FORM 11-K
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 11-K

 

 

x ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 1-1169

VOLUNTARY INVESTMENT PROGRAM FOR HOURLY

EMPLOYEES OF LATROBE STEEL COMPANY

(Full title of the Plan)

THE TIMKEN COMPANY, 1835 Dueber Avenue, S.W., Canton, Ohio 44706

(Name of issuer of the securities held pursuant to the Plan

and the address of its principal executive office)


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Unaudited Financial Statements

December 31, 2012 and 2011, and

Year Ended December 31, 2012

Table of Contents

 

Unaudited Financial Statements

  

Statements of Net Assets Available for Benefits

     1   

Statement of Changes in Net Assets Available for Benefits

     2   

Notes to Financial Statements

     3   


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Statements of Net Assets Available for Benefits

(unaudited)

 

     December 31,  
     2012     2011  

Assets

    

Investments, at fair value:

    

Interest in The Master Trust Agreement for The Timken Company Defined Contribution Plans

   $ 1,911,033      $ 1,787,194   

Receivables:

    

Participant notes receivable

     —          2,247   
  

 

 

   

 

 

 

Total assets reflecting investments at fair value

     1,911,033        1,789,441   

Adjustment from fair value to contract value for interest in The Master Trust Agreement for The Timken Company Defined Contribution Plans relating to fully benefit-responsive investment contracts

     (4,479     (882
  

 

 

   

 

 

 

Net assets available for benefits

   $ 1,906,554      $ 1,788,559   
  

 

 

   

 

 

 

See accompanying notes.

 

1


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Statement of Changes in Net Assets Available for Benefits

(unaudited)

Year Ended December 31, 2012

 

Additions

  

Investment income:

  

Net investment gain from The Master Trust Agreement for The Timken Company Defined Contribution Plans

   $ 245,199   

Interest income from participant notes

     43   
  

 

 

 

Total additions

     245,242   
  

 

 

 

Deductions

  

Benefits distributed directly to participants

     127,222   

Administrative expenses

     25   
  

 

 

 

Total deductions

     127,247   
  

 

 

 

Net increase

     117,995   

Net assets available for benefits:

  

Beginning of year

     1,788,559   
  

 

 

 

End of year

   $ 1,906,554   
  

 

 

 

See accompanying notes.

 

2


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements

(unaudited)

December 31, 2012 and 2011, and

Year Ended December 31, 2012

1. Description of the Plan

The following description of the Voluntary Investment Program for Hourly Employees of Latrobe Steel Company (the Plan) provides only general information. Participants should refer to the 2002 401(k) Agreement Between Timken Latrobe Steel and the United Steelworkers of America AFL-CIO (2002 401(k) Agreement) for a more complete description of the Plan’s provisions.

General

Effective December 8, 2006, The Timken Company (Timken) sold Latrobe Steel Company (the Company). As a result of this transaction, all participants in the Plan terminated their employment with The Timken Company and the Plan will no longer have any new participants or contributions. However, The Timken Company, the Plan Administrator, will continue to sponsor the Plan for those participants who have elected not to transfer their accounts to another plan. The Plan is a defined contribution plan which covered hourly employees of the Company who were represented by the United Steelworkers of America (USWA). Employees of the Company became eligible to participate in the Plan upon completion of the eligibility requirements under the 2002 Insurance Agreement and upon completion of 1,000 hours of service within a twelve-month period. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA).

Contributions

Under the provisions of the Plan, participants were able to contribute up to 15% of gross earnings, as defined in the Plan, subject to Internal Revenue Service (IRS) limitations. Participants were also able to contribute amounts representing distributions from other qualified defined benefit or defined contribution plans. No Company contributions were provided under the Plan. Upon enrollment, a participant could direct his or her contribution in 1% increments to any of the Plan’s fund options. Participants have access to their account information and the ability to make account changes daily through an automated telecommunication system and through the Internet.

 

3


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

1. Description of the Plan (continued)

 

Participant Accounts

Each participant’s account is credited with the participant’s contributions and allocations of (a) the Company’s contributions and (b) Plan earnings, and is charged with an allocation of administrative expenses. Plan earnings are allocated based on the participant’s share of net earnings or losses of their respective elected investment options. Allocations of administrative expenses are based on the participant’s account balances, as defined.

Participants were able to elect to have their dividends in The Timken Company Common Stock Fund distributed to them in cash rather than automatically reinvested in Timken common shares.

Vesting

Participants vested immediately in their contributions plus actual earnings thereon.

Participant Notes Receivable

Participants may borrow from their accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their account balance. Loan terms generally cannot exceed four years.

The loans are secured by the balance in the participant’s account and bear interest at an interest rate of 1% in excess of the prime rate, as published the first business day of each month in the Wall Street Journal. Principal and interest are paid ratably through payroll deductions.

Payment of Benefits

As a result of their termination of service to The Timken Company due to the sale of Latrobe Steel Company, participants having a vested account balance greater than $1,000 were given the option of (i) transferring their account balance to another plan, (ii) receiving a lump-sum amount equal to the vested balance of their account, (iii) receiving installment payments of their vested assets over a period of time not to exceed their life expectancy, or (iv) leaving their vested account balance in the Plan. Participants having a vested account balance less than $1,000 received a lump-sum amount equal to their vested account balance.

 

4


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

1. Description of Plan (continued)

 

Participants electing to leave their vested assets in the Plan may do so until age 70 1/2 after which time the lump-sum or installment distribution options would apply.

Hardship withdrawals are allowed for participants incurring an immediate and severe financial need, as defined by the Plan. Hardship withdrawals are strictly regulated by the IRS and a participant must exhaust all available loan options and distributions prior to requesting a hardship withdrawal.

Plan Termination

The Plan shall continue in full force and effect until December 31, 2008, and yearly thereafter, unless either Timken or the USWA shall notify the other party in writing that they desire to terminate the 2002 401(k) Agreement. The Plan may generally be amended by mutual consent of Timken and the USWA. In the event of Plan termination, the Plan’s trustee, JP Morgan (Trustee), shall distribute to each participant the vested balance in their separate account.

2. Accounting Policies

Basis of Accounting

The financial statements have been prepared on the accrual basis of accounting.

Participant Notes Receivable

Participant notes receivable represents participant loans that are recorded at their unpaid principal balance plus any accrued but unpaid interest. Interest income on notes receivable from participants is recorded when it is earned. Related fees are recorded as administrative expenses and are expensed when they are incurred. No allowance for credit losses has been recorded as of December 31, 2012 or 2011. If a participant ceases to make loan repayments and the Plan Administrator deems the participant loan to be a distribution, the participant loan balance is reduced and a benefit payment is recorded.

 

5


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

2. Accounting Policies (continued)

 

Investment Valuation and Income Recognition

The Plan’s investments are stated at fair value and are invested in The Master Trust Agreement for The Timken Company Defined Contribution Plans (Master Trust), which was established for the investment of assets of the Plan and the five other defined contribution plans sponsored by The Timken Company.

The Plan’s trustee maintains a collective investment trust of Timken common shares in which Timken’s Defined Contribution Plans participate on a unit basis. Timken common shares are traded on a national securities exchange and participation units in The Timken Company Common Stock Fund are valued at the last reported sales price on the last business day of the plan year.

Purchases and sales of securities are recorded on a trade-date basis. Dividends are recorded on the ex-dividend date.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

 

6


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

2. Accounting Policies (continued)

 

New Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04, Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRS. ASU 2011-04 amended Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, to converge the fair value measurement guidance in U.S. GAAP and International Financial Reporting Standards (IFRS). Some of the amendments clarify the application of existing fair value measurement requirements, while other amendments change a particular principle in ASC 820. In addition, ASU 2011-04 requires additional fair value disclosures although certain of these new disclosures will not be required for nonpublic entities. The amendments are to be applied prospectively and are effective for annual periods beginning after December 15, 2011. Since ASU 2011-04 only clarifies existing fair value measurements and affects fair value measurement disclosures, adoption of ASU 2011-04 did not have an effect on the Plan’s net assets available for benefits or its changes in net assets available for benefits.

 

7


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

3. Investments

The Plan’s assets are held in the Master Trust, commingled with assets of other Company-sponsored benefit plans of The Timken Company.

Each participating plan’s interest in the investment funds (i.e., separate accounts) of the Master Trust is based on account balances of the participants and their elected investment funds. The Master Trust assets are allocated among the participating plans by assigning to each plan those transactions (primarily contributions, benefit payments, and plan-specific expenses) that can be specifically identified and by allocating among all plans, in proportion to the fair value of the assets assigned to each plan, income and expenses resulting from the collective investment of the assets of the Master Trust. The Plan’s ownership percentage in the Master Trust as of December 31, 2012 and 2011 was 0.15% and 0.16%, respectively.

 

8


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

3. Investments (continued)

 

The following tables present the fair values of investments in the Master Trust and the Plan’s owership percentage in each investment fund of the Master Trust:

 

          December 31, 2012  
    Cash and
Cash
Equivalents
    Company
Stock
    Registered
Investment
Companies
    Common
Collective
    Government
and Agency
Securities
    Mortgage
and Asset
Backed
Securities
    Corporate
Bonds
    Wrap
Contracts
    Total Assets     Plan’s
Ownership
Percentage
 

Investment, at Fair Value

                   

The Timken Company Common Stock Fund

  $ 1,576,982      $ 319,117,974      $ —        $ —        $ —        $ —        $ —        $ —        $ 320,694,956        0.13

Morgan Stanley Small Company Growth

    —          —          14,814,070        —          —          —          —          —          14,814,070        0.00

American Funds EuroPacific Growth

    —          —          89,314,155        —          —          —          —          —          89,314,155        0.03

American Funds Washington Mutual Investors

    —          —          22,783,272        —          —          —          —          —          22,783,272        0.00

American Beacon Small Cap Value

    —          —          22,868,397        —          —          —          —          —          22,868,397        0.00

Vanguard Target Retirement Income

    —          —          23,368,634        —          —          —          —          —          23,368,634        0.03

Vanguard Target Retirement 2015

    —          —          70,820,300        —          —          —          —          —          70,820,300        0.02

Vanguard Target Retirement 2025

    —          —          38,937,796        —          —          —          —          —          38,937,796        0.00

Vanguard Target Retirement 2035

    —          —          35,355,304        —          —          —          —          —          35,355,304        0.03

Vanguard Target Retirement 2045

    —          —          16,125,154        —          —          —          —          —          16,125,154        0.02

Vanguard Target Retirement 2020

    —          —          6,806,720        —          —          —          —          —          6,806,720        0.00

Vanguard Target Retirement 2030

    —          —          2,645,284        —          —          —          —          —          2,645,284        0.00

Vanguard Target Retirement 2040

    —          —          1,665,490        —          —          —          —          —          1,665,490        0.00

Vanguard Target Retirement 2050

    —          —          800,347        —          —          —          —          —          800,347        0.00

JPMorgan S&P 500 Index

    —          —          —          32,466,044        —          —          —          —          32,466,044        2.87

The Timken Company – JPM Bond Fund

    —          —          —          8,055,932        34,150,439        68,750,278        24,012,101        —          134,968,750        0.14

JPMorgan Equity Index

    —          —          —          140,491,194        —          —          —          —          140,491,194        0.00

Nuveen Winslow Large-Cap Growth

    —          —          —          63,736,701        —          —          —          —          63,736,701        0.05

SSgA Russell 2000-A Index

    —          —          —          48,444,488        —          —          —          —          48,444,488        0.08
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
  $ 1,576,982      $ 319,117,974      $ 346,304,923      $ 293,194,359      $ 34,150,439      $ 68,750,278      $ 24,012,101      $ —        $ 1,087,107,056     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

JPMorgan Stable Value Fund:

                   

JPMorgan Liquidity Fund

    —          —          —          32,235,856        —          —          —          —          32,235,856     

JPMorgan Intermediate Bond Fund

    —          —          —          155,036,381        —          —          —          —          155,036,381     

JPMorgan Mortgage Private Placement Fund

    —          —          —          8,682,881        —          —          —          —          8,682,881     

Wrapper Value

    —          —          —          —          —          —          —          48,420        48,420     

Adjustment from fair value to contract value

    —          —          —          (3,346,510     —          —          —          —          (3,346,510  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
  $ —        $ —        $ —        $ 192,608,608      $ —        $ —        $ —        $ 48,420      $ 192,657,028        0.13
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
                   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net Assets of Master Trust

  $ 1,576,982      $ 319,117,974      $ 346,304,923      $ 485,802,967      $ 34,150,439      $ 68,750,278      $ 24,012,101      $ 48,420      $ 1,279,764,084        0.15
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

9


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

3. Investments (continued)

 

    December 31, 2011  
    Cash and
Cash
Equivalents
    Company
Stock
    Registered
Investment
Companies
    Common
Collective
    Government
and Agency
Securities
    Mortgage
and Asset
Backed
Securities
    Corporate
Bonds
    Wrap
Contracts
    Total Assets     Plan’s
Ownership
Percentage
 

Investments, at Fair Value:

                   

The Timken Company Common Stock Fund

  $ 2,676,111      $ 296,932,589      $ —        $ —        $ —        $ —        $ —        $ —        $ 299,608,700        0.11

Morgan Stanley Small Company Growth

    —          —          14,124,854        —          —          —          —          —          14,124,854        0.00

American Funds EuroPacific Growth

    —          —          72,122,610        —          —          —          —          —          72,122,610        0.03

American Funds Washington Mutual Investors

    —          —          16,322,636        —          —          —          —          —          16,322,636        0.01

American Beacon Small Cap Value

    —          —          19,995,849        —          —          —          —          —          19,995,849        0.00

Vanguard Target Retirement Income

    —          —          9,032,047        —          —          —          —          —          9,032,047        0.00

Vanguard Target Retirement 2005

    —          —          8,463,967        —          —          —          —          —          8,463,967        0.97

Vanguard Target Retirement 2015

    —          —          61,428,882        —          —          —          —          —          61,428,882        0.02

Vanguard Target Retirement 2025

    —          —          30,074,232        —          —          —          —          —          30,074,232        0.00

Vanguard Target Retirement 2035

    —          —          30,092,816        —          —          —          —          —          30,092,816        0.03

Vanguard Target Retirement 2045

    —          —          12,163,963        —          —          —          —          —          12,163,963        0.02

Vanguard Target Retirement 2020

    —          —          43,531        —          —          —          —          —          43,531        0.00

Vanguard Target Retirement 2030

    —          —          38,305        —          —          —          —          —          38,305        0.00

Vanguard Target Retirement 2040

    —          —          25,722        —          —          —          —          —          25,722        0.00

Vanguard Target Retirement 2050

    —          —          14,981        —          —          —          —          —          14,981        0.00

JPMorgan S&P 500 Index

    —          —          —          30,539,328        —          —          —          —          30,539,328        2.67

The Timken Company – JPM Bond Fund

    —          —          —          4,674,307        26,998,221        54,716,595        16,543,959        —          102,933,082        0.17

JPMorgan Equity Index

    —          —          —          123,489,446        —          —          —          —          123,489,446        0.00

Nuveen Winslow Large-Cap Growth

    —          —          —          63,463,896        —          —          —          —          63,463,896        0.04

SSgA Russell 2000-A Index

    —          —          —          41,177,230        —          —          —          —          41,177,230        0.08
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
  $ 2,676,111      $ 296,932,589      $ 273,944,395      $ 263,344,207      $ 26,998,221      $ 54,716,595      $ 16,543,959      $ —        $ 935,156,077     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

JPMorgan Stable Value Fund:

                   

JPMorgan Liquidity Fund

    —          —          —          14,307,860        —          —          —          —          14,307,860     

JPMorgan Intermediate Bond Fund

    —          —          —          157,273,471        —          —          —          —          157,273,471     

Wrapper Value

    —          —          —          —          —          —          —          25,677        25,677     

Adjustments from fair value to contract value

    —          —          —          (536,503     —          —          —          —          (536,503  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
  $ —        $ —        $ —        $ 171,044,828      $ —        $ —        $ —        $ 25,677      $ 171,070,505        0.16
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
                   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net Assets of Master Trust

  $ 2,676,111      $ 296,932,589      $ 273,944,395      $ 434,389,035      $ 26,998,221      $ 54,716,595      $ 16,543,959      $ 25,677      $ 1,106,226,582        0.16
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

10


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

3. Investments (continued)

 

Investment gain for the Master Trust is as follows:

 

     Year Ended
December 31,
2012
 

Net appreciation in fair value of investments

  

Cash and Cash Equivalents

   $ 80,338   

Company Stock

     75,276,788   

Registered Investment Companies

     33,309,625   

Common Collective Funds

     39,233,737   

Government and Agency Securities

     1,098,395   

Mortgage and Asset Backed Securities

     3,566,455   

Corporate Bonds

     793,191   
  

 

 

 
   $ 153,358,529   

Net appreciation in investment contracts

     3,417,037   

Interest and dividends

     14,630,061   
  

 

 

 

Total Master Trust

   $ 171,405,627   
  

 

 

 

 

11


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

4. Fair Value

The fair value framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). The three levels of the fair value hierarchy under FASB ASC 820 are described as follows:

Level 1 – Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.

Level 2 – Inputs to the valuation methodology include:

 

   

quoted prices for similar assets or liabilities in active markets;

 

   

quoted prices for identical or similar assets or liabilities in inactive markets;

 

   

inputs other than quoted prices that are observable for the asset or liability;

 

   

inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observable inputs and minimize the use of unobservable inputs.

 

12


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

4. Fair Value (continued)

 

The following tables present the fair value hierarchy for those investments of the Master Trust measured at fair value on a recurring basis as of December 31, 2012 and 2011:

 

     Assets at Fair Value as of December 31, 2012  
     Total      Level 1      Level 2      Level 3  

Assets:

           

Cash and Cash Equivalents:

           

JPMorgan US Government Money Market

   $ 1,576,982       $ —         $ 1,576,982       $ —     

Company Stock:

           

The Timken Company Common Stock

     319,117,974         319,117,974         —           —     

Registered Investment Companies:

           

Morgan Stanley Small Company Growth

     14,814,070         14,814,070         —           —     

American Funds EuroPacific Growth

     89,314,155         89,314,155         —           —     

American Funds Washington Mutual Investors

     22,783,272         22,783,272         —           —     

American Beacon Small Cap Value

     22,868,397         22,868,397         —           —     

Vanguard Target Retirement Income

     23,368,634         23,368,634         —           —     

Vanguard Target Retirement 2015

     70,820,300         70,820,300         —           —     

Vanguard Target Retirement 2020

     6,806,720         6,806,720         —           —     

Vanguard Target Retirement 2025

     38,937,796         38,937,796         —           —     

Vanguard Target Retirement 2030

     2,645,284         2,645,284         —           —     

Vanguard Target Retirement 2035

     35,355,304         35,355,304         —           —     

Vanguard Target Retirement 2040

     1,665,490         1,665,490         —           —     

Vanguard Target Retirement 2045

     16,125,154         16,125,154         —           —     

Vanguard Target Retirement 2050

     800,347         800,347         —           —     

Common Collective Funds:

           

JPMorgan S&P 500 Index

     32,466,044         —           32,466,044         —     

SSgA Russell 2000-A Index

     48,444,488         —           48,444,488         —     

JPMorgan Equity Index

     140,491,194         —           140,491,194         —     

Nuveen Winslow Large-Cap Growth

     63,736,701         —           63,736,701         —     

The Timken Company - JPM Bond Fund:

           

Common Collective Fund:

           

JPMorgan Liquidity Fund

     8,055,932         —           8,055,932         —     

Government and Agency Securities

     34,150,439         —           34,150,439         —     

Mortgage and Asset Backed Securities

     68,750,278         —           68,750,278         —     

Corporate Bonds

     24,012,101         —           24,012,101         —     

JPMorgan Stable Value Fund:

           

Common Collective Funds:

           

JPMorgan Liquidity Fund

     32,235,856         —           32,235,856         —     

JPMorgan Intermediate Bond Fund

     155,036,381         —           155,036,381         —     

JPMorgan Mortgage Private Placement Fund

     8,682,881         —           8,682,881         —     

Wrapper Value

     48,420         —           —           48,420   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 1,283,110,594       $ 665,422,897       $ 617,639,277       $ 48,420   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

13


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

4. Fair Value (continued)

 

     Assets at Fair Value as of December 31, 2011  
     Total      Level 1      Level 2      Level 3  

Assets:

           

Cash and Cash Equivalents:

           

JPMorgan US Government Money Market

   $ 2,676,111       $ —         $ 2,676,111       $ —     

Company Stock:

           

The Timken Company Common Stock

     296,932,589         296,932,589         —           —     

Registered Investment Companies:

           

Morgan Stanley Small Company Growth

     14,124,854         14,124,854         —           —     

American Funds EuroPacific Growth

     72,122,610         72,122,610         —           —     

American Funds Washington Mutual Investors

     16,322,636         16,322,636         —           —     

American Beacon Small Cap Value

     19,995,849         19,995,849         —           —     

Vanguard Target Retirement Income

     9,032,047         9,032,047         —           —     

Vanguard Target Retirement 2005

     8,463,967         8,463,967         —           —     

Vanguard Target Retirement 2015

     61,428,882         61,428,882         —           —     

Vanguard Target Retirement 2020

     43,531         43,531         —           —     

Vanguard Target Retirement 2025

     30,074,232         30,074,232         —           —     

Vanguard Target Retirement 2030

     38,305         38,305         —           —     

Vanguard Target Retirement 2035

     30,092,816         30,092,816         —           —     

Vanguard Target Retirement 2040

     25,722         25,722         —           —     

Vanguard Target Retirement 2045

     12,163,963         12,163,963         —           —     

Vanguard Target Retirement 2050

     14,981         14,981         —           —     

Common Collective Funds:

           

JPMorgan S&P 500 Index

     30,539,328         —           30,539,328         —     

SSgA Russell 2000 – A Index

     41,177,230         —           41,177,230         —     

JPMorgan Equity Index

     123,489,446         —           123,489,446         —     

Nuveen Winslow Large – Cap Growth

     63,463,896         —           63,463,896         —     

The Timken Company – JPM Bond Fund:

           

Common Collective Fund:

           

JPMorgan Liquidity Fund

     4,674,307         —           4,674,307         —     

Government and Agency Securities

     26,998,221         —           26,998,221         —     

Mortgage and Asset Backed Securities

     54,716,595         —           54,716,595         —     

Corporate Bonds

     16,543,959         —           16,543,959         —     

JPMorgan Stable Value Fund:

           

Common Collective Funds:

           

JPMorgan Liquidity Fund

     14,307,860         —           14,307,860         —     

JPMorgan Intermediate Bond Fund

     157,273,471         —           157,273,471         —     

Wrapper Value

     25,677         —           —           25,677   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 1,106,763,085       $ 570,876,984       $ 535,860,424       $ 25,677   
  

 

 

    

 

 

    

 

 

    

 

 

 

During 2011, the fair value of the Timken Company Common Stock Fund held in the Master Trust was presented as a Level 2 asset. The prior period disclosure has been corrected to reflect separate presentation of the common stock as a Level 1 asset. In addition, during 2011, the JPMorgan Stable Value Fund was presented as a Level 3 asset. The prior period disclosure has been corrected to reflect separate presentation of the Stable Value Fund as a Level 2 asset, excluding the wrapper which is a Level 3 asset.

 

14


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

4. Fair Value (continued)

 

The investment strategy for American Funds Washington Mutual Investors is to invest in common stocks of established companies that are listed on, or meet the financial listing requirements of, the New York Stock Exchange and have a strong record of earnings and dividends.

The Timken Company Common Stock Fund participates in units and is valued based on the closing price of Timken common shares traded on a national securities exchange. Registered investment companies are valued based on quoted market prices reported on the active market on which the individual securities are traded.

The JPMorgan S&P 500 Index Fund and the JPMorgan Equity Index Fund include investments that provide exposure to a broad equity market and are designed to mirror the aggregate price and dividend performance of the S&P 500 Index. The fair values of the investments in this category have been determined using the net asset value per share.

The Timken Company – JPM Bond Fund includes investments that seek to maximize total return by investing primarily in a diversified portfolio of intermediate- and long-term debt securities. The fair value for The Timken Company – JPM Bond Fund is based on the value of the underlying assets. The JP Morgan Liquidity Fund is valued using the net asset value per share. The Government and Agency Securities are valued at the closing price on the date of the last transaction. Mortgage and Asset Backed Securities are valued based on quoted prices for similar assets in active markets. Corporate Bonds are valued at the closing price on the date of the last transaction.

The SSgA Russell 2000-A Index Fund includes investments seeking an investment return that approximates as closely as practicable, before expenses, the performance of the Russell 2000 Index over the long term. The fund includes exposure to stocks of small U.S. companies. The fair value of the investments in this category has been determined using the net asset value per share.

The Nuveen Winslow Large-Cap Growth Fund is a portfolio that invests at least 80% of its net assets in equity securities of U.S. companies with market capitalization in excess of $4 billion at the time of purchase. The fair value of the investments in this category has been determined using the net asset value per share on the active market on which the individual securities are traded.

 

15


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

4. Fair Value (continued)

 

The Stable Value Fund is invested in the JPMorgan Liquidity, JPMorgan Intermediate Bond, and JPMorgan Private Placement Common Collective Funds. The fair value of the investment in these funds has been estimated using the net asset value per share. The JPMorgan Liquidity Fund invests in a diversified portfolio of fixed and floating rate short-term money market instruments and U.S. Treasury securities. The JPMorgan Mortgage Private Placement invests primarily in privately placed fixed rate and floating rate mortgages and leasebacks secured by apartment complexes and single family homes, as well as commercial properties, such as office buildings, shopping centers, retail stores and warehouses. The JPMorgan Intermediate Bond Fund is designed as a fixed income portfolio strategy for stable value funds and other conservative fixed income investors.

 

16


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

4. Fair Value (continued)

 

The following tables present a summary of changes in the fair value of the Master Trust’s Level 3 assets as of December 31, 2012 and December 31, 2011, respectively:

 

     Wrapper
Value
     Total  

Balance, January 1, 2012

   $ 25,677       $ 25,677   

Unrealized gains

     22,743         22,743   
  

 

 

    

 

 

 

Balance, December 31, 2012

   $ 48,420       $ 48,420   
  

 

 

    

 

 

 

 

     Wrapper
Value
     Total  

Balance, January 1, 2011

   $ —         $ —     

Unrealized gains

     25,677         25,677   
  

 

 

    

 

 

 

Balance, December 31, 2011

   $ 25,677       $ 25,677   
  

 

 

    

 

 

 

 

17


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

4. Fair Value (continued)

 

The following table represents the Plan’s level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, and the significant unobservable inputs and the ranges of values for those inputs:

 

Instrument

  Fair Value     Principal Valuation
Technique
    Unobservable Inputs   Range of Significant
Input Values
    Weighted Average  

Synthetic guaranteed investment contract wrapper

  $ 48,420        Replacement Cost      Swap Yield Rate     0.50     0.50
      Duration     3.05     
      Payout Date     N/A     
      Payout Percentage     N/A     

The following table summarizes investments measured at fair value based on net asset value (NAVs) per share as of December 31, 2012 and 2011, respectively:

 

December 31, 2012

   Fair Value      Redemption
Unfunded
Commitments
   Redemption
Frequency
   Redemption
Notice
Period

JPMorgan S&P 500 Index

   $ 32,466,044       Not applicable    Daily    Trade Day

The Timken Company – JPM Bond Fund

   $ 134,968,750       Not applicable    Daily    Trade Day

SSgA Russell 2000-A Index

   $ 48,444,488       Not applicable    Daily    Trade Day

JPMorgan Equity Index

   $ 140,491,194       Not applicable    Daily    Trade Day + 1 day

Nuveen Winslow Large Cap Growth

   $ 63,736,701       Not applicable    Daily    Trade Day

JPMorgan Liquidity

   $ 32,235,856       Not applicable    Daily    Trade Day

JPMorgan Intermediate Bond

   $ 155,036,381       Not applicable    Daily    Trade Day

JPMorgan Mortgage Private Placement Fund

   $ 8,682,881       Not applicable    Daily    Trade Day + 1 day

 

December 31, 2011

   Fair Value      Redemption
Unfunded
Commitments
   Redemption
Frequency
   Redemption
Notice
Period

JPMorgan S&P 500 Index

   $ 30,539,328       Not applicable    Daily    Trade Day

The Timken Company – JPM Bond Fund

   $ 102,933,082       Not applicable    Daily    Trade Day

SSgA Russell 2000-A Index

   $ 41,177,230       Not applicable    Daily    Trade Day

JPMorgan Equity Index

   $ 123,489,446       Not applicable    Daily    Trade Day + 1 day

Nuveen Winslow Large Cap Growth

   $ 63,463,896       Not applicable    Daily    Trade Day

JPMorgan Liquidity

   $ 14,307,860       Not applicable    Daily    Trade Day

JPMorgan Intermediate Bond

   $ 157,273,471       Not applicable    Daily    Trade Day

 

18


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

5. Investment Contracts

The Master Trust invests in synthetic guaranteed investment contracts (SGICs), or a Stable Value Fund, that credit a stated interest rate for a specified period of time. The Stable Value Fund provides principal preservation plus accrued interest through fully benefit-responsive wrap contracts issued by a third party which back the underlying assets owned by the Master Trust. The account is credited with earnings on the underlying investments and charged for participant withdrawals and administrative expenses. The investment contract issuer is contractually obligated to repay the principal at a specified interest rate that is guaranteed to the Plan.

Investment contracts held by a defined contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits attributable to the fully benefit-responsive investment contracts. Contract value represents contributions made under the contracts, plus earnings, less participant withdrawals and administrative expenses. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value.

The Plan’s wrapper contracts permit all allowable participant-initiated transactions to occur at contract value. There are no events known to the Plan that are probable of occurring and which would limit its ability to transact at contract value with the issuer of the wrapper contract, which also limit the ability of the Plan to transact at contract value with participants. The wrapper contracts cannot be terminated by its issuer at a value other than contract value or prior to the scheduled maturity date, except under a limited number of very specific circumstances including termination of the Plan or failure to qualify, material misrepresentations by the Plan sponsor or investment manager, failure by these same parties to meet material obligations under the contract, or other similar types of events.

There are no reserves against contract value for credit risk of the contract issuer or otherwise. The crediting interest rates for the wrap contracts are calculated on a quarterly basis (or more frequently if necessary) using contract value, market value of the underlying fixed income portfolio, the yield of the portfolio, and the duration of the index, but cannot be less than zero. The crediting rate is most affected by the change in the annual effective yield to maturity of the underlying securities, but is also affected by the difference between the contract value and the market value of the covered investments.

 

19


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

5. Investment Contracts (continued)

 

     December 31,  

Average Yields for SGICs

   2012      2011  

Based on actual earnings

     1.0%         2.0%   

Based on interest rate credited to participants

     2.0%         2.0%   

6. Reconciliation of Financial Statements to the Form 5500

The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500:

 

     December 31,  
     2012      2011  

Net assets available for benefits per the financial statements

   $ 1,906,554       $ 1,788,559   

Adjustment from contract value to fair value for fully benefit-responsive investment contracts

     4,479         882   
  

 

 

    

 

 

 

Net assets available for benefits per the Form 5500

   $ 1,911,033       $ 1,789,441   
  

 

 

    

 

 

 

The fully benefit-responsive investment contracts have been adjusted from fair value to contract value for purposes of the financial statements. For purposes of the Form 5500, the investment contracts will be stated at fair value.

 

20


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

6. Reconciliation of Financial Statements to the Form 5500 (continued)

 

The following is a reconciliation of total additions per the financial statements to total income per the Form 5500 for the year ended December 31, 2012:

 

Total additions per the financial statements

   $ 245,242   

Less: Adjustment from fair value to contract value for fully benefit-responsive investment contracts at December 31, 2011

     (882

Add: Adjustment from fair value to contract value for fully benefit-responsive investment contracts at December 31, 2012

     4,479   
  

 

 

 

Total income per the Form 5500

   $ 248,839   
  

 

 

 

7. Risks and Uncertainties

The Master Trust invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits.

 

21


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

8. Income Tax Status

The Plan has received a determination letter from the IRS dated April 23, 2003, stating that the Plan is qualified under Section 401(a) of the Internal Revenue Code (the Code), and therefore, the related trust is exempt from taxation. Subsequent to this determination by the IRS, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Plan Administrator believes that the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan, as amended, is qualified and the related trust is tax-exempt.

Accounting principles generally accepted in the United States require plan management to evaluate uncertain tax positions taken by the Plan. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2012, there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan Administrator believes it is no longer subject to income tax examinations for years prior to 2009.

 

22


Table of Contents

Voluntary Investment Program for Hourly

Employees of Latrobe Steel Company

Notes to Financial Statements (continued)

 

9. Related-Party Transactions

Related-party transactions included the investments in the common stock of the Company and the investment funds of the Trustee. Such transactions are exempt from being prohibited transactions.

The following is a summary of transactions in Timken common shares with the Master Trust for the year ended December 31, 2012:

 

     Dollars  

Purchased

   $ 100,029,036   

Issued to participants for payment of benefits

   $ 1,737,409   

Purchases and benefits paid to participants include Timken common shares valued at quoted market prices at the date of purchase or distribution.

Certain legal and accounting fees and certain administrative expenses relating to the maintenance of participant records are paid by the Company. Fees paid during the year for services rendered by parties in interest were based on customary and reasonable rates for such services.

 

23


Table of Contents

SIGNATURES

The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other person who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.

 

   

VOLUNTARY INVESTMENT
PROGRAM FOR HOURLY
EMPLOYEES OF LATROBER STEEL
COMPANY

 

Date: July 1, 2013   By:  

/s/ Scott A. Scherff

    Scott A. Scherff
    Corporate Secretary and Vice President – Ethics and Compliance