OH&R INVESTMENT PLAN (TIMKEN) 11-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
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ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2007
OR
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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
OH&R INVESTMENT PLAN
(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)
Audited Financial Statements
OH&R Investment Plan
December 31, 2007 and 2006, and Year Ended December 31, 2007
With Report of Independent Registered Public Accounting Firm
OH&R Investment Plan
Audited Financial Statements
December 31, 2007 and 2006, and
Year Ended December 31, 2007
Table of Contents
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1 |
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Audited Financial Statements |
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EX-23 |
Report of Independent Registered Public Accounting Firm
The Timken Company, Administrator
of the OH&R Investment Plan
We have audited the accompanying statements of net assets available for benefits of the
OH&R Investment Plan as of December 31, 2007 and 2006, and the related statement of changes in net
assets available for benefits for the year ended December 31, 2007. These financial statements are
the responsibility of the Plans management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. We
were not engaged to perform an audit of the Plans internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Plans internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and 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 net assets available for benefits of the Plan at December 31, 2007 and 2006, and the
changes in its net assets available for benefits for the year ended December 31, 2007, in
conformity with U. S. generally accepted accounting principles.
Cleveland, Ohio
June 20, 2008
1
OH&R Investment Plan
Statements of Net Assets Available for Benefits
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December 31, |
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2007 |
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2006 |
Assets |
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Investments, at fair value: |
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Interest in The Master Trust Agreement for The Timken
Company Defined Contribution Plans |
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$ |
2,190,729 |
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$ |
6,107,572 |
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Participant notes receivable |
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202,006 |
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Total investments, at fair value |
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2,190,729 |
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6,309,578 |
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Receivables: |
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Contribution receivable from The Timken Company |
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13,648 |
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Total receivables |
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13,648 |
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Net assets available for benefits at fair value |
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2,190,729 |
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6,323,226 |
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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 |
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9,360 |
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7,643 |
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Net assets available for benefits |
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$ |
2,200,089 |
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$ |
6,330,869 |
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See accompanying notes.
2
OH&R Investment Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2007
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Additions |
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Investment income: |
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Net investment gain from The Master Trust Agreement for
The Timken Company Defined Contribution Plans |
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$ |
221,781 |
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Interest |
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985 |
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Total additions |
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222,766 |
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Deductions |
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Benefits paid directly to participants |
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4,351,430 |
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Administrative expenses |
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2,116 |
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Total deductions |
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4,353,546 |
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Net decrease |
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(4,130,780 |
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Net assets available for benefits: |
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Beginning of year |
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6,330,869 |
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End of year |
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$ |
2,200,089 |
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See accompanying notes.
3
OH&R Investment Plan
Notes to Financial Statements
December 31, 2007 and 2006, and
Year Ended December 31, 2007
1. Description of the Plan
The following description of the OH&R Investment Plan (the Plan) provides only general information.
Participants should refer to the Total Rewards handbook (Summary Plan Description) for a more
complete description of the Plans provisions.
General
OH&R Special Steels Company (the Company) was a subsidiary of Latrobe Steel Company, which was a
subsidiary of The Timken Company. Effective December 8, 2006, The Timken Company sold Latrobe Steel
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 full-time employees of the Marlborough division of Latrobe Steel
Company (those formerly employed by Houghton & Richards Companies) and employees of the Vienna
division of Latrobe Steel Company (those formerly employed by Ohio
Alloy Steels, Inc.), collectively OH&R. Full-time
employees of the Company became eligible to participate in the Plan the first of the month
coincident with or next following the completion of one full calendar month of full-time service.
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 elect to contribute up to 20% of their
gross earnings directly to 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. The Company matched employee contributions,
Matching Contributions, at an amount equal to 100% of the first 3% of the participants gross
earnings and 50% of the excess of 3% up to the next 3% of the participants gross earnings.
The Plan also provided for a Core Contribution by the Company for employees at the Vienna
Division who did not have five years of Credited Service or 50 points (in Credited Service and age)
as of December 31, 2003. This contribution was based on the participants full years of service and
age as of December 31 of the previous calendar year. Core Contribution amounts ranged from 1.0% to
4.5%. For the employees of the Marlborough Division, the Plan provided for a Base Contribution
determined as an allocation of 1% of the participants prior quarters earnings and was paid
quarterly.
4
OH&R Investment Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Upon enrollment, a participant was required to direct their contribution in 1% increments to any of
the Plans fund options. The Matching Contributions and Base Contributions were invested in the
Timken Company Common Stock Fund. Participants were not allowed to direct the investment of the
Matching Contributions or Base Contributions made in Timken common shares until attaining age 55,
(ii) the third anniversary of the date on which such participant is hired, or (iii) the date such
participant obtains 3 years of Continuous Service, or (iv) following retirement. Core
Contributions were invested based on the participants investment election. Participants have
access to their account information and the ability to make changes daily through an automated
telecommunication system and through the Internet.
Participants were able to elect to have their vested dividends in the Timken Company Common Stock
Fund distributed to them in cash rather than automatically reinvested in Timken common shares.
Participant Accounts
Each participants account was credited with the participants contributions and allocations of
(a) the Companys contributions and (b) Plan earnings, and is charged administrative expenses, as
appropriate. Allocations are based on participant earnings or account balances, as defined.
Forfeited balances of terminated participants nonvested accounts are used to reduce future Company
contributions. The benefit to which a participant is entitled is the benefit that can be provided
from the participants vested account.
Vesting
Participants were immediately vested in their contributions and Matching Contributions plus actual
earnings thereon. Vesting in the Core Contribution portion of their account plus actual earnings
thereon occurred after completion of three years of service. Vesting of the Base Contribution
portion of their account plus actual earnings thereon occurred over a period of three years with
50% vested after one year and an additional 25% in years two and three.
5
OH&R Investment Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
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 vested account balance. Loan terms generally cannot exceed five years
for general purpose loans and 30 years for residential loans. The loans are secured by the balance
in the participants 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
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. 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.
Plan Termination
Although
it has not expressed any interest to do so, the Timken Company has the right under the Plan to
discontinue its contributions at any time and to terminate the Plan subject to the provisions of
ERISA. In the event of Plan termination, the Trustee shall distribute to each participant the
balance in their separate account.
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OH&R Investment Plan
Notes to Financial Statements (continued)
2. Accounting Policies
Basis of Accounting
The financial statements have been prepared on the accrual basis of accounting.
New Accounting Pronouncements
In September 2006, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 157, Fair
Value Measurements. SFAS No. 157 establishes a framework for measuring fair value that is based
on the assumptions market participants would use when pricing an asset or liability and establishes
a fair value hierarchy that prioritizes the information to develop those assumptions.
Additionally, the standard expands the disclosures about fair value measurements to include
separately disclosing the fair value measurements of assets or liabilities within each level of the
fair value hierarchy. SFAS No. 157 is effective for fiscal years beginning after November 15,
2007. The adoption of SFAS No. 157 is not expected to have a material effect on the Plans
financial statements.
Investment Valuation and Income Recognition
The Plans 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 seven other defined
contribution plans sponsored by the Timken
Company. The fair value of the Plans interest in the Master Trust is based on the value of the
Plans interest in the fund plus actual contributions and allocated investment income (loss) less
actual distributions.
The Plans trustee, JP Morgan (Trustee), maintains a collective investment trust of Timken common
shares in which The Timken Companys 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. The valuation per unit of The Timken Company Common Stock Fund was $18.18 and $16.20
at December 31, 2007 and 2006, respectively.
7
OH&R Investment Plan
Notes to Financial Statements (continued)
2. Accounting Policies (continued)
Investments in registered investment companies and common collective funds are valued at the
redemption value of units held at year-end. Participant loans are valued at cost, which
approximates fair value. The fair value of investment contracts is calculated by discounting the
related cash flows based on current yields of similar instruments with comparable durations.
Purchases and sales of securities are recorded on a trade-date basis. Dividends are recorded on the
ex-dividend date.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those estimates.
3. Investments
The Trustee holds all the Plans investment assets and executes investment transactions. All
investment assets of the Plan, except for participant loans, are pooled for investment purposes in
the Master Trust.
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OH&R Investment Plan
Notes to Financial Statements (continued)
3. Investments (continued)
The following table presents a summary of the investments of the Master Trust as of December 31:
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2007 |
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2006 |
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Investments, at fair value as determined by
quoted market price: |
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The Timken Company Common Stock Fund |
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$ |
324,783,232 |
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$ |
328,532,326 |
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Registered investment companies |
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340,698,963 |
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276,803,386 |
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Common collective funds |
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267,376,313 |
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277,910,070 |
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932,858,508 |
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883,245,782 |
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Investment contracts, at fair value |
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149,281,023 |
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145,405,625 |
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Adjustment from fair value to contract value |
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3,584,578 |
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1,818,969 |
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Investment contracts, at contract value |
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152,865,601 |
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147,224,594 |
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$ |
1,085,724,109 |
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$ |
1,030,470,376 |
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At
December 31, 2007, The Timken Company Common Stock Fund
consisted of 17,865,552 units of the Timken
Companys common stock. The Plans interest in the Master Trust was 0.20% as of December 31, 2007.
9
OH&R Investment Plan
Notes to Financial Statements (continued)
3. Investments (continued)
Investment income relating to the Master Trust is allocated to the individual plans based upon the
average balance invested by each plan in each of the individual funds of the Master Trust.
Investment income for the Master Trust is as follows:
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Year Ended December 31, |
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2007 |
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2006 |
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Net appreciation (depreciation) in fair value
of investments determined by quoted market
price: |
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The Timken Company Common Stock Fund |
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$ |
41,478,441 |
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$ |
(29,486,575 |
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Registered investment companies |
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9,055,413 |
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19,973,017 |
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Common collective funds |
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14,493,137 |
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37,607,507 |
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65,026,991 |
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28,093,949 |
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Net appreciation in investment contracts |
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5,567,300 |
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4,447,290 |
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Interest and dividends |
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26,138,420 |
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19,254,001 |
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Total Master Trust |
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$ |
96,732,711 |
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$ |
51,795,240 |
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10
OH&R Investment Plan
Notes to Financial Statements (continued)
4. Non-Participant-Directed Investments
Information about the net assets and the significant components of changes in net assets related to
non-participant-directed investments is as follows:
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December 31, |
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2007 |
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2006 |
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Investments, at fair value: |
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Interest in Master Trust related to The Timken
Company Common Stock Fund |
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$ |
277,478 |
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$ |
1,429,231 |
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Receivables: |
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Participant and Company contribution receivable |
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897 |
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$ |
277,478 |
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$ |
1,430,128 |
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Year Ended |
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December 31, |
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2007 |
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Change in net assets: |
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Net appreciation in fair value of investments |
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$ |
35,492 |
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Dividends |
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6,469 |
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Benefits paid directly to participants |
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(1,011,278 |
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Expenses |
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(526 |
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Transfers to participant directed accounts |
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(182,807 |
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$ |
(1,152,650 |
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5. Investment Contracts
Investment contracts consist of a global wrap structure, or Stable Value Fund, with three fully
benefit-responsive wrap contracts. The Stable Value Fund provides principal preservation plus
accrued interest through fully benefit-responsive wrap contracts issued by a third party which are
backed by 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.
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OH&R Investment Plan
Notes to Financial Statements (continued)
5. Investment Contracts (continued)
As described in Financial Accounting Standards Board Staff Position (FSP) AAG INV-1 and SOP 94-4-1,
Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies
Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and
Pension Plans (the FSP), 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.
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 following is a reconciliation of net assets available for benefits per the financial statements
to the Form 5500:
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December 31, |
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2007 |
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2006 |
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Net assets available for benefits per the
financial statements |
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$ |
2,200,089 |
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$ |
6,330,869 |
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Adjustment from contract value to fair value for
fully benefit-responsive investment contracts |
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(9,360 |
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(7,643 |
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Net assets available for benefits per the Form 5500 |
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$ |
2,190,729 |
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$ |
6,323,226 |
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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.
12
OH&R Investment Plan
Notes to Financial Statements (continued)
6. 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.
7. 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. Once qualified, the Plan is required to operate in
conformity with the Code to maintain its qualification. The Plan Administrator believes the Plan is
being operated in compliance with the applicable requirements of the Code and, believes that the
Plan is qualified and the related trust is tax-exempt.
8. Related-Party Transactions
Related-party transactions included the investments in the common stock of The Timken 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, 2007:
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Shares |
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Dollars |
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Purchased |
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1,909,011 |
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$ |
33,966,361 |
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Issued to participants for payment of benefits |
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100,907 |
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1,162,984 |
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Dividends received |
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193,715 |
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3,346,875 |
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Benefits paid to participants include payments made in Timken common shares valued at quoted market
prices at the date of distribution.
13
OH&R Investment Plan
Notes to Financial Statements (continued)
8. Related-Party Transactions (continued)
Certain legal and accounting fees and certain administrative expenses relating to the maintenance
of participant records are paid by The Timken Company. Fees paid during the year for services
rendered by parties in interest were based on customary and reasonable rates for such services.
14
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.
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OH&R INVESTMENT PLAN
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Date: June 20, 2008 |
By: |
/s/ Scott A. Scherff
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Scott A. Scherff |
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Assistant Secretary |
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