 - 45,429 73,040 32,178 1,105,684	$ 990,365 - 48,314 55,981 34,646 1,044,269
Steel Net sales to external customers Intersegment sales Depreciation and amortization EBIT (loss), as adjusted Capital expenditures Assets employed at year-end	$ 893,161 133,356 64,875 (6,043) 24,297 891,354	$ 825,778 155,500 67,240 32,520 23,547 978,808	$ 813,870 146,492 67,772 12,115 31,274 904,924
Total Net sales to external customers Depreciation and amortization EBIT, as adjusted Capital expenditures Assets employed at year-end	$ 3,788,097 208,851 137,673 127,061 3,689,789	$ 2,550,075 146,535 116,655 90,673 2,748,356	$ 2,447,178 152,467 39,301 102,347 2,533,084
Reconciliation to Income Before Income Taxes Total EBIT, as adjusted, for reportable segments Impairment and restructuring Integration/Reorganization expenses Gain on sale of assets CDSOA net receipts, net of expenses Acquisition-related unrealized currency exchange gains Impairment charge for investment in PEL Interest expense Interest income Intersegment adjustments	$ 137,673 (19,154) (33,913) 1,996 65,559 1,696 (45,730) (48,401) 1,123 (47)	$ 116,655 (32,143) (18,445) - 50,202 - - (31,540) 1,676 (887)	$ 39,301 (54,689) (12,617) - 29,555 - - (33,401) 2,109 2,859
Income (loss) before income taxes and cumulative effect of change   in accounting principle	$ 60,802	$ 85,518	$ (26,883)

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Thousands of dollars, except share data)
15 Income Taxes

The provision (credit) for income taxes consisted of the following:

	2003		2002		2001
	Current	Deferred	Current	Deferred	Current	Deferred
United States:    Federal    State and local Foreign	$ - 1,020 18,895	$ 48 1,271 3,087	$ 5,220 3,936 7,661	$ 17,808 (1,682) 1,124	$ (18,523) 2,332 7,961	$ 22,620 (628) 1,021
	$ 19,915	$ 4,406	$ 16,817	$ 17,250	$ (8,230)	$ 23,013

The company made income tax payments of approximately $13,830 in 2003, received income tax refunds of approximately $27,000 in 2002 and made income tax payments of approximately $7,210 in 2001. Taxes paid differ from current taxes provided, primarily due to the timing of payments.

The effect of temporary differences giving rise to deferred tax assets and liabilities at December 31, 2003 and 2002 was as follows:

2003		2002
Deferred tax assets:    Accrued postretirement benefits cost    Accrued pension cost    Benefit accruals    Tax loss and credit carryforwards    Other–net    Valuation allowance	$ 192,860 145,451 22,908 136,086 21,049 (31,581)	$ 169,113 192,983 18,262 63,877 1,818 (22,491)
Deferred tax liability–depreciation	486,773 (287,700)	423,562 (218,508)
Net deferred tax asset	$ 199,073	$ 205,054

The company has U.S. net operating loss carryforwards with benefits totaling $97,900. These losses will start to expire in 2021. In addition, the company has loss carryforward benefits in various foreign jurisdictions of $16,400 without expiration dates and state and local loss carryforward benefits of $5,800, which will begin to expire in 2014. The company has provided a full valuation allowance against the foreign loss carryforward benefits and a $2,100 valuation allowance against the state and local loss carryforward benefits. The company has a research tax credit carryforward of $3,400, an AMT credit carryforward of $2,900 and state income tax credits of $9,700. The research tax credits will expire annually between 2019 and 2023 and the AMT credits do not have any expiration date. The state income tax credits will expire at various intervals beginning in 2004 and are fully reserved by the company. For financial statement reporting purposes, income (loss) before income taxes, based on geographic location of the operation to which such earnings are attributable, is provided below. The Timken Company has elected to treat certain foreign entities as branches for US income tax purposes; therefore, pretax income by location is not directly related to pretax income as reported to the respective taxing jurisdictions.

	Income (loss) before income taxes
2003		2002	2001
United States Non- United States	$ 53,560 $ 7,242	$ 191,105 $(105,587)	$ 26,862 $ (53,745)
Income (loss) before taxes	$ 60,802	$ 85,518	$ (26,883)

56

THE TIMKEN COMPANY

Following is the reconciliation between the provision for income taxes and the amount computed by applying U.S. federal income tax rate of 35% to income before taxes:

2003		2002	2001
Income tax (credit) at the statutory federal rate Adjustments:    State and local income taxes, net of federal tax benefit    Tax on foreign remittances    Losses without current tax benefits    Extraterritorial Income Benefit    Other items	$ 21,281   1,489 1,277 8,866 (8,626) 34	$ 29,931   1,465 1,105 3,598 (980) (1,052)	$ (9,409)   1,107 476 20,854 (924) 2,679
Provision for income taxes	$ 24,321	$ 34,067	$ 14,783
Effective income tax rate	40%	40%	N/A

In 2003, the company incurred losses without current tax benefits principally related to operations in Germany. In 2002 and 2001, the company incurred losses without current tax benefits in Brazil and China. In addition, the company had losses without current benefit in 2001 related to the shut down of operations in the United Kingdom. In connection with various investment arrangements, the Company has a "holiday" from income taxes in the Czech Republic and China. These agreements are new to the Company in 2003 and expire in 2010 and 2007, respectively. In total, the agreements reduced income tax expenses by $2,200 or $0.03 per diluted share for the year ended 2003.

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders
The Timken Company

We have audited the consolidated balance sheets of The Timken Company and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Timken Company and subsidiaries at December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. As discussed in Note 8 to the consolidated financial statements, "Goodwill and Other Intangible Assets," the company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" effective January 1, 2002. /s/ Ernst & Young LLP
Canton, Ohio
February 5, 2004

 

57

FORWARD-LOOKING STATEMENTS

Certain statements set forth in this annual report (including the company's forecasts, beliefs and expectations) that are not historical in nature are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular the Corporate Profile on pages 16 through 19 and Management's Discussion and Analysis on pages 21 through 33 contain numerous forward-looking statements. The company cautions readers that actual results may differ materially from those expressed or implied in forward-looking statements made by or on behalf of the company due to a variety of important factors, such as: a) risks associated with the acquisition of Torrington, including the uncertainties in both timing and amount of actual benefits, if any, that may be realized as a result of the integration of the Torrington business with the company's operations and the timing and amount of the resources required to achieve those benefits; risks associated with diversion of management's attention from routine operations during the integration process; and risks associated with the higher level of debt associated with the acquisition. b) changes in world economic conditions, including additional adverse effects from terrorism or hostilities. This includes, but is not limited to, political risks associated with the potential instability of governments and legal systems in countries in which the company or its customers conduct business and significant changes in currency valuations. c) the effects of fluctuations in customer demand on sales, product mix and prices in the industries in which the company operates. This includes the effects of customer strikes, the impact of changes in industrial business cycles and whether conditions of fair trade continue in the U.S. market. d) competitive factors, including changes in market penetration, increasing price competition by existing or new foreign and domestic competitors, the introduction of new products by existing and new competitors and new technology that may impact the way the company's products are sold or distributed. e) changes in operating costs. This includes the effect of changes in the company's manufacturing processes; changes in costs associated with varying levels of operations; changes resulting from inventory management and cost reduction initiatives and different levels of customer demands; the effects of unplanned work stoppages; changes in the cost of labor and benefits; and the cost and availability of raw materials and energy. f) the success of the company's operating plans, including its ability to achieve the benefits from its global restructuring, manufacturing transformation, and administrative cost reduction initiatives as well as its ongoing continuous improvement and rationalization programs; the ability of acquired companies to achieve satisfactory operating results; and its ability to maintain appropriate relations with unions that represent company associates in certain locations in order to avoid disruptions of business. g) unanticipated litigation, claims or assessments. This includes, but is not limited to, claims or problems related to intellectual property, product liability or warranty and environmental issues. h) changes in worldwide financial markets, including interest rates to the extent they affect the company's ability to raise capital or increase the company's cost of funds, have an impact on the overall performance of the company's pension fund investments and/or cause changes in the economy which affect customer demand. Additional risks relating to the company's business, the industries in which the company operates or the company's common stock may be described from time to time in the company's filings with the SEC. All of these risk factors are difficult to predict, are subject to material uncertainties that may affect actual results and may be beyond the company's control. Except as required by the federal securities laws, the company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

58

THE TIMKEN COMPANY

  QUARTERLY FINANCIAL DATA

2003	Net Sales	Gross Profit	Impairment & Restructuring	Net Income (Loss)	Earnings per Share(1)		Dividends per Share
					Basic	Diluted
(Thousands of dollars, except per share data)
Q1 Q2 Q3 Q4	$ 838,007 990,253 938,012 1,021,825	$ 130,266 158,069 147,610 195,677	$ - 853 1,883 16,418	$ 11,339 3,921 (1,275) 22,496(2)(4)	$ .15 .05 (.01) .26	$ .15 .05 (.01) .25	$ .13 .13 .13 .13
	$ 3,788,097	$ 631,622	$ 19,154	$ 36,481	$ .44	$ .44	$ .52
2002
(Thousands of dollars, except per share data)
Q1(1) Q2 Q3(3) Q4	$ 615,757 660,829 628,591 644,898	$ 118,642 124,301 111,262 115,372	$ 3,057 14,226 7,703 7,157	$ (3,514) 3,960 1,837 36,466(2)	$ (.06) .07 .03 .58	$ (.06) .07 .03 .57	$ .13 .13 .13 .13
	$ 2,550,075	$ 469,577	$ 32,143	$ 38,749	$ .63	$ .62	$ .52

(1)Annual earnings per share do not equal the sum of the individual quarters due to differences in the average number of shares outstanding during the respective periods.
(2)Includes receipt (net of expenses) of $65.6 million and $50.2 million in 2003 and 2002 resulting from the U.S. Continued Dumping and Subsidy Offset Act.
(3)Net income (loss) and earnings per share for Q1 and Q3 have been adjusted to reflect as if the cumulative effect of change in accounting principle had been recorded in Q1 of 2002 instead of Q3. This adjustment was made in accordance with the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
(4)Includes $45.7 million for write-off of investment in joint venture, PEL.

2003 Stock Prices			2002 Stock Prices
	High	Low		High	Low
Q1 Q2 Q3 Q4	$ 20.46 18.50 19.25 20.32	$ 14.88 15.59 14.55 15.31	Q1 Q2 Q3 Q4	$ 24.50 27.41 24.00 20.27	$ 15.35 20.50 16.54 14.92

 

59

SUMMARY OF OPERATIONS AND OTHER COMPARATIVE DATA

	2003	2002	2001	2000
(Thousands of dollars, except per share data) Statements of Income Net sales:    Automotive Bearings    Industrial Bearings    Total Bearings    Steel	$ 1,396,104 1,498,832 2,894,936 893,161	$ 752,763 971,534 1,724,297 825,778	$ 642,943 990,365 1,633,308 813,870	$ 839,838(7) 923,477(7) 1,763,315 879,693
Total net sales	3,788,097	2,550,075	2,447,178	2,643,008
Cost of products sold Selling, administrative and general expenses Impairment and restructuring charges Operating income (loss) Other income (expense) - net Earnings before interest and taxes (EBIT) (1) Interest expense Income (loss) before income taxes Provision (credit) for income taxes Income (loss) before cumulative effect of    accounting changes Net income (loss)	3,156,475 514,221 19,154 98,247 9,833 108,080 48,401 60,802 24,321   36,481 $ 36,481	2,080,498 358,866 32,143 78,568 36,814 115,382 31,540 85,518 34,067   51,451 $ 38,749	2,046,458 363,683 54,689 (17,652) 22,061 4,409 33,401 (26,883) 14,783   (41,666) $ (41,666)	2,142,135 367,499 27,754 105,620 (6,580) 99,040 31,922 70,597 24,709   45,888 $ 45,888
Balance Sheets Inventory Current assets Working capital Property, plant and equipment - net Total assets Total debt: Commercial paper Short-term debt Current portion of long-term debt Long-term debt	$ 695,946 1,377,105 322,549 1,608,594 3,689,789   - 114,469 6,725 613,446	$ 488,923 968,292 334,222 1,226,244 2,748,356 8,999 78,354 23,781 350,085	$ 429,231 828,380 187,224 1,305,345 2,533,084 1,962 84,468 42,434 368,151	$ 489,549 898,542 311,090 1,363,772 2,564,105 76,930 105,519 26,974 305,181
Total debt Total liabilities Shareholders’ equity	734,640 2,600,162 $ 1,089,627	461,219 2,139,270 $ 609,086	497,015 1,751,349 $ 781,735	514,604 1,559,423 $ 1,004,682
Other Comparative Data Net income (loss)/Total assets Net income (loss)/Net sales EBIT/Beginning invested capital (2) Beginning invested capital: Total assets Less: cash and cash equivalents Current portion of deferred income taxes Long term portion of deferred income taxes Accounts payable and other liabilities Salaries, wages and benefits Accrued pension cost Accrued postretirement benefits cost Income taxes	1.0% 1.0% 5.6%   2,748,356 (82,050) (36,003) (169,051) (296,543) (222,546) - - (3,847)	1.4% 1.5% 6.0% 2,533,084 (33,392) (42,895) (27,164) (258,001) (254,291) - - -	(1.6)% (1.7)% 0.2% 2,564,105 (10,927) (43,094) - (239,182) (137,320) - - (1,527)	1.8% 1.7% 4.9% 2,441,318 (7,906) (39,706) - (236,602) (120,295) - - (5,627)
Beginning invested capital Inventory days (FIFO) Net sales per associate (3) Capital expenditures Depreciation and amortization Capital expenditures/Depreciation Dividends per share Earnings per share (4) Earnings per share - assuming dilution (4) Debt to total capital (5) Number of associates at year-end Number of shareholders (6)	1,938,316 101.7 $ 172.0 $ 127,062 $ 208,851 60.8% $ 0.52 $ 0.44 $ 0.44 40.3% 26,073 42,184	1,917,341 111.1 $ 139.0 $ 90,673 $ 146,535 61.9% $ 0.52 $ 0.63 $ 0.62 43.1% 17,963 44,057	2,132,055 104.8 $ 124.8 $ 102,347 $ 152,467 69.9% $ 0.67 $ (0.69) $ (0.69) 38.9% 18,735 39,919	2,031,182 108.5 $ 127.9 $ 162,717 $ 151,047 112.4% $ 0.72 $ 0.76 $ 0.76 33.9% 20,474 42,661

(1) EBIT is defined as operating income plus other income (expense) - net.
(2)EBIT/Beginning invested capital is a type of return ratio that gauges profitability. EBIT is defined as operating income plus other income (expense) - net. Beginning invested capital is calculated as total assets less the following balance sheet line items: cash and cash equivalents; the current and long-term portions of deferred income taxes; accounts payable and other liabilities; salaries, wages and benefits; and income taxes.
(3)Based on the average number of associates employed during the year.
(4)Based on the average number of shares outstanding during the year and includes the cumulative effect of accounting change in 2002, which related to the adoption of SFAS No. 142.

60

THE TIMKEN COMPANY

 

1999	1998	1997	1996	1995	1994
$ (8) (8) 1,759,871 735,163	$ (8) (8) 1,797,745 882,096	$ (8) (8) 1,718,876 898,686	$ (8) (8) 1,598,040 796,717	$ (8) (8) 1,524,728 705,776	$ (8) (8) 1,312,323 618,028
2,495,034	2,679,841	2,617,562	2,394,757	2,230,504	1,930,351
2,002,366 359,910 - 132,758 (9,638) 123,120 27,225 98,991 36,367   62,624 $ 62,624	2,098,186 356,672 - 224,983 (16,117) 208,866 26,502 185,350 70,813   114,537 $ 114,537	2,005,374 332,419 - 279,769 6,005 286,766 21,432 266,592 95,173   171,419 $ 171,419	1,828,394 319,458 - 246,905 (3,747) 242,304 17,899 225,259 86,322   138,937 $ 138,937	1,723,463 304,046 - 202,995 (10,229) 197,957 19,813 180,174 67,824   112,350 $ 112,350	1,514,098 283,727 - 132,526 (2,380) 134,674 24,872 111,323 42,859   68,464 $ 68,464
$ 446,588 833,526 348,455 1,381,474 2,441,318   35,937 81,296 5,314 327,343	$ 457,246 850,337 359,914 1,349,539 2,450,031   29,873 96,720 17,719 325,086	$ 445,853 855,171 275,607 1,220,516 2,326,550   71,566 61,399 23,620 202,846	$ 419,507 793,633 265,685 1,094,329 2,071,338   46,977 59,457 30,396 165,835	$ 367,889 710,258 247,895 1,039,382 1,925,925   5,037 54,727 314 151,154	$ 332,304 657,180 178,556 1,030,451 1,858,734   57,759 40,630 30,223 150,907
449,890 1,395,337 $ 1,045,981	469,398 1,393,950 $ 1,056,081	359,431 1,294,474 $ 1,032,076	302,665 1,149,110 $ 922,228	211,232 1,104,747 $ 821,178	279,519 1,125,843 $ 732,891
2.6% 2.5% 6.0%   2,450,031 (320) (42,288) (20,409) (221,823) (106,999) - - (17,289)	4.7% 4.3% 11.4%   2,326,550 (9,824) (42,071) (26,605) (253,033) (134,390) - - (22,953)	7.4% 6.5% 17.7%   2,071,338 (5,342) (54,852) (3,803) (237,020) (86,556) (18,724) (19,746) (29,072)	6.7% 5.8% 16.9%   1,925,925 (7,262) (50,183) (31,176) (229,096) (76,460) (43,241) (22,765) (30,723)	5.8% 5.0% 14.1%   1,858,734 (12,121) (49,222) (45,395) (216,568) (68,812) (29,502) (21,932) (13,198)	3.7% 3.5% 10.1%   1,789,719 (5,284) (58,220) (52,902) (221,265) (60,680) (11,377) (24,330) (19,443)
2,040,903 108.4 $ 119.1 $ 173,222 $ 149,949 120.3% $ 0.72 $ 1.01 $ 1.01 30.1% 20,856 42,907	1,837,674 109.4 $ 127.5 $ 258,621 $ 139,833 192.5% $ 0.72 $ 1.84 $ 1.82 30.8% 21,046 45,942	1,616,223 111.5 $ 130.5 $ 229,932 $ 134,431 177.3% $ 0.66 $ 2.73 $ 2.69 25.8% 20,994 46,394	1,435,019 117.5 $ 132.4 $ 155,925 $ 126,457 127.0% $ 0.60 $ 2.21 $ 2.19 24.7% 19,130 31,813	1,401,984 112.2 $ 134.2 $ 131,188 $ 123,409 109.1% $ 0.56 $ 1.80 $ 1.78 20.5% 17,034 26,792	1,336,218 118.0 $ 119.9 $ 119,656 $ 119,255 102.6% $ 0.50 $ 1.11 $ 1.10 27.6% 16,202 49,968

(5) Debt to total capital equals total debt divided by total debt plus shareholders' equity.
(6) Includes an estimated count of shareholders having common stock held for their accounts by banks, brokers and trustees for benefit plans.
(7) It is impractical for Timken to reflect 2000 segment financial information related to the 2003 reorganization of its Automotive and Industrial Groups, as this structure was not in place at the time.
(8) It is impracticable for the company to restate prior year segment financial information into Automotive Bearings and Industrial Bearings as this structure was not in place until 2000.

 

61

APPENDIX TO EXHIBIT 13

On page 1, three bar charts were shown which contain the following information:

(1)	Net Sales ($ Millions)
	1999 2000 2001 2002 2003	2,495 2,643 2,447 2,550 3,788
(2)	Earnings Per Share - Diluted (dollars)
	1999 2000 2001 2002 2003	1.01 0.76 (0.69) 0.62 0.44
(3)	Dividends per Share (cents)
	1999 2000 2001 2002 2003	0.72 0.72 0.67 0.52 0.52

EX-21

     Exhibit 21.  Subsidiaries of the Registrant
     ___________________________________________

     The Timken Company has no parent company.

     The active subsidiaries of the Company (all of which are included
     in the consolidated financial statements of the Company and its
     subsidiaries) are as follows:
                                                     Percentage of
                                                     voting securities
                                 State or sovereign  owned directly
                                 power under laws    or indirectly
     Name                        of which organized  by Company
     __________________________________________________________________
     MPB Corporation                  Delaware              100%
     Timken Super Precision-
       Europa B.V.                    Netherlands           100%
     Timken Super Precision-
       Singapore Pte. Ltd.            Singapore             100%
     Timken UK, Ltd.                  England               100%
     Australian Timken Proprietary,
       Limited                        Victoria, Australia   100%
     Timken do Brasil
       Comercio e Industria, Ltda.    Sao Paulo, Brazil     100%
     British Timken Limited           England               100%
     Canadian Timken, Limited         Ontario, Canada       100%
     Timken Communications Company    Ohio                  100%
     Timken Alloy Steel Europe
       Limited                        England               100%
     EDC, Inc.                        Ohio                  100%
     Timken Engineering and Research -
       India Private Limited          India                 100%
     Timken Espana, S.L.              Spain                 100%
     Timken Germany GmbH              Germany               100%
     Timken Europe B.V.               Netherlands           100%
     Timken Finance Europe B.V.       Netherlands           100%
     HHC1, Inc.                       Delaware              100%
     Timken India Limited             India                  80%
     Timken Industrial Services, LLC  Delaware              100%
     Timken Italia, S.R.L.            Italy                 100%
     Timken Korea Limited Liability
       Corporation                    Korea                 100%
     Latrobe Steel Company            Pennsylvania          100%
     OH&R Special Steels Company      Delaware              100%
     Timken Latrobe Steel-Europe Ltd. England               100%
     Timken de Mexico S.A. de C.V.    Mexico                100%
     MPB Export Corporation           Delaware              100%
     Nihon Timken K.K.                Japan                 100%
     Timken Precision Components
       Europe                         France                100%
     Timken Polska Sp.z.o.o.          Poland                100%
     Rail Bearing Service Corporation Virginia              100%


     Exhibit 21.  Subsidiaries of the Registrant (cont).
     _______________________________________________

                                                     Percentage of
                                                     voting securities
                                 State or sovereign  owned directly
                                 power under laws    or indirectly
     Name                        of which organized  by Company
     __________________________________________________________________
     Timken Rail Service Company      Russia                100%
     Timken Receivables Corporation   Delaware              100%
     Timken Romania S.A.              Romania                94%
     The Timken Corporation           Ohio                  100%
     The Timken Service & Sales Co.   Ohio                  100%
     Timken Servicios Administrativos
       S.A. de C.V.                   Mexico                100%
     Timken Singapore Pte. Ltd.       Singapore             100%
     Timken South Africa (Pty.) Ltd.  South Africa          100%
     Timken de Venezuela C.A.         Venezuela             100%
     Yantai Timken Company Limited    China                 100%
     Timken Argentina Sociedad De
       Responsabilidad Limitada       Argentina             100%
     Timken Scandinavia AB            Sweden                100%
     Timken Engineered Products
       (Shanghai) Co., Ltd.           China                 100%
     Timken Benelux, SA               Belgium               100%
     Timken Ceska Republika S.R.O.    Czech Republic        100%
     Timken France SAS                France                100%
     Timken Industries SAS            France                100%
     Timken Europa (SARL)             France                100%
     Timken Deutschland GmbH          Germany               100%
     Timken GmbH                      Germany               100%
     Timken SpA                       Italy                 100%
     Timken IRB SA                    Spain                 100%
     Nadella SA                       Switzerland           100%
     Timken Coventry Limited          England               100%
     Timken Great Britain Ltd.        England               100%
     Timken Luxembourg Holdings SARL  Luxembourg            100%
     Timken Luxembourg SARL           Luxembourg            100%
     Torrington Canada, ULC           Canada                100%
     Kilian Canada, ULC               Canada                100%
     Kilian Manufacturing Corporation Delaware              100%
     Timken US Corporation            Delaware              100%
     Kilian Holdings, Inc.            Delaware              100%

     The Company also has a number of inactive subsidiaries which were
     incorporated for name-holding purposes and a foreign sales
     corporation subsidiary.

EX-23

                                Exhibit 23
                      Consent of Independent Auditors

We consent to the incorporation by reference of our report dated February 5,
2004, with respect to the consolidated financial statements and schedule of
The Timken Company included in this Annual Report (Form 10-K) for the year
ended December 31, 2003, in the following Registration Statements and in
the related Prospectuses:

Registration                                                       Filing
   Number           Description of Registration Statement           Date

  2-97340     1985 Incentive Plan of The Timken Company -     November 19, 1990
              Post-effective Amendment No. 1 to Form S-8

333-17503     The Timken Company Dividend Reinvestment         December 9, 1996
              Plan - Form S-3

333-41155     OH&R Investment Plan - Form S-8                 November 26, 1997

333-43847     The Timken Company International Stock            January 7, 1998
              Ownership Plan - Form S-8

333-45753     Rail Bearing Service Employee Savings            February 6, 1998
              Plan - Form S-8

333-45891     $300,000,000 Medium-Term Notes, Series             April 23, 1998
              A - Amendment No. 4 to Form S-3

333-66911     Voluntary Investment Program for Hourly          November 6, 1998
              Employees of Latrobe Steel Company - Form S-8

333-66907     The MPB Employees' Savings Plan - Form S-8       November 6, 1998

333-69129     The Timken Company - Latrobe Steel Company       December 17,1998
              Savings and Investment Pension Plan -
              Form S-8

333-35154     The Timken Company Long-Term Incentive Plan         April 19,2000
              - Form S-8

333-35152     The Hourly Pension Investment Plan - Form S-8       April 19,2000

333-52866     Voluntary Investment Pension Plan for Hourly    December 28, 2000
              Employees of The Timken Company - Form S-8

333-76062     The Company Savings Plan for the Employees of   December 28, 2001
              Timken France - Form S-8

333-86452     The Timken Company Long-Term Incentive Plan -      April 17, 2002
              Form S-8

333-86448     The Timken Company Collective Investment Trust     April 17, 2002
              for Retirement Trusts - Form S-3

333-100731    Prospectus Supplements - 11,000,000 shares of   February 11, 2003
              Timken Company Common Stock: $250,000,000 in
              Senior Notes - Form S-3

333-103753    The Timken Company Savings and Stock Investment    March 11, 2003
              Plan for Torrington Non-Bargaining Associates -
              Form S-8

333-103754    The Timken Company Savings Plan for Torrington     March 11, 2003
              Bargaining Associates - Form S-8

333-105333    The Timken Share Incentive Plan - Form S-8           May 16, 2003

333-108792    Prospectus - 9,395,973 shares of Timken Company
              Common Stock - Form S-3                        September 12, 2003

333-108840    The Hourly Pension Investment Plan - Form S-8  September 16, 2003

333-108841    Voluntary Investment Program for Hourly Employees
              of Latrobe Steel Company - Form S-8            September 16, 2003

                                             /s/  ERNST & YOUNG LLP
Canton, Ohio
March 2, 2004

EX-24

                                  EXHIBIT 24
                               POWER OF ATTORNEY

         KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
     and officers of The Timken Company, an Ohio corporation (the "Company"),
     hereby (1) constitutes and appoints James W. Griffith, Glenn A. Eisenberg,
     and William R. Burkhart, collectively and individually, as his or her
     agent and attorney-in-fact, with full power of substitution and
     resubstitution, to (a) sign and file on his or her behalf and in his or
     her name, place and stead in any and all capacities (i) an Annual Report
     pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
     as amended, on Form 10-K for the fiscal year ended December 31, 2003, (ii)
     any and all amendments, including post-effective amendments, and exhibits
     to the Registration Statement and (iii) any and all applications or other
     documents to be filed with the Securities and Exchange Commission or any
     state securities commission or other regulatory authority with respect to
     the securities covered by the Registration Statement, and (b) do and
     perform any and all other acts and deeds whatsoever that may be necessary
     or required in the premises; and (2) ratifies and approves any and all
     actions that may be taken pursuant hereto by any of the above-named agents
     and attorneys-in-fact or their substitutes.

         IN WITNESS WHEREOF, the undersigned directors and officers of the
     Company have hereunto set their hands as of the 5th day of February 2004.

          /s/ Sallie B. Bailey              /s/ Frank C. Sullivan
          _____________________________     ______________________________
          Sallie B. Bailey                  Frank C. Sullivan
          (Principal Accounting Officer)

          /s/ Glenn A. Eisenberg            /s/ John M. Timken, Jr.
          _____________________________     ______________________________
          Glenn A. Eisenberg                John M. Timken, Jr.
          (Principal Financial Officer)

          /s/ Stanley C. Gault              /s/ Ward J. Timken
          _____________________________     ______________________________
          Stanley C. Gault                  Ward J. Timken

          /s/ James W. Griffith             /s/ Ward J. Timken, Jr.
          _____________________________     ______________________________
          James W. Griffith                 Ward J. Timken, Jr.
          (Principal Executive Officer)

          /s/ John A. Luke, Jr.             /s/ W. R. Timken, Jr.
          _____________________________     ______________________________
          John A. Luke, Jr.                 W. R. Timken, Jr.

          /s/ Robert W. Mahoney             /s/ Joseph F. Toot, Jr.
          _____________________________     ______________________________
          Robert W. Mahoney                 Joseph F. Toot, Jr.

          /s/ Jay A. Precourt
          _____________________________     ______________________________
          Jay A. Precourt                   Martin D. Walker

          /s/ Joseph W. Ralston             /s/ Jacqueline F. Woods
          _____________________________     ______________________________
          Joseph W. Ralston                 Jacqueline F. Woods

EX-31.1

                                  EXHIBIT 31.1

                PRINCIPAL EXECUTIVE OFFICER'S CERTIFICATIONS
          PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James W. Griffith, certify that:

1.  I have reviewed this Form 10-K of The Timken Company;

2.  Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;

4.  The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:

    a)  Designed such disclosure controls and procedures, or caused such
    disclosure controls and procedures to be designed under our supervision,
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by others
    within those entities, particularly during the period in which this
    report is being prepared;

    b)  Designed such internal control over financial reporting, or caused such
    internal control over financial reporting to be designed under our
    supervision, to provide reasonable assurance regarding the reliability of
    financial reporting and the preparation of financial statements for external
    purposes in accordance with generally accepted accounting principles;

    c)  Evaluated the effectiveness of the registrant's disclosure controls and
    procedures and presented in this report our conclusions about the
    effectiveness of the disclosure controls and procedures, as of the end of
    the period covered by this report based on such evaluation; and

    d)  Disclosed in this report any change in the registrant's internal control
    over financial reporting that occurred during the registrant's most recent
    fiscal quarter (the registrant's fourth fiscal quarter in the case of an
    annual report) that has materially affected, or is reasonably likely to
    materially affect, the registrant's internal control over financial
    reporting: and

5.  The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):

    a)  All significant deficiencies and material weaknesses in the design or
    operation of internal control over financial reporting which are reasonably
    likely to adversely affect the registrant's ability to record, process,
    summarize and report financial information; and

    b)  Any fraud, whether or not material, that involves management or other
    employees who have a significant role in the registrant's internal
    control over financial reporting.

    Date:  March 3, 2004                BY  /s/  James W. Griffith
                                        ______________________________________
                                        James W. Griffith,
                                        President and Chief Executive Officer
                                        (Principal Executive Officer)

EX-31.2

                                 EXHIBIT 31.2

               PRINCIPAL FINANCIAL OFFICER'S CERTIFICATIONS
           PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Glenn A. Eisenberg, certify that:

1.  I have reviewed this Form 10-K of The Timken Company;

2.  Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;

4.  The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:

    a)  Designed such disclosure controls and procedures, or caused such
    disclosure controls and procedures to be designed under our supervision,
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by others
    within those entities, particularly during the period in which this
    report is being prepared;

    b)  Designed such internal control over financial reporting, or caused such
    internal control over financial reporting to be designed under our
    supervision, to provide reasonable assurance regarding the reliability of
    financial reporting and the preparation of financial statements for external
    purposes in accordance with generally accepted accounting principles;

    c)  Evaluated the effectiveness of the registrant's disclosure controls and
    procedures and presented in this report our conclusions about the
    effectiveness of the disclosure controls and procedures, as of the end of
    the period covered by this report based on such evaluation; and

    d)  Disclosed in this report any change in the registrant's internal control
    over financial reporting that occurred during the registrant's most recent
    fiscal quarter (the registrant's fourth fiscal quarter in the case of an
    annual report) that has materially affected, or is reasonably likely to
    materially affect, the registrant's internal control over financial
    reporting: and

5.  The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):

    a)  All significant deficiencies and material weaknesses in the design or
    operation of internal control over financial reporting which are reasonably
    likely to adversely affect the registrant's ability to record, process,
    summarize and report financial information; and

    b)  Any fraud, whether or not material, that involves management or other
    employees who have a significant role in the registrant's internal
    control over financial reporting.

    Date:  March 3, 2004            BY  /s/  Glenn A. Eisenberg
                                    ______________________________________
                                    Glenn A. Eisenberg
                                    Executive Vice President - Finance and
                                    Administration (Principal Financial Officer)

EX-32

                                  Exhibit 32

                          CERTIFICATION PURSUANT TO
                           18 U.S.C. SECTION 1350,
                           AS ADOPTED PURSUANT TO
                SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Annual Report of The Timken Company (the "Company")
on Form 10-K for the year ended December 31, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), each of
the undersigned officers of the Company certifies, pursuant to 18 U.S.C. 1350,
as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that, to
such officer's knowledge:

     (1)  The Report fully complies with the requirements of Section 13(a) or
          15(d) of the Securities Exchange Act of 1934; and

     (2)  The information contained in the Report fairly presents, in all
          material respects, the financial condition and results of operations
          of the Company as of the dates and for the periods expressed in the
          Report.

                                              BY  /s/  James W. Griffith
Date: March 3, 2004                          ______________________________
                                             Name: James W. Griffith
                                             Title:  President and Chief
                                                       Executive Officer

                                              BY  /s/  Glenn A. Eisenberg
                                             ______________________________
                                             Name: Glenn A. Eisenberg
                                             Title: Executive Vice President
                                                  - Finance and Administration

     The foregoing certification is being furnished solely pursuant to 18 U.S.C.
1350 and is not being filed as part of the Report or as a separate disclosure
document.