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Section 1: 10-Q (10-Q)

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false--12-31Q320182018-09-3010-Q000009836276860854falseLarge Accelerated FilerTimken Co.false0.02220.09450.00320.003315414000001561400000P0Y20300000211000000020000000020000000098375135983751350.01830.07760.06740.02430.02020.038752018-12-152027-09-072024-09-012028-05-01955000009770000026000000.02150.00000.01130.03050.03380.011319226000001966100000001000000010000000100000001000000000240560000024482000004830000004821000002075801321514281<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;color:#000000;font-style:italic;text-decoration:none;">Note - Property, Plant and Equipment</font><font style="font-family:Arial;font-size:10pt;font-style:italic;"> </font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">The components of property, plant and equipment at </font><font style="font-family:Arial;font-size:10pt;">September&#160;30, 2018</font><font style="font-family:Arial;font-size:10pt;"> and </font><font style="font-family:Arial;font-size:10pt;">December&#160;31, 2017</font><font style="font-family:Arial;font-size:10pt;"> were as follows:</font></div><div style="line-height:120%;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;width:100%;border-collapse:collapse;text-align:left;"><tr><td colspan="7" rowspan="1"></td></tr><tr><td style="width:72%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:12%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:12%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:Arial;font-size:9pt;font-weight:bold;">September&#160;30, <br clear="none"/>2018</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:Arial;font-size:9pt;">December&#160;31, <br clear="none"/>2017</font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Land and buildings</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">482.1</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">483.0</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Machinery and equipment</font></div></td><td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">1,966.1</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">1,922.6</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Subtotal</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">2,448.2</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">2,405.6</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Accumulated depreciation</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">(1,561.4</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-right:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">)</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">(1,541.4</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-right:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">)</font></div></td></tr><tr><td style="vertical-align:top;border-bottom:2px solid #000000;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Property, plant and equipment, net</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">$</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">886.8</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">864.2</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr></table></div><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Total depreciation expense for the </font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">nine</font><font style="font-family:Arial;font-size:10pt;"> months ended </font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">September&#160;30, 2018</font><font style="font-family:Arial;font-size:10pt;"> and </font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">2017</font><font style="font-family:Arial;font-size:10pt;"> was </font><font style="font-family:Arial;font-size:10pt;">$97.7 million</font><font style="font-family:Arial;font-size:10pt;"> and </font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">$95.5 million</font><font style="font-family:Arial;font-size:10pt;">, respectively.</font></div></div><div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">The components of property, plant and equipment at </font><font style="font-family:Arial;font-size:10pt;">September&#160;30, 2018</font><font style="font-family:Arial;font-size:10pt;"> and </font><font style="font-family:Arial;font-size:10pt;">December&#160;31, 2017</font><font style="font-family:Arial;font-size:10pt;"> were as follows:</font></div><div style="line-height:120%;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;width:100%;border-collapse:collapse;text-align:left;"><tr><td colspan="7" rowspan="1"></td></tr><tr><td style="width:72%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:12%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:12%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:Arial;font-size:9pt;font-weight:bold;">September&#160;30, <br clear="none"/>2018</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:Arial;font-size:9pt;">December&#160;31, <br clear="none"/>2017</font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Land and buildings</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">482.1</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">483.0</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Machinery and equipment</font></div></td><td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">1,966.1</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">1,922.6</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Subtotal</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">2,448.2</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">2,405.6</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Accumulated depreciation</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">(1,561.4</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-right:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">)</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">(1,541.4</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-right:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">)</font></div></td></tr><tr><td style="vertical-align:top;border-bottom:2px solid #000000;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Property, plant and equipment, net</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">$</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">886.8</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">864.2</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr></table></div></div></div> 0000098362 2018-01-01 2018-09-30 0000098362 us-gaap:RevenueFromContractWithCustomerMember 2018-01-01 2018-09-30 0000098362 2018-09-30 0000098362 2017-01-01 2017-09-30 0000098362 2018-07-01 2018-09-30 0000098362 2017-07-01 2017-09-30 0000098362 2017-12-31 0000098362 us-gaap:PreferredClassBMember 2017-12-31 0000098362 us-gaap:PreferredClassAMember 2018-09-30 0000098362 us-gaap:PreferredClassBMember 2018-09-30 0000098362 us-gaap:PreferredClassAMember 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
395550819_timkenlogoa05.jpg
 
FORM 10-Q
 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to                          
Commission file number: 1-1169
 
THE TIMKEN COMPANY
(Exact name of registrant as specified in its charter)
 
 
OHIO
 
34-0577130
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
4500 Mount Pleasant Street NW
 North Canton, Ohio
 
44720-5450
(Address of principal executive offices)
 
(Zip Code)
234.262.3000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ý    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
 
Accelerated filer
o
 
 
 
 
 
 
Non-accelerated filer
 
o
 
Smaller reporting company
o
 
 
 
 
 
 
 
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   
 Yes  o    No   ý
Indicate the number of shares outstanding of each of the issuer's classes of common shares, as of the latest practicable date.
 
Class
 
Outstanding at September 30, 2018
 
 
Common Shares, without par value
 
76,860,854 shares
 


Table of Contents

THE TIMKEN COMPANY
INDEX TO FORM 10-Q REPORT

 
 
 
PAGE
I.
 
 
 
Item 1.
 
Item 2.
 
Item 3.
 
Item 4.
II.
 
 
 
Item 1.
 
Item1A.
 
Item 2.
 
Item 6.



Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
THE TIMKEN COMPANY AND SUBSIDIARIES

Consolidated Statements of Income
(Unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
(Dollars in millions, except per share data)
 
 
 
 
 
 
 
Net sales
$
881.3

 
$
771.4

 
$
2,670.7

 
$
2,225.8

Cost of products sold
628.0

 
555.3

 
1,885.1

 
1,626.4

Gross Profit
253.3

 
216.1

 
785.6

 
599.4

Selling, general and administrative expenses
142.0

 
134.0

 
432.4

 
375.5

Impairment and restructuring charges
2.6

 
1.3

 
3.1

 
3.8

Operating Income
108.7

 
80.8

 
350.1

 
220.1

Interest expense
(12.5
)
 
(10.1
)
 
(33.2
)
 
(26.5
)
Interest income
0.6

 
0.7

 
1.5

 
2.0

Other income, net
0.5

 
3.8

 
9.8

 
7.1

Income Before Income Taxes
97.3

 
75.2

 
328.2

 
202.7

Provision for income taxes
25.0

 
21.1

 
83.5

 
28.5

Net Income
72.3

 
54.1

 
244.7

 
174.2

Less: Net income attributable to noncontrolling interest
0.7

 
0.6

 
1.9

 

Net Income Attributable to The Timken Company
$
71.6

 
$
53.5

 
$
242.8

 
$
174.2

Net Income per Common Share Attributable to The Timken
   Company Common Shareholders
 
 
 
 
 
 
 
Basic earnings per share
$
0.93

 
$
0.69

 
$
3.14


$
2.24

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.91

 
$
0.68

 
$
3.09

 
$
2.21

 
 
 
 
 
 
 
 
Dividends per share
$
0.28

 
$
0.27

 
$
0.83

 
$
0.80

See accompanying Notes to the Consolidated Financial Statements.


Consolidated Statements of Comprehensive Income
(Unaudited) 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
(Dollars in millions)
 
 
 
 
 
 
 
Net Income
$
72.3

 
$
54.1

 
$
244.7

 
$
174.2

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(24.2
)
 
10.9

 
(62.5
)
 
42.8

Pension and postretirement liability adjustment

 
0.1

 

 
0.2

Change in fair value of derivative financial instruments
(0.4
)
 
(2.0
)
 
4.0

 
(4.2
)
Other comprehensive (loss) income, net of tax
(24.6
)
 
9.0

 
(58.5
)
 
38.8

Comprehensive Income, net of tax
47.7

 
63.1

 
186.2

 
213.0

Less: comprehensive (loss) income attributable to noncontrolling interest
(5.0
)
 
0.5

 
(6.8
)
 
1.9

Comprehensive Income Attributable to The Timken Company
$
52.7

 
$
62.6

 
$
193.0

 
$
211.1

See accompanying Notes to the Consolidated Financial Statements.

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Table of Contents

Consolidated Balance Sheets
 
(Unaudited)
 
 
 
September 30,
2018
 
December 31,
2017
(Dollars in millions)
 
 
 
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
153.7

 
$
121.6

Restricted cash
1.3

 
3.8

Accounts receivable, less allowances (2018 – $21.1 million; 2017 – $20.3 million)
548.6

 
524.9

Unbilled receivables
137.3

 

Inventories, net
841.0

 
738.9

Deferred charges and prepaid expenses
28.4

 
29.7

Other current assets
76.0

 
81.2

Total Current Assets
1,786.3

 
1,500.1

Property, Plant and Equipment, net
886.8

 
864.2

Other Assets
 
 
 
Goodwill
965.4

 
511.8

Other intangible assets
743.1

 
420.6

Non-current pension assets
21.7

 
19.7

Deferred income taxes
52.3

 
61.0

Other non-current assets
43.9

 
25.0

Total Other Assets
1,826.4

 
1,038.1

Total Assets
$
4,499.5

 
$
3,402.4

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Short-term debt
$
37.0

 
$
105.4

Current portion of long-term debt
11.4

 
2.7

Accounts payable, trade
282.8

 
265.2

Salaries, wages and benefits
133.5

 
127.9

Income taxes payable
19.2

 
9.8

Other current liabilities
172.7

 
160.7

Total Current Liabilities
656.6

 
671.7

Non-Current Liabilities
 
 
 
Long-term debt
1,681.7

 
854.2

Accrued pension cost
171.6

 
167.3

Accrued postretirement benefits cost
134.0

 
122.6

Deferred income taxes
152.4

 
44.0

Other non-current liabilities
62.8

 
67.7

Total Non-Current Liabilities
2,202.5

 
1,255.8

Shareholders’ Equity
 
 
 
Class I and II Serial Preferred Stock, without par value:
 
 
 
Authorized – 10,000,000 shares each class, none issued

 

Common shares, without par value:
 
 
 
Authorized – 200,000,000 shares
 
 
 
Issued (including shares in treasury) (2018 – 98,375,135 shares; 2017 – 98,375,135 shares)
 
 
 
Stated capital
53.1

 
53.1

Other paid-in capital
945.1

 
903.8

Earnings invested in the business
1,595.4

 
1,408.4

Accumulated other comprehensive loss
(88.8
)
 
(38.3
)
Treasury shares at cost (2018 – 21,514,281 shares; 2017 – 20,758,013 shares)
(924.9
)
 
(884.3
)
Total Shareholders’ Equity
1,579.9

 
1,442.7

Noncontrolling Interest
60.5

 
32.2

Total Equity
1,640.4

 
1,474.9

Total Liabilities and Equity
$
4,499.5

 
$
3,402.4

See accompanying Notes to the Consolidated Financial Statements.

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Table of Contents

Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended
September 30,
 
2018
 
2017
(Dollars in millions)
 
 
 
CASH PROVIDED (USED)
 
 
 
Operating Activities
 
 
 
Net income attributable to The Timken Company
$
242.8

 
$
174.2

Net income attributable to noncontrolling interest
1.9

 

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
105.9

 
102.5

Impairment charges
0.6

 

Loss (gain) on sale of assets
0.2

 
(2.6
)
Loss on divestiture
0.6

 

Deferred income tax provision
2.2

 
7.5

Stock-based compensation expense
25.5

 
18.2

Pension and other postretirement expense
8.5

 
12.6

Pension contributions and other postretirement benefit contributions
(12.4
)
 
(16.3
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(65.7
)
 
(61.6
)
Unbilled receivables
(37.6
)
 

Inventories
(94.3
)
 
(85.4
)
Accounts payable, trade
(9.9
)
 
55.7

Other accrued expenses
10.2

 
15.9

Income taxes
(0.5
)
 
(59.6
)
Other, net
17.0

 
(18.2
)
Net Cash Provided by Operating Activities
195.0

 
142.9

Investing Activities
 
 
 
Capital expenditures
(62.8
)
 
(62.5
)
Acquisitions, net of cash received
(765.4
)
 
(347.2
)
Proceeds from disposal of property, plant and equipment
1.1

 
6.8

Proceeds from divestitures
14.0

 

Investments in short-term marketable securities, net
2.3

 
(4.2
)
Other
0.5

 
(0.3
)
Net Cash Used in Investing Activities
(810.3
)
 
(407.4
)
Financing Activities
 
 
 
Cash dividends paid to shareholders
(64.2
)
 
(62.4
)
Purchase of treasury shares
(63.0
)
 
(41.0
)
Proceeds from exercise of stock options
12.7

 
27.7

Shares surrendered for taxes
(5.4
)
 
(10.8
)
Accounts receivable facility borrowings
145.2

 
51.2

Accounts receivable facility payments
(114.9
)
 
(25.3
)
Proceeds from long-term debt
1,286.1

 
862.7

Payments on long-term debt
(533.1
)
 
(574.4
)
Deferred financing costs
(0.9
)
 
(1.1
)
Short-term debt activity, net
(3.9
)
 
12.8

Other
(1.3
)
 
(2.6
)
Net Cash Provided by Financing Activities
657.3

 
236.8

Effect of exchange rate changes on cash
(12.4
)
 
16.6

Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash
29.6

 
(11.1
)
Cash, cash equivalents and restricted cash at beginning of year
125.4

 
151.6

Cash, Cash Equivalents and Restricted Cash at End of Period
$
155.0

 
$
140.5

See accompanying Notes to the Consolidated Financial Statements.

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Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions, except per share data)

Note 1 - Basis of Presentation
The accompanying Consolidated Financial Statements (unaudited) for The Timken Company (the "Company") have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by the accounting principles generally accepted in the United States ("U.S. GAAP") for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to the Consolidated Financial Statements and accompanying Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Note 2 - Significant Accounting Policies

The Company's significant accounting policies are detailed in "Note 1 - Significant Accounting Policies" of the Annual Report on Form 10-K for the year ended December 31, 2017. In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers (Topic 606)", which was adopted by the Company on January 1, 2018. Also, in March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost", which was adopted by the Company on January 1, 2018. Significant changes to the Company's accounting policies as a result of adopting ASU 2014-09 (the “new revenue standard”) and ASU 2017-07 are discussed below:
Revenue:
A contract exists when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Revenue is recognized when performance obligations under the terms of a contract with a customer of the Company are satisfied. A majority of the Company's revenue is from short-term, fixed-price contracts and continues to be recognized as of a point in time when products are shipped from the Company's manufacturing facilities or at a later point in time when control of the products transfers to the customer. Revenue was previously recognized for services and certain sales of customer-specific product at the point in time when the shipping terms were satisfied. Under the new revenue standard, the Company now recognizes revenue over time as it satisfies the performance obligations because of the continuous transfer of control to the customer, supported as follows:

For certain service contracts, this continuous transfer of control to the customer occurs as the Company's service enhances assets that the customer owns and controls at all times and the Company is contractually entitled to payment for work performed to date plus a reasonable margin.
For United States ("U.S.") government contracts, the customer is allowed to unilaterally terminate the contract for convenience, and is required to pay the Company for costs incurred plus a reasonable margin and can take control of any work in process.
For certain non-U.S. government contracts involving customer-specific products, the customer controls the work in process based on contractual termination clauses or restrictions on the Company's use of the product and the Company possesses a right to payment for work performed to date plus a reasonable margin.

As a result of control transferring over time for these products and services, revenue is recognized based on progress toward completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company has elected to use the cost-to-cost input measure of progress for these contracts because it best depicts the transfer of goods or services to the customer based on incurring costs on the contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred.







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Table of Contents

The pricing and payment terms for non-U.S. government contracts is based on the Company's standard terms and conditions or the result of specific negotiations with each customer. The Company's standard terms and conditions require payment 30 days from the invoice date, but the timing of payment for specific negotiated terms may vary. The Company also has both prime and subcontracts in support of the provision of goods and services to the U.S. government. Certain of these contracts are subject to the Federal Acquisition Regulation ("FAR") and are priced commercially based on a competitive market. Under the payment terms of those U.S. government fixed-price contracts, the customer pays the Company performance-based payments, which are interim payments of up to 80% of the contract price for costs incurred to date based on quantifiable measures of performance or on the achievement of specified events or milestones. Because the customer retains a portion of the contract price until completion of such contracts, certain of these U.S. government fixed-price contracts result in revenue recognized in excess of billings, which is presented within "Unbilled Receivables" on the Consolidated Balance Sheet. The portion of the payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Sales, value add, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. As a practical expedient, the Company may exclude an assessment of whether promised goods or services are performance obligations, if they are immaterial in the context of the contract with the customer, and combine these with other performance obligations. The Company has elected to recognize incremental costs incurred to obtain contracts, which primarily represent commissions paid to third-party sales agents where the amortization period would be less than one year, as "Selling, general and administrative ("SG&A") expenses" in the Consolidated Statement of Income as incurred. The Company has also elected not to adjust the promised amount of consideration for the effects of any significant financing component where the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Finally, the Company's policy is to exclude performance obligations resulting from contracts with a duration of one year or less from its disclosures related to remaining performance obligations.

The amount of consideration to which the Company expects to be entitled in exchange for the goods and services is not generally subject to significant variations. However, the Company does offer certain customers rebates, prompt payment discounts, end-user discounts, the right to return eligible products, and/or other forms of variable consideration. The Company estimates this variable consideration using the expected value amount, which is based on historical experience. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company adjusts the estimate of revenue at the earlier of when the amount of consideration the Company expects to receive changes or when the consideration becomes fixed. The Company recognizes the cost of freight and shipping when control of the products or services has transferred to the customer as an expense in "Cost of products sold" on the Consolidated Statement of Income, because those are costs incurred to fulfill the promise recognized, not a separate performance obligation. To the extent certain freight and shipping fees are charged to customers, the Company recognizes the amounts charged to customers as revenues and the related costs as an expense in "Cost of products sold" when control of the related products or services has transferred to the customer.

Contracts are occasionally modified to account for changes in contract specifications, requirements, and pricing. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Substantially all of the Company's contract modifications are for goods or services that are distinct from the existing contract. Therefore, the effect of a contract modification on the transaction price and the Company's measure of progress for the performance obligation to which it relates is generally recognized on a prospective basis.

Accounts Receivable, Less Allowances:
"Accounts receivable, less allowances" on the Consolidated Balance Sheet include amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. The Company maintains an allowance for doubtful accounts, which represents an estimate of the losses expected from the accounts receivable portfolio, to reduce accounts receivable to their net realizable value. The allowance is based upon historical trends in collections and write-offs, management's judgment of the probability of collecting accounts and management's evaluation of business risk. The Company extends credit to customers satisfying pre-defined credit criteria. The Company believes it has limited concentration of credit risk due to the diversity of its customer base.

5

Table of Contents

Prior to the adoption of the new revenue standard, the Company recognized a portion of its revenues on the percentage-of-completion method measured on the cost-to-cost basis. As of December 31, 2017, revenue recognized in excess of billings of $67.3 million related to these revenues were included in "Accounts receivable, less allowances" on the Consolidated Balance Sheet. In accordance with the new revenue standard, $88.9 million of revenue recognized in excess of billings related to these revenues are included in "Unbilled receivables" on the Consolidated Balance Sheet at September 30, 2018.

Unbilled Receivables:
"Unbilled receivables" on the Consolidated Balance Sheet primarily include unbilled amounts typically resulting from sales under long-term contracts when the cost-to-cost method of revenue recognition is utilized, the revenue recognized exceeds the amount billed to the customer and the right to payment is primarily just subject to the passage of time. Amounts may not exceed their net realizable value.

Pension and Other Postretirement Benefits:
With the adoption of ASU 2017-07 on January 1, 2018, service cost is included in other employee compensation costs within operating income and is the only component of net periodic benefit cost that may be capitalized when applicable. The other components of net periodic benefit cost are presented separately outside of operating income. Also, actuarial gains and losses are excluded from segment results, while all other components of net periodic benefit cost will continue to be included within segment results.

Recent Accounting Pronouncements:

New Accounting Guidance Adopted:

Revenue recognition
The new revenue standard introduces a five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new revenue standard also requires disclosures sufficient to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments and assets recognized from the costs to obtain or fulfill a contract. For further information about the Company's revenues from contracts with customers, refer to Note 11 - Revenue.
On January 1, 2018, the Company adopted the new revenue standard and all of the related amendments using the modified retrospective method and applied those provisions to all open contracts. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The cumulative effect of changes made to the balance sheet as of January 1, 2018 for the adoption of the new revenue standard was as follows:
 
Balance at December 31, 2017
Effect of Accounting Change
Balance at January 1, 2018
ASSETS
 
 
 
     Accounts receivable, less allowances
$
524.9

$
(67.3
)
$
457.6

     Unbilled receivables

100.5

100.5

     Inventories, net
738.9

(22.9
)
716.0

     Other current assets
81.2

3.0

84.2

     Deferred income taxes
61.0

(2.6
)
58.4

LIABILITIES
 
 
 
     Other current liabilities
160.7

3.0

163.7

EQUITY
 
 
 
     Earnings invested in the business
1,408.4

7.7

1,416.1


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Table of Contents

The tables below reflect changes to financial statement line items as a result of adopting the new revenue standard. The adoption of the new revenue standard did not have an impact on "Net cash used in operating activities" on the Consolidated Statement of Cash Flows for the nine months ended September 30, 2018.

Consolidated Statement of Income for the three months ended September 30, 2018:
 
Previous Accounting Method
Effect of Accounting Change
As Reported
Net sales
$
875.6

$
5.7

$
881.3

Cost of products sold
623.2

4.8

628.0

Selling, general, and administrative expenses
141.3

0.7

142.0

Income before income taxes
97.1

0.2

97.3

Provision for income taxes
25.0


25.0

Net income
72.1

0.2

72.3

Net income attributable to The Timken Company
$
71.4

$
0.2

$
71.6

Basic earnings per share
$
0.93

$

$
0.93

Diluted earnings per share
$
0.91

$

$
0.91


Consolidated Statement of Income for the nine months ended September 30, 2018:
 
Previous Accounting Method
Effect of Accounting Change
As Reported
Net sales
$
2,653.7

$
17.0

$
2,670.7

Cost of products sold
1,874.2

10.9

1,885.1

Selling, general, and administrative expenses
430.6

1.8

432.4

Income before income taxes
323.9

4.3

328.2

Provision for income taxes
82.5

1.0

83.5

Net income
241.4

3.3

244.7

Net income attributable to The Timken Company
$
239.5

$
3.3

$
242.8

Basic earnings per share
$
3.10

$
0.04

$
3.14

Diluted earnings per share
$
3.05

$
0.04

$
3.09


Consolidated Balance Sheet as of September 30, 2018:
 
Previous Accounting Method
Effect of Accounting Change
As Reported
ASSETS
 
 
 
     Accounts receivable, less allowances
$
637.5

$
(88.9
)
$
548.6

     Unbilled receivables

137.3

137.3

     Inventories, net
874.8

(33.8
)
841.0

     Other current assets
72.5

3.5

76.0

     Deferred income taxes
55.9

(3.6
)
52.3

LIABILITIES
 
 
 
     Other current liabilities
169.2

3.5

172.7

EQUITY
 
 
 
     Earnings invested in the business
1,584.4

11.0

1,595.4



7

Table of Contents

Pension and other postretirement benefits

As mentioned above, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” in March 2017. The Company adopted ASU 2017-07 on January 1, 2018 on a retrospective basis, which resulted in the reclassification of certain amounts from "Cost of products sold" and "Selling, general and administrative expenses" to "Other income (expense)" in the Consolidated Statement of Income. As a result, prior period amounts impacted have been revised accordingly.

The following tables reflect the changes to financial statement line items resulting from the adoption of ASU 2017-07:

For the three months ended September 30, 2017:
 
As Previously Reported
Effect of Accounting Change
As Adjusted
Cost of products sold
$
554.4

$
0.9

$
555.3

Selling, general, and administrative expenses
134.0


134.0

Operating income
81.7

(0.9
)
80.8

Other income, net
2.9

0.9

3.8


For the nine months ended September 30, 2017:
 
As Previously Reported
Effect of Accounting Change
As Adjusted
Cost of products sold
$
1,626.5

$
(0.1
)
$
1,626.4

Selling, general, and administrative expenses
377.4

(1.9
)
375.5

Operating income
218.1

2.0

220.1

Other income (expense), net
9.1

(2.0
)
7.1


For the year ended December 31, 2017:
 
As Previously Reported
Effect of Accounting Change
As Adjusted
Cost of products sold
$
2,193.4

$
(1.7
)
$
2,191.7

Selling, general, and administrative expenses
521.4

(13.1
)
508.3

Operating income
284.7

14.8

299.5

Other income (expense), net
9.4

(14.8
)
(5.4
)

For the year ended December 31, 2016:
 
As Previously Reported
Effect of Accounting Change
As Adjusted
Cost of products sold
$
2,001.3

$
(37.8
)
$
1,963.5

Selling, general, and administrative expenses
470.7

(30.5
)
440.2

Pension settlement charges
1.6

(1.6
)

Operating income
174.5

69.9

244.4

Other expense, net
(0.9
)
(69.9
)
(70.8
)


8

Table of Contents

For the year ended December 31, 2015:
 
As Previously Reported
Effect of Accounting Change
As Adjusted
Cost of products sold
$
2,052.8

$
15.7

$
2,068.5

Selling, general, and administrative expenses
457.7

26.9

484.6

Pension settlement charges
119.9

(119.9
)

Operating income
255.9

77.3

333.2

Other expense, net
(7.5
)
(77.3
)
(84.8
)

Other new accounting guidance adopted

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” ASU 2016-18 requires that a statement of cash flows explain the change in the total of cash, cash equivalents, and restricted cash during the period. On January 1, 2018, the Company adopted the provisions of ASU 2016-18 on a retrospective basis, which resulted in the addition of restricted cash balances and movements in the Company’s Statement of Cash Flows for all periods presented. As a result, for the nine months ended September 30, 2018 and 2017, restricted cash balances of $1.3 million and $3.3 million, respectively, were included in the Company's ending balance on the Statement of Cash Flows.

In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." ASU 2018-02 allows for certain tax effects resulting from the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”) to be reclassified from accumulated other comprehensive income (or loss) to retained earnings. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. Also, ASU 2018-02 may be applied in the period of adoption or retrospectively to each period in which the effect of the change in the statutory income tax rate in the U.S. Tax Reform is recognized. On January 1, 2018, the Company early adopted the provisions of ASU 2018-02, with the related impact applied in the period of adoption. In doing so, the Company elected to reclassify $0.7 million of related income tax effects from accumulated other comprehensive loss to retained earnings in the first quarter of 2018.

New Accounting Guidance Issued and Not Yet Adopted:
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities", which impacts both designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 amends and clarifies the requirements to qualify for hedge accounting, removes the requirement to recognize changes in fair value from certain hedges in current earnings, and specifies the presentation of changes in fair value in the income statement for all hedging instruments. ASU 2017-12 is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including in any interim period for which financial statements have not yet been issued, but the effect of adoption is required to be reflected as of the beginning of the fiscal year of adoption. The Company currently does not expect the adoption of ASU 2017-12 to materially impact the Company's results of operations and financial condition.


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In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” Prior to the issuance of this new accounting guidance, entities first assessed qualitative factors to determine whether a two-step goodwill impairment test was necessary. When entities bypassed or failed the qualitative analysis, they were required to apply a two-step goodwill impairment test. Step 1 compared a reporting unit’s fair value to its carrying amount to determine if there is a potential impairment. If the carrying amount of a reporting unit exceeded its fair value, Step 2 was required to be completed. Step 2 involved determining the implied fair value of goodwill and comparing it to the carrying amount of that goodwill to measure the impairment loss, if any. ASU 2017-04 eliminates Step 2 of the current goodwill impairment test, and instead will require that a goodwill impairment loss be measured at the amount by which a reporting unit's carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for public companies for years beginning after December 15, 2019, with early adoption permitted, and must be applied prospectively. The Company will adopt ASU 2017-04 on October 1, 2018 in conjunction with the Company's annual goodwill impairment test. The Company currently does not expect the adoption of ASU 2017-04 to materially impact the Company's results of operations and financial condition in the current year.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 2016-13 changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The new guidance will replace the current incurred loss approach with an expected loss model. The new expected credit loss impairment model will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt instruments, net investments in leases, loan commitments and standby letters of credit. Upon initial recognition of the exposure, the expected credit loss model requires entities to estimate the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses should consider historical information, current information and reasonable and supportable forecasts, including estimates of prepayments. Financial instruments with similar risk characteristics should be grouped together when estimating expected credit losses. ASU 2016-13 does not prescribe a specific method to make the estimate, so its application will require significant judgment. ASU 2016-13 is effective for public companies in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the effect that the adoption of ASU 2016-13 will have on the Company's results of operations and financial condition.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 was issued to increase transparency and comparability among entities by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about lease arrangements. ASU 2016-02 is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company plans to adopt the new standard on January 1, 2019 using the cumulative-effect adjustment transition method and has created a cross-functional implementation team to identify all leases involved, determine which, if any, practical expedients to utilize, and perform all data gathering required. Additionally, the Company is continuing to advance in implementing an enterprise-wide lease management system to assist in the related accounting and is evaluating additional changes to the related processes and internal controls to ensure requirements are met for reporting and disclosure purposes. While the assessment of the impact this new standard will have on the consolidated financial statements is ongoing, the Company expects to recognize a material right-to-use asset and lease liability for its operating lease commitments on the Consolidated Balance Sheet, but does not expect the new standard to have a material impact on its consolidated results of operations or cash flows.


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Table of Contents

Note 3 - Acquisitions and Divestitures
The Company completed three acquisitions in 2018. On September 18, 2018, the Company completed the acquisition of Rollon S.p.A. ("Rollon"), a leader in engineered linear motion products, specializing in the design and manufacture of linear guides, telescopic rails and linear actuators used in a wide range of industries such as passenger rail, aerospace, packaging and logistics, medical and automation. On September 1, 2018, the Company completed the acquisition of Apiary Investments Holdings Limited ("Cone Drive"), a leader in precision drives used in diverse markets including solar, automation, aerial platforms, and food and beverage. On August 30, 2018, the Company's majority-owned subsidiary, Timken India Limited ("Timken India"), completed the acquisition of ABC Bearings Limited ("ABC Bearings"). Timken India issued its shares as consideration for the acquisition of ABC Bearings. Refer to Note 8 - Equity for more information on the acquisition of ABC Bearings. ABC Bearings is a manufacturer of tapered, cylindrical and spherical roller bearings and slewing rings in India. Expected aggregate annual sales for these companies is approximately $270 million. The total purchase price for these acquisitions, net of cash acquired of $30.1 million, was $831.4 million. The Company incurred acquisition-related costs of $7.3 million to complete these acquisitions. The 2018 acquisitions are subject to post-closing purchase price allocation adjustments. Based on markets and customers served, substantially all of the results for Rollon and Cone Drive are reported in the Process Industries segment and substantially all of the results for ABC Bearings are reported in the Mobile Industries segment.

The following table presents the preliminary purchase price allocation at fair value related to the 2018 acquisitions at the date of acquisition: 
 
Preliminary Purchase
Price Allocation
Assets:
 
Accounts receivable, net
$
43.3

Inventories, net
58.3

Other current assets
7.2

Property, plant and equipment, net
68.3

Goodwill
468.2

Other intangible assets
366.0

Other non-current assets
18.8

Total assets acquired
$
1,030.1

Liabilities:
 
Accounts payable, trade
$
34.5

Salaries, wages and benefits
9.2

Income taxes payable
1.6

Other current liabilities
9.2

Short-term debt
1.8

Long-term debt
1.7

Accrued pension cost
7.0

Accrued postretirement benefits cost
11.8

Deferred income taxes
113.0

Other non-current liabilities
8.9

Total liabilities assumed
$
198.7

Net assets acquired
$
831.4










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The following table summarizes the preliminary purchase price allocation for identifiable intangible assets acquired in 2018:
 
Preliminary Purchase
Price Allocation
 
 
Weighted -
Average Life
Trade names (indefinite life)
$
47.4

Indefinite
Trade names (finite life)
1.8

15 years
Technology and know-how
127.2

17 years
Customer relationships
189.6

19 years
Total intangible assets
$
366.0

 

The Company completed three acquisitions in 2017. On July 3, 2017, the Company completed the acquisition of Groeneveld Group ("Groeneveld"), a leading provider of automatic lubrication solutions used in on- and off-highway applications. On May 5, 2017, the Company completed the acquisition of the assets of PT Tech, Inc. ("PT Tech"), a manufacturer of engineered clutches, brakes, hydraulic power take-off units and other torque management devices used in the mining, aggregate, wood recycling and metals industries. On April 3, 2017, the Company completed the acquisition of Torsion Control Products, Inc. ("Torsion Control Products"), a manufacturer of engineered torsional couplings used in the construction, agriculture and mining industries.

Certain measurement period adjustments were recorded in 2018, resulting in a $3.2 million reduction to Goodwill. The following table presents the purchase price allocation for the 2017 acquisitions: 
 
Preliminary Purchase
Price Allocation
Adjustment
Purchase
Price Allocation
Assets:
 
 
 
Accounts receivable, net
$
27.6

 
$
27.6

Inventories, net
29.4

 
29.4

Other current assets
3.3

$
2.7

6.0

Property, plant and equipment, net
31.5

 
31.5

Goodwill
149.7

(3.2
)
146.5

Other intangible assets
173.6

 
173.6

Other non-current assets
1.8

 
1.8

Total assets acquired
$
416.9

$
(0.5
)
$
416.4

Liabilities:
 
 
 
Accounts payable, trade
$
9.5

 
$
9.5

Salaries, wages and benefits
5.8

 
5.8

Other current liabilities
8.6

$
(0.1
)
8.5

Short-term debt
0.1

 
0.1

Long-term debt
2.9

 
2.9

Deferred income taxes
42.2

(0.7
)
41.5

Other non-current liabilities
1.0

0.3

1.3

Total liabilities assumed
$
70.1

$
(0.5
)
$
69.6

Net assets acquired
$
346.8

$

$
346.8


Divestiture:
On September 19, 2018, the Company completed the sale of Groeneveld Information Technology Holding B.V. (the "ICT Business"), located in Gorinchem, Netherlands. The Company acquired the business in July 2017 as part of the Groeneveld acquisition. The ICT Business is separate from the Groeneveld lubrications solutions business and had sales of approximately $15 million for the twelve months ended September 30, 2018.


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Table of Contents

Note 4 - Inventories
The components of inventories at September 30, 2018 and December 31, 2017 were as follows:
 
September 30,
2018
December 31,
2017
Manufacturing supplies
$
32.1

$
29.0

Raw materials
109.2

90.4

Work in process
290.6

245.2

Finished products
454.2

404.3

     Subtotal
886.1

768.9

Allowance for obsolete and surplus inventory
(45.1
)
(30.0
)
     Total Inventories, net
$
841.0

$
738.9



Inventories are valued at net realizable value, with approximately 56% valued by the first-in, first-out ("FIFO") method and the remaining 44% valued by the last-in, first-out ("LIFO") method. The majority of the Company's domestic inventories are valued by the LIFO method and all of the Company's international inventories are valued by the FIFO method.

The LIFO reserves at September 30, 2018 and December 31, 2017 were $172.4 million and $167.6 million, respectively. An actual valuation of the inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on management’s estimates of expected year-end inventory levels and costs. Because these calculations are subject to many factors beyond management’s control, annual results may differ from interim results as they are subject to the final year-end LIFO inventory valuation.


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Table of Contents

Note 5 - Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the nine months ended September 30, 2018 were as follows:
 
Mobile
Industries
Process
Industries
Total
Beginning balance
$
254.3

$
257.5

$
511.8

Acquisitions
16.2

448.8

465.0

Divestiture
(5.1
)

(5.1
)
Foreign currency translation adjustments and other changes
(6.2
)
(0.1
)
(6.3
)
Ending balance
$
259.2

$
706.2

$
965.4



The $16.2 million addition from acquisitions for the Mobile Industries segment resulted primarily from the ABC Bearings acquisition goodwill of $19.4 million, partially offset by certain measurement period adjustments of $3.2 million recorded in 2018 for the 2017 acquisitions. In addition, goodwill for the Mobile Industries segment was reduced by $5.1 million as a result of the divestiture of the ICT Business. The Cone Drive and Rollon acquisitions added $448.8 million of goodwill to the Process Industries segment. The Company does not expect the goodwill from the 2018 acquisitions to be tax deductible, but it is still evaluating the tax deductibility of goodwill from the ABC Bearings acquisition. Refer to Note 3 - Acquisitions and Divestitures for further information.

The following table displays intangible assets as of September 30, 2018 and December 31, 2017:
 
Balance at September 30, 2018
Balance at December 31, 2017
 
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Intangible assets
subject to amortization:
 
 
 
 
 
 
Customer relationships
$
503.3

$
119.1

$
384.2

$
324.6

$
103.0

$
221.6

Technology and know-how
254.0

39.3

214.7

128.7

33.8

94.9

Trade names
9.5

4.7

4.8

8.6

4.3

4.3

Capitalized software
262.8

233.9

28.9

261.5

226.5

35.0

Other
9.6

5.9

3.7

10.3

6.2

4.1

 
$
1,039.2

$
402.9

$
636.3

$
733.7

$
373.8

$
359.9

Intangible assets not subject to amortization:
 
 
 
 
 
 
Trade names
$
98.1

 
$
98.1

$
52.0

 
$
52.0

FAA air agency certificates
8.7

 
8.7

8.7

 
8.7

 
$
106.8



$
106.8

$
60.7



$
60.7

Total intangible assets
$
1,146.0

$
402.9

$
743.1

$
794.4

$
373.8

$
420.6



Amortization expense for intangible assets was $32.4 million and $29.2 million for the nine months ended September 30, 2018 and 2017, respectively. Amortization expense for intangible assets is projected to be $44.5 million in 2018; $51.9 million in 2019; $47.7 million in 2020; $44.2 million in 2021; and $40.1 million in 2022.



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Table of Contents

Note 6 - Financing Arrangements
Short-term debt at September 30, 2018 and December 31, 2017 was as follows:
 
September 30,
2018
December 31,
2017
Variable-rate Accounts Receivable Facility with an interest rate of 2.15% at December 31, 2017
$

$
62.9

Borrowings under variable-rate lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 0.33% to 9.45% at September 30, 2018 and 0.32% to 2.22% at December 31, 2017
37.0

42.5

Short-term debt
$
37.0

$
105.4


On September 28, 2018, the Company extended the maturity date of its $100 million Amended and Restated Asset Securitization Agreement (the "Accounts Receivable Facility") to November 30, 2021. Under the terms of the Accounts Receivable Facility, the Company sells, on an ongoing basis, certain domestic trade receivables to Timken Receivables Corporation, a wholly owned consolidated subsidiary that, in turn, uses the trade receivables to secure borrowings that are funded through a vehicle that issues commercial paper in the short-term market. Borrowings under the Accounts Receivable Facility may be limited by certain borrowing base limitations; however, the Accounts Receivable Facility was not reduced by any such borrowing base limitations at September 30, 2018. As of September 30, 2018, there were outstanding borrowings of $93.2 million under the Accounts Receivable Facility, which reduced the availability under this facility to $6.8 million. The cost of this facility, which is the prevailing commercial paper rate plus facility fees, is considered a financing cost and is included in "Interest expense" in the Consolidated Statements of Income.

The lines of credit for certain of the Company’s foreign subsidiaries provide for short-term borrowings up to $284.5 million in the aggregate. Most of these lines of credit are uncommitted. At September 30, 2018, the Company’s foreign subsidiaries had borrowings outstanding of $37.0 million and bank guarantees of $0.5 million, which reduced the aggregate availability under these facilities to $247.0 million.

Long-term debt at September 30, 2018 and December 31, 2017 was as follows:
 
September 30,
2018
December 31,
2017
Fixed-rate Medium-Term Notes, Series A(1), maturing at various dates through May 2028, with interest rates ranging from 6.74% to 7.76%
$
154.6

$
154.5

Fixed-rate Senior Unsecured Notes(1), maturing on September 1, 2024, with an interest rate of 3.875%
347.5

346.9

Variable-rate Senior Credit Facility with a weighted-average interest rate of 2.43% at September 30, 2018 and 1.83% at December 31, 2017
65.2

52.0

Variable-rate Accounts Receivable Facility with an interest rate of 3.05% at September 30, 2018
93.2


Fixed-rate Euro Senior Unsecured Notes(1), maturing on September 7, 2027, with an interest rate of 2.02%
173.4

179.3

Variable-rate Euro Term Loan(1) with an interest rate of 1.13% at September 30, 2018 and December 31, 2017
108.3

119.7

Fixed-rate Senior Unsecured Notes(1), maturing on December 15, 2028, with an interest rate of 4.50%
396.0


Variable-rate Term Loan(1) with an interest rate of 3.38% at September 30, 2018
349.2


Other
5.7

4.5

 
1,693.1

856.9

Less: Current maturities
11.4

2.7

Long-term debt
$
1,681.7

$
854.2


(1) Net of discounts and fees
The Company has a $500 million Amended and Restated Credit Agreement ("Senior Credit Facility"), which matures on June 19, 2020. At September 30, 2018, the Company had $65.2 million of outstanding borrowings under the Senior Credit Facility, which reduced the availability under this facility to $434.8 million. The Senior Credit Facility has two financial covenants: a consolidated leverage ratio and a consolidated interest coverage ratio. At September 30, 2018, the Company was in full compliance with both of these covenants.


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Table of Contents

On September 6, 2018, the Company issued $400 million aggregate principal amount of fixed-rate 4.50% senior unsecured notes that mature on December 15, 2028 (the "2028 Notes"). On September 11, 2018, the Company entered into a $350 million variable-rate term loan that matures on September 11, 2023 (the "2023 Term Loan"). Proceeds from the 2028 Notes and the 2023 Term Loan were used to fund the acquisitions of Cone Drive and Rollon, which closed on September 1, 2018 and September 18, 2018, respectively.

On September 7, 2017, the Company issued 150 million aggregate principal amount of fixed-rate 2.02% senior unsecured notes that mature on September 7, 2027 (the "2027 Notes"). On September 18, 2017, the Company entered into a 100 million variable-rate term loan that matures on September 18, 2020 (the "2020 Term Loan"). On June 14, 2018, the Company repaid 6.5 million under the 2020 Term Loan, reducing the principal balance to 93.5 million as of September 30, 2018. Proceeds from the 2027 Notes and the 2020 Term Loan were used to repay amounts drawn from the Senior Credit Facility to fund the acquisition of Groeneveld, which closed on July 3, 2017.

All of these debt instruments, except the 2028 Notes, have two financial covenants: a consolidated leverage ratio and a consolidated interest coverage ratio. These covenants are similar to those in the Senior Credit Facility. At September 30, 2018, the Company was in full compliance with both of these covenants.

Note 7 - Contingencies
The Company and certain of its subsidiaries have been identified as potentially responsible parties for investigation and remediation under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), known as the Superfund, or similar state laws with respect to certain sites. Claims for investigation and remediation have been asserted against numerous other entities, which are believed to be financially solvent and are expected to fulfill their proportionate share of the obligation.
 
On December 28, 2004, the United States Environmental Protection Agency (“USEPA”) sent Lovejoy, Inc. ("Lovejoy") a Special Notice Letter that identified Lovejoy as a potentially responsible party, together with at least 14 other companies, at the Ellsworth Industrial Park Site, Downers Grove, DuPage County, Illinois (the “Site”). The Company acquired Lovejoy in 2016. Lovejoy’s Downers Grove property is situated within the Ellsworth Industrial Complex. The USEPA and the Illinois Environmental Protection Agency (“IEPA”) allege there have been one or more releases or threatened releases of hazardous substances, allegedly including, but not limited to, a release or threatened release on or from Lovejoy's property, at the Site. The relief sought by the USEPA and IEPA includes further investigation and potential remediation of the Site and reimbursement of response costs. Lovejoy’s allocated share of past and future costs related to the Site, including for investigation and/or remediation, could be significant. All previously pending property damage and personal injury lawsuits against Lovejoy related to the Site have been settled or dismissed.

The Company had total environmental accruals of $5.6 million and $5.0 million for various known environmental matters that are probable and reasonably estimable as of September 30, 2018 and December 31, 2017, respectively, which includes the Lovejoy matter discussed above. These accruals were recorded based upon the best estimate of costs to be incurred in light of the progress made in determining the magnitude of remediation costs, the timing and extent of remedial actions required by governmental authorities and the amount of the Company’s liability in proportion to other responsible parties.
 
In addition, the Company is subject to various lawsuits, claims and proceedings, which arise in the ordinary course of its business. The Company accrues costs associated with legal and non-income tax matters when they become probable and reasonably estimable. Accruals are established based on the estimated undiscounted cash flows to settle the obligations and are not reduced by any potential recoveries from insurance or other indemnification claims. Management believes that any ultimate liability with respect to these actions, in excess of amounts provided, will not materially affect the Company’s Consolidated Financial Statements.

In October 2014, the Brazilian government antitrust agency announced that it had opened an investigation of alleged antitrust violations in the bearing industry. The Company’s Brazilian subsidiary, Timken do Brasil Comercial Importadora Ltda, was included in the investigation. While the Company is unable to predict the ultimate length, scope or results of the investigation, management believes that the outcome will not have a material effect on the Company’s consolidated financial position. However, any such outcome may be material to the results of operations of any particular period in which costs, if any, are recognized. Based on current facts and circumstances, the low end of the range for potential penalties, if any, would be immaterial to the Company.

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Table of Contents

Product Warranties:
In addition to the contingencies above, the Company provides limited warranties on certain of its products. The following table is a rollforward of the warranty liability for the nine months ended September 30, 2018 and the twelve months ended December 31, 2017: 
 
September 30,
2018
December 31,
2017
Beginning balance, January 1
$
5.8

$