THE TIMKEN COMPANY EMPLOYEE SAVINGS PLAN 11-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
|
|
|
þ |
|
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2007
OR
|
|
|
o |
|
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
THE TIMKEN COMPANY EMPLOYEE SAVINGS 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 and
Supplemental Schedule
The Timken Company Employee Savings Plan
December 31, 2007 and 2006, and Year Ended December 31, 2007
With Report of Independent Registered Public Accounting Firm
The Timken Company Employee Savings Plan
Audited Financial Statements and Supplemental Schedule
December 31, 2007 and 2006, and
Year Ended December 31, 2007
Contents
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
Audited Financial Statements |
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
3 |
|
|
|
|
4 |
|
|
|
|
|
|
Supplemental Schedule |
|
|
|
|
|
|
|
14 |
|
EX-23 |
Report of Independent Registered Public Accounting Firm
The Timken Company, Administrator of The
Timken Company Employee Savings Plan
We have audited the accompanying statements of net assets available for benefits of The Timken
Company Employee Savings 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.
Our audits were performed for the purpose of forming an opinion on the financial statements taken
as a whole. The accompanying supplemental schedule of assets (held at end of year) as of
December 31, 2007, is presented for purposes of additional analysis and is not a required part of
the financial statements but is supplementary information required by the Department of Labors
Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security
Act of 1974. This supplemental schedule is the responsibility of the Plans management. The
supplemental schedule has been subjected to the auditing procedures applied in our audits of the
financial statements and, in our opinion, is fairly stated in all material respects in relation to
the financial statements taken as a whole.
/s/ Ernst & Young LLP
Cleveland, Ohio
June 20, 2008
1
The Timken Company Employee Savings Plan
Statements of Net Assets Available for Benefits
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2007 |
|
2006 |
|
|
|
Assets |
|
|
|
|
|
|
|
|
Investments, at fair value
|
|
|
|
|
|
|
|
|
Interest in The Master Trust Agreement for The Timken
Company Defined Contribution Plans |
|
$ |
9,188,823 |
|
|
$ |
8,377,296 |
|
Participant notes receivable |
|
|
399,223 |
|
|
|
269,657 |
|
|
|
|
Total investments, at fair value |
|
|
9,588,046 |
|
|
|
8,646,953 |
|
|
|
|
|
|
|
|
|
|
Receivables: |
|
|
|
|
|
|
|
|
Contribution receivable from participants |
|
|
11,686 |
|
|
|
15,235 |
|
Contribution receivable from The Timken Company |
|
|
214,251 |
|
|
|
213,324 |
|
|
|
|
Total receivables |
|
|
225,937 |
|
|
|
228,559 |
|
|
|
|
Net assets available for benefits at fair value |
|
|
9,813,983 |
|
|
|
8,875,512 |
|
|
|
|
|
|
|
|
|
|
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 |
|
|
43,780 |
|
|
|
21,694 |
|
|
|
|
Net assets available for benefits |
|
$ |
9,857,763 |
|
|
$ |
8,897,206 |
|
|
|
|
See accompanying notes.
2
The Timken Company Employee Savings Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2007
|
|
|
|
|
Additions |
|
|
|
|
Investment income: |
|
|
|
|
Net investment gain from The Master Trust Agreement for
The Timken Company Defined Contribution Plans |
|
$ |
698,452 |
|
Interest |
|
|
23,620 |
|
|
|
|
|
|
|
|
722,072 |
|
|
|
|
|
|
Contributions: |
|
|
|
|
Participants |
|
|
262,379 |
|
The Timken Company |
|
|
263,537 |
|
|
|
|
|
|
|
|
525,916 |
|
|
|
|
|
Total additions |
|
|
1,247,988 |
|
|
|
|
|
|
Deductions |
|
|
|
|
Benefits paid directly to participants |
|
|
274,973 |
|
Administrative expenses |
|
|
12,458 |
|
|
|
|
|
Total deductions |
|
|
287,431 |
|
|
|
|
|
Net increase |
|
|
960,557 |
|
|
|
|
|
|
Net assets available for benefits: |
|
|
|
|
Beginning of year |
|
|
8,897,206 |
|
|
|
|
|
End of year |
|
$ |
9,857,763 |
|
|
|
|
|
See accompanying notes.
3
The Timken Company Employee Savings Plan
Notes to Financial Statements
December 31, 2007 and 2006,
and Year Ended December 31, 2007
1. Description of Plan
The following description of The Timken Company Employee Savings Plan (formerly known as The Rail
Bearing Service Corporation Employee Savings Plan) (the Plan) provides only general information.
Participants should refer to the Summary Plan Description for a more complete description of the
Plans provisions.
General
The Plan is a defined contribution plan covering full-time employees of Rail Bearing Service
Corporation and Timken Industrial Services, LLC, excluding employees of Reliability Services,
(collectively, the Company). The Timken Company (Timken) is the Plan Administrator. Employees of
Rail Bearing Service Corporation become eligible to receive Profit
Sharing Contributions immediately. Profit Sharing Contributions are
based upon Rail Bearing Service Corporations return on assets. Full-time employees of Rail Bearing Service Corporation are eligible to
contribute to the Plan after completing one year of service. Employees of Timken Industrial
Services, LLC become 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 may elect to contribute up to 15% of their gross
earnings directly to the Plan subject to Internal Revenue Service (IRS) limitations. Participants
may also contribute amounts representing distributions from other qualified defined benefit or
defined contribution plans. The Company matches Rail Bearing Service Corporation employee
contributions at an amount equal to 50% on the first 6% of the participants gross earnings, called
Company Match Contributions. In addition, the Company contributes Timken common shares at an
amount equal to 10% on the first 6% of the participants gross earnings, called Stock Match
Contributions. The Plan also provides for a discretionary Profit Sharing Contribution by the
Company for eligible employees of Rail Bearing Service Corporation.
The Company matches Timken Industrial Services, LLC employee contributions, Matching
Contributions, at an amount equal to 25% of the first 7% of the participants gross earnings.
The Plan provides for a quarterly 401(k) Plus Contribution by the Company for eligible employees
of Timken Industrial Services, LLC. This contribution is based on the participants full years of
service at amounts ranging from 2.5% to 8.0%.
4
The Timken Company Employee Savings Plan
Notes to Financial Statements (continued)
1. Description of Plan (continued)
Upon enrollment, a participant must direct their contribution in 1% increments to any of the Plans
fund options. If a participant fails to make a deferral election, he/she will be automatically
enrolled in the Plan at a 3% deferral rate. For Rail Bearing Service Corporation participants,
Company Match Contributions and Profit Sharing Contributions are invested based on the
participants investment election. If a participant fails to make investment elections, his/her
deferrals will default to an appropriate Vanguard Target Retirement Fund, based on the
participants age. Participants are not allowed to direct the investment of the Stock Match
Contribution until attaining age 55, (ii) the third anniversary of the date on which such
participant is hired, (iii) the date such participant obtains 3 years of Continuous Service; or
(iv) following retirement. For Timken Industrial Services, LLC participants, 401(k) Plus
Contributions are invested based on the participants investment election. If a participant fails
to make investment elections, his/her deferrals will default to an appropriate Vanguard Target
Retirement Fund, based on the participants age. Participants are not allowed to direct the
investment of the Matching Contribution until attaining age 55, (ii) the third anniversary of the
date on which such participant is hired, (iii) the date such participant obtains 3 years of
Continuous Service, or (iv) following retirement.
Participants have access to their account information and the ability to make account transfers and
contribution changes daily through an automated telecommunications system and through the Internet.
Participants may 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 is credited with the participants contributions and allocations of (a)
the Companys contributions and (b) plan earnings, and is charged with an allocation of
administrative expenses. 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.
5
The Timken Company Employee Savings Plan
Notes to Financial Statements (continued)
1. Description of Plan (continued)
Vesting
Participants are immediately vested in their contributions plus actual earnings thereon. For Rail
Bearing Service Corporation participants, vesting in the Company Match Contribution and Stock Match
Contribution portions of their accounts plus actual earnings thereon occurs over a period of five
years with 20% vested after one year and an additional 20% in each of the years two to five. Also,
vesting in the Profit Sharing Contribution portion of their accounts plus actual earnings thereon
occurs over a period of three years. Timken Industrial Services, LLC participants are immediately
vested in Matching Contributions plus actual earnings thereon. Participants vest in the 401(k) Plus
Contributions after the completion of three years of service.
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,
except loans made for purchasing a primary residence which cannot exceed 30 years. The loans are
secured by the balance in the participants vested account and bear interest at an interest rate of
one percent 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
On termination of service, a participant may receive a lump-sum amount equal to the vested balance
of their account, or elect to receive installment payments over a period of time not to exceed
their life expectancy. If a participants vested account balance is greater than $1,000, they may
leave their vested assets in the Plan until age 701/2.
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.
6
The Timken Company Employee Savings 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.
7
The Timken Company Employee Savings Plan
Notes to Financial Statements (continued)
2. Accounting Policies (continued)
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.
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.
8
The Timken Company Employee Savings Plan
Notes to Financial Statements (continued)
3. Investments
The Trustee holds all the Plans investment assets and executes investment transactions. All
investment assets of the Plan, except for the participant loans are pooled for investment purposes
in the Master Trust.
The following table presents a summary of the investments of the Master Trust as of December 31:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
|
Investments, at fair value as determined by
quoted market price: |
|
|
|
|
|
|
|
|
The Timken Company Common Stock Fund |
|
$ |
324,783,232 |
|
|
$ |
328,532,326 |
|
Registered investment companies |
|
|
340,698,963 |
|
|
|
276,803,386 |
|
Common collective funds |
|
|
267,376,313 |
|
|
|
277,910,070 |
|
|
|
|
|
|
|
932,858,508 |
|
|
|
883,245,782 |
|
|
|
|
|
|
|
|
|
|
Investment contracts, at fair value |
|
|
149,281,023 |
|
|
|
145,405,625 |
|
Adjustment from fair value to contract value |
|
|
3,584,578 |
|
|
|
1,818,969 |
|
|
|
|
Investment contracts, at contract value |
|
|
152,865,601 |
|
|
|
147,224,594 |
|
|
|
|
|
|
$ |
1,085,724,109 |
|
|
$ |
1,030,470,376 |
|
|
|
|
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 0.85% as of December 31, 2007.
9
The Timken Company Employee Savings 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:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2007 |
|
2006 |
|
|
|
Net appreciation (depreciation) in fair
value of investments determined by quoted
market price: |
|
|
|
|
|
|
|
|
The Timken Company Common Stock Fund |
|
$ |
41,478,441 |
|
|
$ |
(29,486,575 |
) |
Registered investment companies |
|
|
9,055,413 |
|
|
|
19,973,017 |
|
Common collective funds |
|
|
14,493,137 |
|
|
|
37,607,507 |
|
|
|
|
|
|
|
65,026,991 |
|
|
|
28,093,949 |
|
Net appreciation in investment contracts |
|
|
5,567,300 |
|
|
|
4,447,290 |
|
Interest and dividends |
|
|
26,138,420 |
|
|
|
19,254,001 |
|
|
|
|
Total Master Trust |
|
$ |
96,732,711 |
|
|
$ |
51,795,240 |
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2007 |
|
2006 |
|
|
|
Investments, at fair value: |
|
|
|
|
|
|
|
|
Interest in Master Trust related to The Timken
Company Common Stock Fund |
|
$ |
671,060 |
|
|
$ |
529,028 |
|
Receivable: |
|
|
|
|
|
|
|
|
Participants and company contribution receivable |
|
|
10,882 |
|
|
|
15,172 |
|
|
|
|
|
|
$ |
681,942 |
|
|
$ |
544,200 |
|
|
|
|
10
The Timken Company Employee Savings Plan
Notes to Financial Statements (continued)
4. Non-Participant-Directed Investments (continued)
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
|
|
2007 |
|
Change in net assets: |
|
|
|
|
Net appreciation in fair value of investments |
|
$ |
83,084 |
|
Dividends |
|
|
12,153 |
|
Participants and company contributions |
|
|
61,132 |
|
Benefits paid directly to participants |
|
|
(11,614 |
) |
Expenses |
|
|
(928 |
) |
Transfers to participant-directed accounts |
|
|
(6,085 |
) |
|
|
|
|
|
|
$ |
137,742 |
|
|
|
|
|
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.
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.
11
The Timken Company Employee Savings Plan
Notes to Financial Statements (continued)
5. Investment Contracts (continued)
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:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2007 |
|
2005 |
|
|
|
Net assets available for benefits per the
financial statements |
|
$ |
9,857,763 |
|
|
$ |
8,897,206 |
|
Adjustment from contract value to fair value for
fully benefit-responsive investment contracts |
|
|
(43,780 |
) |
|
|
(21,694 |
) |
|
|
|
Net assets available for benefits per the Form 5500 |
|
$ |
9,813,983 |
|
|
$ |
8,875,512 |
|
|
|
|
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.
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.
12
The Timken Company Employee Savings Plan
Notes to Financial Statements (continued)
7. Income Tax Status
The Plan has received a determination letter from the IRS dated April 2, 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, therefore, 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:
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Dollars |
|
|
|
Purchased |
|
|
1,909,011 |
|
|
$ |
33,966,361 |
|
Issued to participants for payment of benefits |
|
|
100,907 |
|
|
|
1,162,984 |
|
Dividends received |
|
|
193,715 |
|
|
|
3,346,875 |
|
Benefits paid to participants include payments made in Timken common shares valued at quoted market
prices at the date of 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.
13
The Timken Company Employee Savings Plan
EIN #34-0577130 Plan #024
Schedule H, Line 4i Schedule of Assets
(Held at End of Year)
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
Description of Investment, |
|
|
|
|
|
|
Including Maturity Date, |
|
|
|
|
Identity of Issuer, Borrower, |
|
Rate of Interest, Collateral, |
|
|
Current |
|
Lessor, or Similar Party |
|
Par, or Maturity Value |
|
|
Value |
|
|
Participant notes receivable* |
|
Interest rates ranging |
|
|
|
|
|
|
from 5.0% to 9.5% with
various maturity dates |
|
$ |
399,223 |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Indicates party in interest to the Plan. |
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.
|
|
|
|
|
|
THE TIMKEN COMPANY
EMPLOYEE SAVINGS PLAN
|
|
Date: June 20, 2008 |
By: |
/s/ Scott A. Scherff
|
|
|
|
Scott A. Scherff |
|
|
|
Corporate Secretary and
Assistant General Counsel |
|
|