REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and Administrator of
The Timken Company Savings and Investment Retirement Plan North Canton, Ohio
Opinion on the Financial Statements
We have audited the accompanying Statements of Net Assets Available for Benefits of The Timken Company Savings and Investment Retirement Plan (the “Plan”) as of December 31, 2022 and 2021, the related Statement of Changes in Net Assets Available for Benefits for the year ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2022 and 2021, and the changes in net assets available for benefits for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the Plan’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Plan in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Supplemental Information
The supplemental information in the accompanying schedule of assets (held at end of year) as of December 31, 2022 has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplemental information is the responsibility of the Plan’s management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information is fairly stated, in all material respects, in relation to the financial statements as a whole.
The Timken Company Savings and Investment Retirement Plan
Notes to Financial Statements
1. Description of the Plan
The following description of The Timken Company Savings and Investment Retirement Plan (the "Plan") provides only general information. Participants should refer to the Summary Plan Description (posted on MyTotalRewards Portal) for a more complete description of the Plan’s provisions. Copies of the Summary Plan Description are available from the Plan Administrator, The Timken Company (the "Company").
General
Participation in this Plan is available to: (1) full-time salaried Employees of The Timken Company; The Timken Corporation; Interlube USA, Inc.; Timken Motor & Crane Services LLC; Timken Gears & Services Inc.; Timken Drives, LLC; MPB Corporation; Bearing Inspection, Inc.; Timken Industrial Services, LLC; Timken Aerospace Drive Systems, LLC; PT Tech LLC; Cone Drive Operations, Inc.; Timken SMO LLC; BEKA Lubrication; Aurora Bearing; and GGB LLC; (2) non-bargaining hourly employees of The Timken Company and The Timken Corporation at its facilities in Lincolnton and Rutherfordton, North Carolina; Bucyrus, Ohio; Gaffney, Honea Path, and Tyger River, South Carolina; Mascot, Tennessee; Carlyle, Illinois; Ogden, Utah; Lenexa, Kansas; Carolina Service Center and Duncan, South Carolina; and its Timken Housed Units business; and (3) non-bargaining hourly employees of Interlube USA, Inc.; Timken Gears & Services Inc.; Timken Drives, LLC; MPB Corporation; Bearing Inspection, Inc.; Timken Motor & Crane Services LLC; Timken Aerospace Drive Systems, LLC; PT Tech LLC; Torsion Control Products, Inc.; Rollon Corporation; Groeneveld Group; and The Diamond Chain Company. Non-bargaining employees of GGB, LLC are eligible to participate in the Plan effective November 4, 2022. Employees of these entities become eligible to participate in the Plan the first of the month 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, as amended ("ERISA").
Effective as of November 1, 2022, the Company divested its Aerospace Drives Systems (ADS) business. As a result of the divestiture, $9,576,188 of plan assets transferred out of the Plan.
Effective January 1, 2022, the Plan was amended and restated to provide for automatic direct rollovers from the Plan to individual retirement plans for lump sum cash-outs less than $1,000, to allow participation by Paid Hourly for Work Performed Employees in the Plan, to increase the required minimum distribution age from 70 ½ to 72 in accordance with the Setting Every Community Up for Retirement Enhancement ("SECURE") Act, and to make certain other changes to the Plan.
Contributions
Under the provisions of the Plan, participants may elect to contribute between 1% and 75% of their gross earnings directly to the Plan, subject to Internal Revenue Service ("IRS") limitations. The Company matches such employee contributions, “Matching Contributions,” at an amount equal to 100% of the first 3% of the participant’s gross earnings deferred to the Plan, and 50% of the next 3% of gross earnings deferred to the Plan. Matching Contributions are allocated based on the participant's investment election. Participants may also roll over amounts representing distributions from other qualified defined benefit or defined contribution plans. The Plan froze future investments in the Timken Company Common Stock Fund effective December 31, 2018. In addition, on May 1, 2018, the Plan was amended to eliminate the Timken Company Common Stock Fund as an investment option effective December 30, 2022.
The Plan provides for a quarterly “Core Contribution” by the Company for all plan participants except (1) employees of the Timken Housed Units business, Timken Motor & Crane Services LLC, Timken Aurora Bearing Company, Rollon Corporation, Intelligent Machine Solutions (iMS) and (2) those accruing service under a defined benefit pension plan sponsored by the Company. This Contribution is based on the participant’s full years of service and age as of December 31 of the previous calendar year. Core Contribution amounts range from 1.0% to 4.5% of the participant’s eligible compensation.
Effective January 1, 2021, the Plan provides for a “Quarterly Contribution” by the Company for employees of BEKA World LP, Timken Drives, LLC, Timken SMO LLC, PT Tech LLC, Lovejoy Inc, LLC, Groeneveld USA, Inc, Rollon Corporation and Diamond Chain Company, Inc. that do not accrue service under a defined benefit pension plan sponsored by the Company. This Contribution is based on the participant’s full years of service and age as of December 31 of the previous calendar year. Quarterly Contribution amounts range from 1.0% to 4.5% of the participant’s eligible compensation and will be phased in with a maximum of 1%, 2%, 3%, 4%, and 4.5% contributed in 2021, 2022, 2023, 2024, 2025 and beyond respectively.
The Timken Company Savings and Investment Retirement Plan
Notes to Financial Statements (continued)
Newly eligible employees who do not make an affirmative contribution or opt out election are automatically enrolled in the Plan at a 6% deferral rate.
Core Contributions and Quarterly Contributions are invested based on the participant’s 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 participant’s age.
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.
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 administrative expenses, as appropriate. Plan earnings are allocated based on the participant’s share of net earnings or losses of their respective elected investment options. Allocations of investment management fees and expenses are based on participant’s account balances. Allocation of participant account maintenance fees are charged per participant account. Forfeited balances of terminated participants’ unvested 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 participant’s vested account.
Vesting
Participants are immediately vested in their contributions, employer contributions, and related earnings.
Notes Receivable from Participants
Active participants may borrow from their accounts amounts ranging from a minimum of $1,000 up to a maximum equal to the lesser of (a) $50,000 minus participants highest outstanding loan balance during the past 12 months or (b) 50% of their vested account balance, excluding after-tax contributions to the Plan (other than Timken US After-Tax Contribution Accounts) and related earnings thereon. Loan terms generally cannot exceed five years for general purpose loans, and 30 years for residential loans. The loans bear interest at an interest rate of 1% in excess of the prime rate, as published in the Wall Street Journal on the first business day of the month in which the loan is granted. Principal and interest are paid ratably through payroll deductions.
Payment of Benefits
Upon disability or termination of service with the Company, participants having a vested account balance greater than $1,000 are 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 fixed period of time not to exceed their estimated life expectancy, (iv) leaving their vested account balance in the Plan (if vested account balance was greater than $5,000), or (v) taking a partial distribution. Participants having a vested account balance less than $1,000 receive a lump-sum amount equal to their vested account balance. Participants with a vested account balance between $1,000 and $5,000 and who did not elect a distribution, are paid in a direct rollover to an individual retirement plan. Participants electing to leave their vested assets in the Plan may do so until age 72, after which time the lump-sum or installment distribution options would apply. Participants are also able to receive partial or total distributions of their vested accounts upon attainment of age 59 ½ without regard to the source of funds in the accounts.
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 distributions prior to requesting a hardship withdrawal.
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 common shares of the Company. The ability to have dividends reinvested in the Timken Company Common Stock Fund ended as of December 30, 2022.
The Timken Company Savings and Investment Retirement Plan
Notes to Financial Statements (continued)
Transfers between Plans
Certain participants who change job positions within the Company and, as a result, are covered under a different defined contribution plan offered by the Company may be eligible to transfer his or her account balance between plans.
Administrative Expenses
The Plan's administrative expenses are paid by either the Plan or the Company. Administrative expenses paid by the Plan include advisory, recordkeeping and trustee fees. Expenses relating to purchases, sales or transfers of the Plan's investments are charged to the particular investment fund to which the expenses relate. All other administrative expenses of the Plan are paid by the Company. Expenses that are paid by the Company are excluded from these financial statements.
Plan Termination
Although it has not expressed any interest to do so, the 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 Plan’s trustee, Great-West Trust Company, LLC ("Trustee"), shall distribute to each participant the vested balance in their separate account.
The Timken Company Savings and Investment Retirement Plan
Notes to Financial Statements (continued)
2. Accounting Policies
Basis of Accounting
The financial statements have been prepared on the accrual basis of accounting.
Payment of Benefits
Benefits are recorded when paid.
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 six other defined contribution plans sponsored by the Company.
The Trustee maintains a collective investment trust of common shares of The Timken Company within the Master Trust in which the Company’s defined contribution plans participate on a unit basis. Common shares of the Timken Company 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.
Notes Receivable from Participants
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, 2022 or 2021. 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.
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 and supplemental schedules. Actual results could differ from those estimates.
The Timken Company Savings and Investment Retirement Plan
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.
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, 2022 and 2021, was 96.10% and 96.07%, respectively.
The following tables present the value of investments in the Master Trust and the Plan’s interest in each investment fund of the Master Trust:
December 31, 2022
December 31, 2021
Master Trust Balance
Plan's Interest in Master Trust Balance
Master Trust Balance
Plan's Interest in Master Trust Balance
Cash and cash equivalents
$
417,762
$
406,026
$
350,587
$
332,078
Company stock
46,468,149
45,162,728
64,637,010
61,224,667
Registered investment companies
144,657,391
143,372,395
202,678,365
200,753,482
Common collective funds
828,307,583
791,124,919
1,028,172,295
982,542,335
Total Assets
$
1,019,850,885
$
980,066,068
$
1,295,838,257
$
1,244,852,562
Changes in net assets for the Master Trust are as follows:
Year Ended December 31, 2022
Net transfers (contributions, transfers and benefit payments for the participating plans)
The Timken Company Savings and Investment Retirement Plan
Notes to Financial Statements (continued)
4. Fair Value
Fair value is defined as the price that would be expected to be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value hierarchy 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 Accounting Standards Codification ("ASC") 820, Fair Value Measurements and Disclosures, are described as follows:
Level 1 - Inputs to the valuation methodology are unadjusted quoted prices in active markets that are accessible to the Plan at the measurement date for identical assets or liabilities.
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 assets or liabilities;
•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 inputs for assets or liabilities. Level 3 inputs include management's own assumption about the assumptions that market participants would use in pricing the asset or liability.
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.
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, 2022 and 2021:
Assets at Fair Value as of
December 31, 2022
Level 1
Level 2
Level 3
Total
Assets:
Investments, at fair value:
Cash and cash equivalents
$
417,762
$
—
$
—
$
417,762
Company stock
46,468,149
—
—
46,468,149
Registered investment companies
144,657,391
—
—
144,657,391
$
191,543,302
$
—
$
—
$
191,543,302
Investments measured using NAV per share as practical expedient:
The Timken Company Savings and Investment Retirement Plan
Notes to Financial Statements (continued)
Assets at Fair Value as of
December 31, 2021
Level 1
Level 2
Level 3
Total
Assets:
Investments, at fair value:
Cash and cash equivalents
$
350,587
$
—
$
—
$
350,587
Company stock
64,637,010
—
—
64,637,010
Registered investment companies
202,678,365
—
—
202,678,365
$
267,665,962
$
—
$
—
$
267,665,962
Investments measured using NAV per share as practical expedient:
Common collective funds:
1,028,172,295
Total Assets
$
1,295,838,257
Cash and cash equivalents and registered investment companies are valued based on quoted market prices reported on the active market on which the individual securities are traded.
The Timken Company and TimkenSteel Common Stock Funds participate in units and are valued based on the closing price of each company's common shares traded on a national securities exchange.
Common collective funds are valued using the net asset value (“NAV”) based on the fair value of the underlying investments held by the fund.
The T. Rowe Price Blue Chip Growth Trust seeks long-term growth of capital by investing primarily in common stocks of well-established large and medium-sized companies. Income is a secondary objective of the trust.
The Vanguard Target Retirement Trust II Funds invest in broad index funds of U.S. and international stocks and bonds. The asset allocation of each fund is managed in accordance with the designated strategy for each fund’s target retirement year. The funds are automatically rebalanced to designated glide paths.
The JPMorgan Equity Index Fund I, JPMorgan Equity Index Fund II, and JPMCB Equity Index Fund-CF 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 JPMCB Core Bond Fund invests primarily in a diversified portfolio of intermediate and long-term debt securities.
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 William Blair Small Cap Growth Fund invests in small cap companies expected to have strong earnings growth. The fund's underlying investments include companies with market leadership positions, unique products or processes, strong marketing capability, and rapid industry growth expectations.
The T.Rowe Price Stable Value Funds primarily invests in security backed investment contracts.
The Western Asset Core Plus Bond strategy seeks to maximize total return through a well-diversified, long-term value based core fixed-income portfolio that includes limited opportunistic exposure to the “plus” sectors: high-yield, non-U.S. and emerging market debt. The strategy seeks to approximate the risk of the Bloomberg Barclays U.S. Aggregate Index.
The Timken Company Savings and Investment Retirement Plan
Notes to Financial Statements (continued)
The following tables summarize investments measured at fair value using the NAV per share practical expedient as of December 31, 2022 and 2021, respectively:
December 31, 2022
Fair Value
Unfunded Commitments
Redemption Frequency
Redemption Notice Period
Vanguard Target Retirement Funds
$
332,087,425
Not Applicable
Daily
Trade Day
JPMCB Core Bond
60,158,163
Not Applicable
Daily
Trade Day
JPMorgan Equity Index Fund I
6,204,005
Not Applicable
Daily
Trade Day + 1
JPMorgan Equity Index Fund II
161,956,785
Not Applicable
Daily
Trade Day
William Blair Small Cap Growth
13,115,968
Not Applicable
Daily
Trade Day
SSgA Russell Small Cap Index
46,840,889
Not Applicable
Daily
Trade Day
T. Rowe Price Blue Chip Growth Trust
58,160,655
Not Applicable
Daily
Trade Day
Western Asset Core Plus Bond
32,326,381
Not Applicable
Daily
Trade Day
JPMCB Equity Index Fund-CF
294,334
Not Applicable
Daily
Trade Day
T Rowe Stable Value Share Class Z
2,522,907
Not Applicable
Daily
Trade Day
T Rowe Stable Value Common Trust N
114,640,071
Not Applicable
Daily
Trade Day
Total Common Collective Funds
$
828,307,583
December 31, 2021
Fair Value
Unfunded Commitments
Redemption Frequency
Redemption Notice Period
Vanguard Target Retirement Funds
$
410,684,844
Not Applicable
Daily
Trade Day
JPMCB Core Bond
79,002,263
Not Applicable
Daily
Trade Day
JPMorgan Equity Index Fund I
8,768,078
Not Applicable
Daily
Trade Day + 1
JPMorgan Equity Index Fund II
217,259,291
Not Applicable
Daily
Trade Day
SSgA Russell Small Cap Index
59,248,973
Not Applicable
Daily
Trade Day
T. Rowe Price Blue Chip Growth Trust
99,868,068
Not Applicable
Daily
Trade Day
Western Asset Core Plus Bond
41,495,681
Not Applicable
Daily
Trade Day
JPMCB Equity Index Fund-CF
345,381
Not Applicable
Daily
Trade Day
T Rowe Stable Value Share Class Z
2,248,476
Not Applicable
Daily
Trade Day
T Rowe Stable Value Common Trust N
109,251,240
Not Applicable
Daily
Trade Day
Total Common Collective Funds
$
1,028,172,295
5. Risks and Uncertainties
The Master Trust invests in various investment securities in line with participants' investment elections. Investment securities are exposed to various risks such as interest rate, market volatility, 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.
The Timken Company Savings and Investment Retirement Plan
Notes to Financial Statements (continued)
6. Income Tax Status
The Plan has received a determination letter from the IRS dated April 5, 2017, 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. Subsequent to this determination by the Internal Revenue Service, the Plan was amended. The Plan Administrator believes that the Plan, as amended, is qualified and the related trust is tax-exempt. The Plan Administrator will take steps to ensure that the Plan's operations remain in compliance with the Code, including taking appropriate action, when necessary, to bring the Plan's operations into compliance.
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, 2022 and 2021, 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 2019.
7. 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 Plan for the year ended December 31, 2022:
Issued to participants for payment of benefits
$
6,974,441
Benefits paid to participants include 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.
8. Subsequent Events
Management evaluates subsequent events and transactions occurring subsequent to the date of the financial statements through the financial statement issuance date that affect recognition or disclosure to the financial statements. Effective January 1, 2023, the Plan was amended and restated to allow for after-tax contributions.
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 SAVINGS AND INVESTMENT RETIREMENT PLAN
Date: June 26, 2023
By:
/s/ Philip D. Fracassa
Philip D. Fracassa
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
