UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
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Preliminary Proxy Statement
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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The Timken Company
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
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Notice of
2013
Annual Meeting of
Shareholders
and
Proxy Statement
THE TIMKEN COMPANY
Canton, Ohio U.S.A.
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Ward J. Timken, Jr.
Chairman Board of Directors
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March 21, 2013
Dear Shareholder:
The 2013 Annual Meeting of Shareholders of The Timken Company will be held on Tuesday, May 7, 2013, at ten oclock in the morning at the
corporate offices of the company in Canton, Ohio.
This year, you are being asked to act upon six matters. The first five matters (Items 1 through 5) are
the election of Directors, ratification of our independent auditor selection, advisory approval of a resolution regarding our named executive officer compensation, and approval of amendments to our Amended Articles of Incorporation and Amended
Regulations to reduce certain shareholder voting requirements, all of which are recommended by your Board of Directors. The sixth matter is a shareholder proposal that your Directors are recommending you do not support. Details of these matters are
contained in the accompanying Notice of 2013 Annual Meeting of Shareholders and Proxy Statement.
Please read the enclosed information carefully before
voting your shares. Voting your shares as soon as possible will ensure your representation at the meeting, whether or not you plan to attend.
I
appreciate the strong support of our shareholders over the years and look forward to a similar vote of support at the 2013 Annual Meeting of Shareholders.
Sincerely,
Ward J. Timken, Jr.
Enclosure
The Timken Company
1835 Dueber Avenue, S.W.
P. O. Box 6927
Canton, OH 44706-0927
United States
Stronger.
Commitment.
Stronger.
Valu
e
. Stronger.
Worldwide
. Stronger.
Together.
I
Stronger.
By Design.
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THE TIMKEN COMPANY
Canton, Ohio
NOTICE OF 2013 ANNUAL MEETING OF SHAREHOLDERS
The 2013 Annual Meeting of Shareholders of The Timken Company will be held on Tuesday, May 7, 2013, at 10:00 a.m., at 1835 Dueber Avenue, S.W., Canton, Ohio, 44706 to act on the following matters:
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1.
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Election of twelve Directors to serve for a term of one year.
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2.
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Ratification of the selection of Ernst & Young LLP as our independent auditor for the fiscal year ending December 31, 2013.
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3.
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An advisory resolution regarding named executive officer compensation.
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4.
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Amendments to the Companys Amended Articles of Incorporation to reduce certain shareholder voting requirements.
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5.
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Amendments to the Companys Amended Regulations to reduce certain shareholder voting requirements.
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6.
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A shareholder proposal recommending that the Board of Directors engage an investment banking firm to effectuate a spin-off of the Companys steel business segment into a
separately-traded public company.
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7.
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Such other business as may properly come before the meeting.
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Shareholders of record of The Timken Company common stock at the close of business on February 20, 2013, are the shareholders entitled to notice of and to vote
at the meeting.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE 2013 ANNUAL MEETING OF SHAREHOLDERS, PLEASE SIGN AND DATE THE ENCLOSED
PROXY CARD AND RETURN IT IN THE POSTAGE-PAID ENVELOPE PROVIDED OR VOTE YOUR SHARES ELECTRONICALLY THROUGH THE INTERNET OR BY TELEPHONE. VOTING INSTRUCTIONS ARE PROVIDED ON THE ENCLOSED PROXY CARD.
Effect of Not Casting Your Vote.
If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner
of shares held in street name, and these proxy materials will be forwarded to you by your broker, bank or nominee who is considered the shareholder of record with respect to those shares. As the beneficial owner, you have the right to
direct your broker, bank or nominee how to vote and are also invited to attend the 2013 Annual Meeting of Shareholders. Your broker, bank or nominee will enclose a voting instruction card for you to use in directing the broker, bank or nominee
regarding how to vote your shares. If you do not return the voting instruction card, the broker, bank or other nominee will determine if it has the discretionary authority to vote on the particular matter. Under applicable New York Stock Exchange
rules, brokers have the discretion to vote only on any matters deemed by the New York Stock Exchange to be routine, such as the ratification of the selection of the Companys independent auditor (Item 2 of this Proxy Statement). The election of
Directors (Item 1 of this Proxy Statement), the shareholder advisory vote on named executive officer compensation (Item 3 of this Proxy Statement), the two proposals to amend the Companys Amended Articles of Incorporation and Amended
Regulations (Items 4 and 5 of this Proxy Statement), and the shareholder proposal (Item 6 of this Proxy Statement) are not considered to be routine matters, and your broker will not have discretion to vote on those matters unless you specifically
instruct your
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broker to do so by returning your signed voting instruction card. If you do not provide voting instructions to your broker, your shares will not be voted for the election of any Director nominee
or on any matter for which your broker does not have discretionary authority.
SCOTT A. SCHERFF
Corporate Secretary and
Vice President Ethics and Compliance
March 21, 2013
Important Notice Regarding the Availability of Proxy Materials for the 2013 Annual Meeting of Shareholders to be held on May 7, 2013:
This Proxy Statement and our 2012 Annual Report to Shareholders are
available on the Investors section of our website
www.timken.com/investors
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THE TIMKEN COMPANY
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of The Timken Company, an Ohio corporation (the Company, we, or us), in connection with the 2013 Annual Meeting of
Shareholders to be held on May 7, 2013, at 10:00 a.m. local time at our corporate offices, and at any adjournments and postponements thereof, for the purpose of considering and acting upon the matters specified in the foregoing Notice. The
mailing address of our corporate offices is 1835 Dueber Avenue, S.W., Canton, Ohio 44706-2798. The approximate date on which this Proxy Statement and proxy card will be first sent or given to our shareholders is March 21, 2013.
The Board of Directors is not aware that matters other than those specified in the foregoing Notice will be brought before the meeting for action.
However, if any such matters should be brought before the meeting, the persons appointed as proxies may vote or act upon such matters according to their judgment.
ELECTION OF DIRECTORS
We presently have twelve Directors who,
pursuant to our Amended Regulations, are divided into three classes with four Directors in Class I, four Directors in Class II and four Directors in Class III. At the 2010 annual meeting, our shareholders approved an amendment to our Regulations
that eliminated, over a three-year period, the classified structure of our Board of Directors. The Directors elected at the 2010 annual meeting were elected for a three-year term; Directors elected at the 2011 annual meeting were elected for a
two-year term; and Directors elected at the 2012 annual meeting were elected for a one-year term. At the 2013 Annual Meeting of Shareholders and thereafter, all Directors will stand for election for a one-year term. Accordingly, at the 2013 Annual
Meeting of Shareholders, twelve Directors will be elected for a one-year term to expire at the 2014 annual meeting. Candidates for Director receiving the greatest number of votes will be elected. Abstentions and broker non-votes (where a
broker, other record holder, or nominee indicates on a proxy card that it does not have authority to vote certain shares on a particular matter) will not be counted in the election of Directors and will not have any effect on the result of the vote.
Pursuant to the Majority Voting Policy of the Board of Directors, any Director who fails to receive a majority of the votes cast in his
or her election will submit his or her resignation to the Board of Directors promptly after the certification of the election results. The Board of Directors and the Nominating and Corporate Governance Committee will then consider the resignation in
light of any factors they consider appropriate, including the Directors qualifications and service record, as well as any reasons given by shareholders as to why they voted against (or withheld votes from) the Director. The Board of Directors
is required to determine whether to accept or reject the tendered resignation within 90 days following the election and to disclose its decision on a Current Report on Form 8-K, as well as the reasons for rejecting any tendered resignation, if
applicable.
If any nominee becomes unable, for any reason, to serve as a Director, or should a vacancy occur before the election (which
events are not anticipated), the Directors then in office may substitute another person as a nominee or may reduce the number of nominees as they deem advisable.
ITEM NO. 1
ELECTION OF DIRECTORS
The Board of Directors, by resolution at its February 8, 2013 meeting, based on the recommendation of the Nominating and Corporate Governance
Committee of the Board, nominated the twelve individuals set forth below to be elected Directors at the 2013 Annual Meeting of Shareholders to serve for a term of one year expiring at the annual meeting in 2014 (or until their respective successors
are elected and qualified). All of the nominees, except Diane C. Creel, have been previously elected as a Director by our
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shareholders. Ms. Creel was elected as a Director by the Board on June 15, 2012 to fill a vacancy for a term that expires at the 2013 Annual Meeting of Shareholders. Each of the
nominees listed below has consented to serve as a Director if elected.
Unless otherwise indicated on any proxy, the persons named as
proxies on the enclosed proxy card intend to vote the shares covered by such proxy card in favor of the nominees named below.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR
THE ELECTION OF THE NOMINEES NAMED BELOW.
NOMINEES
The following information, obtained in part from the respective nominees and in part from our records, describes the
background and experience of each nominee as of January 4, 2013.
John M. Ballbach
Age 52
Director since 2009
Mr. Ballbach is a private investor who previously served as President and Chief Executive Officer of VWR International, LLC, a leading global laboratory supply company, from 2005 through July 2012
and was appointed Chairman of the Board of that company in 2007. Prior to joining VWR International, Mr. Ballbach was employed by the Valspar Corporation beginning in 1990. He progressed through a series of management positions
to become its President and Chief Operating Officer from 2002 through 2004. He has served as a director of Valspar Corporation since 2012 and was formerly a director of VWR International from 2005 to 2012.
Mr. Ballbach provides the Board with valuable insight and perspective on general and strategic business matters based on his executive and
management experience at VWR International and Valspar. Mr. Ballbachs leadership experience enables him to offer a global perspective as well as specific insights into supply chain management which have been important in guiding the
Boards discussion and planning as the Company continues to sharpen its focus on expanding globally and capturing growth opportunities in diverse industrial markets with strong aftermarket potential.
Mr. Ballbach is a member of the Audit Committee.
Phillip R. Cox
Age 65
Director since 2004
Mr. Cox has been President and Chief Executive Officer of Cox Financial
Corporation, a financial services company that he founded, for over 35 years. In addition, Mr. Cox is currently non-executive Chairman of Cincinnati Bell, where he has served as a director since 1993. He has also served as a director of
Touchstone Mutual Funds since 1994 and Diebold, Incorporated since 2005. Mr. Cox formerly served as a director of Duke Energy Corporation from 2006 to 2008, and prior to its merger with Duke Energy, Cinergy Corp. from 1994 to 2005.
Mr. Cox provides guidance to our Board based on his extensive knowledge of finance, investments and capital markets. Mr. Cox brings the
perspective of a member of several corporate boards, including as non-executive Chairman and a member of the Audit and Finance, Governance and Nominating and Compensation committees of Cincinnati Bell and Chairman of the Compensation Committee and
member of the Investment Committee of Diebold.
Mr. Cox is a member of the Audit Committee.
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Diane C. Creel
Age 64
Director since 2012
Ms. Creel served as Chairman, Chief Executive Officer and President of Ecovation Inc., a subsidiary of Ecolab Inc., a waste stream technology
company using patented technologies, until her retirement in 2008. Prior to Ecovation, Ms. Creel was Chairman, Chief Executive Officer and President of Earth Tech, Inc. from 1992 to 2003. Ms. Creel has served as a director of Allegheny
Technologies Incorporated since 1996 and Enpro Industries, Inc. since 2009. Ms. Creel was formerly a director of Foster Wheeler Ltd. until 2008 and Goodrich Corporation until 2012.
Ms. Creel brings our Board the benefits of her deep experience as a senior executive and Board member of several industrial companies.
Ms. Creels expertise in engineering, construction and green technology provides a key industry perspective to the Board. Ms. Creel also has experience in mergers and acquisitions, which serves the Board well when evaluating organic
and inorganic growth opportunities. Ms. Creel brings the perspective of a member of several boards, including as Lead Independent Director as well as Chair of the Nominating and Governance Committee and member of the Finance and Personnel and
Compensation Committees of Allegheny Technologies Incorporated and member of the Audit and Risk Management and Compensation and Human Resources committees of Enpro Industries, Inc.
Ms. Creel is a member of the Compensation Committee as well as the Audit Committee.
James W. Griffith
Age 59
Director Since 1999
Mr. Griffith has served as President and Chief Executive Officer of The
Timken Company since 2002. Mr. Griffith joined the Company in 1984 and has held positions as plant manager, Vice President of Manufacturing in North America and Managing Director of our business in Australia. From 1996 to 1999, he led our
automotive business in North America and our bearing business activities in Asia and Latin America. He was elected President and Chief Operating Officer in 1999. Since that time, Mr. Griffith has led a transformation of the Company focused on
continuously increasing value for customers and shareholders. He has also served as a director of Illinois Tool Works since 2012 and served as a director of Goodrich Corporation until 2012.
As CEO, Mr. Griffith is focused on all aspects of Timkens operations and plays a critical role in communicating managements
perspective on important matters to the Board. He also provides the Board with in-depth knowledge of each of Timkens businesses and the global industry and macro-economic challenges and opportunities facing the Company. Mr. Griffith
brings the perspective of a member of the board of Illinois Tool Works, including serving as a member of the Audit and Compensation Committee, and is a former member of the board of Goodrich Corporation.
John A. Luke, Jr.
Age 64
Director since 1999
Mr. Luke has served as the
Chairman and Chief Executive Officer of MeadWestvaco Corporation, a leading global producer of packaging, coated and specialty papers, consumer and office products and specialty chemicals since 2003. Mr. Luke joined the executive ranks of
Westvaco in 1990 after holding leadership positions across the organization, including positions in treasury, marketing and international sales. As a senior executive at Westvaco, Mr. Luke led the process of merging the Westvaco Corporation
with the Mead Corporation in 2002. Mr. Luke has also served as a director of The Bank of New York Mellon Corporation since 2007 and MeadWestvaco Corporation since 2002.
Mr. Luke brings deep executive leadership experience to our Board, including expertise in leading large corporate transformations and evaluating and executing inorganic growth opportunities through
acquisitions. As Chief Executive Officer of a company that was founded by his ancestors in 1888, Mr. Luke also brings a unique perspective regarding the challenges and opportunities of transforming a family business into a global corporation.
Mr. Luke brings the perspective gained from serving on two
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corporate boards, including as Chairman and a member of the Executive Committee of MeadWestvaco Corporation and Chair of the Corporate Governance and Nominating Committee and a member of the Risk
and Executive Committees of Bank of New York Mellon Corporation.
Mr. Luke is a member of the Nominating and Corporate Governance
Committee and chairs the Compensation Committee.
Joseph W. Ralston
Age 69
Director since 2003
General Ralston has served as Vice Chairman of The Cohen Group, an organization that provides clients with comprehensive tools for understanding and shaping their business, political, legal, regulatory and media
environments, since 2003. General Ralston completed a distinguished 37-year Air Force career as Commander, U.S. European Command and Supreme Allied Commander Europe, NATO in 2003. Previously, General Ralston served as Vice Chairman of the Joint
Chiefs of Staff, the nations second highest-ranking military officer. General Ralston also has served on the boards of Lockheed Martin Corporation and URS Corporation since 2003.
General Ralstons experience in the private sector, combined with his distinguished career leading thousands of U.S. troops, provides our Board
with unmatched expertise across a range of complex operational, human resources, supply chain/logistical and other issues facing a global corporation. Based on his extensive military experience, General Ralston also provides specific insights and
knowledge in aerospace, an important segment for the Company. Additionally, General Ralstons understanding of the political environment in Washington allows him to guide our Board on the challenges and opportunities resulting from governmental
actions. General Ralston also brings the perspective of a member of two corporate boards, including as Chair of the Compensation Committee as well as member of the Audit and Board Affairs Committee of URS Corporation and member of the Classified
Business and Security, Ethics and Sustainability and Strategic Affairs and Finance Committees of Lockheed Martin.
General Ralston is a
member of the Compensation Committee, chairs the Nominating and Corporate Governance Committee and also serves as Lead Director.
John P. Reilly
Age 69
Director since 2006
Mr. Reilly served as the Chairman, President and Chief Executive Officer of Figgie International, an international diversified operating
company, until 1998. He has more than 30 years of experience in the automotive industry, where he served as President and Chief Executive Officer of several automotive suppliers, including Stant Corporation and Tenneco Automotive. He also held
leadership positions at the former Chrysler Corporation and Navistar International and served as President of Brunswick Corporation. Mr. Reilly also serves as a director and non-executive Chairman of Exide Technologies and Material Sciences
Corporation, having served on each companys board since 2004.
Mr. Reilly brings to our Board the benefits of his extensive
automotive industry experience and provides our Board with valuable insight in a significant market for Timken. Based on his 40 years of successful executive leadership with Figgie International, Stant Corporation and Tenneco Automotive,
Mr. Reilly is also able to help guide the Board in making strategic and business decisions. Mr. Reilly brings his perspective as non-executive Chairman of two corporate boards, as well as a member of the Compensation Committee of Exide
Technologies and Audit Committee of Material Sciences Corporation.
Mr. Reilly is a member of the Compensation and Audit Committees.
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Frank C. Sullivan
Age 52
Director since 2003
Mr. Sullivan has held the position of Chairman and Chief Executive Officer of RPM International Inc., a world leader in specialty coatings, since 2008. Mr. Sullivan was appointed RPMs Chief
Executive Officer in 2002, prior to which he held positions in sales and corporate development before becoming Chief Financial Officer in 1993. Mr. Sullivan held various positions in the areas of commercial lending and corporate finance in the
banking industry before joining RPM in 1987.
Mr. Sullivan provides the Board with an extensive financial background based on his
years as a Chief Financial Officer. In addition, having served as a Chief Executive Officer and director of a multinational company, Mr. Sullivan also brings invaluable executive experience on a wide array of issues including strategic planning
and the evaluation and execution of merger and acquisition opportunities. As Chief Executive officer of a company that was founded by his ancestors in 1947, Mr. Sullivan also brings to the Board knowledge and understanding of the evolution of a
family business into a large public company.
Mr. Sullivan chairs the Audit Committee as well as serving on the Nominating and
Corporate Governance Committee.
John M. Timken, Jr.
Age 61
Director since 1986
Mr. Timken is a private investor who has been a successful entrepreneur and significant shareholder of The Timken Company for many years. Mr. Timkens ventures include involvement in a cable
television business and establishing one of the largest commercial mushroom farms in North America. Mr. Timken currently serves as a director and co-founder of a flexible packaging business.
Mr. Timkens experience as an investor in identifying and helping to increase value across a range of businesses provides the Board with
important input in evaluating and guiding the Company in making important capital allocation decisions.
Mr. Timken is a member of
the Audit Committee.
Ward J. Timken
Age 70
Director since 1971
Mr. Timken
currently serves as President of The Timken Foundation of Canton, a private charitable foundation that promotes civic betterment through capital fund grants. He has held that position since 2004. The Timken Foundation is not affiliated with The
Timken Company. Previously Mr. Timken held various leadership positions within The Timken Company before retiring in 2003.
Mr. Timken provides the Board with valuable experience and insight into important strategic matters facing the Company, having served in
prominent leadership positions during his 36-year tenure with the Company. Specifically, Mr. Timkens leadership positions within the steel business, corporate development, human resources and community relations bring a wealth of
knowledge to the Board relating to a wide array of matters including broad expertise regarding international global manufacturing.
Ward
J. Timken is the father of Ward J. Timken, Jr. and the cousin of John M. Timken, Jr.
Ward J. Timken, Jr.
Age 45
Director since 2002
Mr. Timken has served as Chairman of the Board of Directors of The Timken Company since 2005. Previously, Mr. Timken was President of our
steel business from 2004 to 2005, Corporate Vice President from 2000 to 2003 and held key leadership positions in Timkens European and Latin American businesses from 1992 to 2000. Prior to joining Timken, Mr. Timken opened and managed the
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Washington, D.C. office of McGough & Associates, a Columbus, Ohio-based government affairs consulting firm. Mr. Timken is also a member of the Board of Pella Corporation, where he
has served since 2008.
Mr. Timken provides the Board with relevant experience from having served in several key leadership
positions during his tenure with Timken. As President of the steel business, Mr. Timken led the business to record levels of profitability, and as Corporate Vice President, he was responsible for strategy development, including leading the
Companys diversification efforts in the Process Industries segment. Mr. Timkens broad-based experience and familiarity with each of Timkens businesses, along with his deep understanding of the global industry dynamics across
the Companys markets, allow Mr. Timken to play a key role in all matters involving the Board.
Jacqueline F. Woods
Age 65
Director since 2000
Ms. Woods served as the President of Ameritech Ohio (subsequently renamed AT&T Ohio), a telecommunications company, until her
retirement in 2000. At Ameritech Ohio, Ms. Woods also held various positions in finance, operations, marketing, sales and government affairs. Ms. Woods was inducted into the Ohio Womens Hall of Fame in 1998. Ms. Woods has served
on the boards of School Specialty, Inc. since 2006 and The Andersons, Inc. since 1999.
Ms. Woods extensive executive
management experience within a large company enables her to help guide the Board in making decisions in areas such as marketing, strategy development, corporate governance and compensation. In addition, her executive experience at a primarily
consumer-oriented company provides a valuable perspective on customer service. Ms. Woods also brings her perspective as a member of two corporate boards, including serving as a member of the Governance and Nominating and Compensation committees
of School Specialty, Inc. and the Audit, Governance and Nominating and Compensation committees of The Andersons, Inc.
Ms. Woods is
a member of the Compensation Committee as well as the Nominating and Corporate Governance Committee.
Independence Determinations
The Board of Directors has adopted the independence standards of the New York Stock Exchange listing requirements for
determining the independence of Directors. The Board has determined that the following Director nominees meet those independence standards: John M. Ballbach, Phillip R. Cox, Diane C. Creel, John A. Luke, Jr., Joseph W. Ralston, John P.
Reilly, Frank C. Sullivan, John M. Timken, Jr., and Jacqueline F. Woods. With respect to John M. Timken, Jr., the Board determined that his family relationship to Ward J. Timken and Ward J. Timken, Jr. does not impair his
independence.
Related Party Transactions Approval Policy
Our Directors and executive officers are subject to our Standards of Business Ethics, which require that any potential conflicts of interest, such as significant transactions with related parties, be reported to
our General Counsel. Our Directors and executive officers are also subject to the Timken Policy Against Conflicts of Interest, which requires that an employee or Director avoid placing himself or herself in a position in which his or her personal
interests could interfere in any way with our interests. While not every situation can be identified in a written policy, the Timken Policy Against Conflicts of Interest does specifically prohibit the following situations:
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competing against the Company;
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holding a significant financial interest in a company doing business with or competing with the Company;
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accepting gifts, gratuities or entertainment from any customer, competitor or supplier of goods or services to the Company, except to the extent they are
customary and reasonable in amount and not in consideration for an improper action by the recipient;
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using for personal gain any business opportunities that are identified through a persons position with the Company;
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using the Companys property, information or position for personal gain;
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using the Companys property other than in connection with our business;
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maintaining other employment or a business that adversely affects a persons job performance at the Company; and
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doing business on the Companys behalf with a relative or another company employing a relative.
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In the event of any potential conflict of interest, pursuant to the charter of the Nominating and Corporate Governance Committee and the provisions
of the Standards of Business Ethics and the Timken Policy Against Conflicts of Interest, the Nominating and Corporate Governance Committee would review and, considering such factors as it deems appropriate under the circumstances, make a
determination as to whether to grant a waiver to the policies for any such situation. Any waiver would be promptly disclosed to shareholders.
During 2012, the Company made purchases of electric motor repair services in the ordinary course of business from Hannon Electric Company (HEC) totaling approximately $210,000. The wife and two minor
children of Christopher A. Coughlin, our Group President, have minority interests in HEC and Mr. Coughlins father-in-law and mother-in-law are the majority owners of HEC. The Nominating and Corporate Governance Committee determined that
the payments to HEC during 2012 were de minimis, both to HEC and the Company, that the terms of the purchases from HEC were no more favorable to HEC than terms generally available to any other third-party supplier to the Company, and that
Mr. Coughlin exercises no influence over the Companys relationship with HEC.
Board and Committee Meetings
The Board of Directors has an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee. During 2012, there
were nine meetings of the Board of Directors, eight meetings of its Audit Committee, five meetings of its Compensation Committee and three meetings of its Nominating and Corporate Governance Committee. All Directors attended 75 percent or more of
the meetings of the Board and its committees on which they served. It is our policy that all members of the Board of Directors attend the annual meeting of shareholders, and in 2012, all members attended the meeting. At each regularly-scheduled
meeting of the Board of Directors, the nonemployee Directors and the independent Directors also meet separately in executive sessions.
DIRECTOR COMPENSATION
Cash Compensation
Each nonemployee
Director who served in 2012 was paid at the annual rate of $80,000 for services as a Director. At its meeting on February 9, 2012, the Board of Directors approved an additional annual fee of $10,000 for the Lead Director, beginning
January 1, 2012. In addition to base compensation, the following fees were paid for serving on a committee of the Board in 2012.
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Committee
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Chairperson Fee
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Member Fee
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Audit
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$30,000
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$15,000
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Compensation
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$15,000
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$ 7,500
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Nominating & Corporate Governance
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$15,000
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$ 7,500
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On February 8, 2013, the Board of Directors approved a $10,000 increase to the annual fee for the Lead Director and a $2,500
increase to the annual fee for the Chair of the Nominating and Corporate Governance Committee.
Stock Compensation
Each nonemployee Director serving at the time of our annual meeting of shareholders on May 8, 2012, received a grant of 2,175 shares of common
stock under The Timken Company 2011 Long-Term Incentive Plan (the Long-Term Incentive Plan) following the meeting. The shares received are required to be held by each nonemployee Director until his or her departure from the Board of
Directors. Upon a Directors initial election to the Board, each new nonemployee Director receives a grant of 2,000 restricted shares of common stock under the Long-Term Incentive Plan, which vest one-fifth annually
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over a five-year period. Diane C. Creel received such a grant on August 6, 2012. The Compensation Committee of the Board of Directors has adopted share ownership guidelines that require
nonemployee Directors to own 8,000 shares of our common stock. As of December 31, 2012, all of our nonemployee Directors, other than Ms. Creel, met their ownership requirements.
Compensation Deferral
Any Director may elect to defer the receipt of all or a specified
portion of his or her cash and/or stock compensation in accordance with the provisions of the Director Deferred Compensation Plan. Pursuant to the plan, cash fees can be deferred and paid at a future date requested by the Director. The amount will
be adjusted based on investment crediting options, which include interest earned quarterly at a rate based on the prime rate plus one percent or the total shareholder return on our common stock, with amounts paid either in a lump sum or in
installments in cash. Stock compensation can be deferred to a future date and paid either in a lump sum or installments and is payable in shares plus a cash amount representing dividend equivalents during the deferral period.
2012 DIRECTOR COMPENSATION TABLE
The following table provides details of nonemployee Director compensation in 2012:
|
|
|
|
|
|
|
Name (1)
|
|
Fees Earned or
Paid in Cash
|
|
Stock Awards (2)
|
|
Total
|
John M. Ballbach
|
|
$ 95,000
|
|
$115,319
|
|
$210,319
|
Phillip R. Cox
|
|
$ 95,000
|
|
$115,319
|
|
$210,319
|
Diane C. Creel
|
|
$ 51,250
|
|
$ 75,120
|
|
$126,370
|
John A. Luke, Jr.
|
|
$102,500
|
|
$115,319
|
|
$217,819
|
Joseph W. Ralston
|
|
$112,500
|
|
$115,319
|
|
$227,819
|
John P. Reilly
|
|
$102,500
|
|
$115,319
|
|
$217,819
|
Frank C. Sullivan
|
|
$117,500
|
|
$115,319
|
|
$232,819
|
John M. Timken, Jr.
|
|
$ 95,000
|
|
$115,319
|
|
$210,319
|
Ward J. Timken
|
|
$ 80,167
|
|
$115,319
|
|
$195,486
|
Jacqueline F. Woods
|
|
$ 95,000
|
|
$115,319
|
|
$210,319
|
(1)
|
Ward J. Timken, Jr., Chairman, and James W. Griffith, President and Chief Executive Officer, are not included in this table as they are employees of the Company and receive no
compensation for their services as Directors.
|
(2)
|
The amount shown for each Director, other than Diane C. Creel, is the grant date fair value of the award of 2,175 shares of common stock made on May 8, 2012, as computed in
accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or FASB ASC Topic 718). These awards vested upon grant. Ms. Creel received a grant of 2,000 restricted shares (as further described above) upon
becoming a nonemployee Director on August 6, 2012, which grant was also valued in accordance with FASB ASC Topic 718.
|
12
Until 2005, a portion of the compensation for the Directors included stock option grants. As of December 31,
2012, the following individuals held the following number of outstanding options and unvested restricted shares:
|
|
|
|
|
Name
|
|
Outstanding Options
|
|
Unvested Restricted Shares
|
John M. Ballbach
|
|
0
|
|
800
|
Phillip R. Cox
|
|
0
|
|
0
|
Diane C. Creel
|
|
0
|
|
2,000
|
John A. Luke, Jr.
|
|
9,000
|
|
0
|
Joseph W. Ralston
|
|
6,000
|
|
0
|
John P. Reilly
|
|
0
|
|
0
|
Frank C. Sullivan
|
|
0
|
|
0
|
John M. Timken, Jr.
|
|
0
|
|
0
|
Ward J. Timken
|
|
0
|
|
0
|
Jacqueline F. Woods
|
|
0
|
|
0
|
BOARD LEADERSHIP STRUCTURE
The Board is currently led by Chairman Ward J. Timken, Jr. In addition, the independent Directors have designated Joseph W. Ralston as Lead
Director.
The Chairman oversees the planning of the annual Board calendar and, with the Chief Executive Officer (CEO), in
consultation with the other Directors, schedules and sets the agenda for meetings of the Board and leads the discussions at such meetings. In addition, the Chairman provides guidance and oversight to management, helps with the formulation and
implementation of the Companys strategic plans and acts as the Boards liaison to management. In this capacity, the Chairman, along with the CEO, is actively engaged on significant matters affecting the Company. The Chairman also leads
the Companys annual meetings of shareholders and performs such other functions and responsibilities as set forth in the Board of Directors General Policies and Procedures or as requested by the Board from time to time.
The Boards preferred governance structure is to separate the roles of Chairman and CEO. With limited exceptions, these roles have been
separate for over 80 years. While recognizing that there is no single, generally accepted approach to providing Board leadership and that the Boards leadership structure may vary in the future as circumstances warrant, the Board considers this
balance of leadership between the two positions to be a strength for the Company.
The Lead Directors duties include:
(a) developing agendas for, and presiding over, the executive sessions of the independent Directors; (b) reporting the results of the executive sessions to the CEO and Chairman; (c) providing feedback as required to the other
Directors on the issues discussed with the CEO and Chairman; (d) serving as a liaison with the CEO, Chairman and the independent Directors; (e) presiding at all meetings of the Board at which the Chairman is not present; (f) approving
information sent to the Board; (g) approving agendas for Board meetings; (h) approving Board meeting schedules to ensure that there is sufficient time for discussion of all agenda items; (i) calling meetings of the independent
Directors; and (j) ensuring that he or she is available for consultation and direct communications with major shareholders as appropriate.
RISK OVERSIGHT
The Board of Directors primarily relies on its Audit
Committee for oversight of the Companys risk management. The Audit Committee regularly reviews issues that present particular risks to the Company, including those involving competition, customer demands, economic conditions, planning,
strategy, finance, sales and marketing, products, information technology, facilities and operations, supply chain or legal matters. The full Board also reviews these issues as appropriate. The Board believes that this approach, supported by our
senior leadership structure, provides appropriate checks and balances against undue risk taking.
13
AUDIT COMMITTEE
We have a standing Audit Committee that has oversight responsibility with respect to our independent auditors and the integrity of our financial
statements. The Audit Committee is composed of Frank C. Sullivan (Audit Committee Chairman), John M. Ballbach, Phillip R. Cox, Diane C. Creel, John P. Reilly, and John M. Timken, Jr. Our Board of Directors has determined that each member
of the Audit Committee is financially literate and independent as defined in the listing standards of the New York Stock Exchange. Our Board of Directors has determined that Frank C. Sullivan qualifies as the Audit Committee financial expert.
The Audit Committees charter is available on our website at
www.timken.com/investors/governance
.
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed with management and our independent auditors the audited financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31,
2012. The Audit Committee has also discussed with our independent auditors the matters required to be discussed pursuant to Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted
by the Public Company Accounting Oversight Board in Rule 3200T.
The Audit Committee has received and reviewed the written disclosure and
the letter from our independent auditors required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountants communications with the Audit Committee concerning independence, has discussed
with our independent auditors such independent auditors independence, and has considered the compatibility of non-audit services with the auditors independence.
Based on the review and discussions referred to above, the Audit Committee recommended to our Board of Directors that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2012, filed with the Securities and Exchange Commission.
Frank C. Sullivan (Audit
Committee Chairman)
John M. Ballbach
Phillip R. Cox
Diane C. Creel
John P. Reilly
John M. Timken, Jr.
COMPENSATION COMMITTEE
We have a standing Compensation Committee that establishes and administers our policies, programs and procedures for compensating our senior management and Board of Directors. Members of the Compensation Committee
are John A. Luke, Jr. (Compensation Committee Chairman), Diane C. Creel, Joseph W. Ralston, John P. Reilly, and Jacqueline F. Woods. Our Board of Directors has determined that all members of the Compensation Committee are independent as defined
in the listing standards of the New York Stock Exchange.
With the guidance and approval of the Compensation Committee, we have
developed compensation programs for our executive officers, including the CEO and the other executive officers named in the Summary Compensation Table, that are intended to enable us to attract, retain and motivate superior quality executive
management; reward executive management for financial performance and the achievement of strategic objectives; and align the financial interests of executive management with those of our shareholders. The Compensation Committee determines specific
compensation elements for the CEO and the Chairman and considers and acts upon recommendations made by the CEO and the Chairman regarding the other executive officers.
The agenda for meetings of the Compensation Committee is determined by its Chairman with the assistance of the Senior Vice President Human Resources and Organizational Advancement. The meetings are regularly
attended by the Chairman, CEO, Senior Vice President Human Resources and
14
Organizational Advancement, and Vice President Total Rewards. At each meeting, the Compensation Committee meets in executive session. The Chairman of the Compensation Committee reports the
Committees actions regarding compensation of executive officers to the full Board of Directors. Our Human Resources and Organizational Advancement department supports the Compensation Committee in its duties and may be delegated certain
administrative duties in connection with our compensation programs. The Compensation Committee has the sole authority to retain and terminate compensation consultants to assist in the evaluation of Director or executive officer compensation and the
sole authority to approve the fees and other retention terms of any compensation consultants. The Compensation Committee has engaged Towers Watson, a global professional services firm, to conduct annual reviews of its total compensation programs for
executive officers and, from time-to-time, to review the total compensation of Directors. Towers Watson also provides information to the Compensation Committee on trends in executive compensation and other market data.
With respect to Director compensation, as stated above, the Compensation Committee periodically engages Towers Watson to conduct reviews of total
Director compensation, and the Committee then recommends to the full Board of Directors changes in Director compensation that will enhance our ability to attract and retain qualified Directors.
In January 2010, the firm of Towers Watson was created by the merger of Towers Perrin and Watson Wyatt. Towers Perrin had served as an advisor to
the Compensation Committee for close to 20 years and was directly engaged by and accountable to the Committee. Watson Wyatt had been our long-time independent actuary. During fiscal 2012, Towers Watson was paid $179,634 for executive compensation
advice and $2,271,900 for actuarial and other services to us and our benefit plans.
The Compensation Committee has concluded that the
advice received by the Committee from Towers Watson continues to be objective, unbiased and independent. The Compensation Committees careful oversight of the relationship with Towers Watson with respect to compensation advice mitigates the
possibility that management could potentially misuse the actuarial engagement to influence Towers Watsons compensation work for the Committee. The Compensation Committee annually reviews the charges to the Company from Towers Watson for
executive compensation advice and other services for the preceding three years, along with an estimate of services for the coming year. Additionally, Towers Watson has adopted internal safeguards to ensure that its executive compensation unit is
maintained separately from its actuarial business.
The Compensation Committee also plays an active role in our executive officer
succession planning process. The Compensation Committee meets regularly with senior management to ensure that an effective succession process is in place and to discuss potential successors for executive officers. As part of this process, executive
officer position profiles are updated to highlight the key skills required to meet future demands, and potential successors are evaluated and development plans are reviewed. At the end of each year, the Compensation Committee reviews the performance
of the executive officers and potential successors. The Compensation Committees succession planning activities are discussed with the full Board in executive session.
The Compensation Committees charter is available on our website at
www.timken.com/investors/governance
.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has
reviewed and discussed the Compensation Discussion and Analysis (the CD&A) for the year ended December 31, 2012 with our management. Following the review and discussion referred to above, the Compensation Committee recommended
to our Board of Directors, and our Board approved, the inclusion of the CD&A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and this Proxy Statement for filing with the Securities and Exchange Commission.
John A. Luke, Jr. (Compensation Committee Chairman)
Diane C. Creel
Joseph W. Ralston
John P. Reilly
Jacqueline F. Woods
15
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
We have a standing Nominating and Corporate Governance Committee that is responsible for, among other things, evaluating new Director candidates and
incumbent Directors and recommending Directors to serve as members of our Board committees. Members of the Nominating and Corporate Governance Committee are Joseph W. Ralston (Nominating and Corporate Governance Committee Chairman), John A.
Luke, Jr., Frank C. Sullivan and Jacqueline F. Woods. Our Board of Directors has determined that all members of the Nominating and Corporate Governance Committee are independent as defined in the listing standards of the New York Stock
Exchange.
Director candidates recommended by our shareholders will be considered in accordance with the criteria outlined below. In
order for a shareholder to submit a recommendation, the shareholder must deliver a communication by registered mail or in person to the Nominating and Corporate Governance Committee, c/o The Timken Company, 1835 Dueber Avenue, S.W., P. O. Box 6932,
Canton, Ohio 44706-0932. Such communication should include the proposed candidates qualifications, any relationship between the shareholder and the proposed candidate, and any other information that the shareholder would consider useful for
the Nominating and Corporate Governance Committee to consider in evaluating such candidate.
The Board of Directors General Policies and
Procedures provide that the general criteria for Director candidates include, but are not limited to, the highest integrity and ethical standards, the ability to provide wise and informed guidance to management, a willingness to pursue thoughtful,
objective inquiry on important issues before the Company, and a range of experience and knowledge commensurate with our needs as well as the expectations of knowledgeable investors. The Nominating and Corporate Governance Committee utilizes a
variety of sources to identify possible Director candidates, including professional associations and Board member recommendations. In evaluating candidates to recommend to the Board of Directors, the Nominating and Corporate Governance Committee
considers factors consistent with those set forth in the Board of Directors General Policies and Procedures, including whether the candidate enhances the diversity of the Board. Such diversity includes professional background and capabilities,
knowledge of specific industries and geographic experience, as well as the more traditional diversity concepts of race, gender and national origin. The attributes of the current Directors and the needs of the Board and the Company are evaluated
whenever a Board vacancy occurs, and the effectiveness of the nomination process, including whether that process enhances the Boards diversity, is evaluated each time a candidate is considered. The Nominating and Corporate Governance Committee
is also responsible for reviewing the qualifications of, and making recommendations to the Board of Directors for, Director nominations submitted by our shareholders. All Director nominees are evaluated in the same manner by the Nominating and
Corporate Governance Committee, without regard to the source of the nominee recommendation.
Diane C. Creel, who is the only person
approved by the Nominating and Corporate Governance Committee for inclusion in the Companys 2013 Proxy Statement as a Director nominee who has not been previously elected by the shareholders, was recommended by the Companys Chief
Executive Officer.
The Nominating and Corporate Governance Committee also plans for Director succession. The Committee regularly reviews
the appropriate size of the Board and whether any vacancies are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Committee considers potential Director candidates. As part of this process,
the Committee assesses the skills and attributes of our Board as a whole and of each individual Director and evaluates whether prospective candidates possess complementary skills and attributes that would strengthen our Board.
The Nominating and Corporate Governance Committees charter is available on our website at
www.timken.com/investors/governance
.
Our code of business conduct and ethics, called the Standards of Business Ethics, and our corporate governance guidelines,
called the Board of Directors General Policies and Procedures, are reviewed annually by the Nominating and Corporate Governance Committee and are available on our website at
www.timken.com/investors/governance
.
16
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table shows, as of January 4, 2013, the beneficial ownership of our common stock by each continuing Director, nominee for
Director and executive officer named in the Summary Compensation Table on page 32 of this Proxy Statement, and by all continuing Directors, nominees for Director and executive officers as a group. Beneficial ownership of our common stock has been
determined for this purpose in accordance with Rule 13d-3 under the Securities Exchange Act of 1934 and is based on the sole or shared power to vote or direct the voting or to dispose or direct the disposition of our common stock. Beneficial
ownership as determined in this manner does not necessarily bear on the economic incidents of ownership of our common stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature of Beneficial Ownership of Common
Stock
|
Name
|
|
Sole Voting
or Investment
Power
(1)
|
|
Shared Voting
or Investment
Power
|
|
Aggregate
Amount
(1)
|
|
Percent of
Class
|
John M. Ballbach
|
|
|
|
16,636
|
|
|
|
|
0
|
|
|
|
|
16,636
|
|
|
|
|
*
|
|
Christopher A. Coughlin
(2)
|
|
|
|
111,112
|
|
|
|
|
0
|
|
|
|
|
111,112
|
|
|
|
|
*
|
|
Phillip R. Cox
|
|
|
|
19,775
|
|
|
|
|
0
|
|
|
|
|
19,775
|
|
|
|
|
*
|
|
Diane C. Creel
|
|
|
|
2,010
|
|
|
|
|
0
|
|
|
|
|
2,010
|
|
|
|
|
*
|
|
Glenn A. Eisenberg
(2)
|
|
|
|
109,445
|
|
|
|
|
0
|
|
|
|
|
109,445
|
|
|
|
|
*
|
|
James W. Griffith
(2)
|
|
|
|
1,114,896
|
|
|
|
|
0
|
|
|
|
|
1,114,896
|
|
|
|
|
1.2
|
%
|
Richard G. Kyle
(2)
|
|
|
|
86,784
|
|
|
|
|
0
|
|
|
|
|
86,784
|
|
|
|
|
*
|
|
John A. Luke, Jr.
|
|
|
|
40,841
|
|
|
|
|
0
|
|
|
|
|
40,841
|
|
|
|
|
*
|
|
Salvatore J. Miraglia, Jr.
(2)
|
|
|
|
133,905
|
|
|
|
|
0
|
|
|
|
|
133,905
|
|
|
|
|
*
|
|
Joseph W. Ralston
|
|
|
|
36,163
|
|
|
|
|
0
|
|
|
|
|
36,163
|
|
|
|
|
*
|
|
John P. Reilly
|
|
|
|
30,011
|
|
|
|
|
0
|
|
|
|
|
30,011
|
|
|
|
|
*
|
|
Frank C. Sullivan
|
|
|
|
31,602
|
|
|
|
|
0
|
|
|
|
|
31,602
|
|
|
|
|
*
|
|
John M. Timken, Jr.
|
|
|
|
583,015
|
(3)
|
|
|
|
878,315
|
(4)
|
|
|
|
1,461,330
|
(3)(4)
|
|
|
|
1.5
|
%
|
Ward J. Timken
|
|
|
|
467,988
|
|
|
|
|
5,792,002
|
(4)
|
|
|
|
6,259,990
|
(4)
|
|
|
|
6.5
|
%
|
Ward J. Timken, Jr.
(2)
|
|
|
|
976,325
|
|
|
|
|
5,159,754
|
(4)
|
|
|
|
6,136,079
|
(4)
|
|
|
|
6.4
|
%
|
Jacqueline F. Woods
|
|
|
|
17,927
|
|
|
|
|
0
|
|
|
|
|
17,927
|
|
|
|
|
*
|
|
All Directors, nominees for Director and executive officers as a group
(2)(5)
|
|
|
|
3,895,690
|
|
|
|
|
6,219,127
|
|
|
|
|
10,114,817
|
|
|
|
|
10.5
|
%
|
*
|
Percent of class is less than 1%.
|
17
(1)
|
The following table provides additional details regarding beneficial ownership of our common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Outstanding
Options (a)
|
|
Vested Deferred
Restricted
Shares (b)
|
|
Deferred
Common
Shares (b)
|
John M. Ballbach
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
0
|
|
Christopher A. Coughlin
|
|
|
|
49,175
|
|
|
|
|
0
|
|
|
|
|
0
|
|
Phillip R. Cox
|
|
|
|
0
|
|
|
|
|
2,000
|
|
|
|
|
3,500
|
|
Diane C. Creel
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
0
|
|
Glenn A. Eisenberg
|
|
|
|
50,225
|
|
|
|
|
0
|
|
|
|
|
0
|
|
James W. Griffith
|
|
|
|
734,225
|
|
|
|
|
20,000
|
|
|
|
|
0
|
|
Richard G. Kyle
|
|
|
|
37,175
|
|
|
|
|
0
|
|
|
|
|
0
|
|
John A. Luke, Jr.
|
|
|
|
9,000
|
|
|
|
|
0
|
|
|
|
|
0
|
|
Salvatore J. Miraglia, Jr.
|
|
|
|
44,225
|
|
|
|
|
10,000
|
|
|
|
|
0
|
|
Joseph W. Ralston
|
|
|
|
6,000
|
|
|
|
|
0
|
|
|
|
|
12,000
|
|
John P. Reilly
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
4,000
|
|
Frank C. Sullivan
|
|
|
|
0
|
|
|
|
|
2,000
|
|
|
|
|
0
|
|
John M. Timken, Jr.
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
0
|
|
Ward J. Timken
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
0
|
|
Ward J. Timken, Jr.
|
|
|
|
638,175
|
|
|
|
|
0
|
|
|
|
|
0
|
|
Jacqueline F. Woods
|
|
|
|
0
|
|
|
|
|
0
|
|
|
|
|
6,250
|
|
|
(a)
|
Includes the shares which the individual named in the table has the right to acquire on or before March 5, 2013 through the exercise of stock options pursuant to the
Long-Term Incentive Plan. Including those listed, all Directors, nominees for Director, and executive officers as a group have the right to acquire 1,610,750 shares on or before March 5, 2013, through the exercise of stock options pursuant to
the Long-Term Incentive Plan. These shares have been treated as outstanding for the purpose of calculating the percentage of the class beneficially owned by such individual or group, but not for the purpose of calculating the percentage of the class
owned by any other person.
|
|
(b)
|
Awarded as annual grants under the Long-Term Incentive Plan, which will not be issued until a later date under The Director Deferred Compensation Plan. The Vested Deferred
Restricted Shares held by James W. Griffith and Salvatore J. Miraglia, Jr. are deferred under the 1996 Deferred Compensation Plan.
|
(2)
|
Excludes performance shares awarded but not vested pursuant to the Long-Term Incentive Plan as follows: Christopher A. Coughlin 3,900; Glenn A. Eisenberg 10,175;
James W. Griffith 34,200; Richard G. Kyle 3,900; Salvatore J. Miraglia 8,400; Ward J. Timken, Jr. 27,350; and remaining officers 4,675. These shares vest in 25 percent increments over four years.
|
(3)
|
Includes 197,886 shares for which John M. Timken, Jr. has sole voting and investment power as trustee of three trusts created as the result of distributions from the estate of
Susan H. Timken.
|
(4)
|
Includes shares for which another individual named in the table is also deemed to be the beneficial owner, as follows: John M. Timken, Jr. 460,000; Ward J. Timken
5,610,944; and Ward J. Timken, Jr. 5,150,944.
|
18
(5)
|
The number of shares beneficially owned by all Directors, nominees for Director and executive officers as a group has been calculated to eliminate duplication of beneficial
ownership. This group consists of 19 individuals.
|
The following table gives information known to us about each beneficial
owner of more than 5 percent of our common stock as of January 4, 2013, unless otherwise indicated below.
|
|
|
|
|
|
|
|
|
|
|
Beneficial Owner
|
|
Amount
|
|
Percent of Class
|
Timken family
(1)
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|
|
|
9,526,467 shares
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|
|
|
|
10.0
|
%
|
Relational Investors, LLC
(2)
|
|
|
|
6,616,543 shares
|
|
|
|
|
6.9
|
%
|
Participants in The Timken Company Savings and Investment Pension Plan
(3)
|
|
|
|
6,153,162 shares
|
|
|
|
|
6.4
|
%
|
BlackRock, Inc.
(4)
|
|
|
|
5,867,727 shares
|
|
|
|
|
6.1
|
%
|
(1)
|
Members of the Timken family, including John M. Timken, Jr., Ward J. Timken and Ward J. Timken, Jr., have in the aggregate sole or shared voting and dispositive power with
respect to 9,526,467 (10%) shares of our common stock, which includes 638,175 shares that Ward J. Timken, Jr., has the right to acquire on or before March 5, 2013. The Timken Foundation of Canton (the Foundation), 200
Market Avenue, North, Suite 210, Canton, Ohio 44702, holds 5,097,944 of these shares, representing 5.3 percent of our outstanding common stock. Ward J. Timken, Joy A. Timken, Ward J. Timken, Jr., William R. Timken, Jr. and Jeffrey A. Halm
are trustees of the Foundation and share the voting and investment power with respect to such shares.
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|
There are no voting agreements or other arrangements among the members of the Timken family regarding the 9,526,467 shares of our common stock and, accordingly, the members of
the Timken family shall not be deemed a group for purposes of Rule 13d-3 under the Securities Exchange Act of 1934 with respect to such shares. Accordingly, each member of the Timken family disclaims beneficial ownership of any shares of
our common stock as to which such member does not have sole or shared voting or investment power.
|
(2)
|
A Schedule 13D filed with the Securities and Exchange Commission on January 8, 2013, by Relational Investors, LLC (Relational), 12400 High Bluff Drive, Suite
600, San Diego, California 92130, indicated that it has sole voting and investment power over 6,616,543 shares, representing 6.9 percent, of our outstanding common stock. According to the filing, Relational is part of a group with other related
funds and California State Teachers Retirement System that collectively owns 7,006,210 shares, representing 7.31 percent, of our outstanding common stock.
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(3)
|
Trustee of the plan is J. P. Morgan Retirement Plan Services LLC, P. O. Box 419784, Kansas City, Missouri 64179-0654.
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(4)
|
A Schedule 13G filed with the Securities and Exchange Commission on February 5, 2013, by BlackRock, Inc., 40 East 52
nd
Street, New York, New York 10022, indicated that it has sole voting and investment power
over 5,867,727 shares, representing 6.12 percent, of our outstanding common stock.
|
19
COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
The Companys
success depends largely on the contributions of motivated, focused and energized people all working to achieve our strategic objectives. This understanding shapes our approach to providing a competitive total compensation package to our CEO and the
other executive officers named in the 2012 Summary Compensation Table (the named executive officers) that:
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enables the Company to attract, retain and motivate superior quality executive management;
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rewards executive management for financial performance and achievement of strategic objectives; and
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aligns the financial interests of executive management with those of our shareholders.
|
The Company uses a balance of short-term and long-term incentives as well as cash and non-cash compensation to meet these objectives. The elements
of executive compensation consist of base salary, annual incentives, long-term incentives including performance units, stock options and performance shares, retirement income programs and other benefits. Each element of compensation meets one or
more of the objectives described above.
2012 Business Performance
The Compensation Committee believes that our executive compensation for 2012 was consistent with our compensation objectives and demonstrates a
long-standing focus on pay for performance at all levels. The reported executive compensation reflects changes made to target opportunities to track market practices, payments commensurate with our strong operating performance and changes in the
accounting value of pension obligations.
The combined effect of the actions taken by management in recent years to improve both the
Companys market exposure and its internal operating performance led to strong operating results and cash flow generation, as well as a strengthened balance sheet, in 2012. The Companys strategy of continuing to evolve in key markets and
further diversifying its portfolio with new products and additional repair services enabled it to achieve double-digit margins in 2012 in the face of lower volumes. Sales were $5.0 billion and earnings per diluted share were $5.06 for 2012. As a
result of this strong performance, our incentive plans generally paid above target levels for 2012.
2012 Target Pay Adjustments
The Compensation Committee approved the following pay changes with respect to executive compensation targets for the named executive
officers in 2012:
Salary:
The CEO received a base salary increase of 2.8 percent in 2012. The other named executive officers
received base salary increases ranging from 3.0 percent to 3.7 percent, which is within the range of salary adjustments for all Company employees. The base salary increases were made to maintain alignment with market practice and were effective
March 1, 2012. In addition, Mr. Coughlin and Mr. Kyle each received a base salary increase of 11 percent, effective September 1, 2012, in connection with their promotions to Group President. See Base Salary below.
Annual Performance Award:
The target annual bonus opportunities for Mr. Coughlin and Mr. Kyle were increased from 70
percent to 75 percent of base salary, effective September 1, 2012, in connection with their promotions to Group President. The target opportunities for the other named executive officers remained unchanged for 2012. See Annual Performance
Award below.
Long-Term Incentives:
The named executive officers received target long-term incentive awards in 2012 with
values ranging from approximately $1.0 million to $3.8 million. In an effort to further align the long-term interests of executive leadership with those of our shareholders, and to provide an incentive to achieve medium-term financial objectives,
the Compensation Committee in 2012 began granting strategic performance shares in lieu of performance units and performance shares. Strategic performance shares are performance-based restricted stock units that vest based on achievement of specified
performance
20
objectives. Strategic performance shares serve to both reward and retain executives, as the receipt and value of any payout is linked to performance and to the stock price when the shares vest.
In addition, Mr. Coughlin and Mr. Kyle each received deferred shares (which will vest after five years of continued employment) in connection with their promotions to Group President. See Long-Term Incentives below.
CEO Total Pay:
The CEOs target pay for 2012 positioned his total pay package slightly below the 50
th
percentile as defined using the process described below in the Pay Setting
Process discussion.
The table below shows the year-to-year change in targeted compensation for the CEO in 2012 compared to 2011:
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Target Compensation
|
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2011
|
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2012
|
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% Change
|
Base Salary
|
|
|
$
|
1,058,000
|
|
|
|
$
|
1,090,000
|
|
|
|
|
3
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%
|
Target Annual Incentive
|
|
|
$
|
1,217,000
|
|
|
|
$
|
1,254,000
|
|
|
|
|
3
|
%
|
Target Long-Term Incentives
1
|
|
|
$
|
4,754,000
|
|
|
|
$
|
3,827,000
|
|
|
|
|
-20
|
%
|
Target Total Direct Compensation
|
|
|
$
|
7,029,000
|
|
|
|
$
|
6,171,000
|
|
|
|
|
-12
|
%
|
1
|
Reflects target strategic performance share value plus grant date fair values for nonqualified stock options, as disclosed
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2012 Incentive Compensation
In addition to total shareholder return, there are a variety of factors that we believe reflect Company performance over both short-term and
long-term periods. These factors include earnings before interest and taxes as a percentage of beginning invested capital (EBIT/BIC), return on invested capital and earnings per share, among other things. The Company achieved strong
operating results with respect to a number of these factors during 2012. These results drove the following incentive compensation awards for performance periods ending on December 31, 2012:
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Annual performance awards were paid at approximately 127 percent of target for the CEO and the Chairman and between 121 percent and 133 percent of target for the
other named executive officers, reflecting solid corporate EBIT/BIC performance as well as strong working capital management and customer service levels; and
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|
Performance unit awards, which were based on return on invested capital and earnings per share, were earned at the maximum level of 150 percent of target for the
2012 component of the 2010-2012 performance period, given our high level of performance.
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Realized Pay
While most individual pay decisions are based on an annual timetable, the Compensation Committee takes a longer-term view of how pay
and performance are linked for executives. In addition, the Compensation Committee focuses on the pay realized by executives as a result of performance, not just the values we are required to report in the Summary Compensation Table and its
supporting tables. The values in those tables, while important, only tell a portion of the story as they reflect accounting values of different program elements, not realized values. In addition, in the case of pension values, they are influenced by
factors such as changes in interest rates, not just changes in the underlying benefit levels or program design.
The table below shows
the value of realized compensation for the CEO from 2010 through 2012, as well as the performance of the Company on the primary incentive metrics tracked by the Company. While not a substitute for the 2012 Summary Compensation Table, this table
provides what we believe is an accurate depiction of the relationship between pay and performance at the Company, and shows strong alignment between the two. During this time period, the Company increased shareholder wealth by over $2 billion
through increases in stock price and the payment of dividends.
21
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2010
|
|
|
2011
|
|
|
2012
|
|
Realized Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary
|
|
$
|
1,025,004
|
|
|
$
|
1,058,334
|
|
|
$
|
1,090,000
|
|
Annual Bonus Paid
|
|
$
|
2,050,000
|
|
|
$
|
2,105,921
|
|
|
$
|
1,594,678
|
|
Performance Units Payout
|
|
$
|
512,502
|
|
|
$
|
2,518,435
|
|
|
$
|
1,537,506
|
|
Gains from Option Exercises
|
|
$
|
4,582,890
|
|
|
$
|
1,939,867
|
|
|
$
|
5,212,712
|
|
Value of Stock Awards Vesting
|
|
$
|
548,324
|
|
|
$
|
1,107,115
|
|
|
$
|
1,026,869
|
|
Total
|
|
$
|
8,718,720
|
|
|
$
|
8,729,672
|
|
|
$
|
10,461,765
|
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|
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Performance
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate EBIT/BIC
|
|
|
17.1
|
%
|
|
|
26.6
|
%
|
|
|
27.0
|
%
|
Return on Invested Capital
|
|
|
13.3
|
%
|
|
|
19.5
|
%
|
|
|
19.8
|
%
|
Earnings per Share
|
|
$
|
2.73
|
|
|
$
|
4.59
|
|
|
$
|
5.07
|
|
1-Year TSR
|
|
|
104.5
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%
|
|
|
-17.5
|
%
|
|
|
26.0
|
%
|
1
|
Reconciliation of corporate EBIT/BIC
and return on invested capital to their respective U.S. GAAP equivalents is contained in Appendix A.
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The increase in
realized compensation during 2012 is primarily due to the increase in stock option activity. This value realized by the CEO during a year when total return to shareholders was 26 percent reinforces the performance orientation of our program and the
alignment of interests between our executives and our shareholders.
The primary differences between the total amounts shown in this
table and in the 2012 Summary Compensation Table is that this table reflects actual gains from option exercises and stock vesting as opposed to the fair value of stock and options awards at the time of grant, and this table does not reflect
increases in pension values and perquisites and certain other compensation amounts that are shown in the 2012 Summary Compensation Table.
Alignment of Pay and Performance
The Compensation Committee recognizes that 2012 was a very strong year for the Company, despite challenging economic conditions in many of the markets served by the Company. The Companys total shareholder
return for 2012 was 26.0 percent, and the Compensation Committee recognizes that actions taken by management in recent years drove the Company to reach the high levels of sales and profitability seen in 2012 and 2011. As a result, the Compensation
Committee believes that realized pay was aligned with these strong results. In addition, the Companys three-year annualized total shareholder return of 28.6 percent and five-year annualized total shareholder return of 10.2 percent demonstrate
that the Company is creating long-term value for its shareholders that is aligned with pay levels over these periods. The Compensation Committee also believes that the compensation decisions made in light of the Companys strong performance, as
well as the longer-term implications of past and present compensation decisions, demonstrate a strong, sustained commitment to paying for performance.
Executive Compensation Program Design
The Company designs its executive compensation programs to ensure they are aligned with competitive market practices, the Companys emphasis on
meeting its performance aspirations and the creation of long-term shareholder value. The Compensation Committee periodically reviews the compensation programs and policies that apply to all Company employees and has determined that such programs and
policies are not reasonably likely to have a material adverse effect on the Company. Additionally, in establishing and reviewing the executive compensation programs, the Compensation Committee considers whether the programs encourage unnecessary or
excessive risk taking and has determined that they do not. The Compensation Committee also considered the result of the 2012 advisory, non-binding say-on-pay vote in connection with the discharge of its responsibilities. Because over 94
percent of the votes cast approved the compensation for our named executive officers described in our Proxy Statement for the 2012 Annual Meeting of Shareholders, the Compensation Committee determined that no changes to our compensation programs
were warranted as a result of the shareholder advisory vote. As described above under Executive Summary, however, our Compensation Committee
22
did take action during 2012 to strengthen our executive compensation programs and to continue to build a pay-for-performance culture.
In order to gauge the competitiveness of its compensation programs, the Company periodically reviews survey data from nationally recognized
consulting firms. Collectively, these databases reflect the pay practices of hundreds of companies from a range of industries. The Company attempts to position itself to attract and retain qualified senior executives in the face of competitive
pressures in its relevant general labor markets. In 2012, the Company used information regarding the pay practices of companies in these databases with revenues adjusted (via the use of regression analysis) to reflect a company of Timkens
revenue size. Specifically, the Company uses both the Towers Watson Executive Compensation Database and the Aon Hewitt US Total Compensation Measurement Executive Survey. A combined list of the companies in these databases is attached to this Proxy
Statement as Appendix B. The Company believes that revenues are an appropriate indicator of the size and complexity of an organization, which should be reflected in determining compensation levels. Furthermore, the Company views general industrial
companies of comparable size as the relevant market for the Companys senior executive talent. In light of the survey data gathered and the relative positioning of Timkens executives to the competitive market, the Compensation Committee
elected to make nominal adjustments to targeted compensation levels for certain executives as described above under 2012 Target Pay Adjustments.
Guidelines for salaries, annual incentives and long-term incentive grants are based on the 50th percentile of the general industry data for comparable roles. The Company may provide target compensation above or
below the 50th percentile for a particular position based on internal factors such as the executives operating responsibilities, experience level, retention risk and tenure and performance in the position. The Company establishes compensation
levels in this way for two main reasons. First, this approach sets fair and reasonable pay levels needed to attract and retain qualified executives. Second, it requires excellent performance for pay that is higher than that provided by the majority
of companies in the comparison group.
The Company establishes target compensation levels that are consistent with market practice and
internal equity considerations relative to base salaries, annual incentive awards and long-term incentive grants, along with the Compensation Committees assessment of the appropriate mix for the position. Current compensation is structured to
provide needed personal liquidity, focus executives on short-term priorities and dampen the impact of a volatile stock market. Providing a significant portion of executive compensation in the form of long-term compensation strengthens the alignment
of executives to the long-term performance of the Company and provides a balance against short-term decision making.
The Companys
incentive compensation programs for executives are designed to link compensation performance with the full spectrum of our business goals, some of which are short-term, while others take several years or more to achieve:
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Program
|
|
Short-Term
|
|
Long-Term
|
|
Long-Term
|
|
(Cash)
|
|
(Equity/Cash)
|
|
(Equity)
|
|
Senior Executive Management
Performance Plan
|
|
Strategic Performance
Shares
|
|
Nonqualified
Stock Options
|
|
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|
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Objective
|
|
Short-term operational
business priorities
|
|
Medium-term Strategic
financial goals
|
|
Long-term shareholder
value creation
|
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Time
Horizon
|
|
1 Year
|
|
3 Years
|
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10 Years
|
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Metrics
|
|
80% corporate EBIT/BIC
20% working capital/sales
|
|
ROIC and EPS
Stock Price
|
|
Performance of Common
Stock
|
The mix between current and long-term or cash and non-cash compensation varies by management level. For example, the
CEO and the Chairman receive more of their total target compensation in the form of long-term compensation relative to the other named executive officers. For both, target compensation consists of approximately 40 percent in current compensation and
60 percent in long-term compensation, made up of approximately:
23
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|
|
20 percent in current cash base salary;
|
|
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|
20 percent in current cash incentive pay tied to annual performance goals;
|
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|
25 percent in long-term equity and/or cash incentive compensation tied to performance over a three-year cycle (strategic performance shares); and
|
|
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|
35 percent in long-term equity incentive compensation (nonqualified stock options).
|
Target compensation for the other named executive officers is approximately 45 percent in current compensation and 55 percent in long-term
compensation, with a greater emphasis on cash compensation. Positions lower in the organization have a greater emphasis on current, cash denominated pay. This reflects the Companys view that more senior executives should have a more
significant incentive to focus on and drive long-term performance, while priorities for executives lower in the organization are more heavily focused on shorter-term operational results.
Cash is used for both current and long-term compensation, while non-cash compensation (share-based awards) is generally used only for long-term
compensation. Cash compensation includes base salary, annual incentive awards and strategic performance shares, which are stock-denominated awards payable at the end of three years subject to attainment of certain corporate performance targets.
Strategic performance shares are paid either in cash or in a combination of cash and shares depending on whether the recipient has met the relevant share ownership requirement. Non-cash compensation consists of stock option grants and strategic
performance shares paid in stock. Compensation tied to equity is intended to align the recipients interests with those of our shareholders, as changes in stock price have a meaningful impact on the recipients personal wealth.
Pay-Setting Process
The CEO and the
Senior Vice President Human Resources and Organizational Advancement, in consultation with Towers Watson, the Compensation Committees external compensation consultant, prepare compensation recommendations for the named
executive officers (other than the CEO and the Chairman) and present these recommendations to the Compensation Committee. The compensation packages for the CEO and the Chairman are determined by the Compensation Committee (with input from the
Chairman on the performance and pay recommendations for the CEO) and approved by the independent members of the Board of Directors during executive session.
The Company compares each element of compensation provided to its named executive officers to market data and considers the total compensation package in relation to the target established for the position, taking
into account the scope of responsibilities for the particular position. Total direct compensation (base salary, annual incentives and long-term incentive grants) is also evaluated in relation to the total compensation of comparable positions derived
from the general market data as well as internal equity considerations. For example, the amount of Mr. Griffiths compensation is higher than the other named executive officers because it reflects the competitive market for CEO services,
and not because of compensation policies different from those applied to the other named executive officers.
In the course of this
analysis and development of proposed total compensation packages, the Compensation Committees external compensation consultant reviews the relevant information and discusses their findings with the Committee. As part of this process, the
Compensation Committee reviews all the components of compensation for the named executive officers and determines that each individuals total compensation is reasonable and consistent with the Companys compensation philosophy. The
Compensation Committee may also consider additional factors, such as the executives operating responsibilities, experience level, retention risk and tenure and performance in the position, and make adjustments to a particular element of an
executives compensation. The Compensation Committee then approves, with any modifications it deems appropriate, base salary ranges, target annual performance award opportunities and long-term incentive grants for the Companys named
executive officers. The amount of past compensation realized or potentially realizable has not directly impacted the level at which current and long-term pay opportunities have been set, though the Compensation Committee does consider this
information in its deliberations.
The Company analyzes the overall expense arising from aggregate executive compensation, as well as the
accounting and tax treatment of such programs. The Company has addressed the impact of
24
Section 162(m) of the Internal Revenue Code by obtaining shareholder approval of the Senior Executive Management Performance Plan and the Long-Term Incentive Plan and by structuring certain
grants under the Long-Term Incentive Plan as performance-based compensation. All named executive officers participated in the Senior Executive Management Performance Plan for 2012. The Compensation Committee considers the deductibility of
compensation and benefits for Federal income tax purposes, along with other relevant factors, when determining executive compensation practices.
As described above, the Compensation Committee engages an external compensation consultant in connection with its oversight of the design, development and implementation of the Companys executive pay
programs. During 2009, the Compensation Committee established a multi-year agreement with Towers Watson to provide this service. In 2012, Towers Watsons primary areas of assistance were:
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|
Gathering information related to current trends and practices in executive compensation in response to questions raised by the Compensation Committee and
management;
|
|
|
|
Reviewing information developed by management for the Compensation Committee and providing its input on such information to the Committee;
|
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|
|
Attending and participating in meetings with the Compensation Committee, as well as briefings with the Committee Chairperson and management prior to meetings;
and
|
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|
|
Reviewing with management and the Compensation Committee materials to be used in the Companys Proxy Statement.
|
The Compensation Committee has authorized Towers Watson to interact with the Companys management, as needed, on behalf of the Compensation
Committee.
Analysis of 2012 Compensation
Base Salary
Base salaries for the named executive officers are intended to reflect the scope
of their responsibilities, the length of their experience performing those responsibilities and their performance. The Compensation Committee determines base salary ranges for executive officers using external surveys of salary practices for
positions with similar levels of responsibility. The Compensation Committee also reviews base salaries for the named executive officers annually in light of each officers experience, leadership, current salary and position in the salary range.
Following this review process in 2012, the Compensation Committee decided to increase the base salary for the CEO by 2.8 percent. The
other named executive officers received annual base salary increases ranging from 3.0 percent to 3.7 percent, effective March 1, 2012. The base salary increases were consistent with base salary increases implemented throughout the Company. In
addition, Mr. Coughlin and Mr. Kyle each received a base salary increase of 11 percent, effective September 1, 2012, in connection with their promotions to Group President.
Annual Performance Award
The Companys Senior Executive Management Performance Plan provides the named executive officers with the opportunity to earn annual incentive
compensation based on the achievement of corporate performance goals established by the Compensation Committee and approved by the Board of Directors. It is intended to focus the named executive officers on specific performance goals in the current
year.
The Senior Executive Management Performance Plan is structured to permit us to grant awards that may comply with
Section 162(m) of the Internal Revenue Code. In order to qualify the amounts earned under the plan as performance- based, the Compensation Committee can exercise discretion only to reduce an award. As a result, performance at target
levels results in the plan being funded above the level of the Companys other annual incentive plans. This provides the Compensation Committee with the flexibility to determine actual awards under the Senior Executive Management Performance
Plan for the named executive officers that are consistent with the awards made to other annual incentive plan participants, which has been the historical practice.
25
For 2012, the Senior Executive Management Performance Plan provided both the CEO and the Chairman a
target award opportunity of 115 percent of base salary. The Plan provided the other named executive officers a target award opportunity of 70 percent to 75 percent of base salary. Target award opportunity levels for executive officers were
determined by the Compensation Committee based on external surveys of practices for positions with similar levels of responsibility. The actual awards could be higher or lower than the target opportunity based on the results for each performance
measure and the extent to which the Compensation Committee uses discretion to reduce the awards.
The Company used two performance
measures for funding this plan for 2012: (1) corporate EBIT/BIC (calculated to exclude the effects of acquisitions and divestitures above $50 million in size, changes in tax laws or accounting principles, non-cash impairments, changes in other
comprehensive income and any amounts received under the Continued Dumping and Subsidy Offset Act); and (2) working capital as a percentage of sales. Corporate EBIT/BIC constituted 80 percent of the total award calculation and working capital as
a percentage of sales constituted 20 percent. The Compensation Committee established corporate EBIT/BIC as the primary performance measure because it believes this measure is closely correlated with the creation of shareholder value. Working capital
as a percentage of sales was used to focus the named executive officers on managing working capital.
The Companys 2012 performance
goals, associated plan funding levels, and actual calculated performance are summarized in the following table:
Senior Executive
Management Performance Plan 2012
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Threshold
|
|
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Target
|
|
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Maximum
|
|
|
Actual
|
|
|
|
|
|
|
EBIT/BIC
|
|
|
9.0%
|
|
|
|
21.0
|
%
|
|
|
29.0%
|
|
|
|
22.4
|
%
|
Working Capital/Sales
|
|
|
27.8%
|
|
|
|
23.8
|
%
|
|
|
19.8%
|
|
|
|
25.2
|
%
|
Plan Funding
|
|
|
80%
|
|
|
|
170
|
%
|
|
|
260%
|
|
|
|
177
|
%
|
The EBIT/BIC target level for 2012 was significantly higher than the 2011 target and the highest target in the
history of the plan, despite ongoing uncertainty in most of the Companys global markets. The actual calculated corporate EBIT/BIC was 22.4 percent, or between target and maximum levels, while the ratio of working capital to sales was 25.2
percent, or between target and threshold levels. As a result, the Senior Executive Management Performance Plan was eligible to be funded at 177 percent of target. The Compensation Committee determined the actual annual incentive award for each named
executive officer under the Senior Executive Management Performance Plan based on the calculated award, as a percentage of target opportunity, under the Companys annual incentive plan for other management-level employees. The calculated award
for 2012 for this broad-based plan was 121 percent. This percentage was then adjusted by 5 percent for the CEO and the Chairman, and by 10 percent for Mr. Eisenberg, to reflect their strong individual performance in 2012. Accordingly, the 2012
cash award payout equaled 127 percent of the target opportunity for the CEO and the Chairman, 133 percent of the target opportunity for Mr. Eisenberg, and 121 percent of the target opportunity for the other named executive officers.
Long-Term Incentives
The
Compensation Committee administers the Long-Term Incentive Plan, which was approved by our shareholders. Awards under the Long-Term Incentive Plan can be made in the form of nonqualified stock options, incentive stock options, appreciation rights,
performance shares, performance units, restricted shares, restricted stock units and deferred shares. In 2012, the Company utilized three different types of long-term incentive grants for the named executive officers:
|
|
|
Nonqualified stock options, which vest over time (four years) and are intended to provide value to the holder only if shareholders receive additional value after
the date of grant;
|
|
|
|
Strategic performance shares, which are performance-based restricted stock units designed to reward executives for attainment of specified medium-term corporate
performance goals and the value of which is linked to the stock price; and
|
|
|
|
Deferred shares, which vest at the end of a defined period (five years) and were granted to Mr. Coughlin and Mr. Kyle in connection with their
promotions to Group President to encourage retention and to enhance their stock ownership and focus on total shareholder return.
|
26
In total, the Company believes that these grants provide a balanced focus on shareholder value
creation and retention of key managers over the course of a full business cycle. These grants also serve to balance the short-term operating focus of the Company and align the long-term financial interests of executive management with those of our
shareholders.
The value of each type of long-term incentive grant is linked directly to the performance of the Company or the price of
its common stock. In the case of stock options, the recipient recognizes value only to the extent that the stock price rises above the market price of the stock at the time the option is granted. For strategic performance shares, a payout is
entirely contingent on the attainment of specified corporate performance targets and the value of the payout is directly linked to the stock price. And for deferred shares, the value of the shares is dependent upon the stock price at the time the
shares vest. In each case, an executive must remain employed by the Company for a specified period of time to earn the full value of an award, which aids the Company in retaining executives.
The size of the long-term incentive grants and the allocation of grant value among the long-term incentive grant types is based on a combination of
market practice, internal equity considerations and the relative importance of the objectives behind each of the grants (to reward attainment of multi-year performance goals, provide value tied to stock price appreciation and foster stock
ownership). For the grants made in 2012, the target value to be delivered in stock options and strategic performance shares was 385 percent of target base salary for the CEO and the Chairman, 215 percent of target base salary for Mr. Eisenberg
and 210 percent of target base salary for the other named executive officers. The allocation between stock options and strategic performance shares was 60%/40% for the CEO and the Chairman and 50%/50% for the other named executive officers. Greater
emphasis was placed on the stock option component for the CEO and the Chairman, reflecting the Compensation Committees belief that the CEO and the Chairman, more than other officers, are directly accountable for long-term shareholder value
creation. The Compensation Committee increased the resulting stock option grants for Messrs. Coughlin, Miraglia and Kyle by approximately 10 percent for 2012, in recognition of the strong business results delivered in 2011.
The target value for each grant is converted to a number of shares or options based on a calculated average stock price over a defined period prior
to the grant. Beginning in 2012, the Compensation Committee used the average price over the five trading days immediately preceding the grant date in determining the number of shares granted, to reflect prices closer to the actual price on the grant
date. This resulted in values in 2012 that were slightly below target values at the time of grant, as well as a year-over-year decline in grant value compared to 2011.
The Compensation Committee typically makes long-term incentive grants at the first regularly-scheduled meeting of each year, when the Committee determines all elements of the named executive officers
compensation for the year. Board and Committee meetings are generally scheduled at least a year in advance. Approval of grants for newly hired or promoted executives during the course of the year occur at the Compensation Committee meeting
immediately following the hiring or promotion.
Stock Options
In 2012, our key employees (including the named executive officers) received nonqualified stock options that:
|
|
|
had an exercise price equal to the opening price of the stock on the date of grant;
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|
|
|
generally will vest over a four-year period in equal amounts each year; and
|
|
|
|
generally will expire ten years after the date of grant.
|
The Compensation Committee believes that these awards help the Company retain executives and focus attention on longer-term performance. Stock options are an effective motivational tool because they only have value
to the extent the stock price on the date of exercise exceeds the exercise price on the grant date. They are an effective element of compensation and retention, however, only if the stock price grows over the term of the award. For information about
the specific number of stock options awarded in 2012 to each of the named executive officers, see the 2012 Grants of Plan-Based Awards Table below.
27
Under accounting rules, the fair value of the stock options on the grant date is expensed over the
vesting period in the year the options become vested. When executives exercise stock options, they are taxed at ordinary income tax rates (subject to withholding) and the Company receives a corresponding tax deduction.
Strategic Performance Shares
In an effort to further align the long-term interests of executive leadership with those of our shareholders, and to provide an incentive to achieve
medium-term financial objectives, the Compensation Committee in 2012 began granting strategic performance shares in lieu of performance units and performance shares used in prior years. Strategic performance shares are performance-based restricted
stock units that vest based on achievement of specified performance objectives. Strategic performance shares serve to both reward and retain executives, as the receipt of a payout is linked to performance and the value of the payout is linked to the
stock price when the shares vest.
The performance objectives for strategic performance shares granted in 2012 were average corporate
return on invested capital (ROIC) and cumulative earnings per share (EPS) for the three-year performance period. The Compensation Committee selected these metrics because it believes they are key components of shareholder
value creation and highly correlated to achievement of the Companys business strategy. Actual performance is calculated to exclude the effects of changes in tax laws or accounting principles, non-cash impairments, changes in other
comprehensive income and any amounts received under the Continued Dumping and Subsidy Offset Act. At the time the specific performance targets for each metric were established, the Compensation Committee believed that the targets for the strategic
performance shares granted in 2012 were very challenging, but achievable. To achieve target performance levels, the Company would have to achieve ROIC levels on par with the strong results delivered in 2011 as well as above-record EPS on average
over the three-year performance period.
The Companys performance targets for the strategic performance shares granted in 2012 are
summarized in the following table:
2012 to 2014 Strategic Performance Shares Targets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
|
|
|
|
ROIC
|
|
|
10.0
|
%
|
|
|
18.0
|
%
|
|
|
19.0
|
%
|
Cumulative EPS
|
|
|
$9.0
|
0
|
|
|
$16.5
|
0
|
|
|
$19.1
|
0
|
Funding
|
|
|
50
|
%
|
|
|
100
|
%
|
|
|
150
|
%
|
For any award to be earned, actual performance must achieve at least the threshold performance levels for both ROIC
and EPS. If the threshold performance level for either measure is not attained, then no payment will occur. If an award is payable, the number of shares earned can range from 50 percent to 150 percent of target based upon the actual performance over
the three-year performance period. The value of the shares is equal to the stock price at the end of the performance period. Executives who have met their share ownership requirement at the time of grant receive the value of any final award in cash.
Executives who have not met their share ownership requirement at the time of grant receive half of the value of any final award in cash and the other half in equity. For information about the strategic performance shares awarded in 2012 to each of
the named executive officers, see the 2012 Grants of Plan-Based Awards Table below.
Under the accounting rules, strategic performance
shares that are paid in cash result in variable accounting, whereby the Companys expense equals the actual value paid to the executives. As such, the ultimate expense is not determinable until the end of the three-year performance period. When
the executives earn and receive a payout, the Company receives a corresponding tax deduction. For strategic performance shares that are paid in equity, the grant date fair value is expensed over the service/vesting period. The executives are taxed
at ordinary income tax rates (subject to withholding) when the shares vest, and the Company receives a corresponding tax deduction.
Deferred Shares
Mr. Coughlin and Mr. Kyle each received a one-time grant of 25,000 deferred shares, which will vest after five years of continued
employment, in connection with their promotions to Group President. The Compensation Committee determined that the size and type of these grants were appropriate to encourage the retention of Mr. Coughlin and Mr. Kyle and to enhance their
stock ownership and focus on total shareholder return, as the value of the deferred shares is linked to the stock price when the shares vest. Mr. Coughlin and Mr. Kyle each signed a non-compete agreement in connection with this grant.
Under the accounting rules, the grant date fair value is expensed over the service/vesting period. The executives are taxed at ordinary
income tax rates (subject to withholding) when the shares vest, and the Company receives a corresponding tax deduction.
28
Performance Units
While no longer provided beginning in 2012, the named executive officers received awards of performance units in prior years. The awards were designed to focus the officers efforts on the Companys
medium-term performance goals. Three-year performance cycles started on January 1 of each year. Cash payouts for performance units are made by March following the end of each performance cycle. Accordingly, a performance cycle for performance
units granted in 2010 was completed at the end of 2012 and the payout was approved by the Committee at its first meeting in 2013.
2010 to 2012 Performance Cycle
The severe economic downturn in 2009 significantly affected performance units covering multiple performance cycles. There were no payouts for the 2007 to 2009 cycle or the 2008 to 2010 cycle and at the time the
2010 to 2012 cycle was approved, the probability of achieving the targets for the 2009 to 2011 cycle was believed to be remote. Recognizing the challenges of setting multi-year performance goals in an uncertain environment, while at the same time
desiring to strengthen the incentive to achieve the Companys strategic objectives and to encourage retention of senior management, the Compensation Committee structured the performance units for the 2010 to 2012 performance cycle to provide an
opportunity for a payout to be earned in each year of the cycle.
For the 2010 to 2012 performance cycle, the Compensation Committee
established two performance measures: (1) ROIC; and (2) EPS. The Compensation Committee selected these metrics because it believed they were key components of shareholder value creation and highly correlated to achievement of the
Companys business strategy. Each metric was weighted equally because they were viewed as equally important for the performance cycle. Actual performance was calculated to exclude the effects of changes in tax laws or accounting principles,
non-cash impairments, changes in other comprehensive income and any amounts received under the Continued Dumping and Subsidy Offset Act.
As in the past, the specific performance targets for each metric were tied to the Companys three-year strategic plan. Given the uncertain
environment at the time the targets were established, the Compensation Committee believed that the targets for the 2010 to 2012 cycle were very challenging, but achievable. The target payout opportunity for the performance units granted in 2010 was
100 percent of base salary (as of January 1, 2010) for the CEO and the Chairman and ranged from 60 percent to 80 percent of base salary (as of January 1, 2010) for the other named executive officers.
The Companys performance goals and actual calculated results for the 2012 component of the 2010 to 2012 cycle are summarized in the following
table:
2010 to 2012 Performance Units 2012 Performance Goals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Actual
|
|
|
|
|
|
|
|
|
|
|
ROIC
|
|
|
8.1%
|
|
|
|
11.5%
|
|
|
|
15.0%
|
|
|
|
16.3%
|
|
EPS
|
|
|
$1.90
|
|
|
|
$2.75
|
|
|
|
$3.45
|
|
|
|
$4.41
|
|
Plan Funding
|
|
|
50%
|
|
|
|
100%
|
|
|
|
150%
|
|
|
|
150%
|
|
Based on these results, the CEO and the Chairman each received a cash payment equal to 150 percent of their
January 1, 2010 base salaries and the other named executive officers received cash payments equal to 90 percent to 120 percent of their January 1, 2010 base salaries.
Under the accounting rules, performance units result in variable accounting, whereby the Companys expense equals the value paid to the executives. As such, the ultimate expense is not determinable until the
end of the three-year performance period. When the executives earn and receive a payout, the Company receives a corresponding tax deduction.
Stock Ownership Guidelines
Stock
ownership guidelines have been established for all senior executives and are intended to align the interests of executive management with those of our shareholders by requiring executives to be subject to the same long-term stock price volatility
our shareholders experience. These guidelines
29
establish the following specific ownership target for each of the named executive officers: Mr. Griffith 100,000 shares; Mr. Timken 80,000 shares; Mr. Eisenberg
33,000 shares; Mr. Coughlin 33,000 shares; Mr. Miraglia 28,000 shares; and Mr. Kyle 33,000 shares. The Company considers all shares owned by the executive, including deferred shares, restricted shares and
performance shares still subject to forfeiture, but not including shares that are subject to unexercised options, in determining whether the executive has met the ownership targets. As of December 31, 2012, the named executive officers all
exceeded their ownership targets. The Company has a formal policy that prohibits pledging Company stock or hedging the economic risk related to such stock ownership.
Retirement Income Programs
The Companys retirement income programs are an
important retention tool. The Company maintains both qualified and nonqualified retirement income programs. The named executive officers participate in qualified plans on the same terms and conditions as all other salaried employees and also
participate in the Companys nonqualified retirement income programs. The Company currently provides nonqualified retirement income through two types of plans:
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|
|
A nonqualified defined contribution plan provides for after-tax savings based on each executives contributions, Company match and core defined
contributions in excess of tax limits. The nonqualified defined contribution plan in which the named executive officers participate is the Post-Tax Savings Plan. This plan is primarily intended to restore benefits that would be provided under the
qualified retirement plans were it not for limits on benefits and compensation imposed by the Internal Revenue Code.
|
|
|
|
A nonqualified defined benefit plan provides for a targeted percentage of salary and annual incentive income that will continue through retirement. The
nonqualified defined benefit plan in which the named executive officers participate is the Supplemental Executive Retirement Program for Executive Officers (the SERP). The SERP provides for a benefit based on final average earnings with
offsets for benefits provided under the Companys other retirement programs. The SERP promotes retention of executive officers because it requires ten years of service, including five years as an officer, for full benefits to be earned.
|
Although the policies and procedures underlying the Companys retirement income programs are the same for all
participants, the age and length of service (including service as an officer of the Company) of each participant can have a significant effect on their benefit calculation because the programs have changed over time. In addition, because benefits
under the Companys retirement income programs are based on base salary and cash annual incentive compensation for the five highest non-consecutive years (out of the final ten years), pension values can increase significantly as salary and cash
annual incentive compensation increases. Pension values are also influenced by external factors such as the current environment of low interest rates, which have caused pension values to increase. See Pension Benefits below.
The value of the nonqualified retirement income programs is quantified each year and these programs are periodically reviewed for their
competitiveness. To date, the value of these programs has not had a significant impact on decisions regarding salary, annual incentive awards or long-term incentive grants.
Termination-Related Payments
In addition to retirement payments, the Company provides
termination-related payments in the event of involuntary termination without cause and involuntary termination without cause following a change in control through severance agreements with individual executives. Severance agreements are provided
based on competitive market practice and the Companys desire to ensure some level of income continuity should an executives employment be terminated without cause. The Company believes that providing for such income continuity results in
greater management stability and lower unwanted management turnover.
Severance agreements also provide for termination payments
following involuntary termination without cause following a change in control. These provisions are based on competitive practice and are designed to ensure that executives interests remain aligned with shareholders should a potential change
of control occur. They are also intended to provide some level of income continuity should an executives employment be terminated without cause. The Company believes, as stated above, that providing for
30
such income continuity results in greater management stability and lower unwanted management turnover.
The level of severance benefits under the applicable scenario reflects the Companys perception of competitive market practice for the named executive officers positions, based on an assessment by Towers
Watson. Severance pay was established as a multiple of base salary and actual annual incentive compensation, based on competitive market practice. Specific dollar values were not targeted by the Compensation Committee, although the Compensation
Committee did review tally sheets that showed the estimated cost of such benefits under various scenarios. The amounts of potential payouts are indicated in the Termination Scenarios table on page 42.
Deferred Compensation
The Company
maintains a Deferred Compensation Plan that allows certain employees, including the named executive officers, to defer receipt of all or a portion of their salary, employee contributions and Company match that would otherwise be directed to the
Post-Tax Savings Plan and/or incentive compensation payable in cash or common shares until a specified point in the future. Cash deferrals earn interest quarterly at a rate based on the prime rate plus one percent. None of the named executive
officers earned above-market interest, as defined by the Securities and Exchange Commission.
The Deferred Compensation Plan
is not funded by the Company, and participants have an unsecured contractual commitment by the Company to pay the amounts due under the plan. When such payments are due, they will be distributed from the Companys general assets. In the event
of a change in control in the Company, as defined in the plan, participants are entitled to receive deferred amounts immediately. The Compensation Committee believes that providing employees with tax deferral opportunities aids in the attraction and
retention of such employees.
The value of deferred compensation amounts is quantified each year and this program is periodically
reviewed for its competitiveness. To date, the value of deferred compensation has not had a significant impact on decisions regarding salary, annual incentive awards or long-term incentive grants.
Perquisite Programs
The
Companys executive officers, including all of the named executive officers, are eligible to participate in a number of broad-based benefit programs, including health, disability and life insurance programs. The named executive officers may
also receive certain perquisites including term life insurance coverage, financial counseling and tax preparation, access to corporate country club memberships (although personal expenses are not reimbursed), and home security systems. The value of
these benefits is reflected in the All Other Compensation column in the 2012 Summary Compensation Table below. The Company does not provide tax gross-ups for these benefits to executives. These benefits are intended to provide executives with a
competitive perquisite program that is reasonable and consistent with the Companys overall approach to executive compensation. The total cost of these benefits is a small percentage of each named executive officers total compensation.
31
EXECUTIVE COMPENSATION
2012 SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation for our named executive officers for 2012:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
Name and
Principal Position
|
|
Year
|
|
|
Salary
|
|
|
Stock
Awards
(1)
|
|
|
Option
Awards
(2)
|
|
|
Non-Equity
Incentive Plan
Compensation
(3)
|
|
|
Change in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
(4)
|
|
|
All Other
Compensation
(5)
|
|
|
Total
|
|
James W. Griffith
President and
Chief Executive Officer
|
|
|
2012
|
|
|
$
|
1,090,000
|
|
|
$
|
0
|
|
|
$
|
2,274,048
|
|
|
$
|
3,132,184
|
|
|
$
|
4,601,000
|
|
|
$
|
189,694
|
|
|
$
|
11,286,926
|
|
|
|
2011
|
|
|
$
|
1,058,334
|
|
|
$
|
1,098,020
|
|
|
$
|
2,630,760
|
|
|
$
|
4,624,356
|
|
|
$
|
3,283,000
|
|
|
$
|
162,052
|
|
|
$
|
12,856,522
|
|
|
|
2010
|
|
|
$
|
1,025,004
|
|
|
$
|
802,518
|
|
|
$
|
1,915,053
|
|
|
$
|
2,562,502
|
|
|
$
|
1,332,000
|
|
|
$
|
74,050
|
|
|
$
|
7,711,127
|
|
Ward J. Timken, Jr.
Chairman Board of Directors
|
|
|
2012
|
|
|
$
|
861,000
|
|
|
$
|
0
|
|
|
$
|
1,818,432
|
|
|
$
|
2,474,649
|
|
|
$
|
2,253,000
|
|
|
$
|
213,957
|
|
|
$
|
7,621,038
|
|
|
|
2011
|
|
|
$
|
835,000
|
|
|
$
|
888,398
|
|
|
$
|
2,112,580
|
|
|
$
|
3,651,691
|
|
|
$
|
1,717,000
|
|
|
$
|
217,320
|
|
|
$
|
9,421,989
|
|
|
|
2010
|
|
|
$
|
810,000
|
|
|
$
|
634,760
|
|
|
$
|
1,510,885
|
|
|
$
|
2,025,000
|
|
|
$
|
327,000
|
|
|
$
|
74,812
|
|
|
$
|
5,382,457
|
|
Glenn A. Eisenberg
Executive Vice President
Finance and Administration
|
|
|
2012
|
|
|
$
|
638,840
|
|
|
$
|
0
|
|
|
$
|
582,624
|
|
|
$
|
1,348,005
|
|
|
$
|
1,689,000
|
|
|
$
|
133,173
|
|
|
$
|
4,391,642
|
|
|
|
2011
|
|
|
$
|
619,540
|
|
|
$
|
314,433
|
|
|
$
|
627,795
|
|
|
$
|
1,963,705
|
|
|
$
|
1,517,000
|
|
|
$
|
132,486
|
|
|
$
|
5,174,959
|
|
|
|
2010
|
|
|
$
|
600,034
|
|
|
$
|
247,103
|
|
|
$
|
496,395
|
|
|
$
|
1,071,002
|
|
|
$
|
594,000
|
|
|
$
|
70,111
|
|
|
$
|
3,078,645
|
|
Christopher A. Coughlin
Group President
|
|
|
2012
|
|
|
$
|
464,020
|
|
|
$
|
939,000
|
|
|
$
|
528,192
|
|
|
$
|
756,000
|
|
|
$
|
1,202,000
|
|
|
$
|
52,498
|
|
|
$
|
3,941,710
|
|
|
|
2011
|
|
|
$
|
433,370
|
|
|
$
|
259,532
|
|
|
$
|
550,068
|
|
|
$
|
1,016,791
|
|
|
$
|
753,000
|
|
|
$
|
42,586
|
|
|
$
|
3,055,347
|
|
Salvatore J. Miraglia, Jr.
President Steel
|
|
|
2012
|
|
|
$
|
471,670
|
|
|
$
|
0
|
|
|
$
|
528,192
|
|
|
$
|
851,608
|
|
|
$
|
1,968,000
|
|
|
$
|
109,075
|
|
|
$
|
3,928,545
|
|
|
|
2011
|
|
|
$
|
456,690
|
|
|
$
|
259,532
|
|
|
$
|
550,068
|
|
|
$
|
1,292,718
|
|
|
$
|
1,706,000
|
|
|
$
|
72,278
|
|
|
$
|
4,337,286
|
|
|
|
2010
|
|
|
$
|
438,368
|
|
|
$
|
204,030
|
|
|
$
|
434,006
|
|
|
$
|
762,503
|
|
|
$
|
618,000
|
|
|
$
|
51,942
|
|
|
$
|
2,508,849
|
|
Richard G. Kyle
Group President
|
|
|
2012
|
|
|
$
|
464,020
|
|
|
$
|
1,184,860
|
|
|
$
|
528,192
|
|
|
$
|
702,000
|
|
|
$
|
479,000
|
|
|
$
|
93,479
|
|
|
$
|
3,451,551
|
|
(1)
|
The amounts shown in this column for 2012 represent the grant date fair market value of a one-time grant of 25,000 deferred shares (calculated in accordance with FASB ASC Topic
718) made to each of Mr. Kyle and Mr. Coughlin on August 6, 2012 in connection with their promotions to Group President. These shares vest 100 percent on the fifth anniversary of the grant date, contingent on continued employment. In
addition, the amount shown for Mr. Kyle for 2012 includes the grant date fair market value (calculated in accordance with FASB ASC Topic 718) of the portion of his strategic performance shares that will be paid in stock upon vesting. Should
performance equal or exceed the maximum requirement for both ROIC and EPS, the number of strategic performance shares that will vest for Mr. Kyle will increase from 4,750 shares represented in the table to 7,125 shares. See the description of
strategic performance shares on page 28.
|
(2)
|
The amounts shown in this column for 2012 represent the grant date fair market value of nonqualified stock options granted in 2012 (calculated in accordance with FASB ASC Topic
718) using the Black-Scholes model. All stock options vest at a rate of 25 percent per year. Assumptions used to determine the value of these nonqualified stock options are listed in the discussion of Stock Compensation Plans in Note 9 of the
Companys Consolidated Financial Statements contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2012.
|
(3)
|
The amounts shown in this column for 2012 represent cash awards under the Senior Executive Management Performance Plan (annual incentive plan) for 2012 and the
performance units under the Long-Term Incentive Plan covering the 2010-2012 performance cycle. Amounts earned under the Senior Executive Management Performance Plan and the 2010-2012 performance units, respectively, for each
|
32
|
of the named executive officers were as follows: Mr. Griffith $1,594,678 and $1,537,506; Mr. Timken $1,259,649 and $1,215,000; Mr. Eisenberg $640,000 and
$708,005; Mr. Coughlin $405,000 and $351,000; Mr. Miraglia $400,100 and $451,508; and Mr. Kyle $405,000 and $297,000.
|
(4)
|
The amounts shown in this column for 2012 represent the difference between the amounts shown in the 2012 Pension Benefits Table on page 37 as of December 31, 2012 and those
amounts calculated as of December 31, 2011. See the discussion of Pension Benefits on pages 36 and 37 for a description of how the amounts as of December 31, 2012 were calculated. The amounts as of December 31, 2011 were calculated
using the same assumptions, except that a discount rate of 5.00 percent was used. For both years, liabilities were determined assuming no probability of termination, retirement, death, or disability before age 62 (the earliest age unreduced
pension benefits are payable from the plans). None of the named executive officers earned above-market earnings in a deferred compensation plan.
|
(5)
|
The amounts shown in this column for 2012 are broken down in detail in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Annual
Company
Contribution
to SIP Plan
and Core
DC
Program
(a)
|
|
|
Annual
Company
Contribution
to Post-Tax
Savings
Plan
(b)
|
|
|
Annual
Life
Insurance
Premium
(Company
Paid)
|
|
|
Executive
Physicals
(Company
Required)
|
|
|
Financial
Planning
Reimburse-
ment
|
|
|
Home
Security
(Company
Required)
|
|
|
Personal
Use of
Companys
Country
Club
Member-
ships
(c)
|
|
|
Spousal
Travel
(d)
|
|
|
Tax Gross-
Ups
for
Life
Insurance,
Financial
Planning,
Home
Security
and
Spousal
Travel
(e)
|
|
|
Other
(f)
|
|
James W. Griffith
|
|
$
|
11,250
|
|
|
$
|
132,725
|
|
|
$
|
5,284
|
|
|
$
|
3,027
|
|
|
$
|
10,000
|
|
|
$
|
440
|
|
|
$
|
0
|
|
|
$
|
21,731
|
|
|
$
|
0
|
|
|
$
|
5,237
|
|
Ward J. Timken, Jr.
|
|
$
|
20,000
|
|
|
$
|
174,231
|
|
|
$
|
2,937
|
|
|
$
|
3,788
|
|
|
$
|
8,070
|
|
|
$
|
168
|
|
|
$
|
0
|
|
|
$
|
3,341
|
|
|
$
|
0
|
|
|
$
|
1,422
|
|
Glenn A. Eisenberg
|
|
$
|
20,000
|
|
|
$
|
95,332
|
|
|
$
|
4,530
|
|
|
$
|
2,979
|
|
|
$
|
7,500
|
|
|
$
|
167
|
|
|
$
|
0
|
|
|
$
|
1,081
|
|
|
$
|
0
|
|
|
$
|
1,584
|
|
Christopher A. Coughlin
|
|
$
|
11,250
|
|
|
$
|
33,299
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
955
|
|
|
$
|
167
|
|
|
$
|
497
|
|
|
$
|
5,267
|
|
|
$
|
0
|
|
|
$
|
1,063
|
|
Salvatore J. Miraglia, Jr.
|
|
$
|
11,250
|
|
|
$
|
34,908
|
|
|
$
|
5,310
|
|
|
$
|
2,978
|
|
|
$
|
7,500
|
|
|
$
|
1,577
|
|
|
$
|
4,700
|
|
|
$
|
37,597
|
|
|
$
|
0
|
|
|
$
|
3,255
|
|
Richard G. Kyle
|
|
$
|
18,750
|
|
|
$
|
51,710
|
|
|
$
|
0
|
|
|
$
|
2,060
|
|
|
$
|
475
|
|
|
$
|
418
|
|
|
$
|
2,577
|
|
|
$
|
16,796
|
|
|
$
|
0
|
|
|
$
|
693
|
|
(a)
|
SIP Plan refers to the Savings and Investment Pension Plan, which is the Companys qualified defined contribution plan for salaried employees. Core DC
Program refers to the core defined contribution program for all salaried employees hired on or after January 1, 2004, as well as for salaried employees whose age plus years of service with the Company equaled less than 50 as of
December 31, 2003. Mr. Timken, Mr. Eisenberg and Mr. Kyle participate in the Core DC Program.
|
(b)
|
The Post-Tax Savings Plan is the Companys non tax-qualified restoration plan for salaried employees whose contributions and benefits in qualified retirement
plans are limited by Section 415 of the Internal Revenue Code.
|
(c)
|
The amounts shown for personal use of country club memberships reflect pro-rated amounts of company-paid annual membership dues in 2012 that were used for personal use by the
named executive officers. There are no incremental costs to the Company for personal use, as all such costs are borne by the officer.
|
(d)
|
The amounts shown for spousal travel include actual incremental travel expenses, as well as estimated incremental costs of traveling on the Companys aircraft (if used),
when accompanying the named executive officer on business travel.
|
(e)
|
The Company does not provide tax gross-ups for benefits to executives.
|
(f)
|
The amounts shown represent imputed income for the cost of pre-tax term life insurance (which is provided by the Company for all associates equal to one times their annual
salary) for the portion that exceeds the IRS pre-tax limit of $50,000.
|
33
2012 GRANTS OF PLAN-BASED AWARDS
The following table sets forth information concerning certain grants made to our named executive officers during 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
|
|
|
Estimated Future Payouts Under
Equity Incentive Plan Awards
|
|
|
All Other
Stock
Awards:
Number of
Shares of
Stock or
|
|
|
All Other
Option
Awards:
Number of
Securities
Underlying
|
|
|
Exercise
or Base
Price of
Option
Awards
|
|
|
Grant Date
Fair Value of
Stock and
Option
Awards
|
|
Name
|
|
Grant Date
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Units
|
|
|
Options
|
|
|
($/share)
|
|
|
(5)
|
|
James W. Griffith
|
|
02/09/2012 Perf RSUs
(1)
|
|
$
|
776,400
|
|
|
$
|
1,552,800
|
|
|
$
|
2,329,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012 SEMPP
(2)
|
|
$
|
1,002,800
|
|
|
$
|
2,130,950
|
|
|
$
|
3,259,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012 NQSOs
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,800
|
|
|
$
|
51.76
|
|
|
$
|
2,274,048
|
|
Ward J. Timken, Jr.
|
|
02/09/2012 Perf RSUs
(1)
|
|
$
|
621,120
|
|
|
$
|
1,242,240
|
|
|
$
|
1,863,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012 SEMPP
(2)
|
|
$
|
792,120
|
|
|
$
|
1,683,255
|
|
|
$
|
2,574,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012 NQSOs
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,200
|
|
|
$
|
51.76
|
|
|
$
|
1,818,432
|
|
Glenn A. Eisenberg
|
|
02/09/2012 Perf RSUs
(1)
|
|
$
|
297,620
|
|
|
$
|
595,240
|
|
|
$
|
892,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012 SEMPP
(2)
|
|
$
|
383,304
|
|
|
$
|
814,521
|
|
|
$
|
1,245,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012 NQSOs
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,900
|
|
|
$
|
51.76
|
|
|
$
|
582,624
|
|
Christopher A. Coughlin
|
|
02/09/2012 Perf RSUs
(1)
|
|
$
|
245,860
|
|
|
$
|
491,720
|
|
|
$
|
737,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012 SEMPP
(2)
|
|
$
|
278,412
|
|
|
$
|
591,626
|
|
|
$
|
904,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012 NQSOs
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,200
|
|
|
$
|
51.76
|
|
|
$
|
528,192
|
|
|
|
08/06/2012 Def Shrs
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
$
|
939,000
|
|
Salvatore J. Miraglia, Jr.
|
|
02/09/2012 Perf RSUs
(1)
|
|
$
|
245,860
|
|
|
$
|
491,720
|
|
|
$
|
737,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012 SEMPP
(2)
|
|
$
|
264,135
|
|
|
$
|
561,287
|
|
|
$
|
858,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012 NQSOs
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,200
|
|
|
$
|
51.76
|
|
|
$
|
528,192
|
|
Richard G. Kyle
|
|
02/09/2012 Perf RSUs
(1)
|
|
$
|
122,930
|
|
|
$
|
245,860
|
|
|
$
|
368,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012 Perf RSUs
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,375
|
|
|
|
4,750
|
|
|
|
7,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
245,860
|
|
|
|
02/09/2012 SEMPP
(2)
|
|
$
|
278,412
|
|
|
$
|
591,626
|
|
|
$
|
904,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012 NQSOs
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,200
|
|
|
$
|
51.76
|
|
|
$
|
528,192
|
|
|
|
08/06/2012 Def Shrs
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
$
|
939,000
|
|
(1)
|
The Perf RSUs amounts shown indicate aggregate threshold, target and maximum award opportunities for strategic performance shares covering the 2012-2014 performance
cycle granted to each named executive officer in 2012 under the Long-Term Incentive Plan. The Perf RSUs amounts shown for Mr. Kyle reflect that any final award for his strategic performance shares will be paid half in cash and half
in equity, and the share-based portion of Mr. Kyles Perf RSUs are within the scope of FASB ASC Topic 718 for purposes of reporting in these compensation tables. Final awards for the other named executive officers will be paid in cash. See
the description of strategic performance shares on page 28.
|
(2)
|
The SEMPP amounts shown indicate funding levels at threshold, target and maximum performance levels under the Senior Executive Management Performance Plan for 2012.
The Senior Executive Management Plan is a shareholder-approved plan in which all the named executive officers participated in 2012. The performance metrics for 2012 were corporate EBIT/BIC and working capital as a percentage of sales. Awards paid to
individual executives are based on the actual financial results in relation to the target goals under the plan. In addition, the Compensation Committee retains the discretion to adjust downward any awards determined by the formula as the
Compensation Committee deems appropriate. Target award amounts under the Senior Executive Management Performance Plan for each of the named executive officers were as follows: Mr. Griffith $1,253,500; Mr. Timken $990,150;
Mr. Eisenberg $479,130; Mr. Coughlin $333,148; Mr. Miraglia $330,169; and Mr. Kyle $333,148.
|
(3)
|
The NQSOs amounts shown reflect nonqualified stock options granted in 2012. All options granted to the named executive officers during 2012 were
granted on February 9, 2012. All options were granted pursuant to the Long-Term Incentive Plan with an exercise price equal to the fair market value (as defined in the plan) on the date of grant, have a ten-year term and will become exercisable
over four years in 25 percent increments on the anniversary of the date of grant. The agreements pertaining to these options provide that such options will become exercisable in full and will vest in the event of death or disability of the option
holder or a change in control of the Company, in each case as defined in such agreements. In the cases of normal retirement and retirement with the Companys consent (prior to the age of 62), such options will become exercisable with the same
|
34
|
terms and conditions as normal vesting, as if the option holder had remained in the continuous employ of the Company.
|
(4)
|
The Def Shrs amounts shown reflect a one-time grant of 25,000 deferred shares made to each of Mr. Kyle and Mr. Coughlin on August 6, 2012 under the
Long-Term Incentive Plan in connection with their promotions to Group President. These shares vest 100 percent on the fifth anniversary of the grant contingent on continued employment. Mr. Coughlin and Mr. Kyle each signed a non-compete
agreement in connection with this grant.
|
(5)
|
The amounts shown reflect the grant date fair market value of options and deferred shares granted in 2012, as well as the portion of strategic performance shares that will be
paid in equity, calculated in accordance with FASB ASC Topic 718. The fair market value of performance-based restricted stock units and deferred shares is the opening price of Common Stock on the date of grant multiplied by the number of full shares
granted. The fair market value of options is determined using the Black-Scholes model.
|
OUTSTANDING EQUITY AWARDS AT
2012 YEAR-END
The following table sets forth information concerning unexercised options and stock awards that have not vested for
each of our named executive officers as of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
(1)
|
|
|
Stock Awards
(2)
|
|
Name
|
|
Grant Date
|
|
|
Number of
Securities
Underlying
Unexercised
Options
|
|
|
Number of
Securities
Underlying
Unexercised
Options
|
|
|
Option
Exercise
Price
($/share)
|
|
|
Option
Expiration
Date
|
|
|
Grant Date
|
|
|
Number
of
Shares
or Units
of
Stock
That
Have
Not
Vested
|
|
|
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
|
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have Not
Vested
|
|
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units
or
Other
Rights
That
Have Not
Vested
|
|
|
|
|
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James W. Griffith
|
|
|
02/06/2006
|
|
|
|
134,000
|
|
|
|
0
|
|
|
$
|
30.93
|
|
|
|
02/06/2016
|
|
|
|
12/31/2008
|
|
|
|
182
|
|
|
$
|
8,705
|
|
|
|
|
|
|
|
|
|
|
|
|
02/05/2007
|
|
|
|
134,000
|
|
|
|
0
|
|
|
$
|
29.23
|
|
|
|
02/05/2017
|
|
|
|
02/08/2010
|
|
|
|
17,700
|
|
|
$
|
846,591
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/2008
|
|
|
|
161,000
|
|
|
|
0
|
|
|
$
|
30.70
|
|
|
|
02/04/2018
|
|
|
|
02/08/2011
|
|
|
|
16,500
|
|
|
$
|
789,195
|
|
|
|
|
|
|
|
|
|
|
|
|
02/02/2009
|
|
|
|
0
|
|
|
|
52,175
|
|
|
$
|
14.74
|
|
|
|
02/02/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2010
|
|
|
|
105,900
|
|
|
|
105,900
|
|
|
$
|
22.67
|
|
|
|
02/08/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2011
|
|
|
|
33,000
|
|
|
|
99,000
|
|
|
$
|
49.91
|
|
|
|
02/08/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012
|
|
|
|
0
|
|
|
|
112,800
|
|
|
$
|
51.76
|
|
|
|
02/09/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ward J. Timken, Jr.
|
|
|
02/06/2006
|
|
|
|
114,000
|
|
|
|
0
|
|
|
$
|
30.93
|
|
|
|
02/06/2016
|
|
|
|
12/31/2008
|
|
|
|
835
|
|
|
$
|
39,938
|
|
|
|
|
|
|
|
|
|
|
|
|
02/05/2007
|
|
|
|
114,000
|
|
|
|
0
|
|
|
$
|
29.23
|
|
|
|
02/05/2017
|
|
|
|
02/08/2010
|
|
|
|
14,000
|
|
|
$
|
669,620
|
|
|
|
|
|
|
|
|
|
|
|
|
02/04/2008
|
|
|
|
127,000
|
|
|
|
0
|
|
|
$
|
30.70
|
|
|
|
02/04/2018
|
|
|
|
02/08/2011
|
|
|
|
13,350
|
|
|
$
|
638,531
|
|
|
|
|
|
|
|
|
|
|
|
|
02/02/2009
|
|
|
|
41,150
|
|
|
|
41,150
|
|
|
$
|
14.74
|
|
|
|
02/02/2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2010
|
|
|
|
83,550
|
|
|
|
83,550
|
|
|
$
|
22.67
|
|
|
|
02/08/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2011
|
|
|
|
26,500
|
|
|
|
79,500
|
|
|
$
|
49.91
|
|
|
|
02/08/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012
|
|
|
|
0
|
|
|
|
90,200
|
|
|
$
|
51.76
|
|
|
|
02/09/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glenn A. Eisenberg
|
|
|
02/02/2009
|
|
|
|
0
|
|
|
|
13,525
|
|
|
$
|
14.74
|
|
|
|
02/02/2019
|
|
|
|
12/31/2008
|
|
|
|
6
|
|
|
$
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2010
|
|
|
|
0
|
|
|
|
27,450
|
|
|
$
|
22.67
|
|
|
|
02/08/2020
|
|
|
|
02/08/2010
|
|
|
|
5,450
|
|
|
$
|
260,674
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2011
|
|
|
|
7,875
|
|
|
|
23,625
|
|
|
$
|
49.91
|
|
|
|
02/08/2021
|
|
|
|
02/08/2011
|
|
|
|
4,725
|
|
|
$
|
225,997
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012
|
|
|
|
0
|
|
|
|
28,900
|
|
|
$
|
51.76
|
|
|
|
02/09/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Christopher A. Coughlin
|
|
|
02/02/2009
|
|
|
|
12,000
|
|
|
|
4,000
|
|
|
$
|
14.74
|
|
|
|
02/02/2019
|
|
|
|
02/02/2009
|
|
|
|
875
|
|
|
$
|
41,851
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2010
|
|
|
|
8,550
|
|
|
|
8,550
|
|
|
$
|
22.67
|
|
|
|
02/08/2020
|
|
|
|
02/08/2010
|
|
|
|
2,500
|
|
|
$
|
119,575
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2011
|
|
|
|
6,900
|
|
|
|
20,700
|
|
|
$
|
49.91
|
|
|
|
02/08/2021
|
|
|
|
02/08/2011
|
|
|
|
3,900
|
|
|
$
|
186,537
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012
|
|
|
|
0
|
|
|
|
26,200
|
|
|
$
|
51.76
|
|
|
|
02/09/2022
|
|
|
|
08/06/2012
|
|
|
|
25,000
|
|
|
$
|
1,195,750
|
|
|
|
|
|
|
|
|
|
Salvatore J. Miraglia, Jr.
|
|
|
02/02/2009
|
|
|
|
0
|
|
|
|
11,825
|
|
|
$
|
14.74
|
|
|
|
02/02/2019
|
|
|
|
12/31/2008
|
|
|
|
52
|
|
|
$
|
2,487
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2010
|
|
|
|
0
|
|
|
|
24,000
|
|
|
$
|
22.67
|
|
|
|
02/08/2020
|
|
|
|
02/08/2010
|
|
|
|
4,378
|
|
|
$
|
209,400
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2011
|
|
|
|
6,900
|
|
|
|
20,700
|
|
|
$
|
49.91
|
|
|
|
02/08/2021
|
|
|
|
02/08/2011
|
|
|
|
3,794
|
|
|
$
|
181,467
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012
|
|
|
|
0
|
|
|
|
26,200
|
|
|
$
|
51.76
|
|
|
|
02/09/2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard G. Kyle
|
|
|
02/02/2009
|
|
|
|
0
|
|
|
|
4,000
|
|
|
$
|
14.74
|
|
|
|
02/02/2019
|
|
|
|
02/02/2009
|
|
|
|
875
|
|
|
$
|
41,851
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2010
|
|
|
|
8,550
|
|
|
|
8,550
|
|
|
$
|
22.67
|
|
|
|
02/08/2020
|
|
|
|
02/08/2010
|
|
|
|
2,500
|
|
|
$
|
119,575
|
|
|
|
|
|
|
|
|
|
|
|
|
02/08/2011
|
|
|
|
6,900
|
|
|
|
20,700
|
|
|
$
|
49.91
|
|
|
|
02/08/2021
|
|
|
|
02/08/2011
|
|
|
|
3,900
|
|
|
$
|
186,537
|
|
|
|
|
|
|
|
|
|
|
|
|
02/09/2012
|
|
|
|
0
|
|
|
|
26,200
|
|
|
$
|
51.76
|
|
|
|
02/09/2022
|
|
|
|
02/09/2012
|
|
|
|
|
|
|
|
|
|
|
|
4,750
|
|
|
$
|
227,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
08/06/2012
|
|
|
|
25,000
|
|
|
$
|
1,195,750
|
|
|
|
|
|
|
|
|
|
35
(1)
|
All option awards shown are nonqualified stock options that vest 25 percent per year over the four-year period from the date of grant.
|
(2)
|
Aggregate stock awards shown include performance shares, restricted shares, and deferred shares that have time-based vesting as well as strategic performance shares that vest
based on meeting performance requirements. Performance and restricted shares vest 25 percent per year over the four-year period from the date of grant, unless cancelled. Deferred shares vest 100 percent on the fifth anniversary of the grant.
Strategic performance shares vest on the third anniversary of the grant, contingent upon the achievement of performance requirements. The market value of all shares shown in this column was determined based upon the closing price of our common stock
on December 31, 2012 ($47.83).
|
2012 OPTION EXERCISES AND STOCK VESTED
The following table sets forth information with respect to the exercise of stock options by and vesting of stock-based awards for our named
executive officers during 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
Name
|
|
Number of Shares
Acquired on
Exercise
|
|
|
Value
Realized
on
Exercise
(1)
|
|
|
Number of Shares
Acquired
on
Vesting
|
|
|
Value
Realized
on
Vesting
(2)
|
|
James W. Griffith
|
|
|
186,175
|
|
|
$
|
5,212,712
|
|
|
|
19,975
|
|
|
$
|
1,026,869
|
|
Ward J. Timken, Jr.
|
|
|
68,150
|
|
|
$
|
2,343,811
|
|
|
|
15,900
|
|
|
$
|
817,377
|
|
Glenn A. Eisenberg
|
|
|
37,675
|
|
|
$
|
1,151,452
|
|
|
|
6,025
|
|
|
$
|
309,737
|
|
Christopher A. Coughlin
|
|
|
33,000
|
|
|
$
|
841,280
|
|
|
|
3,975
|
|
|
$
|
203,245
|
|
Salvatore J. Miraglia, Jr.
|
|
|
32,950
|
|
|
$
|
963,112
|
|
|
|
4,975
|
|
|
$
|
255,758
|
|
Richard G. Kyle
|
|
|
24,500
|
|
|
$
|
728,368
|
|
|
|
4,000
|
|
|
$
|
204,534
|
|
(1)
|
The value realized on the exercise of options is the difference between the exercise price and the fair market value of our common stock on the date of exercise. Fair market
value is determined by a real-time trading quote from the New York Stock Exchange at the time of exercise.
|
(2)
|
The value shown in the table for stock awards is the number of shares multiplied by the fair market value of our common stock on the date of vesting. Fair market value is
determined by the average of the high and low price of a share of common stock on the date of vesting.
|
PENSION BENEFITS
Qualified Plan
During 2003, the Company moved from a defined benefit retirement program (the Qualified Plan) to a core defined contribution retirement
income program for all new salaried employees hired on or after January 1, 2004, as well as for current salaried employees whose age plus years of service with the Company equaled less than 50 as of December 31, 2003. Salaried employees
whose age plus years of service equaled or exceeded 50 as of December 31, 2003 participate in a defined benefit plan with a formula of 0.75 percent per year of service times average earnings, including base salary and cash annual incentive
compensation, for the highest five non-consecutive years of the ten years preceding retirement (Final Average Earnings). For all employees in a defined benefit plan as of December 31, 2003, the formula in effect at the time of
service, using Final Average Earnings at retirement, would be applied to such service.
The benefit is generally payable beginning at
age 65 for the lifetime of the employee, with alternative forms of payment available with actuarial adjustments. Participants may retire early for purposes of the Qualified Plan if they meet any of the following eligibility requirements:
36
|
|
|
Age 62 and 15 years of service;
|
|
|
|
Age 60 and 25 years of service; or
|
|
|
|
Any age and 30 years of service.
|
In addition, participants age 55 with at least 15 years of service may retire and receive the portion of their Qualified Plan benefit attributable
to service earned after 2003. As of December 31, 2012, Messrs. Griffith and Miraglia were the only named executive officers who were eligible for early retirement.
Benefits for service after December 31, 1991 are reduced for early commencement at a rate of 3 percent per year before age 60 for the portion of the benefit attributable to service earned between 1992 and
2003, and 4 percent per year before age 62 for the portion of the benefit attributable to service earned after 2003.
Supplemental Pension Plan
Consistent with the retirement income program changes the Company implemented for its salaried employees generally, the Company
also reviewed and modified its SERP, effective January 1, 2004. Supplemental retirement income benefits under the SERP will be calculated using a target benefit of 60 percent of Final Average Earnings, offset by any defined benefit plan
payments provided by the Company and the aggregate earnings opportunity provided by any Company contributions under the core defined contribution program, the SIP Plan and the Post-Tax Savings Plan. For all named executive officers other than
Mr. Kyle, the officer must have at least 10 years of Company service to receive 100 percent of the supplemental benefit. Mr. Kyle must have at least 15 years of Company service. Benefits will be prorated for Company service of less
than 10 years (15 years for Mr. Kyle). The supplemental benefit will vest after 5 years of service as an officer of the Company, with normal retirement being considered as of age 62. Early retirement at age 55 with at least 15 years
of Company service will be available, but if benefits are commenced early, they will be reduced by 4 percent per year for each year of early commencement prior to age 62.
For both the Qualified Plan and the SERP, only actual years of service are counted in calculating pension benefits, except in the case of involuntary termination without cause, in which case up to two additional
years of service will be credited.
2012 PENSION BENEFITS TABLE
The following table sets forth the number of years of credited service and actuarial value of the defined benefit pension plans for our named
executive officers as of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Plan Name
|
|
Number of
Years of
Credited
Service
|
|
Present Value of
Accumulated Benefit
(1)
|
James W. Griffith
(2)
|
|
Supplemental Plan
|
|
|
|
28.5
|
|
|
|
|
$15,780,000
|
|
|
|
Qualified Plan
|
|
|
|
28.5
|
|
|
|
|
$ 835,000
|
|
Ward J. Timken, Jr.
(3)
|
|
Supplemental Plan
|
|
|
|
20.6
|
|
|
|
|
$ 5,845,000
|
|
|
|
Qualified Plan
|
|
|
|
11.6
|
|
|
|
|
$ 208,000
|
|
Glenn A. Eisenberg
(3)
|
|
Supplemental Plan
|
|
|
|
11.0
|
|
|
|
|
$ 5,375,000
|
|
|
|
Qualified Plan
|
|
|
|
2.0
|
|
|
|
|
$ 45,000
|
|
Christopher A. Coughlin
|
|
Supplemental Plan
|
|
|
|
28.5
|
|
|
|
|
$ 2,573,000
|
|
|
|
Qualified Plan
|
|
|
|
28.5
|
|
|
|
|
$ 546,000
|
|
Salvatore J. Miraglia, Jr.
(2)
|
|
Supplemental Plan
|
|
|
|
40.5
|
|
|
|
|
$ 6,893,000
|
|
|
|
Qualified Plan
|
|
|
|
40.5
|
|
|
|
|
$ 1,417,000
|
|
Richard G. Kyle
|
|
Supplemental Plan
|
|
|
|
6.7
|
|
|
|
|
$ 822,000
|
|
|
|
Qualified Plan
|
|
|
|
0.0
|
|
|
|
|
$ 0
|
|
37
(1)
|
The Present Value of Accumulated Benefit is the present value as of December 31, 2012 of the pension benefits earned as of such date that would be payable under
that plan for the life of the executive, beginning at age 62. Age 62 is the earliest age an unreduced benefit is payable from the plans. The assumptions used to determine the present value include a 4 percent discount rate and mortality according to
the RP-2000 Mortality Table. Benefits were determined assuming no probability of termination, retirement, death, or disability before age 62. For 2012, the Internal Revenue Code pay limit was $250,000 and the maximum benefit was $200,000.
|
(2)
|
Due to their length of service as officers of the Company, Mr. Griffith and Mr. Miraglia were grandfathered in a prior SERP formula for service before 2004. The
following formula applies to each of them: (1) 1.75 percent of Final Average Earnings, reduced by 1.25 percent of the Social Security benefit, times years of service prior to January 1, 2004, the result increased by 5 percent; plus
(2) the benefit under the formula discussed in the Supplemental Pension Plan section above, times the ratio of service after December 31, 2003 to total service.
|
(3)
|
Because neither Mr. Eisenberg nor Mr. Timken had a combination of age and service with the Company that equaled or exceeded 50 as of December 31, 2003, they do not
accumulate any service under the Qualified Plan after December 31, 2003. Because Mr. Kyle was hired after January 1, 2004, he did not accumulate any service under the Qualified Plan.
|
2012 NONQUALIFIED DEFERRED COMPENSATION
The table below sets forth information regarding Deferred Compensation Plan contributions, earnings and withdrawals during 2012 and the account balances as of December 31, 2012 for the named executive
officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Executive
Contributions
in 2012
(1)
|
|
Company
Contributions
in 2012
(1)
|
|
Aggregate
Earnings in
2012
(2)
|
|
Aggregate
Withdrawals/
Distributions
in 2012
|
|
Aggregate Balance
at December 31,
2012
(3)
|
James W. Griffith
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
207,652
|
|
|
|
$
|
0
|
|
|
|
$
|
1,138,294
|
|
Ward J. Timken, Jr.
|
|
|
$
|
136,352
|
|
|
|
$
|
174,231
|
|
|
|
$
|
29,335
|
|
|
|
$
|
0
|
|
|
|
$
|
925,333
|
|
Glenn A. Eisenberg
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
Christopher A. Coughlin
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
Salvatore J. Miraglia, Jr.
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
105,935
|
|
|
|
$
|
0
|
|
|
|
$
|
620,162
|
|
Richard G. Kyle
|
|
|
$
|
11,880
|
|
|
|
$
|
0
|
|
|
|
$
|
6,408
|
|
|
|
$
|
0
|
|
|
|
$
|
165,528
|
|
(1)
|
Amounts shown as executive contributions or Company contributions in 2012 were reported in the 2012 Summary Compensation Table.
|
(2)
|
This column includes interest earned from cash deferrals, dividend equivalents earned from restricted share deferrals, interest earned on those dividend equivalents and
appreciation or depreciation in value for restricted share deferrals. The earnings during this year and previous years were not above market or preferential; therefore these amounts were not included in the 2012 Summary Compensation Table.
|
(3)
|
Amounts included in the aggregate balances that previously were reported as compensation in the Summary Compensation Table for previous years (or would have been had the
recipient been identified as a named executive officer) are as follows: Mr. Griffith $524,000; Mr. Timken $526,568; Mr. Miraglia $267,000; and Mr. Kyle $140,892.
|
We maintain a Deferred Compensation Plan that allows certain employees, including the named executive officers, to defer receipt of all or a
portion of their salary, employee contributions and Company match that would otherwise be directed to the Post-Tax Savings Plan and/or incentive compensation payable in cash or shares of common stock until a future time they have specified. Cash
deferrals earn interest quarterly at a rate equal to the prime rate plus 1 percent. Restricted share deferrals, which were previously allowed under the plan, earn dividend equivalents (cash equivalent to the value of dividends that would be paid on
restricted shares) and interest on those dividend equivalents at the aforementioned
38
rate. The Deferred Compensation Plan is not funded by the Company and participants have an unsecured contractual commitment by the Company to pay the amounts due under the plan. When such
payments are due, they will be distributed from the Companys general assets. In the event of a change in control in the Company, as defined in the plan, participants are entitled to receive deferred amounts immediately.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL
We have entered into severance agreements with each of the named executive officers that provide for compensation in the event of termination of employment under certain circumstances (the Severance
Agreements). In addition, the named executive officers are entitled to post-termination payments or benefits under agreements entered into under the Long-Term Incentive Plan and under our retirement and benefit plans under certain
circumstances. The following circumstances would trigger post-termination payments to the named executive officers: change in control followed by certain events described below; involuntary termination without cause; retirement; permanent
disability; and death. All scenarios are assumed to have a December 31, 2012 effective date.
Change In Control
Under the Severance Agreements with the named executive officers, when certain events occur, such as a reduction in the officers
responsibilities or termination of the officers employment without cause, following a change in control of the Company (as provided in the Severance Agreements), the officer will be entitled to receive payment in an amount, grossed-up for any
excise taxes payable by the individual, equal to a multiple of three times the sum of the officers annual base salary and the greater of: (1) the officers target annual amount of incentive compensation for the year in which the
officer terminates employment; or (2) the officers target annual amount of incentive compensation for the year in which the change in control occurs. In addition, the officer would receive a lump sum amount representing the SERP benefit.
The lump sum amount is determined by calculating the benefit under the Qualified Plan and the SERP assuming the officer continued to
earn service for three additional years with annual earnings during those three years equal to the compensation described above. The lump sum amount is reduced by the lump sum equivalent of the benefit payable from the Qualified Plan. This lump sum
is determined based on mortality table and interest rate promulgated by the IRS under Section 417(e)(3) of the Internal Revenue Code.
The officer would also receive certain benefits based on contributions that would have been made to the SIP Plan and the Post-Tax Savings Plan
during the three-year period. Any unvested equity-based grants would vest and become nonforfeitable. The officer would have five years to exercise all stock options. In the event of a change in control, the amounts payable under the Severance
Agreements would become secured by a trust arrangement. The officer would also be entitled to continuation of health and welfare benefits through the severance period and career outplacement services.
At its meeting on December 9, 2010, the Compensation Committee of the Board of Directors approved a new form of Severance Agreement that
eliminated the excise tax gross-up provision for new participants or existing participants moving into higher-level positions. This new form agreement provides that the participant can choose the best net benefit of either:
(1) paying all excise taxes incurred with respect to the change-in-control benefits, without a gross-up by the Company; or (2) accepting aggregate change-in-control benefits that do not exceed the excise tax threshold. With
Mr. Coughlins appointment to the position of President Process Industries and Mr. Kyles appointment to the position of President Mobile Industries and Aerospace effective January 1, 2011, they both entered
into the new form of Severance Agreement containing this provision.
Voluntary Termination
The Company pays no severance, benefits, perquisites or vesting of any equity-based grants in the case of a voluntary termination.
39
Involuntary Termination With Cause
The Company provides no severance, benefits, perquisites or vesting of any equity-based grants in the case where an officer is terminated by the
Company with cause. As provided in the Severance Agreements, termination with cause can occur only in the event that the officer has done any of the following: an intentional act of fraud, embezzlement or theft in connection with his duties with the
Company; intentional wrongful disclosure of secret processes or confidential information of the Company or a Company subsidiary; or intentional wrongful engagement in any Competitive Activity (as defined in the Severance Agreements) which would
constitute a material breach of the officers duty of loyalty to the Company.
If the Company terminates an officers
employment for cause, no benefit is payable from any of the nonqualified pension plans.
Involuntary Termination Without Cause
In the case of an involuntary termination without cause, each named executive officer is entitled to severance equal to 1.5 times the sum of the
officers base salary and highest annual incentive compensation during the preceding five years (not to exceed target), except that the Chairman and the Chief Executive Officer are instead entitled to severance of 2 times the sum of base salary
and highest annual incentive compensation during the preceding five years (not to exceed target). In consideration for providing severance benefits, the Company receives confidentiality and non-compete covenants from the named executive officers, as
well as a release of liability for all claims against the Company. Each named executive officer is also entitled to continuation of health and welfare benefits through the severance period and career outplacement services.
The values shown on the table below for the retirement benefits are payable in the same form and manner as discussed in the narrative following the
Pension Benefits Table. For purposes of involuntary termination without cause, the benefit is determined and payable as described in the Pension Benefits discussion on pages 36 and 37, but with two additional years of service credit.
Retirement
Retirement
infers retirement with the Companys consent, which means either: (1) retirement of the named executive officer prior to age 62, if the Compensation Committee of the Board of Directors determines that such retirement is for the convenience
of the Company; or (2) retirement of the named executive officer on or after age 62.
In addition to retirement benefits shown in
the 2012 Pension Benefits Table (which are not shown in the following table of termination scenarios), benefits for named executive officers who retire with the Companys consent include: prorated payouts of performance units, continued normal
vesting of Long-Term Incentive Plan awards as if the officer had remained in the continuous employ of the Company, and SERP adjustments to retirement benefits if retiring prior to age 62.
Death or Permanent Disability
Permanent Disability occurs if a named
executive officer qualifies for permanent disability benefits under a disability plan or program of the Company or, in the absence of a disability plan or program of the Company, under a government-sponsored disability program.
Benefits for officers who die while actively employed are payable to the surviving spouse from the defined benefit pension plans at the
officers normal retirement date (or on a reduced basis at an early retirement date) if the officer had at least five years of service. The benefit is equal to 50 percent of the benefit payable if the officer had terminated employment on the
date of his death, survived to the payment date (as elected by spouse), elected the 50 percent joint and survivor form of payment and died the next day. If the executive has at least 15 years of service at time of death, the benefit is equal to 50
percent of the accrued benefit at time of death payable immediately, but with any applicable early commencement reduction. For executive officers appointed on or before 2003, a death benefit is also payable to the named beneficiary of the executive
officer.
40
All equity-based Long-Term Incentive Plan grants immediately vest in the event of death or permanent
disability. In the case of disability, the employee has up to five years to exercise stock options. There is a one-year expiration period in the case of death for the survivor to exercise stock options.
41
Termination Scenarios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Griffith
|
|
|
Voluntary
Resignation
|
|
Termination
With Cause
|
|
Retirement
(7)
|
|
Death &
Disability
|
|
Termination
Without Cause
|
|
Change in
Control
|
Cash Severance
(1)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
4,708,500
|
|
|
|
$
|
7,062,750
|
|
Cash LTIP Award
(2)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
852,117
|
|
|
|
$
|
852,117
|
|
|
|
$
|
852,117
|
|
|
|
$
|
852,117
|
|
Equity
(3)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
967,231
|
|
|
|
$
|
12,173,885
|
|
|
|
$
|
8,930,855
|
|
|
|
$
|
12,173,885
|
|
Retirement Benefits
(4)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
1,139,000
|
|
|
|
$
|
0
|
|
|
|
$
|
602,000
|
|
|
|
$
|
977,000
|
|
Other Benefits
(5)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
1,600,000
|
|
|
|
$
|
40,000
|
|
|
|
$
|
50,000
|
|
Excise Tax Gross-Up
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
Total
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
2,958,348
|
|
|
|
$
|
14,626,002
|
|
|
|
$
|
15,133,472
|
|
|
|
$
|
21,115,752
|
|
|
|
|
|
Mr. Timken
|
|
|
Voluntary
Resignation
|
|
Termination
With Cause
|
|
Retirement
(7)
|
|
Death &
Disability
|
|
Termination
Without Cause
|
|
Change in
Control
|
Cash Severance
(1)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
$
|
3,720,360
|
|
|
|
$
|
5,580,540
|
|
Cash LTIP Award
(2)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
673,380
|
|
|
|
$
|
673,380
|
|
|
|
$
|
673,380
|
|
Equity
(3)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
9,676,867
|
|
|
|
$
|
7,096,205
|
|
|
|
$
|
9,676,867
|
|
Retirement Benefits
(4)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
942,000
|
|
Other Benefits
(5)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
600,000
|
|
|
|
$
|
40,000
|
|
|
|
$
|
50,000
|
|
Excise Tax Gross-Up
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
Total
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
10,950,247
|
|
|
|
$
|
11,529,945
|
|
|
|
$
|
16,922,787
|
|
|
|
|
|
Mr. Eisenberg
|
|
|
Voluntary
Resignation
|
|
Termination
With Cause
|
|
Retirement
(7)
|
|
Death &
Disability
|
|
Termination
Without Cause
|
|
Change in
Control
|
Cash Severance
(1)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
$
|
1,685,250
|
|
|
|
$
|
3,370,500
|
|
Cash LTIP Award
(2)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
400,370
|
|
|
|
$
|
400,370
|
|
|
|
$
|
400,370
|
|
Equity
(3)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
3,434,806
|
|
|
|
$
|
2,439,953
|
|
|
|
$
|
3,434,806
|
|
Retirement Benefits
(4)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
659,000
|
|
Other Benefits
(5)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
1,000,000
|
|
|
|
$
|
35,000
|
|
|
|
$
|
50,000
|
|
Excise Tax Gross-Up
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
Total
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
4,835,176
|
|
|
|
$
|
4,560,573
|
|
|
|
$
|
7,914,676
|
|
|
|
|
|
Mr. Coughlin
|
|
|
Voluntary
Resignation
|
|
Termination
With Cause
|
|
Retirement
(7)
|
|
Death &
Disability
|
|
Termination
Without Cause
|
|
Change in
Control
|
Cash Severance
(1)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
$
|
1,312,605
|
|
|
|
$
|
2,625,210
|
|
Cash LTIP Award
(2)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
250,243
|
|
|
|
$
|
250,243
|
|
|
|
$
|
250,243
|
|
Equity
(3)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
2,822,727
|
|
|
|
$
|
1,030,835
|
|
|
|
$
|
2,822,727
|
|
Retirement Benefits
(4)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
$
|
1,631,000
|
|
Other Benefits
(5)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
$
|
35,000
|
|
|
|
$
|
50,000
|
|
Excise Tax Gross-Up
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
Total
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
3,072,970
|
|
|
|
$
|
2,628,683
|
|
|
|
$
|
7,379,180
|
|
|
|
|
|
Mr. Miraglia
|
|
|
Voluntary
Resignation
|
|
Termination
With Cause
|
|
Retirement
(7)
|
|
Death &
Disability
|
|
Termination
Without Cause
|
|
Change in
Control
|
Cash Severance
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash LTIP Award
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
256,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
226,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Benefits
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excise Tax Gross-Up
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
483,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Kyle
|
|
|
Voluntary
Resignation
|
|
Termination
With Cause
|
|
Retirement
(7)
|
|
Death &
Disability
|
|
Termination
Without Cause
|
|
Change in
Control
|
Cash Severance
(1)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
$
|
1,312,605
|
|
|
|
$
|
2,625,210
|
|
Cash LTIP Award
(2)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
250,243
|
|
|
|
$
|
250,243
|
|
|
|
$
|
250,243
|
|
Equity
(3)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
2,828,205
|
|
|
|
$
|
1,036,313
|
|
|
|
$
|
2,828,205
|
|
Retirement Benefits
(4)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
$
|
226,000
|
|
|
|
$
|
1,378,000
|
|
Other Benefits
(5)
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
$
|
35,000
|
|
|
|
$
|
50,000
|
|
Excise Tax Gross-Up
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
Total
|
|
|
$
|
0
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
$
|
3,078,448
|
|
|
|
$
|
2,860,161
|
|
|
|
$
|
7,131,658
|
|
42
(1)
|
Cash Severance amounts are defined by multiples of annual pay provided in the Severance Agreements entered into between the Company and each named executive officer.
|
(2)
|
Cash LTIP Award includes values granted under the Long-Term Incentive Plan to each named executive officer. The Severance Agreements require prorated payouts for
current cycles.
|
(3)
|
Equity includes restricted shares, deferred shares, performance shares, strategic performance shares and stock option grants. Equity-based grants immediately vest in
the event of a change in control (as defined in the Severance Agreements) followed by certain events previously described or at the time of death or permanent disability. Equity-based grants vest through the period of time represented by the cash
severance multiple in the case of an involuntary termination. All full-share awards are valued at the closing price of our common stock on December 31, 2012, which was $47.83. All stock options are valued based on the difference between the
above closing stock price and the exercise price (or zero if the difference is negative), times the number of unvested shares that would accelerate, as defined in the Severance Agreements. Beginning with the 2012 Long-Term Incentive Plan grant, we
modified our equity grant agreements to require double-trigger vesting for awards in the event of a change in control.
|
(4)
|
Retirement Benefits represent the value of additional benefits earned under the qualified and supplemental plans as a result of retirement, termination without
cause, or a change in control.
|
(5)
|
Other Benefits is continuation of health and welfare benefits through the severance period, with an estimated value of $10,000 per year, plus outplacement services
with an estimated value of $20,000. Additionally, the Company entered into death benefit agreements with the named executive officers who were executive officers in October 2003. The amounts shown under Death and Disability represent the
value of the death benefit payable under these agreements, which was two times the officers base salary in effect as of December 31, 2003.
|
(6)
|
Excise Tax Gross-Up represents the amount that the Company would pay to cover the excise tax of 20 percent above normal withholdings that would be imposed if a
payment to an executive is over a calculated threshold as defined under the Internal Revenue Code. The Severance Agreements provide for a gross-up payment that ensures that after the executive pays all taxes, his net benefit includes the
money he would have lost as a result of the excise tax. Based on the hypothetical change in control as of December 31, 2012, no excise tax would be triggered for Messrs. Griffith, Timken, Eisenberg and Miraglia. In 2011, Mr. Coughlin and
Mr. Kyle entered into a Severance Agreement that does not contain the excise tax provision.
|
(7)
|
Values are shown under the retirement scenario for only those named executive officers who were eligible for normal retirement or early retirement with the Companys consent
as of December 31, 2012. Because Mr. Miraglia retired from the Company on December 31, 2012, the information shown for Mr. Miraglia reflects only this scenario.
|
EQUITY COMPENSATION PLAN INFORMATION
The table below sets forth information as of December 31, 2012 regarding the Long-Term Incentive Plan. Under the Long-Term Incentive Plan, we have made equity compensation available to Directors, officers, and
other employees of the Company. The Long-Term Incentive Plan has been approved by our shareholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of
securities to be
issued upon
exercise
of
outstanding
options,
warrants
and rights (a)
(1)
|
|
|
Weighted-average
exercise price of
outstanding
options, warrants
and rights (b)
(2)
|
|
|
Number of securities
remaining available
for future issuance
under equity
compensation
plans
(excluding
securities
reflected in
column
(a))(c)
(3)
|
|
Equity compensation plans approved by security holders
(4)
|
|
|
4,006,663
|
|
|
$
|
33.59
|
|
|
|
5,984,332
|
|
Equity compensation plans not approved by security holders
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
0
|
|
Total:
|
|
|
4,006,663
|
|
|
$
|
33.59
|
|
|
|
5,984,332
|
|
43
(1)
|
The amount shown in column (a) includes the following: nonqualified stock options 3,717,340; performance shares 98,022; deferred shares 122,054;
performance vested restricted stock units 19,947; and time vested restricted stock options 49,300.
|
(2)
|
The weighted average exercise price in column (b) includes nonqualified stock options only.
|
(3)
|
The amount shown in column (c) represents shares of common stock remaining available under the Long-Term Incentive Plan, under which the Compensation Committee is authorized
to make awards of option rights, appreciation rights, restricted shares, deferred shares, performance units and restricted stock units. Awards may be credited with dividend equivalents payable in the form of shares of common stock. In addition,
under the Long-Term Incentive Plan, nonemployee Directors are entitled to awards of restricted shares, common stock and option rights. In 2011, a new Long-Term Incentive Plan was approved by shareholders authorizing 7,000,000 shares of common stock
that may be issued. Shares from the prior long-term incentive plan are no longer available to be issued. Under the Long-Term Incentive Plan, for any award that is not an option right or a stock appreciation right, 2.12 shares of common stock are
subtracted from the maximum number of shares of common stock available under the plan for every share of common stock issued under the award. For awards of option rights and stock appreciation rights, however, only one share of common stock is
subtracted from the maximum number of shares of common stock available under the plan for every share of common stock granted.
|
(4)
|
The Company also maintains the Director Deferred Compensation Plan and the 1996 Deferred Compensation Plan pursuant to which Directors and employees, respectively, may defer
receipt of shares of common stock authorized for issuance under the Long-Term Incentive Plan. The table does not include separate information about these plans because they merely provide for the deferral, rather than the issuance, of shares of
common stock.
|
ITEM NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit
Committee of the Board of Directors has selected Ernst & Young LLP, an independent registered public accounting firm, to perform the audit of our financial statements and our internal control over financial reporting for the 2013 fiscal
year. Ernst & Young has acted as our independent accounting firm for many years.
The selection of Ernst & Young as our
independent auditors is not required to be submitted to a vote of our shareholders for ratification. However, the Board of Directors believes that obtaining shareholder ratification is a sound governance practice. If our shareholders fail to vote on
an advisory basis in favor of the selection of Ernst & Young, the Audit Committee will reconsider whether to retain Ernst & Young and may retain that firm or another firm without re-submitting the matter to our shareholders. Even
if the shareholders ratify the appointment, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in
our best interest.
The affirmative vote of a majority of the votes cast on this matter is necessary to ratify the appointment of
Ernst & Young. Abstentions will not be counted for determining whether this matter is approved.
Representatives of Ernst
&Young are expected to be present at the 2013 Annual Meeting of Shareholders. They will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR
THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS THE
INDEPENDENT AUDITORS FOR THE 2013 FISCAL YEAR.
44
AUDITORS
Set forth below are the aggregate fees billed by Ernst & Young for professional services rendered to us in 2012 and 2011.
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Audit Fees:
|
|
|
|
|
|
|
|
|
Consolidated financial statements
|
|
$
|
2,084,800
|
|
|
$
|
1,726,400
|
|
Sarbanes Oxley Section 404 attestation
|
|
|
767,900
|
|
|
|
762,000
|
|
Statutory audits
|
|
|
581,700
|
|
|
|
809,300
|
|
Regulatory filings (SEC)
|
|
|
0
|
|
|
|
0
|
|
Accounting consultations
|
|
|
94,900
|
|
|
|
106,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,529,300
|
|
|
|
3,404,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit-related fees:
|
|
|
|
|
|
|
|
|
Employee benefit plan audits
|
|
|
340,100
|
|
|
|
282,800
|
|
Other audit related consultations
|
|
|
3,000
|
|
|
|
57,000
|
|
International statutory filings
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
343,100
|
|
|
|
339,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax fees:
|
|
|
|
|
|
|
|
|
Tax compliance
|
|
|
161,000
|
|
|
|
137,700
|
|
Tax advisory
|
|
|
83,400
|
|
|
|
235,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
244,400
|
|
|
|
372,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All other fees:
|
|
|
0
|
|
|
|
0
|
|
|
|
|
Total fees
|
|
$
|
4,116,800
|
|
|
$
|
4,116,600
|
|
|
|
|
|
|
|
|
|
|
The Audit Committee has adopted policies and procedures requiring pre-approval of all services provided by the
independent auditor. Other than services pre-approved in connection with the annual engagement of the independent auditor, all services to be provided by the independent auditor must be pre-approved by the Audit Committee. Requests for pre-approval
must contain sufficient detail to ensure the Audit Committee knows precisely what services it is being asked to pre-approve so that it can make a well-reasoned assessment of the impact of the service on the auditors independence. Additionally,
the Audit Committee has pre-approved the provision of a limited number of specific services that do not require further action by the Audit Committee. The Audit Committee has delegated its pre-approval authority to one of its members who must report
any pre-approval decisions to the full Audit Committee at its next scheduled meeting. All of the services described above under Audit-related fees and Tax fees were approved by the Audit Committee in accordance with its
pre-approval policies and procedures.
ITEM NO. 3
SHAREHOLDER ADVISORY VOTE ON
NAMED EXECUTIVE OFFICER
COMPENSATION
We believe that our compensation programs for our named executive officers:
|
|
|
enable us to attract, retain and motivate superior quality executive management;
|
|
|
|
reward executive management for financial performance and achievement of strategic objectives; and
|
|
|
|
align the financial interests of executive management with those of our shareholders.
|
45
As required under the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A
of the Securities Exchange Act of 1934, we are asking you to cast an advisory (non-binding) vote on the following resolution at our 2013 Annual Meeting of Shareholders:
RESOLVED
,
that the compensation of the named executive officers as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the CD&A, the
compensation tables and any related material disclosed in this Proxy Statement, is hereby APPROVED.
As an advisory vote, this
resolution is not binding on us. However, the Compensation Committee, which is responsible for designing and administering our executive compensation program, values the opinions expressed by our shareholders in their vote on this proposal and will
consider the outcome of the vote when making future compensation decisions for our named executive officers. We are currently conducting this advisory vote, commonly known as a say-on-pay vote, every year, and expect to hold the next
say-on-pay vote in connection with our 2014 annual meeting.
The affirmative vote of a majority of the votes cast is necessary for
approval of the resolution. Abstentions and broker non-votes will not be counted for determining whether the resolution is approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR
APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.
AMENDMENTS TO THE COMPANYS AMENDED ARTICLES OF
INCORPORATION AND AMENDED REGULATIONS TO REDUCE CERTAIN SHAREHOLDER
VOTING REQUIREMENTS
On February 8, 2013, our Board unanimously approved amendments to our Amended Articles of Incorporation and Amended Regulations
and recommended that the amendments be submitted to a vote of our shareholders at the 2013 Annual Meeting of Shareholders. The amendments, if approved, would eliminate certain supermajority voting requirements contained in our Amended Articles and
Amended Regulations. Supermajority voting provisions generally are viewed as providing protection against self-interested action by large shareholders by encouraging a person seeking to affect a significant corporate action to negotiate with its
board to reach terms that are fair and that provide the best results for all shareholders. However, corporate governance standards have evolved, and many investors and commentators now view certain of these provisions as limiting a boards
accountability to shareholders and the ability of shareholders to effectively participate in corporate governance. In approving the amendments and recommending that the shareholders approve the amendments, our Board has considered the requirements
of Ohio law, the potential governance implications of changing shareholder voting requirements and input from discussions with our shareholders. The proposed amendments are separated into two proposals (Items No. 4 and No. 5) to allow
shareholders to review and vote on each change separately. The approval or rejection of one proposal will not affect the approval or rejection of the other proposal.
ITEM NO. 4
AMENDMENTS TO THE COMPANYS AMENDED
ARTICLES OF
INCORPORATION TO REDUCE CERTAIN SHAREHOLDER VOTING REQUIREMENTS
Our Amended Articles currently require that any amendments to our Amended Articles be approved by: (a) the affirmative vote of the holders of
record entitled to exercise a majority of the voting power on such proposal if such proposal has been recommended by a two-thirds vote of the Directors then in office as being in the best interests of the Company and its shareholders; (b) the
affirmative vote, at a meeting, of the shareholders of record entitled to exercise two-thirds of the voting power on such proposal; or (c) the affirmative vote or approval of, and in a writing or writings signed by, all the shareholders who
would be entitled to notice of a meeting of shareholders held for such purpose.
46
Our Board has unanimously approved an amendment to our Amended Articles to require that any amendments
to our Amended Articles be approved by the affirmative vote of the holders of record entitled to exercise a majority of the voting power on such amendment along with the recommendation of the Directors of the Company then in office, as set forth in
the full text of the proposed amendment to Article Seventh in Appendix C attached to this Proxy Statement:
If the proposal to amend our
Amended Articles is not approved, our Amended Articles will continue to require a two-thirds vote of the Directors then in office to lower the shareholder voting requirement to a majority of the voting power; otherwise, any amendment to our Amended
Articles would require shareholder approval by two-thirds of the voting power or approval by unanimous written consent of all of our shareholders.
Because at least two-thirds of our Board has approved the proposed amendment to our Amended Articles, the affirmative vote of holders of at least a majority of our outstanding common shares is necessary for
approval of this proposal. Accordingly, abstentions and broker non-votes will have the same effect as votes cast against the proposal to amend our Amended Articles. Shares represented by properly executed proxies will be voted at the meeting in
accordance with the shareholders instructions. In the absence of specific instructions, the shares will be voted FOR the proposal to amend our Amended Articles.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR
THE PROPOSAL TO AMEND OUR AMENDED ARTICLES.
ITEM NO. 5
AMENDMENTS TO THE COMPANYS AMENDED
REGULATIONS TO REDUCE CERTAIN SHAREHOLDER
VOTING REQUIREMENTS
Our Amended Regulations contain certain provisions that require more than a majority vote of our shareholders to take certain actions. Currently
under our Amended Regulations:
|
|
|
At any meeting of shareholders, if a candidate nominated for Director is unable, for any reason, to accept such nomination or serve as a Director, the Directors
then in office or the holders of two-thirds of the shares entitled to vote at the meeting may substitute another person as a nominee, or reduce the number of nominees;
|
|
|
|
The number of Directors may be changed by the vote of the holders of two-thirds of the shares entitled to be voted at any meeting of shareholders called to elect
Directors;
|
|
|
|
A Director may be removed from office, as permitted by Ohio law, by the Directors then in office or, upon the recommendation of two-thirds of the Directors then
in office, by the vote of the holders of two-thirds of the shares entitled to be voted to elect Directors; and
|
|
|
|
Any amendments to our Amended Regulations by our shareholders must be approved by: (a) the affirmative vote of the holders of record entitled to exercise a
majority of the voting power on such proposal if such proposal has been recommended by a two-thirds vote of the Directors then in office as being in the best interests of the Company and its shareholders; (b) the affirmative vote, at a meeting
of the shareholders of record entitled to exercise two-thirds of the voting power on such proposal; or (c) the affirmative vote or approval of, and in a writing or writings signed by, all the shareholders who would be entitled to notice of a
meeting of shareholders held for such purpose.
|
Our Board has unanimously approved amendments to our Amended
Regulations to reduce the shareholder voting requirements described above as follows, as set forth in the full text of the proposed amendments in Appendix D attached to this Proxy Statement:
|
|
|
At any meeting of shareholders, if a candidate nominated for Director is unable, for any reason, to accept such nomination or serve as a Director, another person
may be substituted as a nominee, or the number of nominees may be reduced to such extent as
|
47
|
deemed advisable, by the Directors then in office or by the approval of a majority of votes cast;
|
|
|
|
The number of Directors may be changed by the approval of a majority of the votes cast at any meeting of shareholders called to elect Directors;
|
|
|
|
A Director may be removed from office, as permitted by Ohio law, by the Directors then in office or by the vote of the holders of a majority of the shares
entitled to be voted to elect Directors in place of those to be removed (without requiring the recommendation of two-thirds of the Directors then in office); and
|
|
|
|
Any amendments to our Amended Regulations by our shareholders must be approved by the affirmative vote of the holders of record entitled to exercise a majority
of the voting power on such proposal if such proposal has been recommended by the Directors then in office as being in the best interests of the Company and its shareholders.
|
If the proposal to amend our Amended Regulations is not approved, our Amended Regulations will continue to require more than a majority vote of our
shareholders in the circumstances described above.
Because at least two-thirds of our Board has approved the proposed amendments to our
Amended Regulations, the affirmative vote of holders of at least a majority of our outstanding common shares is necessary for approval of this proposal. Accordingly, abstentions and broker non-votes will have the same effect as votes cast against
the proposal to amend our Amended Regulations. Shares represented by properly executed proxies will be voted at the meeting in accordance with the shareholders instructions. In the absence of specific instructions, the shares will be voted FOR
the proposal to amend our Amended Regulations.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR
THE
PROPOSAL TO AMEND OUR AMENDED REGULATIONS
.
ITEM NO. 6
SHAREHOLDER PROPOSAL
A shareholder, California State Teachers Retirement System (100 Waterfront Place, MS-04, West Sacramento, California 95605-2807) (CalSTRS), has notified the Company of its intention to offer the
following proposal for consideration of the shareholders at the 2013 Annual Meeting of Shareholders. According to a Schedule 13D, dated January 16, 2013, filed with the Securities and Exchange Commission by CalSTRS, it is the owner of 389,667
shares of the Company, which is approximately 0.41 percent of our outstanding common shares as of the record date.
Proposal
Shareholders recommend that the Board of Directors and management act expeditiously, consistent with effective tax considerations, to engage an
investment banking firm to effectuate a spin-off of Timkens steel business segment (Steel business) into a separately traded public company.
Supporting Statement
CalSTRS, together with Relational Investors, a large shareholder,
believes that the market significantly undervalues Timken due to its combination of two incongruent, core businesses and that a spin-off of the Steel business from the remaining business segments (collectively, Bearings business) would
maximize shareholder value.
Based on the Companys 2011 Annual Report filed on Form 10-K, Timkens Steel business represents
37% of total revenues and 34% of operating income. We believe that a spin-off of the Steel business would fundamentally change the way the market values the overall business. Specifically, the Steel business would be valued and classified as a
materials company and the Bearings business as an industrial company.
48
A spin-off of the Steel business would be consistent with the actions taken by many major industrial
companies.
Based on Timkens financial disclosures, its Bearings and Steel businesses each compare favorably to peers as measured
by return on invested capital, operating margins, and revenue growth; however, Timkens valuation multiples are significantly discounted to peers in their respective industries. Separating the Bearings and Steel businesses would allow the
market to value each business as a pure play in line with peer trading multiples in their respective sectors and eliminate existing misunderstandings of the assets by investors specializing in the different sectors.
The Company acknowledged this issue at an Investor Conference on December 6, 2011 (2011 Conference). Process Industries President,
Christopher Coughlin, remarked: [a]fter speaking with many of you, this [Steel business] is clearly the most misunderstood business within the Timken Company
We believe that a spin-off of the Steel business would not destroy any existing synergies created by the integration. The Company has indicated that, the steel that we make we use within our Bearing and Power
Transmission Group. Having said that, we only use around 10% of what we make internally. So 90% is sold to a third party. So from that respect, if we were to exit the Steel business, we could arrange supply arrangements where we could be using the
steel that we currently make ourselves. (CFO, Glenn Eisenberg, 2011 Conference).
A spin-off transaction would allow both
independent entities to remain headquartered in Canton, Ohio and thereby, potentially create incremental corporate job opportunities as independently operated businesses.
The Company has suggested that improving returns and decreasing volatility in the Steel business will correct the trading discount. Mr. Eisenberg indicated at a recent conference that the key to improving
Timkens valuation is to improve returns across the economic cycle. Even if such improvements materialize, we believe Timken will still trade at a discount to its potential value as two independent companies due to the widely divergent business
characteristics. Accordingly, we request that the shareholders support this proposal.
THE BOARD OF DIRECTORS RESPONSE TO THE
SHAREHOLDER PROPOSAL
The Board of Directors recommends that you vote
AGAINST
this proposal.
For the reasons set forth below, the Board of Directors has determined that it is in the best interests of the Company and its
shareholders to not spin-off the Companys steel business.
The Board of Directors and management regularly evaluate the optimal
allocation of capital to generate shareholder value, including capital expenditures, pension funding, acquisitions, divestitures and returning capital to shareholders in the form of dividends and share repurchases.
As part of this process, the Board, with input from outside advisors, has carefully evaluated separating the steel and bearing businesses. There are
significant technology, cost and revenue synergies between the bearing and steel businesses. Based on its review, the Board has determined that the value created by these synergies, the diversification benefits from continuing to operate under the
Companys current structure and the costs of a separation would offset any near-term valuation increase that might result from a separation of the businesses at this time.
The combination of the steel and bearing businesses, which stands as an integral part of the Companys strategy to deliver shareholder value, leverages the Timken teams collective knowledge of metallurgy
and friction management, its expanding product portfolio and its ability to execute across important end markets around the globe. Key benefits of the combined businesses are:
|
|
|
Common end markets:
Timken steel and bearing businesses serve common end-market sectors including energy, mining, construction, aerospace and defense,
industrial machinery, agriculture, automotive, rail and heavy industry. The Companys deep
|
49
|
understanding of these key markets enhances its ability to efficiently provide a full range of products and solutions across these markets on a global basis.
|
|
|
|
Shared Customers:
The two businesses share many of the same customers, which drives increased brand awareness of the diversified and broad Timken product
portfolio and creates significant cross-selling opportunities.
|
|
|
|
Shared expertise:
The Timken steel and bearing businesses both make and market high-performance products used in challenging applications under some of
the most demanding conditions. The shared technical knowledge and research synergies that exist across the businesses improve production and engineering capabilities, enabling Timken to meet growing demand for highly engineered products. This
expertise also results in operating efficiencies across the organization in areas such as supply chain, manufacturing, pricing, customer service and delivery performance.
|
|
|
|
Incremental Return:
The complementary nature of the steel and bearing businesses allows the Company to deploy capital strategically in ways that provide
incremental benefits across the entire portfolio.
|
Over the past several years, Timken has made significant progress in
improving overall financial performance and creating greater shareholder value. As a result, the Company has delivered top quartile performance over the past five years in terms of operating margin, return on invested capital and total shareholder
return relative to its peers.
Even within their own proposal, the shareholders advocating a spin off acknowledge that both the bearing
and steel businesses compare favorably to peers as measured by return on invested capital, operating margins and revenue growth. While the key synergies described above contribute to these results, a separation of the businesses would
only result in lower returns for both businesses.
In the view of the Board of Directors, the current structure best positions The Timken
Company to continue delivering strong results across industry and economic cycles, creating greater shareholder value than two separate businesses could deliver.
The affirmative vote of a majority of the votes cast is necessary for approval of this proposal. Abstentions and broker non-votes will not be counted for determining whether the resolution is approved.
FOR THESE REASONS, THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
AGAINST
THIS PROPOSAL.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and Directors, and persons who own more than 10 percent of
our common stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the New York Stock Exchange, and to provide us with copies of such reports. We are required to disclose any failure by any of the
above-mentioned persons to file timely Section 16 reports.
Based solely upon its review of the copies of such reports furnished to
us, or written representations that no forms were required to be filed, we are not aware of any instances of noncompliance, or late compliance, with such filings during the year ended December 31, 2012, by our executive officers, Directors, or
10 percent shareholders.
SUBMISSION OF SHAREHOLDER PROPOSALS
We must receive by November 23, 2013 any proposal of our shareholders intended to be presented at the 2014 Annual Meeting of Shareholders and to be
included in our proxy materials related to the 2014 Annual Meeting of Shareholders pursuant to Rule 14a-8 under the Securities Exchange Act of 1934. Such proposals should be submitted by certified mail, return receipt requested. Proposals of
shareholders submitted outside the processes of Rule 14a-8 under the Securities Exchange Act of 1934
50
in connection with the 2014 Annual Meeting of Shareholders (Non-Rule 14a-8 Proposals) must be received by us by February 5, 2014 or such proposals will be considered untimely
under Rule 14a-4(c) of the Securities Exchange Act of 1934. Our proxy related to the 2014 Annual Meeting of Shareholders will give discretionary authority to the proxy holders to vote with respect to all Non-Rule 14a-8 Proposals received by us after
February 5, 2014.
SHAREHOLDER COMMUNICATIONS
Shareholders or interested parties may send communications to the Board of Directors, to any standing committee of the Board, or to any Director, in
writing c/o The Timken Company, 1835 Dueber Avenue, S.W., P.O. Box 6932, Canton, Ohio 44706-0932. Shareholders or interested parties may also submit questions, concerns or reports of misconduct through the Timken Helpline at 1-800-846-5363 and may
remain anonymous. Communications received may be reviewed by the office of the General Counsel to ensure appropriate and careful review of the matter.
GENERAL
On the record date of February 20, 2013, there were
96,013,126 outstanding shares of our common stock, each entitled to one vote upon all matters presented to the meeting. The presence in person or by proxy of not less than 50 percent of such shares shall constitute a quorum for purposes of the 2013
Annual Meeting of Shareholders.
The enclosed proxy is solicited by the Board of Directors, and the entire cost of solicitation will be
paid by the Company. In addition to solicitation by mail, our officers and other employees, without extra remuneration, may solicit the return of proxies by any means of communication. Brokerage houses, nominees, fiduciaries and other custodians
will be requested to forward soliciting material to the beneficial owners of shares held of record by them and will be reimbursed for their expenses. We have retained Georgeson Shareholder Communications, Inc. to assist in the solicitation of
proxies for a fee not to exceed $15,000 plus reasonable out-of-pocket expenses.
Shares represented by properly executed proxies will be
voted at the meeting in accordance with the shareholders instructions. In the absence of specific instructions, the shares will be voted FOR the election of Directors as indicated under Item No. 1, FOR Item No. 2, FOR Item
No. 3, FOR Item No. 4, FOR Item No. 5, and AGAINST Item No. 6, and, as to any other business as may be properly brought before the 2013 Annual Meeting of Shareholders and any adjournments or postponements thereof, in the
discretion of the proxy holders.
You may revoke your proxy at any time before the 2013 Annual Meeting of Shareholders by a later dated
proxy received by us or by giving notice to us either in writing or at the meeting.
Corporate Election Services, Inc. (CES)
will be responsible for tabulating the results of shareholder voting. CES will submit a total vote only, keeping all individual votes confidential. Representatives of CES will serve as inspectors of election for the 2013 Annual Meeting of
Shareholders. Under Ohio law and our Amended Articles of Incorporation and Amended Regulations, properly executed proxies marked abstain will be counted for purposes of determining whether a quorum has been achieved at the 2013 Annual
Meeting of Shareholders, but proxies representing shares held in street name by brokers that are not voted with respect to any proposal will not be counted for quorum purposes.
The Securities and Exchange Commission permits companies to send a single set of annual disclosure documents to any household at which two or more
shareholders reside, unless contrary instructions have been received, but only if we provide advance notice and follow certain procedures. In such cases, such shareholders continue to receive a separate notice of the meeting and proxy card. This
householding process reduces the volume of duplicate information and reduces printing and mailing expenses. We have not instituted householding for shareholders of record; however, a number of brokerage firms may have instituted
householding for beneficial owners of our common stock held through such brokerage firms. If your family has multiple accounts holding shares of our common stock, you already may have received householding notification from your broker. Please
contact your broker directly if you have any questions or require additional copies of the annual disclosure documents. The broker will arrange for delivery of a separate copy of this Proxy Statement or our Annual Report on Form 10-K for the year
ended December 31, 2012 promptly upon your written or oral request. You may decide at any time to revoke your decision to household and thereby receive multiple copies.
51
After April 1, 2013, we will furnish to each shareholder, upon written request and without charge, a copy of
our Annual Report on Form 10-K for the year ended December 31, 2012, including financial statements and schedules thereto, filed with the Securities and Exchange Commission. Requests should be addressed to Scott A. Scherff, Corporate Secretary
and Vice President Ethics and Compliance, The Timken Company, 1835 Dueber Avenue, S.W. GNE-01, Canton, Ohio 44706-2798.
52
APPENDIX A
Reconciliation of Corporate EBIT/BIC and Return on Invested Capital to U.S. GAAP Equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
Net Income
|
|
|
495.9
|
|
|
|
456.6
|
|
|
|
276.9
|
|
|
|
|
|
Add Income from Discontinued Operations, Net of Tax
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
(7.4
|
)
|
|
|
|
|
Add Provision for Income Taxes
|
|
|
270.1
|
|
|
|
240.2
|
|
|
|
136.0
|
|
|
|
|
|
Add Net Interest
|
|
|
28.2
|
|
|
|
31.2
|
|
|
|
34.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculated EBIT
|
|
|
794.2
|
|
|
|
728.0
|
|
|
|
440.0
|
|
|
|
|
|
Less Provision for Income Taxes
|
|
|
(270.1
|
)
|
|
|
(240.2
|
)
|
|
|
(136.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculated Net Operating Profit After Taxes
|
|
|
524.1
|
|
|
|
487.8
|
|
|
|
304.0
|
|
|
|
|
|
|
|
|
|
|
Total Debt
|
|
|
479.0
|
|
|
|
515.1
|
|
|
|
513.7
|
|
|
|
512.7
|
|
Total Equity
|
|
|
2,246.6
|
|
|
|
2,042.5
|
|
|
|
1,941.8
|
|
|
|
1,595.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculated Invested Capital
|
|
|
2,725.6
|
|
|
|
2,557.6
|
|
|
|
2,455.5
|
|
|
|
2,108.3
|
|
Add Accrued Pension and Postretirement Benefits Costs
|
|
|
763.2
|
|
|
|
886.9
|
|
|
|
925.7
|
|
|
|
1,295.1
|
|
Less Cash, Cash Equivalents and Restricted Cash
|
|
|
(586.4
|
)
|
|
|
(468.4
|
)
|
|
|
(877.1
|
)
|
|
|
(755.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculated BIC
|
|
|
2,902.4
|
|
|
|
2,976.1
|
|
|
|
2,504.1
|
|
|
|
2,647.9
|
|
|
|
|
|
|
EBIT/BIC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculated EBIT
|
|
|
794.2
|
|
|
|
728.0
|
|
|
|
440.0
|
|
|
|
|
|
Calculated BIC (two-point average)
|
|
|
2,939.3
|
|
|
|
2,740.1
|
|
|
|
2,576.0
|
|
|
|
|
|
Calculated EBIT/BIC
|
|
|
27.0
|
%
|
|
|
26.6
|
%
|
|
|
17.1
|
%
|
|
|
|
|
|
|
|
|
|
ROIC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculated Net Operating Profit After Taxes
|
|
|
524.1
|
|
|
|
487.8
|
|
|
|
304.0
|
|
|
|
|
|
Calculated Invested Capital (two-point average)
|
|
|
2,641.6
|
|
|
|
2,506.6
|
|
|
|
2,281.9
|
|
|
|
|
|
Calculated ROIC
|
|
|
19.8
|
%
|
|
|
19.5
|
%
|
|
|
13.3
|
%
|
|
|
|
|
A-1
APPENDIX B
Combined List of Companies in Towers Watson Executive Compensation
Database and Aon Hewitt US Total Compensation Measurement Executive Survey
1-800 Contacts
3M Company
7-Eleven, Inc.
A.O. Smith
Abbott Laboratories
AbitibiBowater
Accenture
ACCO Brands Corporation
ACH Food
Actavis Inc.
Acuity Brands
Acxiom Corporation
Adecco
AECOM Technology Corporation
Aerojet-General Corporation
AGC Chemicals Americas, Inc.
Agilent Technologies
AGL Resources
Agrium
Air Liquide
Air Products and Chemicals, Inc.
Alcoa
Alcon Laboratories
Alexander & Baldwin
Allergan, Inc.
Alliant Energy Corporation
Alliant Techsystems
Altria Group, Inc.
Alyeska Pipeline Service Company
Ameren Corporation
American Axle & Manufacturing, Inc.
American Chemical Society
American Crystal Sugar
American Electric Power
American Heart Association
American Standard
American Sugar Refining
AMERIGROUP
AmerisourceBergen
Ameron International Corporation
AMETEK
Amgen
AMSTED Industries Incorporated
Andersen Corporation
Anheuser-Busch InBev
Ann Taylor, Inc.
AOL
APL
Appleton Papers
Applied Materials
ARAMARK
Archer Daniels Midland
Arizona Public Service
Arkansas Electric Cooperative
Corporation
Armstrong World Industries
Arrow Electronics
Ash Grove Cement Company
Ashland
Associated Electric Cooperative Inc.
AstraZeneca
AT&T
Atwood Oceanics, Inc.
Automatic Data Processing, Inc.
AutoZone, Inc.
Avant Energy, Inc.
Avery Dennison Corporation
Avis Budget Group
Bain & Company, Inc.
BAE Systems
Ball Corporation
Bama Companies, Inc., The
Banner Health
Barnes Group
Battelle Memorial Institute
Bausch & Lomb Incorporated
Baxter International Inc.
Bayer AG
Bayer CropScience
Beckman Coulter
Belk, Inc.
Belo
Bemis
Benjamin Moore
Best Buy
Big Lots
Black Hills Corporation
Boeing
Boise, Inc.
Bon-Ton Stores, Inc.
BorgWarner Inc.
Boston Scientific
Bovis Lend Lease
Brady Corporation
BrightSource Energy Inc.
Bristol-Myers Squibb Company
Broadridge Financial Solutions, Inc.
Brown-Forman Corporation
Brunswick Corporation
Bucyrus International
Bunge
Burlington Northern Santa Fe
Corporation
Bush Brothers & Company
C&S Wholesale Grocers, Inc.
CA
Calgon Carbon
Calpine Corporation
Cameron International
Campbell Soup Company
Capital Power Corporation
Cardinal Health
Career Education Corporation
Carestream Health, Inc.
Cargill, Incorporated
Carlson Companies
Carmeuse North America Group
Carnival
Carpenter Technology
Caterpillar Inc.
CDI
CDW Corporation
CenterPoint Energy
Ceridian
Corporation
CF Industries
CGI Technologies & Solutions
Chattem
Chelan County Public Utility District
Chemtura
Chevron Global Power
Chicago Bridge and Iron Company
Chipotle Mexican Grill, Inc.
Chiquita Brands International, Inc.
Choice Hotels International
Chrysler
CHS Inc.
Cisco Systems
Cleco
Cliffs Natural Resources Inc.
Clipper Windpower
Clorox Company, The
Coach
Coca-Cola Company, The
Coinstar
Colgate-Palmolive Company
Collective Brands, Inc.
Comcast Corporation
ConAgra Foods, Inc.
Constellation Energy
Continental Automotive Systems
ConvaTec
Convergys
Cooper Industries, Inc.
CoreLogic
Corning
Covance
Covanta Holding Corporation
Covidien
CSR
CSX Corporation
Curtiss-Wright Corporation
CVS Caremark
Cytec
Daiichi Sankyo
Daimler Trucks North America
Dannon
Darden Restaurants, Inc.
Dassault Systems
Day & Zimmermann
Dean Foods Company
Deckers Outdoor
Del Monte Foods Company
Delhaize America
Dell
Delphi Corporation
Delta Air Lines Inc.
Deluxe Corporation
Dentsply
Dex One
Diageo North America, Inc.
Dole Food Company, Inc.
Dollar Tree Stores
Dominion Resources, Inc.
Domtar
Donaldson Company, Inc.
Dow Corning
B-1
Duke Energy Corporation
Dunkin Brands, Inc.
DuPont
E. I. du Pont de Nemours and Company
Eastman Chemical Company
Eastman Kodak
Eaton Corporation
eBay
Ecolab Inc.
Eddie Bauer LLC
Edison International
Edison Mission Energy
Edwards Lifesciences LLC
El Paso Corporation
Eli Lilly
Elkay Manufacturing
EMC
EMD Millipore
Emerson Electric Company
Endo Pharmaceuticals
Energizer Holdings, Inc.
EnergySolutions, Inc.
EnergySource LLC
Enpower Management Corporation
Ensco plc
enXco, Inc.
Equifax
Equity Office Properties
Ericsson
ESCO Technologies Inc.
Estee Lauder
Evergreen Packaging
Experian Americas
Express Scripts
Fair Isaac
Federal Reserve Information Technology
Federal-Mogul Corporation
FedEx Corporation
Ferro Corporation
Fidelity National Information Services
FirstGroup America, Inc.
Fiserv
Florida Municipal Power Agency
Fluor
FMC Corporation
Ford Motor Company
Fortune Brands, Inc.
Foster Wheeler AG
GAF Materials
Gardner Denver, Inc.
Garland Power & Light
GATX Corporation
Gavilon
Gaylord Entertainment
GDF SUEZ Energy Resources NA
GenCorp Inc.
Generac Holdings Inc.
General Atomics
General Dynamics Corporation
General Electric Company
General Mills, Inc.
General Motors Corporation
GenOn Energy
Genuine Parts Company
Genzyme
Georgia Gulf Corporation
GlaxoSmithKline
plc
Global Crossing Ltd.
Goodman Global
Goodrich Corporation
Google
Gordon Food Service
Gortons
Graco
Great River Energy
Greif
GROWMARK, Inc.
Grupo Ferrovial
GSI Commerce
GTECH
GWF Power Systems
H. B. Fuller Company
H. J. Heinz Company
Hallmark Cards, Inc.
Hanesbrands, Inc.
Harland Clarke
Harley-Davidson Motor Company Inc.
Harmon International Enterprises
Hasbro
Haworth, Inc.
Haynes International
HBO
HD Supply
HDR, Inc.
Headway Technologies
Herman Miller, Inc.
Hershey Company, The
Hertz
Hewlett-Packard
Hexcel
Hilton Worldwide
Hitachi Data Systems
HNI
HNTB Companies
Hoffmann-La Roche
Holcim
Home Depot, Inc., The
Honeywell International Inc.
Hormel Foods Corporation
Hostess Brands
Hot Topic, Inc.
Houghton Mifflin Harcourt Publishing
Hubbell Incorporated
Hunt Consolidated
Huntington Ingalls Industries, Inc.
Huron Consulting Group
Husky Injection Molding Systems
Hyatt Hotels
Hy-Vee, Inc.
Iberdrola Renewables Inc.
IBM
ICF International
Idaho Power Company
IDEXX Laboratories
IKON Office Solutions
Illinois Tool Works
IMS Health Inc.
Indeck Energy Services, Inc.
Industrial Electrical Wire & Cable Inc.
Ingersoll-Rand
Integrys Energy Group
Intel
Intercontinental Hotels
Intermountain
Healthcare
International Flavors & Fragrances
International Paper Company
Interpublic Group
ntrepid Potash
Invensys Controls
ION Geophysical
Irvine Company
ITT Corporation
ITT Mission Systems
J.C. Penney Company
J.M. Smucker
J.R. Simplot
Jabil Circuit
Jack in the Box
James Hardie Building Products
JBT Corporation
JEA
JM Family Enterprises
Johns-Manville
Johnson & Johnson
Johnson Controls, Inc.
Jones Lang LaSalle
Joy Global Inc.
Kaman Industrial Technologies
Kansas City Southern
Kao Brands
KBR
Kellogg Company
Kimberly-Clark
Kinder Morgan
Kinetic Concepts
Kinross Gold
Koch Industries
Kohler Company
Komatsu America
KONE, Inc.
L. L. Bean Incorporated
LOreal USA, Inc.
L-3 Communications Corporation
Land OLakes
Leggett and Platt
Lennox International Inc.
Level 3 Communications
Levi Strauss & Co.
Lexmark International
LG&E and KU Energy
Life Technologies
Limited Brands
Linde
Linet Americas, Inc.
Lockheed Martin Corporation
Lorillard Tobacco Company
Lubrizol
Luxottica Retail
Lyondell Chemical
Magellan Midstream Partners
ManTech International
Maple Leaf Foods Inc.
Morman Group, Inc., The
Marriott International, Inc.
Mars, Incorporated
Martin Marietta Materials, Inc.
Mary Kay
Masco Corporation
Mattel, Inc.
Matthews International
McClatchy
B-2
McCormick & Company, Inc.
McDonalds
McGraw-Hill Companies
McKesson
MDC Holdings
Mead Johnson Nutrition Company
MeadWestvaco
Media General
Medicines Company
Medtronic, Inc.
Merck & Co., Inc.
Meritor, Inc.
Microsoft
Milacron
MillerCoors
Milliken & Company
MITRE Corporation, The
Mitsubishi Power Systems Americas
Mohawk Industries
Molson Coors Brewing Company
Momentive Specialty Chemicals
MoneyGram International, Inc.
Monsanto
Mosaic
Motorola
Motorola Mobility Solutions
Murphy Oil
MWH Global
Nalco Company
Navistar International
Navy Exchange Service Command
NCR
Nestle Purina PetCare Company
Nestle USA
New York Power Authority
Newmont Mining
NewPage Corporation
Nintendo of America
NiSource Inc.
Nissan North America
Nokia
Noranda Aluminum
Nordstrom
Norfolk Southern
North American Energy Services
Northern Star Generation Services
Company
Northrop Grumman Corporation
Novartis
Novartis Consumer Health
Novo Nordisk Pharmaceuticals
NRG Energy, Inc.
Nypro
Occidental Petroleum
Office Depot
OfficeMax Incorporated
OGE Energy Corporation
Oglethorpe Power Corporation
Oil States Industries, Inc.
Old Dominion Electric Corporation
Olin Corporation
OmniCare
OMNOVA Solutions Inc.
ONEOK Inc.
Orange Business Services
Oshkosh Truck Corporation
Overhead
Door
Owens Corning
Owens-Illinois, Inc.
Oxford Industries
Packaging Corporation of America
Pactiv Corporation
Panasonic of North America
Panduit Corporation
Papa Johns
Parker Hannifin
Parsons
Pella Corporation
Pentair, Inc.
Performance Food Group
Perkin Elmer
Petco Animal Supplies, Inc.
PetSmart
Pfizer
PG&E Corporation
Pier 1 Imports, Inc.
Pioneer Natural Resources Company
Pitney Bowes, Inc.
Plexus
Polaris Industries
Portland General Electric Company
Potash
PPG Industries, Inc.
PPL Corporation
Prairie State Generating Company, LLC
Praxair, Inc.
ProBuild Holdings
Procter & Gamble
Progress Energy, Inc.
Public Service Enterprise Group
Puget Sound Energy
Pulte Homes
Purdue Pharma
Quad Graphics, Inc.
QUALCOMM
Quest Diagnostics
Quintiles
R.R. Donnelley
Ralcorp Holdings
Rayonier Inc.
Raytheon Company
Readers Digest
Realogy
Redcats USA
Reddy Ice
Regal-Beloit
Regency Centers
Rent-A-Center
Research in Motion
Revlon, Inc.
Reynolds American Inc.
Ricardo
Rich Products Corporation
Rio Tinto
Roche Diagnostics
Rockwell Automation
Rockwell Collins
Ryder System, Inc.
S.C. Johnson & Son, Inc.
Safety-Kleen Systems
SAIC, Inc.
Sandia National Laboratories
Sanofi Pasteur
Sanofi-Aventis
Sara Lee Corporation
Sauer-Danfoss Inc.
SCA Americas
SCANA Corporation
Schreiber Foods Inc.
Schwans
Scotts Miracle-Gro
Scripps Networks Interactive
Seagate Technology
Sealed Air
Seminole Electric Cooperative Inc.
Sempra Energy
ServiceMaster Company, The
ShawCor
Sherwin-Williams Company, The
Siemens AG
Sigma-Aldrich
Smith & Nephew
Snap-on
Sodexo, Inc.
Solo Cup
Solutia Inc.
Sonoco Products Company
Space Systems Loral
Spirit AeroSystems
Sprint Nextel
SPX
SRA International
Stantec
Starbucks
StarTek
Starwood Hotels & Resorts Worldwide,
Inc.
Statoil
Steelcase Inc.
Stryker Corporation
Sulzer Pumps US
SunGard Data Systems
Sunoco, Inc.
Sunovion Pharmaceuticals
SuperValu Stores
Swagelok
Syngenta Crop Protection
Sypris Solutions, Inc.
T-Mobile USA
Takeda Pharmaceutical Company
Limited
Target Corporation
Taubman Centers
TDS Telecommunications Corporation
TE Connectivity
Tektronix
Temple-Inland Inc.
Tenaska Energy Inc.
Tenet Healthcare Corporation
Tennessee Valley Authority
Teradata
Terex Corporation
Terra-Gen Operating Company
Texas Industries, Inc.
Textron Inc.
Thermo Fisher Scientific
Thirty-One Gifts LLC
Thomas & Betts Corporation
Timberland Company, The
Time Warner
Time Warner Cable
B-3
Timken Company, The
Topaz Power Group LLC
Toro
Total System Services
Toys R Us
Travelport
Travis Company
Treasury Wine Estates Americas
Trident Seafoods
TriMas Corporation
True Value Company
TRW Automotive
Tupperware Corporation
Tyco Electronics Corporation
Tyco International
Tyson Foods Incorporated
U.S. Foodservice
Uline, Inc.
Underwriters Laboratories
Unilever United States Inc.
Union Pacific Railroad Company
Unisys Corporation
United Launch Alliance, LLC
United Rentals
United Space Alliance
United States Cellular
United States Steel
United Technologies Corporation
United Water
URS Energy & Construction
USG Corporation
UTi Worldwide
Valero Energy Corporation
Valmont Industries, Inc.
Vangent
Verde Realty
Verizon Communications Inc.
VF Corporation
VHA, Inc.
Viacom Inc.
Vision Service Plan
Visteon Corporation
Vulcan Materials Company
VWR International
W. L. Gore & Associates, Inc.
W. W. Grainger, Inc.
Walt Disney Company, The
Waste Management
Waters Corporation
Wellhead Electric Company, Inc.
Wendys/Arbys Group
Western Union Company, The
Westinghouse Electric Company
Weyerhaeuser Company
Whirlpool
Williams Companies
Wilsonart International
Winnebago Industries
Wm. Wrigley Jr. Company
Wolters Kluwer
Wyndham Worldwide Corporation
Xcel Energy
Xerox Corporation
YRC Worldwide
Yum! Brands, Inc.
B-4
APPENDIX C
Amendment To Companys Amended Articles Of Incorporation
If the Board proposal indicated under Item No. 4 is approved, then
:
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Ø
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Section Seventh of the Companys Amended Articles of Incorporation would be amended as shown below (deletions are indicated by strikethrough text):
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SEVENTH
: Unless otherwise expressly required by these Amended Articles of Incorporation, or by statute, these Amended Articles of Incorporation may be
amended by the affirmative vote of the holders of record entitled to exercise a majority of the voting power on such proposal, if such proposal has been recommended by a
two-thirds
vote of the Directors then in office as being in
the best interests of the Corporation and its shareholders
, or by the affirmative vote, at a meeting, of the shareholders of record entitled to exercise two-thirds of the voting power on such proposal, or by the affirmative vote or approval
of, and in a writing or writings signed by, all the shareholders who would be entitled to notice of a meeting of the shareholders held for such purpose, which writing or writings shall be filed with or entered upon the records of the
Corporation
.
C-1
APPENDIX D
Amendments To Companys Amended Regulations
If the Board proposal indicated under Item No. 5 is approved, then
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Article II, Sections 1 and 3 of the Companys Amended Regulations would be amended as shown below (insertions are indicated by underlining and bold, and deletions are
indicated by strikethrough text):
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SECTION 1.
Election, Number and Term of Office
Directors shall be elected at the annual meeting of shareholders, or if not so elected, at a special meeting of shareholders called for that purpose. Except as
otherwise provided in these Regulations, a Director shall hold office until the next succeeding annual meeting and until his successor shall be elected and qualified, or until his earlier resignation, death or removal from office.
At any meeting of shareholders at which Directors are to be elected, only persons may be nominated as candidates with respect to whom proxies have been solicited
from the holders of shares entitled to be voted at the meeting; provided that if any such candidate is unable, for any reason, to accept such nomination or to serve as a Director,
another person may be substituted as a nominee, or the number
of nominees may be reduced to such extent as deemed advisable, by
the Directors then in office or the
holders of two-thirds of the shares entitled to be voted at the meeting may substitute another person as a nominee, or reduce the
number of nominees to such extent as they shall deem advisable
approval of a majority of votes cast
.
Until changed in accordance
with the provisions of statute, the Articles or the Regulations, the number of Directors of the Corporation shall be eleven. Without amendment of these Regulations, the number of Directors may be changed to not less than nine nor more than eighteen
by the
vote of the holders of two-thirds of the shares entitled to be voted
approval of a majority of votes cast
at a meeting called to elect Directors. No reduction in the number of Directors shall have the effect of
removing any Director prior to the expiration of his term of office.
Until the 2013 annual meeting of shareholders, the Directors shall be divided into
three classes, designated as Class I, Class II and Class III, each class consisting of not less than three Directors nor more than six Directors each. Each class shall consist, as nearly as may be possible, of one-third of the total number of
Directors. Each class or Director of any class being elected at any election of Directors held prior to the 2013 annual meeting of shareholders shall be separately elected.
At the 2010 annual meeting of shareholders, Directors elected for Class I shall hold office for a term of three years expiring at the 2013 annual meeting of shareholders and thereafter until their successors shall
be elected and duly qualified. At the 2011 annual meeting of shareholders, Directors elected for Class II shall hold office for a term of two years expiring at the 2013 annual meeting of shareholders and thereafter until their successors shall be
elected and duly qualified. At the 2012 annual meeting of shareholders, Directors elected for Class III shall hold office for a term of one year expiring at the 2013 annual meeting of shareholders and thereafter until their successors shall be
elected and duly qualified. At each election of Directors after the 2012 annual meeting of shareholders, each Director shall be elected to hold office until the next annual meeting of shareholders and thereafter until his successor shall be elected
and duly qualified.
The number of Directors fixed as provided in this Section may be increased or decreased by the Directors and the number of
Directors as so changed shall be the number of Directors until further changed in accordance with this Section, provided that the Directors shall not increase the number of Directors to more than eighteen or decrease the number of Directors to fewer
than nine. If the number of Directors is changed prior to the 2013 annual meeting of shareholders, any increase or decrease shall be apportioned among the classes so as to maintain the number of Directors in each class as nearly equal as possible.
D-1
SECTION 3.
Removal
A Director may be removed from office, as permitted by statute, by the Directors then in office or
, upon the recommendation of two-thirds of the Directors then in office,
by the vote of the holders
of
two-thirds
a majority
of the shares entitled to be voted to elect Directors in place of those to be removed
, except as otherwise provided by statute
. For the purpose of determining the
Directors then in office, the Director whose removal is proposed will not be deemed to be a Director, nor will such Director be entitled to vote thereon.
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Article V, Section 6 of the Companys Amended Regulations would be amended as shown below (deletions are indicated by strikethrough text):
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SECTION 6.
Amendments
These Regulations may
be amended (i) to the extent permitted by Chapter 1701 of the Ohio Revised Code, by the Directors, or (ii) by the affirmative vote of the holders of record entitled to exercise a majority of the voting power on such proposal, if such
proposal has been recommended by a
two-thirds
vote of the Directors then in office as being in the best interests of the Corporation and its shareholders
, or by the affirmative vote, at a meeting, of the shareholders of
record entitled to exercise two-thirds of the voting power on such proposal, or by the affirmative vote or approval of, and in a writing or writings signed by, all the shareholders who would be entitled to notice of a meeting of the shareholders
held for such purpose, which writing or writings shall be filed with or entered upon the records of the Corporation
.
D-2
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c/o Corporate Election Services
P. O. Box 3200
Pittsburgh, PA 15230
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V
OTE
BY
T
ELEPHONE
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Have your proxy card available when you call the
Toll-Free number 1-888-693-8683
using a touch- tone phone, and follow the simple instructions to record your
vote.
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V
OTE
BY
I
NTERNET
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Have your proxy card available when you access the website
www.cesvote.com
and follow the simple instructions to record your vote.
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V
OTE
BY
M
AIL
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Please mark, sign and date your proxy card and return it in the
postage-paid envelope
provided or return it to: Corporate Election Services, P.O. Box 3200,
Pittsburgh, PA 15230.
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Vote by
Telephone
Call
Toll-Free
using a
Touch-Tone phone:
1-888-693-8683
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Vote by Internet
Access the
Website
and
Cast your vote:
www.cesvote.com
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Vote by Mail
Return your proxy
card
in the
Postage-Paid
envelope provided
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Vote 24 hours a day, 7 days a week!
If you vote by telephone or Internet, please do not send your proxy by mail.
Proxy must be signed and dated below.
ê
Please fold and detach card at perforation before mailing.
ê
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T
HE
T
IMKEN
C
OMPANY
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PROXY / VOTING INSTRUCTION CARD
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The undersigned appoints W. J. Timken, Jr.; James W. Griffith; and Scott A. Scherff; and each of them, as true and
lawful proxies, with full power of substitution, to vote and act for the undersigned as specified on the reverse hereof at the Annual Meeting of Shareholders of THE TIMKEN COMPANY to be held at 1835 Dueber Avenue, S.W., Canton, Ohio, on May 7, 2013
at 10:00 a.m., and at any adjournment thereof, as fully as the undersigned could vote and act if personally present on the matters set forth on the reverse hereof, and, in their discretion on such other matters as may properly come before the
meeting, and/or if the undersigned is a participant in one or more of the Companys or its subsidiaries associate share ownership plans and has stock of the Company allocated to his or her account(s), the undersigned directs the
trustee(s) of such plan(s) likewise to appoint the above-named individuals as proxies to vote and act with respect to all shares of such stock so allocated on the record date for such meeting in the manner specified on the reverse hereof at such
meeting or any adjournment thereof, and in their discretion on such other matters as may properly come before the meeting.
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Signature
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Signature (if jointly held)
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Date:
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Please sign exactly as the name appears hereon. Joint owners should each sign. When signing as an attorney, executor, administrator, trust or guardian, please
give full title as such.
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PLEASE SIGN AND RETURN AS SOON AS POSSIBLE
N
OTICE
O
F
A
NNUAL
M
EETING
O
F
S
HAREHOLDERS
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May 7, 2013
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Parking:
Shareholders attending the meeting may park in the visitor lot behind the Corporate Office building.
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10:00 a.m.
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Corporate Auditorium (C1G)
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The Timken Company
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1835 Dueber Avenue, S.W.
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Note:
If your shares are held in street name, please bring a letter with you from your broker stating as such to the Annual
Meeting.
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Canton, OH 44706-2798
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Telephone: (330) 438-3000
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For directions to the Annual Meeting, you may call 330-471-3997.
ELECTRONIC ACCESS TO FUTURE DOCUMENTS NOW AVAILABLE
If you are a registered holder of shares, you have the option to access future shareholder communications (e.g., annual reports, proxy statements, related proxy materials) over the Internet instead of receiving
those documents in print. Participation is completely voluntary. If you give your consent, in the future, when our material is available over the Internet, you will receive notification which will contain the Internet location where the material is
available. Our material will be presented in PDF format. There is no cost to you for this service other than any charges you may incur from your Internet provider, telephone and/or cable company. Once you give your consent, it will remain in effect
until you inform us otherwise. You may revoke your consent at any time by notifying the Company in writing.
To give your consent, follow
the prompts when you vote by telephone or over the Internet or check the appropriate box located at the bottom of the attached proxy card when you vote by mail.
ê
Please fold and detach card at perforation before mailing.
ê
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T
HE
T
IMKEN
C
OMPANY
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PROXY / VOTING
INSTRUCTION CARD
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The shares represented by this proxy will be voted as recommended by the Board of Directors unless otherwise specified.
The Board of Directors recommends a vote
FOR
proposals 1, 2, 3, 4 and 5.
1. Election of Directors to serve for a term of one year:
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Nominees:
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(01) John M. Ballbach
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(02) Phillip R. Cox
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(03) Diane C. Creel
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(04) James W. Griffith
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(05) John A. Luke, Jr.
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(06) Joseph W. Ralston
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(07) John P. Reilly
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(08) Frank C. Sullivan
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(09) John M. Timken, Jr.
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(10) Ward J. Timken
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(11) Ward J. Timken, Jr.
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(12) Jacqueline F. Woods
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¨
FOR
all nominees listed
above
¨
WITHHOLD AUTHORITY
to vote for all nominees
listed above
To withhold authority to vote for
any individual nominee, strike a line through that nominees name above.
2. Ratification of the selection of Ernst
& Young LLP as the independent auditor for the fiscal year ending December 31, 2013.
¨
FOR
¨
AGAINST
¨
ABSTAIN
3. An advisory resolution regarding named executive officer compensation.
¨
FOR
¨
AGAINST
¨
ABSTAIN
4. Amendments to the Companys Amended Articles of Incorporation to reduce certain shareholder voting requirements.
¨
FOR
¨
AGAINST
¨
ABSTAIN
5. Amendments to the Companys Amended Regulations to reduce certain shareholder voting requirements.
¨
FOR
¨
AGAINST
¨
ABSTAIN
The Board of Directors recommends a vote
AGAINST
proposal 6.
6. A shareholder proposal recommending that the Board of Directors engage an investment banking firm to effectuate a spin-off of the Companys steel business segment into a
separately-traded public company.
¨
FOR
¨
AGAINST
¨
ABSTAIN
In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting.
¨
PLEASE CHECK THIS BOX IF YOU CONSENT TO ACCESS FUTURE ANNUAL REPORTS AND PROXY MATERIAL VIA THE INTERNET ONLY.
CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE.
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