Retirement Benefit Plans

12 Months Ended

Dec. 31, 2016

Pension Plan, Defined Benefit [Member]

Defined Benefit Plan Disclosure [Line Items]

Retirement Benefit Plans

The Company and its subsidiaries sponsor a number of defined benefit pension plans, which cover eligible employees, including certain employees in foreign countries. These plans are generally noncontributory. Pension benefits earned are generally based on years of service and compensation during active employment. The cash contributions for the Company’s defined benefit pension plans were $15.0 million, $10.8 million and $21.1 million in 2016, 2015 and 2014, respectively.

The following tables summarize the net periodic benefit cost information and the related assumptions used to measure the net periodic benefit cost for the years ended December 31:

	U.S. Plans									International Plans
	2016			2015			2014			2016			2015			2014
Components of net periodic benefit cost:
Service cost	$	13.1		$	15.4		$	21.5		$	1.4		$	2.2		$	2.4
Interest cost	26.6			45.6			98.3			10.5			12.3			17.7
Expected return on plan assets	(29.8		)	(62.6		)	(152.0		)	(10.3		)	(16.7		)	(23.7		)
Amortization of prior service cost	1.7			2.8			3.5			0.1			0.1			0.1
Amortization of net actuarial loss	14.5			31.1			55.6			3.4			5.2			5.3
Curtailment	—			—			—			(0.1		)	0.6			—
Settlement	15.8			456.4			32.7			10.8			4.8			0.8
Special termination benefits	—			—			—			—			0.6			—
Less: Discontinued operations	—			—			(8.0		)	—			—			0.4
Net periodic benefit cost	$	41.9		$	488.7		$	51.6		$	15.8		$	9.1		$	3.0

Assumptions	2016	2015		2014
U.S. Plans:
Discount rate	4.50% to 4.70%	3.98% to 4.64%		4.68% / 5.02%
Future compensation assumption	2.50% to 3.00%	2.00% to 3.00%		2.00% to 3.00%
Expected long-term return on plan assets	5.75% to 6.75%	6.00	%	7.25	%
International Plans:
Discount rate	2.00% to 8.50%	1.50% to 8.75%		3.25% to 9.75%
Future compensation assumption	2.20% to 8.00%	2.20% to 8.00%		2.30% to 8.00%
Expected long-term return on plan assets	0.82% to 9.25%	2.25% to 9.25%		3.00% to 8.50%

In 2016, the Company incurred pension settlement charges of $28.1 million, including professional fees of $1.5 million , primarily to settle approximately $70 million of the Company's pension obligations. On September 8, 2016, the Retirement Plan for the Hourly-Rated Employees of Timken Canada LP (the "Canadian Plan") purchased a group annuity contract from Canada Life to pay and administer future pension benefits for 135 Canadian Timken retirees. The Plan was associated with former employees of the St. Thomas, Ontario manufacturing facility, which closed on March 31, 2013. The Company transferred approximately $15 million of the Company's pension obligations and $15 million of pension assets to Canada Life in this transaction. In addition to the purchase of the group annuity contract, the Company made lump-sum distributions of approximately $55 million to new retirees and deferred vested participants in two of the Company's U.S. defined benefit pension plans and the Canadian Plan.

In 2015, the Company entered into two agreements pursuant to which two of the Company's U.S. defined benefit pension plans purchased group annuity contracts from Prudential. The two group annuity contracts require Prudential to pay and administer future pension benefits for approximately 8,400 U.S. Timken retirees in the aggregate. The Company transferred a total of approximately $1.1 billion of its pension obligations and a total of approximately $1.2 billion of pension assets to Prudential in these transactions. In addition to the purchase of the group annuity contracts, the Company made lump-sum distributions of $37.2 million to new retirees in the U.S. The Company also entered into an agreement pursuant to which one of the Company's Canadian defined benefit pension plans purchased a group annuity contract from Canada Life. The group annuity contract requires Canada Life to pay and administer future pension benefits for approximately 40 Canadian retirees. As a result of the group annuity contracts, lump-sum distributions, as well as pension settlement and curtailment charges related to the Company's Canadian pension plans, the Company incurred total pension settlement and curtailment charges of $465.0 million, including professional fees of $2.6 million, in 2015.

In 2014, the Company incurred pension settlement charges of $33.7 million, including professional fees, primarily to settle approximately $110 million of the Company's pension obligations related to one of its defined benefit pension plans in the U.S. as a result of the lump sum distributions for 2014 retirements and certain deferred vested plan participants.

For expense purposes in 2016, the Company applied a weighted-average discount rate of 4.69% to its US defined benefit pension plans. For expense purposes in 2017, the Company will apply a weighted-average discount rate of 4.34% to its U.S. defined benefit pension plans.

For expense purposes in 2016, the Company applied a weighted-average expected rate of return of 5.78% for the Company’s U.S. pension plan assets. For expense purposes in 2017, the Company will apply a weighted-average expected rate of return on plan assets of 5.78%.

The following tables set forth the change in benefit obligation, change in plan assets, funded status and amounts recognized on the Consolidated Balance Sheets for the defined benefit pension plans as of December 31, 2016 and 2015:

	U.S. Plans						International Plans
	2016			2015			2016			2015
Change in benefit obligation:
Benefit obligation at beginning of year	$	589.9		$	1,703.9		$	338.1		$	415.7
Service cost	13.1			15.4			1.4			2.2
Interest cost	26.6			45.6			10.5			12.3
Actuarial losses (gains)	45.3			68.8			53.4			(31.6		)
International plan exchange rate change	—			—			(45.0		)	(29.5		)
Curtailment	—			—			(0.1		)	0.5
Benefits paid	(62.5		)	(100.9		)	(44.1		)	(17.6		)
Special termination benefits	—			—			—			0.6
Settlements	—			(1,162.8		)	—			(14.5		)
Acquisitions	—			19.9			—			—
Benefit obligation at end of year	$	612.4		$	589.9		$	314.2		$	338.1

	U.S. Plans						International Plans
	2016			2015			2016			2015
Change in plan assets:
Fair value of plan assets at beginning of year	$	553.7		$	1,772.4		$	304.6		$	349.4
Actual return on plan assets	33.8			23.0			43.2			4.5
Company contributions / payments	4.6			4.4			10.4			6.4
International plan exchange rate change	—			—			(45.4		)	(23.6		)
Acquisitions	—			17.6			—			—
Settlements	—			(1,162.8		)	—			(14.5		)
Benefits paid	(62.5		)	(100.9		)	(44.1		)	(17.6		)
Fair value of plan assets at end of year	529.6			553.7			268.7			304.6
Funded status at end of year	$	(82.8	)	$	(36.2	)	$	(45.5	)	$	(33.5	)

Amounts recognized on the Consolidated Balance Sheets:
Non-current assets	$	26.4		$	69.0		$	5.7		$	17.3
Current liabilities	(4.3		)	(4.2		)	(1.4		)	(4.9		)
Non-current liabilities	(104.9		)	(101.0		)	(49.8		)	(45.9		)
	$	(82.8	)	$	(36.2	)	$	(45.5	)	$	(33.5	)

Amounts recognized in accumulated other comprehensive loss:
Net actuarial loss	$	198.3	$	187.4	$	87.9	$	93.3
Net prior service cost	7.4		9.1		0.5		0.5
Accumulated other comprehensive loss	$	205.7	$	196.5	$	88.4	$	93.8

Changes in plan assets and benefit obligations recognized in accumulated other comprehensive loss (AOCL):
AOCL at beginning of year	$	196.5		$	578.4		$	93.8		$	133.0
Net actuarial loss (gain)	41.2			108.4			20.4			(18.9		)
Recognized net actuarial loss	(14.5		)	(31.1		)	(3.4		)	(5.2		)
Recognized prior service cost	(1.7		)	(2.8		)	(0.1		)	(0.1		)
Loss recognized due to curtailment	—			—			0.1			(0.6		)
Loss recognized due to settlement	(15.8		)	(456.4		)	(10.8		)	(4.8		)
Foreign currency impact	—			—			(11.6		)	(9.6		)
Total recognized in accumulated other comprehensive loss at December 31	$	205.7		$	196.5		$	88.4		$	93.8

The presentation in the above tables for amounts recognized in accumulated other comprehensive loss on the Consolidated Balance Sheets is before the effect of income taxes.

The following table summarizes assumptions used to measure the benefit obligation for the defined benefit pension plans at December 31:

Assumptions	2016	2015
U.S. Plans:
Discount rate	4.34% to 4.50%	4.50% to 4.70%
Future compensation assumption	2.00% to 3.00%	2.00% to 3.00%
International Plans:
Discount rate	1.25% to 9.00%	1.50% to 8.75%
Future compensation assumption	2.00% to 8.00%	2.20% to 8.00%

Defined benefit pension plans in the United States represent 66% of the benefit obligation and 66% of the fair value of plan assets as of December 31, 2016.

Certain of the Company’s defined benefit pension plans were overfunded as of December 31, 2016. As a result, $32.1 million and $86.3 million at December 31, 2016 and 2015, respectively, are included in non-current pension assets on the Consolidated Balance Sheets. The current portion of accrued pension cost, which was included in salaries, wages and benefits on the Consolidated Balance Sheets, was $5.7 million and $9.1 million at December 31, 2016 and 2015, respectively. In 2016, the current portion of accrued pension cost relates to unfunded plans and represents the actuarial present value of expected payments related to the plans to be made over the next 12 months.

The accumulated benefit obligation at December 31, 2016 exceeded the market value of plan assets for several of the Company’s pension plans. For these plans, the projected benefit obligation was $194.2 million, the accumulated benefit obligation was $182.5 million and the fair value of plan assets was $34.7 million at December 31, 2016.

The total pension accumulated benefit obligation for all plans was $888.0 million and $890.3 million at December 31, 2016 and 2015, respectively.

Investment performance increased the value of the Company’s pension assets by 8.5% in 2016.

As of December 31, 2016 and 2015, the Company’s defined benefit pension plans did not directly hold any of the Company’s common shares.

Under current accounting policies, the estimated net actuarial loss and prior service cost for the defined benefit pension plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost over the next fiscal year are $19.2 million and $1.4 million, respectively. Refer to Change in Accounting Principle in the Other Disclosures section for additional information on potential changes to these policies.

Plan Assets:

The Company’s target allocation for pension plan assets, as well as the actual pension plan asset allocations as of December 31, 2016 and 2015, was as follows: 

	Current Target Allocation			Percentage of Pension Plan Assets at December 31,
Asset Category				2016	2015
Equity securities	6%	to	12%	12%	15%
Debt securities	70%	to	90%	78%	63%
Other	7%	to	15%	10%	22%
Total				100%	100%

The Company recognizes its overall responsibility to ensure that the assets of its various defined benefit pension plans are managed effectively and prudently and in compliance with its policy guidelines and all applicable laws. Preservation of capital is important; however, the Company also recognizes that appropriate levels of risk are necessary to allow its investment managers to achieve satisfactory long-term results consistent with the objectives and the fiduciary character of the pension funds. Asset allocations are established in a manner consistent with projected plan liabilities, benefit payments and expected rates of return for various asset classes. The expected rate of return for the investment portfolio is based on expected rates of return for various asset classes, as well as historical asset class and fund performance.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The FASB provides accounting rules that classify the inputs used to measure fair value into the following hierarchy:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 - Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Level 3 - Unobservable inputs for the asset or liability.

The following table presents the fair value hierarchy for those investments of the Company’s pension assets measured at fair value on a recurring basis as of December 31, 2016:

	U.S. Pension Plans								International Pension Plans
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	34.3	$	—	$	—	$	34.3	$	0.8	$	—	$	—	$	0.8
Government and agency securities	44.0		2.6		—		46.6		—		—		—		—
Corporate bonds - investment grade	—		65.7		—		65.7		—		—		—		—
Equity securities - U.S. companies	10.5		—		—		10.5		—		—		—		—
Equity securities - international companies	6.2		—		—		6.2		—		—		—		—
Mutual funds	41.5		—		—		41.5		—		—		—		—
	$	136.5	$	68.3	$	—	$	204.8	$	0.8	$	—	$	—	$	0.8
Investments measured at net asset value:
Cash and cash equivalents							$	—							$	3.4
Corporate bonds - investment grade							—								2.7
Equity securities - international companies							—								1.5
Common collective funds - domestic equities							14.0								—
Common collective funds - international equities							14.1								33.4
Common collective funds - fixed income							217.1								74.6
Limited partnerships							39.6								—
Real estate partnerships							22.1								—
Other assets							—								152.3
Risk parity							17.9								—
Total Assets							$	529.6							$	268.7

The following table presents the fair value hierarchy for those investments of the Company’s pension assets measured at fair value on a recurring basis as of December 31, 2015:

	U.S. Pension Plans								International Pension Plans
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents	$	23.9	$	—	$	—	$	23.9	$	12.8	$	—	$	—	$	12.8
Government and agency securities	33.0		2.2		—		35.2		—		—		—		—
Corporate bonds - investment grade	—		56.0		—		56.0		—		—		—		—
Equity securities - U.S. companies	9.7		—		—		9.7		—		—		—		—
Equity securities - international companies	6.1		—		—		6.1		—		—		—		—
	$	72.7	$	58.2	$	—	$	130.9	$	12.8	$	—	$	—	$	12.8
Investments measured at net asset value:
Cash and cash equivalents							$	41.8							$	18.2
Corporate bonds - investment grade							—								3.0
Equity securities - U.S. companies							0.1								—
Equity securities - international companies							—								0.9
Common collective funds - domestic equities							13.0								—
Common collective funds - international equities							14.2								81.4
Common collective funds - fixed income							173.6								85.0
Limited partnerships							52.8								—
Real estate partnerships							99.7								—
Other assets							—								103.3
Risk parity							27.6								—
Total Assets							$	553.7							$	304.6

Cash and cash equivalents are valued at redemption value. Government and agency securities are valued at the closing price reported in the active market in which the individual securities are traded. Certain corporate bonds are valued at the closing price reported in the active market in which the bond is traded. Equity securities (both common and preferred stock) are valued at the closing price reported in the active market in which the individual security is traded. Common collective funds are valued based on a net asset value per share. Asset-backed securities are valued based on quoted prices for similar assets in active markets. When such prices are unavailable, the plan trustee determines a valuation from the market maker dealing in the particular security.

Limited partnerships include investments in funds that invest primarily in private equity, venture capital and distressed debt. Limited partnerships are valued based on the ownership interest in the net asset value of the investment, which is used as a practical expedient to fair value, per the underlying investment fund, which is based upon the general partner's own assumptions about the assumptions a market participant would use in pricing the assets and liabilities of the partnership. Real estate investments include funds that invest in companies that primarily invest in commercial and residential properties, commercial mortgage-backed securities, debt and equity securities of real estate operating companies, and real estate investment trusts. Other real estate investments are valued based on the ownership interest in the net asset value of the investment, which is used as a practical expedient to fair value per the underlying investment fund, which is based on appraised values and current transaction prices. Risk parity investments include funds that invest in diversified global asset classes (equities, bonds, inflation-linked bonds, and commodities) with leverage to balance risk and achieve consistent returns with lower volatility. Risk parity investments are valued based on the closing prices of the underlying securities in the active markets in which they are traded.

Cash Flows:

Employer Contributions to Defined Benefit Plans
2015	$	10.8
2016	14.8
2017 (planned)	10.0

Future benefit payments, including lump sum distributions, are expected to be as follows:

Benefit Payments
2017	$	58.0
2018	62.9
2019	78.8
2020	58.2
2021	69.5
2022-2026	290.9

Employee Savings Plans:

The Company sponsors defined contribution retirement and savings plans covering substantially all employees in the United States and employees at certain non-U.S. locations. In the past, the Company has contributed its common shares to certain of these plans based on formulas established in the respective plan agreements. In 2016, the Company contributed its common shares to certain of these plans based on the elections of the participants in these plans. At December 31, 2016, the plans held 2,790,811 of the Company’s common shares with a fair value of $110.8 million. Company contributions to the plans were $20.2 million in 2016, $22.4 million in 2015 and $26.1 million in 2014. The Company paid dividends totaling $3.7 million in 2016, $4.2 million in 2015 and $4.7 million in 2014 to plans holding the Company’s common shares.