The Timken Company

The Timken 
Company

2018 ANNUAL REPORT

OPERATING DATA

Net Sales

Adjusted EBIT*

Adjusted EBIT Margin*

Adjusted Net Income*

Free Cash Flow*

SHAREHOLDER RETURNS

Adjusted EPS*

Dividends

KEY RATIOS

Net Debt to Capital*

Return on Invested Capital*

2018

$  3,580.8 

500.5

14.0%

327.5

219.9

$        4.18

1.11

48.5%

12.8%

2017

$  3,003.8 

329.0

11.0%

207.5

132.1

$        2.63

1.07

36.2%

10.5%

REVENUE
Dollars in Billions

ADJUSTED EARNINGS
PER SHARE*

RETURN ON
INVESTED CAPITAL*

DIVIDENDS 
PER SHARE

$3.58

$3.00

$2.87

$2.67

$4.18

$2.54

$2.63

$2.13

12.8%

11.7%

10.5%

9.6%

$1.03 $1.04 $1.07

$1.11

2015

2016 2017 2018

2015

2016 2017 2018

2015

2016 2017 2018

2015

2016 2017 2018

10-YEAR TOTAL SHAREHOLDER RETURN**  12.8%

* See appendix on last page for reconciliations to the most directly comparable generally accepted accounting principal (GAAP) measures.

** Total shareholder return for the Company was calculated on an annualized basis, assumes quarterly reinvestment of dividends and takes 

into account the value of TimkenSteel Corporation common shares distributed in the spinoff on June 30, 2014. See Item 5 in the Form 10-K 
for more details on total shareholder return.

“Our company has
never been stronger or 
better positioned to 
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and shareholder value 
for years to come.”

Richard G. Kyle
(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:403)(cid:70)(cid:72)(cid:85)

To Our Valued Shareholders: 
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The Timken Company. In 2018, the company
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Our balanced approach to driving growth, margins, 
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shareholder value that endures industrial cycles. 

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(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:24)(cid:28)(cid:3)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:79)(cid:68)(cid:86)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)

From the 2008 industrial peak, our adjusted EPS has
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increased our dividend in May and paid our
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(cid:82)(cid:81)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:72)(cid:86)(cid:87)(cid:16)(cid:85)(cid:88)(cid:81)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)

New York Stock Exchange. Most importantly,

our company has never been stronger or better 
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(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:80)(cid:72)(cid:17)

(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:19)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:21)

and 2018. During that time, Timken has proven to 

be a company that consistently generates returns
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(cid:372)(cid:82)(cid:90)(cid:17)(cid:3)(cid:41)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:83)(cid:76)(cid:81)(cid:82)(cid:73)(cid:73)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:87)(cid:72)(cid:72)(cid:79)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:403)(cid:89)(cid:72)

years ago, our return on invested capital has been
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including 12.8 percent in 2018.

Evolving into a Global Industrial Leader 
Focused on Keeping Industry in Motion
Over the last decade, Timken has evolved into a 
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(cid:82)(cid:73)(cid:3)(cid:72)(cid:81)(cid:74)(cid:76)(cid:81)(cid:72)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:72)(cid:68)(cid:85)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)

products. Anticipating market trends and customer
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The developments we have seen over this last

decade, both inside our company and in our global

markets and technology, have been phenomenal. 

The world is rapidly changing and so are we, but 

two key pillars remain — our commitment to our
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(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:85)(cid:76)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:403)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)

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2018 Annual Report

1

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(cid:69)(cid:69)(cid:69)(cid:69)(cid:69)(cid:69)(cid:69)(cid:69)(cid:69)(cid:69)(cid:69)(cid:88)(cid:88)(cid:88)(cid:88)(cid:88)(cid:87)(cid:87)(cid:87)(cid:87)(cid:87)(cid:87)(cid:87)(cid:87) (cid:87)(cid:87)(cid:87)(cid:87)(cid:87)(cid:87)(cid:90)(cid:90)(cid:90)(cid:90)(cid:90)(cid:90)(cid:90)(cid:82)(cid:82)(cid:82)(cid:82)(cid:82) (cid:78)(cid:78)(cid:78)(cid:78)(cid:78)(cid:78)(cid:78)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:92)(cid:92)(cid:92)(cid:92)(cid:92)(cid:92)(cid:92) (cid:83)(cid:83)(cid:83)(cid:83)(cid:83)(cid:76)(cid:76)(cid:79)(cid:79)(cid:79)(cid:79)(cid:79)(cid:79)(cid:68)(cid:68)(cid:68)(cid:68)(cid:68)(cid:85)(cid:85)(cid:85)(cid:85)(cid:85)(cid:86)(cid:86)(cid:86)(cid:86)(cid:86)(cid:86)(cid:86)(cid:86)(cid:86) (cid:85)(cid:85)(cid:85)(cid:85)(cid:85)(cid:85)(cid:85)(cid:85)(cid:85)(cid:85)(cid:85)(cid:85)(cid:85)(cid:85)(cid:85)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:80)(cid:80)(cid:80)(cid:80)(cid:80)(cid:80)(cid:80)(cid:80)(cid:80)(cid:80)(cid:80)(cid:80)(cid:68)(cid:68)(cid:68)(cid:68)(cid:68)(cid:68)(cid:76)(cid:76)(cid:76)(cid:76)(cid:76)(cid:76)(cid:76)(cid:76)(cid:81)(cid:81)(cid:81)(cid:81)(cid:81)
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ccccuussstttttoooommmeerrss aaannnndddd dddddddddddrrrrrrrrrriivvvvvvviiiiiiinngggggg
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Delivering Next-level Performance 
and Results
Our innovative problem solving and technical sales

investments also grew our global presence in Asia 

and Europe, and have made our business even
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model, our advancements through research and

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development, our industry-leading customer service,

and our capital investments helped us deliver market 

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outgrowth across multiple sectors during the year. 

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Central to our success are our engineering know-how

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and deep customer engagement. Timken remains 
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customer advances in technology, enabling us to 
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These results are above the targets we set two years 
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solutions, while providing the best service and 
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proven value proposition into new markets, channels,

products and geographies.

Moving the World Forward with  
a Sustainable Growth Strategy 
Timken’s vision is to be the world leader in 

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engineered bearings and power transmission

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products, continually improving customer
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growing market sectors such as solar energy,

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logistics and packaging, and automation. These

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2

The Timken Company

 
““OOuuurrr fffooccuuussseeeeeeddddd ssssttttrraaattteeeggggyyyy
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eeeeexxecution — bbbbooootthh sssshort-
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pppooosssiittiiioonneeddd uusss tttttoooo pppprrrrooooooooossssppppppeeeeerr
iiiiiiiiinnnnnnnnnn 22222222220000000001111111119999999 aaannnnndddd bbbbbeeeeeyyyooonnndddddddd.....”””””

Our strategy is to outgrow our markets organically, 

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operate with excellence across the enterprise and 

optimize our capital deployment to create long-term

to capital deployment that creates stakeholder value 
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shareholder value. That strategy is working.

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within, we develop and introduce new products
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customer experiences. Seizing these opportunities 

builds and strengthens our leadership position

in engineered bearings while also growing our 
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around the world. 

Our commitment to lean and continuous

improvement initiatives reduces costs and 
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growth and by pursuing complementary inorganic 
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the year with a strong balance sheet, generate
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on invested capital. All the while, we continued 

to return capital to shareholders through attractive
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Advancing a Strong Investment 
with Enduring Value 
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growth as a company over the past decade. Our 
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structure and being world leaders in operating 
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short- and long-term — have positioned us to prosper 
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products whenever and wherever they need us.

accelerate in the coming years. Still, we have great
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2018 Annual Report

3

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tttttttttttttttttttrrrrrrrraaaaaaaaannnnnnnnnnnnnnnnnnnnnnnnsssssssssssssssssssssssssmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmmiiiiiiiiiiiiiiiiiiiiiiiiiiiissssssssssssssssssssiiiiiiiiiiiiiioooooonnnnnnnnnnnnnnnnnn pppppppppppppppppppprrrrrrrrrrrrrrrrrrrrrrrrrrrrrroooooooooooooooooooooooooooddddddddddddddddddddddddddddddddduuuuuuuuuuuuuuuuuuuuccccccccccccccccccccccccccccccccttttttttttttttttttttttttttssssssssssssssssssss....””””””””””””””””””””””””

market changes and industrial cycles, but to excel in 
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remain an essential ingredient brand inside many 
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growth. Our innovation pipeline is expanding, 

and our know-how in engineered bearings and

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continue to take a balanced approach to pursuing
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power transmission is second to none. Our global
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I want to thank our 17,000 associates across the
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Meanwhile, our commitment to making the world

a better place through our products, services and 
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our business with ethics and integrity and embrace
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attracting, developing and retaining the best talent 
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robust learning and development programs and

the opportunity to contribute to challenging work
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and responsibly. 

continued commitment to our company. Because
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the past decade, and we will build on our success
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Sincerely,

Ri h d G K l
Richard G. Kyle
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4

The Timken Company

From the Chairman

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evolution we set in motion a decade ago. Behind this 
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team committed to achieving excellence.

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(cid:80)(cid:82)(cid:80)(cid:72)(cid:81)(cid:87)(cid:88)(cid:80)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:87)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:71)(cid:82)(cid:88)(cid:86)(cid:3)(cid:87)(cid:85)(cid:88)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)
management team to execute our strategy, strengthen 
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drive long-term growth. As that growth continues, we 
will stay true to Timken’s values and our commitment to 
social responsibility.

(cid:50)(cid:81)(cid:3)(cid:69)(cid:72)(cid:75)(cid:68)(cid:79)(cid:73)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:15)(cid:3)(cid:44)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:79)(cid:76)(cid:78)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)
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trust in our company and its products, and to
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valuable contributions. Additionally, we welcome 
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ABC Bearings, Cone Drive and Rollon. 

Board of Directors

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(cid:70)(cid:82)(cid:81)(cid:403)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:55)(cid:76)(cid:80)(cid:78)(cid:72)(cid:81)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)
(cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:92)(cid:82)(cid:88)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:76)(cid:86)(cid:3)(cid:90)(cid:72)(cid:79)(cid:79)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)
(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:3)(cid:81)(cid:72)(cid:91)(cid:87)(cid:16)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:80)(cid:72)(cid:17)(cid:3)(cid:3)

Sincerely, 

John M. Timken, Jr.
(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:15)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)

John M. Timken, Jr.
(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:15)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)
The Timken Company

Richard G. Kyle
President and 
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The Timken Company

Maria A. Crowe
(cid:53)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)
(cid:48)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)
Eli Lilly and Company

Elizabeth A. Harrell
(cid:53)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:48)(cid:68)(cid:77)(cid:82)(cid:85)(cid:3)(cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)
USAF

John A. Luke, Jr.
Chairman
(cid:58)(cid:72)(cid:86)(cid:87)(cid:53)(cid:82)(cid:70)(cid:78)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)

Christopher L. Mapes
Chairman, President and
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:403)(cid:70)(cid:72)(cid:85)(cid:3)
Lincoln Electric Holdings, Inc.

James F. Palmer
Retired Corporate Vice President
(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:403)(cid:70)(cid:72)(cid:85)(cid:3)
(cid:49)(cid:82)(cid:85)(cid:87)(cid:75)(cid:85)(cid:82)(cid:83)(cid:3)(cid:42)(cid:85)(cid:88)(cid:80)(cid:80)(cid:68)(cid:81)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)

Ajita G. Rajendra
Executive Chairman
A. O. Smith Corporation

Joseph W. Ralston
(cid:53)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:71)(cid:3)(cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:15)(cid:3)(cid:56)(cid:54)(cid:36)(cid:41)(cid:3)
(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:15)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:75)(cid:72)(cid:81)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)

Frank C. Sullivan
Chairman and 
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:403)(cid:70)(cid:72)(cid:85)
RPM International Inc.

Ward J. Timken, Jr.
(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:15)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:403)(cid:70)(cid:72)(cid:85)
and President
TimkenSteel Corporation

Jacqueline F. Woods
Retired President
AT&T Ohio

2018 Annual Report

5

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Company

66666666666666666666666

The Timken Company

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At Timken, we serve a diverse mix of end markets. 

We continue to be a mainstay in the industrial 

and transportation sectors, while expanding our 

presence in areas such as wind and solar energy. 

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The Timken Company (NYSE: TKR; www.timken.com) designs
(cid:68)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:3)(cid:82)(cid:73)(cid:3)(cid:72)(cid:81)(cid:74)(cid:76)(cid:81)(cid:72)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:72)(cid:68)(cid:85)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)
(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:17)(cid:3)(cid:58)(cid:76)(cid:87)(cid:75)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:68)(cid:3)(cid:70)(cid:72)(cid:81)(cid:87)(cid:88)(cid:85)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:78)(cid:81)(cid:82)(cid:90)(cid:79)(cid:72)(cid:71)(cid:74)(cid:72)

and innovation, we continuously improve the reliability and
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(cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:17)(cid:3)(cid:55)(cid:76)(cid:80)(cid:78)(cid:72)(cid:81)(cid:3)(cid:83)(cid:82)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:7)(cid:22)(cid:17)(cid:25)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:86)(cid:3)

(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:20)(cid:26)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:83)(cid:72)(cid:82)(cid:83)(cid:79)(cid:72)(cid:3)(cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:79)(cid:92)(cid:15)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:22)(cid:24)(cid:3)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:85)(cid:76)(cid:72)(cid:86)(cid:17)

Business Segment Sales

Product Offering Sales

(cid:38)(cid:75)(cid:68)(cid:81)(cid:81)(cid:72)(cid:79)(cid:3)(cid:50)(cid:89)(cid:72)(cid:85)(cid:89)(cid:76)(cid:72)(cid:90)

47%

53%

28%

72%

Mobile Industries

Process Industries

Engineered Bearings

Power Transmission Products

44%

56%

Original Equipment 
Manufacturers (OEM)

Distribution / End Users

Sales by Geography
Demand for Timken products and solutions continues

to grow around the globe. We operate where our customers 

need us, from North America to Europe and throughout 

Asia and Latin America.

54%  North America

21%  Europe, Middle East, Africa

18%  (cid:36)(cid:86)(cid:76)(cid:68)(cid:3)(cid:51)(cid:68)(cid:70)(cid:76)(cid:403)(cid:70)

7%  Latin America

2018 Annual Report

7

 
 
 
 
 
 
 
 
Our Strategy

Timken’s strategy is to outgrow our markets, operate with 
excellence and optimize our capital deployment to create 
stakeholder value. Our commitment to our strategy delivered
next-level results in 2018.

Outgrowing 
Our Markets
We continue to 
win with our  
customers and 
outperform 
our competitors. 

Innovating for Growth in Wind Energy
(cid:58)(cid:72)(cid:3)(cid:75)(cid:68)(cid:71)(cid:3)(cid:68)(cid:81)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:79)(cid:79)(cid:72)(cid:81)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:90)(cid:76)(cid:81)(cid:71)(cid:3)(cid:72)(cid:81)(cid:72)(cid:85)(cid:74)(cid:92)(cid:17)(cid:3)(cid:45)(cid:88)(cid:86)(cid:87)(cid:3)(cid:68)(cid:3)(cid:71)(cid:72)(cid:70)(cid:68)(cid:71)(cid:72)(cid:3)(cid:68)(cid:74)(cid:82)(cid:3)(cid:90)(cid:72)(cid:3)(cid:72)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)

(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:81)(cid:82)(cid:90)(cid:3)(cid:76)(cid:87)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:23)(cid:3)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)

(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:86)(cid:75)(cid:76)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:7)(cid:20)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:68)(cid:86)(cid:87)(cid:3)(cid:20)(cid:19)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:3)

(cid:74)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:81)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:53)(cid:72)(cid:70)(cid:82)(cid:74)(cid:81)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:83)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)

(cid:76)(cid:81)(cid:81)(cid:82)(cid:89)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:69)(cid:72)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:73)(cid:72)(cid:85)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:72)(cid:68)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:85)(cid:3)(cid:73)(cid:82)(cid:85)

(cid:87)(cid:75)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:79)(cid:71)(cid:333)(cid:86)(cid:3)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:87)(cid:3)(cid:87)(cid:88)(cid:85)(cid:69)(cid:76)(cid:81)(cid:72)(cid:86)(cid:17)(cid:3)(cid:44)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3)(cid:55)(cid:76)(cid:80)(cid:78)(cid:72)(cid:81)(cid:333)(cid:86)(cid:3)

(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:87)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:86)(cid:75)(cid:68)(cid:73)(cid:87)(cid:3)(cid:69)(cid:72)(cid:68)(cid:85)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:22)(cid:17)(cid:23)(cid:3)(cid:80)(cid:72)(cid:87)(cid:72)(cid:85)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:87)(cid:86)(cid:76)(cid:71)(cid:72)(cid:3)(cid:71)(cid:76)(cid:68)(cid:80)(cid:72)(cid:87)(cid:72)(cid:85)(cid:17)

Expanding Footprint, Portfolio for Engineered Bearings
In 2018, we continued investing both organically and inorganically to broaden
(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:81)(cid:74)(cid:76)(cid:81)(cid:72)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:69)(cid:72)(cid:68)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:81)(cid:82)(cid:89)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:86)(cid:82)(cid:79)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:17)

Our robust spherical roller bearing product line, backed by a strong technical value

proposition and industry-leading customer service, has become a rapidly expanding
(cid:83)(cid:68)(cid:85)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:17)(cid:3)(cid:50)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:76)(cid:81)(cid:82)(cid:85)(cid:74)(cid:68)(cid:81)(cid:76)(cid:70)(cid:3)(cid:73)(cid:85)(cid:82)(cid:81)(cid:87)(cid:15)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:36)(cid:37)(cid:38)(cid:3)(cid:37)(cid:72)(cid:68)(cid:85)(cid:76)(cid:81)(cid:74)(cid:86)

(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3)(cid:73)(cid:82)(cid:82)(cid:87)(cid:83)(cid:85)(cid:76)(cid:81)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:85)(cid:82)(cid:79)(cid:79)(cid:72)(cid:85)(cid:3)(cid:69)(cid:72)(cid:68)(cid:85)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:87)(cid:85)(cid:72)(cid:81)(cid:74)(cid:87)(cid:75)(cid:72)(cid:81)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:70)(cid:72)

(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:44)(cid:81)(cid:71)(cid:76)(cid:68)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:17)(cid:3)(cid:36)(cid:79)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:72)(cid:73)(cid:73)(cid:82)(cid:85)(cid:87)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)

(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:17)(cid:3)

Growing Our Global Presence
(cid:39)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:71)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3)(cid:72)(cid:81)(cid:71)(cid:16)(cid:88)(cid:86)(cid:72)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)

collaboration with nearly 1,000 authorized Timken distributors and expanded 
(cid:82)(cid:88)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:68)(cid:70)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:36)(cid:73)(cid:85)(cid:76)(cid:70)(cid:68)(cid:15)(cid:3)(cid:38)(cid:75)(cid:76)(cid:81)(cid:68)(cid:15)(cid:3)(cid:44)(cid:81)(cid:71)(cid:76)(cid:68)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:47)(cid:68)(cid:87)(cid:76)(cid:81)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:3)(cid:87)(cid:82)(cid:3)

(cid:70)(cid:68)(cid:83)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:68)(cid:71)(cid:71)(cid:72)(cid:71)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:20)(cid:19)(cid:19)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:50)(cid:40)(cid:48)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)

(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:15)(cid:3)(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:86)(cid:3)(cid:90)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:55)(cid:76)(cid:80)(cid:78)(cid:72)(cid:81)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:71)(cid:3)

(cid:76)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:68)(cid:79)(cid:79)(cid:72)(cid:71)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:88)(cid:85)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)

(cid:36)(cid:86)(cid:76)(cid:68)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:71)(cid:89)(cid:68)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:21)(cid:24)(cid:3)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:73)(cid:88)(cid:72)(cid:79)(cid:72)(cid:71)(cid:3)

by growth in wind in China, and heavy truck and rail in India. 

8
8

The Timken Company
The Timken Company

Operating
with Excellence
Our commitment to 
operational excellence 
helps deliver value to 
you, our shareholders,  
as well as our customers.  

Strengthening 
Our Portfolio 
Through M&A 
(cid:54)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:42)(cid:85)(cid:82)(cid:72)(cid:81)(cid:72)(cid:89)(cid:72)(cid:79)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)

(cid:80)(cid:76)(cid:71)(cid:16)(cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:79)(cid:71)(cid:333)(cid:86)(cid:3)

leading automated lubrication 

systems providers, we have 

realized customer synergies

and accelerated product

development to drive 

outgrowth. Timken and 
(cid:42)(cid:85)(cid:82)(cid:72)(cid:81)(cid:72)(cid:89)(cid:72)(cid:79)(cid:71)(cid:3)(cid:86)(cid:68)(cid:79)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)

(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:87)(cid:72)(cid:68)(cid:80)(cid:86)(cid:3)(cid:84)(cid:88)(cid:76)(cid:70)(cid:78)(cid:79)(cid:92)

(cid:77)(cid:82)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:70)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:3)

comprehensive new bearing

and lubrication system 

solutions to our customers. 

And additional investments in
(cid:53)(cid:9)(cid:39)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:71)(cid:3)(cid:42)(cid:85)(cid:82)(cid:72)(cid:81)(cid:72)(cid:89)(cid:72)(cid:79)(cid:71)(cid:333)(cid:86)(cid:3)

(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:79)(cid:85)(cid:72)(cid:68)(cid:71)(cid:92)(cid:3)

(cid:92)(cid:76)(cid:72)(cid:79)(cid:71)(cid:72)(cid:71)(cid:3)(cid:68)(cid:3)(cid:83)(cid:76)(cid:83)(cid:72)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:81)(cid:72)(cid:90)

products ready to take to 
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Delivering World-Class Customer Service
Our robust SAP enterprise resource planning system provides real-time, actionable

intelligence that allows us to anticipate and respond to customer demand across 

our global supply chain. This ensures the right product is available in the right 

place and at the right time, helping our customers manage their operations 
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Driving Improvements in Manufacturing
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(cid:71)(cid:76)(cid:86)(cid:70)(cid:76)(cid:83)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:88)(cid:85)(cid:74)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:72)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:80)(cid:76)(cid:81)(cid:88)(cid:87)(cid:72)(cid:15)(cid:3)(cid:72)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:75)(cid:82)(cid:88)(cid:85)(cid:15)(cid:3)

(cid:72)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:86)(cid:75)(cid:76)(cid:73)(cid:87)(cid:15)(cid:3)(cid:72)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:71)(cid:68)(cid:92)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:88)(cid:83)(cid:79)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:80)(cid:82)(cid:71)(cid:72)(cid:79)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:68)(cid:87)(cid:72)(cid:86)(cid:87)

(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:88)(cid:87)(cid:82)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:85)(cid:76)(cid:89)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:73)(cid:403)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:87)(cid:3)

(cid:82)(cid:88)(cid:85)(cid:3)(cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:41)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:80)(cid:82)(cid:85)(cid:72)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:88)(cid:76)(cid:79)(cid:71)(cid:3)(cid:82)(cid:88)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)

(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:82)(cid:82)(cid:87)(cid:83)(cid:85)(cid:76)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:87)(cid:87)(cid:72)(cid:85)(cid:3)(cid:68)(cid:79)(cid:76)(cid:74)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)

(cid:69)(cid:68)(cid:86)(cid:72)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:70)(cid:79)(cid:82)(cid:86)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:79)(cid:79)(cid:68)(cid:69)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:71)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:17)(cid:3)

Enhancing Digital Capabilities
(cid:36)(cid:70)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:15)(cid:3)(cid:55)(cid:76)(cid:80)(cid:78)(cid:72)(cid:81)(cid:3)(cid:76)(cid:86)(cid:3)(cid:79)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:16)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:71)(cid:89)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)

(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:16)(cid:79)(cid:72)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)

(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:76)(cid:74)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:72)(cid:81)(cid:74)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:72)(cid:81)(cid:75)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:16)(cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:72)(cid:3)(cid:70)(cid:68)(cid:83)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)

distributors and their end-user customers, and leveraging web tools and social
(cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:75)(cid:72)(cid:79)(cid:83)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:86)(cid:82)(cid:79)(cid:89)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:69)(cid:79)(cid:72)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:82)(cid:81)(cid:79)(cid:76)(cid:81)(cid:72)(cid:17)(cid:3)

Through data collection across systems, we will gain customer insights to enhance

loyalty and drive growth.

2018 Annual Report
2018 Annual Report

9

Optimizing Capital Deployment
We take a thoughtful and balanced approach 
to research and development (R&D) and  
capital investments, executing strategic mergers 
and acquisitions (M&A) and returning capital  
to our shareholders. 

Creating Shareholder Value
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maintained a strong balance sheet 
(cid:90)(cid:75)(cid:76)(cid:79)(cid:72)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:7)(cid:19)(cid:17)(cid:27)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)

expenditures and R&D, spending 
(cid:7)(cid:20)(cid:17)(cid:24)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)

(cid:7)(cid:20)(cid:17)(cid:22)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)

dividends and share repurchases.

$0.8B

$1.3B

$1.5B

Capital Expenditures and R&D

Acquisitions

Dividends and Share Repurchases

Growing and Diversifying Through Acquisitions
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aerospace, packaging and logistics, medical and automation. Cone Drive is a

leader in precision drives used in such diverse markets as solar, automation, 
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impressive innovation and will increase shareholder value.  

10
10

The Timken Company
The Timken Company

(cid:48)(cid:68)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:58)(cid:82)(cid:85)(cid:79)(cid:71)
a Better Place

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protecting the environment and promoting opportunities
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Operating Safely and Sustainably
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accident rate was the second-lowest in company history.

Protecting the Planet
In addition to how we operate, we also contribute to sustainability through the
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(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:86)(cid:68)(cid:87)(cid:72)(cid:79)(cid:79)(cid:76)(cid:87)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:81)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:71)(cid:72)(cid:87)(cid:68)(cid:76)(cid:79)(cid:72)(cid:71)(cid:3)(cid:80)(cid:82)(cid:81)(cid:76)(cid:87)(cid:82)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)

(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:70)(cid:72)(cid:68)(cid:81)(cid:86)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:86)(cid:83)(cid:68)(cid:70)(cid:72)(cid:17)(cid:3)(cid:36)(cid:81)(cid:71)(cid:15)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:38)(cid:82)(cid:81)(cid:72)(cid:3)(cid:39)(cid:85)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)

(cid:90)(cid:72)(cid:3)(cid:82)(cid:73)(cid:73)(cid:72)(cid:85)(cid:3)(cid:86)(cid:82)(cid:79)(cid:68)(cid:85)(cid:3)(cid:87)(cid:85)(cid:68)(cid:70)(cid:78)(cid:72)(cid:85)(cid:3)(cid:71)(cid:85)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:72)(cid:81)(cid:75)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:86)(cid:82)(cid:79)(cid:68)(cid:85)(cid:3)(cid:83)(cid:68)(cid:81)(cid:72)(cid:79)(cid:3)(cid:72)(cid:73)(cid:403)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)(cid:17)(cid:3)

Building a Better Tomorrow
(cid:36)(cid:86)(cid:3)(cid:90)(cid:72)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:92)

at Timken, we are committed to staying true

to our values and doing right by our associates,
(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:86)(cid:87)(cid:68)(cid:78)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)

(cid:68)(cid:85)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:88)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:81)(cid:68)(cid:80)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)

(cid:335)(cid:58)(cid:82)(cid:85)(cid:79)(cid:71)(cid:333)(cid:86)(cid:3)(cid:48)(cid:82)(cid:86)(cid:87)(cid:3)(cid:40)(cid:87)(cid:75)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:336)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)

(cid:40)(cid:87)(cid:75)(cid:76)(cid:86)(cid:83)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:44)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:76)(cid:81)(cid:87)(cid:75)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)

we will continue to live up to that standard 

everywhere we do business. 

2018 Annual Report
2018 Annual Report

11

“Ouur commitmentttt ttttttto
(cid:80)(cid:68)(cid:78)(cid:78)(cid:76)(cid:76)(cid:81)(cid:81)(cid:81)(cid:81)(cid:81)(cid:74)(cid:74)(cid:74)(cid:74)(cid:74)(cid:3)(cid:87)(cid:87)(cid:87)(cid:87)(cid:87)(cid:75)(cid:75)(cid:75)(cid:75)(cid:75)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:3)(cid:90)(cid:90)(cid:90)(cid:90)(cid:90)(cid:82)(cid:82)(cid:82)(cid:82)(cid:82)(cid:85)(cid:85)(cid:85)(cid:85)(cid:85)(cid:79)(cid:79)(cid:79)(cid:79)(cid:79)(cid:71)(cid:71)(cid:71)(cid:71)(cid:71)(cid:3)
a bettttteeeeeeerrrrr ppppplllllllaaaaaccccccceeeee thhhhhhrrrrrooooouuuuggggghhhhhhhhh 
(cid:82)(cid:82)(cid:82)(cid:88)(cid:88)(cid:88)(cid:85)(cid:85)(cid:85)(cid:3)(cid:83)(cid:83)(cid:83)(cid:83)(cid:83)(cid:85)(cid:82)(cid:71)(cid:71)(cid:71)(cid:71)(cid:71)(cid:88)(cid:70)(cid:70)(cid:70)(cid:70)(cid:70)(cid:87)(cid:87)(cid:87)(cid:87)(cid:87)(cid:86)(cid:86)(cid:86)(cid:86)(cid:86)(cid:15)(cid:15)(cid:15)(cid:15)(cid:15)(cid:3)
sseerrviccccesssssss aaaaannnnnndddddd aaaaaccccctttttiiooooonnnnnsss  
(cid:90)(cid:90)(cid:90)(cid:90)(cid:90)(cid:90)(cid:90)(cid:90)(cid:90)(cid:76)(cid:76)(cid:76)(cid:76)(cid:76)(cid:76)(cid:76)(cid:76)(cid:76)(cid:76)(cid:79)(cid:79)(cid:79)(cid:79)(cid:79)(cid:79)(cid:79)(cid:79)(cid:79)(cid:79)(cid:79)(cid:3)(cid:81)(cid:81)(cid:81)(cid:81)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:89)(cid:89)(cid:89)(cid:89)(cid:89)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:72)(cid:85)(cid:85)(cid:85)(cid:85)(cid:85)(cid:85)(cid:3)(cid:90)(cid:90)(cid:90)(cid:90)(cid:68)(cid:76)(cid:89)(cid:72)(cid:85)(cid:17)(cid:336)(cid:336)

Executive Leadership Team

Richard G. Kyle
(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:403)(cid:70)(cid:72)(cid:85)

Hans Landin
(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)

Christopher A. Coughlin
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)

Amanda J. Montgomery
Vice President, Human Resources

Philip D. Fracassa
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:403)(cid:70)(cid:72)(cid:85)(cid:3)(cid:3)

Douglas C. Nelson
(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:72)(cid:81)(cid:86)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:37)(cid:72)(cid:81)(cid:72)(cid:403)(cid:87)(cid:86)

Ronald J. Myers
Executive Vice President, Human Resources

Carl D. Rapp
(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)

Richard M. Boyer
Vice President, Operations

Sandra L. Rapp
(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:55)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)

(cid:54)(cid:75)(cid:72)(cid:79)(cid:79)(cid:92)(cid:3)(cid:48)(cid:17)(cid:3)(cid:38)(cid:75)(cid:68)(cid:71)(cid:90)(cid:76)(cid:70)(cid:78)
(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:36)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:50)(cid:73)(cid:403)(cid:70)(cid:72)(cid:85)

Andreas Roellgen
(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:54)(cid:68)(cid:79)(cid:72)(cid:86)(cid:15)(cid:3)(cid:40)(cid:88)(cid:85)(cid:82)(cid:83)(cid:72)(cid:15)(cid:3)(cid:36)(cid:86)(cid:76)(cid:68)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:36)(cid:73)(cid:85)(cid:76)(cid:70)(cid:68)

Michael J. Connors
(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:42)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3)(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)

Brian J. Ruel
Vice President, Sales, Americas

Ajay K. Das
Vice President, Strategy and Business Development

Douglas H. Smith
Vice President, Tapered Roller Bearings

Michael A. Discenza
(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)(cid:38)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:79)(cid:72)(cid:85)

Christopher W. Henson
Vice President, Industrial Bearings 

Peter M. Sproson
Vice President, Sales and
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:40)(cid:88)(cid:85)(cid:82)(cid:83)(cid:72)

12

The Timken Company

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

OR

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

(State or other jurisdiction of

incorporation or organization)

4500 Mt. Pleasant St. NW, North Canton, Ohio

(Address of principal executive offices)

34-0577130

(I.R.S. Employer

Identification No.)

44720-5450

(Zip Code)

234.262.3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Common Shares, without par value

Name of each exchange on which registered

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

    Yes  

    No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange 

Act.    Yes  

    No  

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.   

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  

    No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, 
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

amendment to this Form 10-K.    

 Yes  

    No  

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
    No  

Yes  

As of June 30, 2018, the aggregate market value of the registrant’s common shares held by non-affiliates of the registrant was 
$2,936,783,798 based on the closing sale price as reported on the New York Stock Exchange.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class
Common Shares, without par value

Outstanding at January 31, 2019
75,767,695 shares

DOCUMENTS INCORPORATED BY REFERENCE

Document
Proxy Statement for the Annual Meeting of Shareholders to be held on
or about May 10, 2019 (Proxy Statement)

Parts Into Which Incorporated
Part III

 
 
 
 
 
 
 
 
 
 
 
 
THE TIMKEN COMPANY
INDEX TO FORM 10-K REPORT

Business

Risk Factors

Unresolved Staff Comments

Properties

Legal Proceedings

Mine Safety Disclosures

Executive Officers of the Registrant

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases 
of Equity Securities

Selected Financial Data

Management’s Discussion and Analysis of Financial Condition and Results of Operations

PART I.
Item 1.

Item 1A.

Item 1B.

Item 2.

Item 3.

Item 4.

Item 4A.

PART II.
Item 5.

Item 6.

Item 7.

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

Item 8.

Item 9.

Item 9A.

Item 9B.

Part III.
Item 10.

Item 11.

Item 12.

Item 13.

Item 14.

Part IV.
Item 15.

Financial Statements and Supplementary Data

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Controls and Procedures

Other Information

Directors, Executive Officers and Corporate Governance

Executive Compensation

Security Ownership of Certain Beneficial Owners and Management and Related 
Stockholder Matters

Certain Relationships and Related Transactions, and Director Independence

Principal Accountant Fees and Services

Exhibits and Financial Statement Schedules

PAGE

1

7

13

14

14

14

15

16

18

19

45

46

96

96

99

99

99

99

99

99

100

I.

II.

III.

IV.

 
 
 
PART I.

Item 1. Business

General:

As used herein, the term “Timken” or the “Company” refers to The Timken Company and its subsidiaries unless the 
context  otherwise  requires.  Timken  designs  and  manages  a  growing  portfolio  of  engineered  bearings  and  power 
transmission products and services.  The Company’s growing portfolio features many strong brands, including Timken®, 
Fafnir®, Philadelphia Gear®, Drives®, Cone Drive®, Rollon®, Lovejoy® and Groeneveld®. 

The Company was founded in 1899 by Henry Timken, who received two patents on the design of a tapered roller 
bearing.  Timken  later  became,  and  continues  to  be,  the  world's  largest  manufacturer  of  tapered  roller  bearings, 
leveraging its expertise to develop a full portfolio of industry-leading products and services. Timken built its reputation 
as a global leader by applying its knowledge of metallurgy, friction management and power transmission to increase 
the reliability and efficiency of its customers' equipment across a diverse range of industries. Today, the Company's 
global footprint consists of 118 manufacturing facilities/service centers, 19 technology and engineering centers, and 
53 distribution centers and warehouses, supported by a team comprised of more than 17,000 employees. Timken 
operates in 35 countries around the globe.

Major Customers:

The Company sells products and services to a diverse customer base globally, including customers in the following 
market sectors: industrial distribution, general industrial, mining, construction, agriculture, rail, aerospace and defense, 
automotive, heavy truck, metals and energy. No single customer accounts for 5% or more of total net sales.

Products:

Timken manufactures and manages global supply chains for multiple product lines including engineered bearings and 
power transmission products designed to operate in demanding environments. The Company leverages its technical 
knowledge, research expertise, and production and engineering capabilities across all of its products and end markets 
to deliver high-performance products and services to its customers. Differentiation within these product lines is generally 
based on application engineering, product performance, product quality or customer service.

Engineered Bearings:

The Timken® bearing portfolio features a broad range of engineered bearing products, including tapered, spherical 
and cylindrical roller bearings; thrust and ball bearings; and housed units. Timken is a leading authority on tapered 
roller bearings, and leverages its position by applying engineering know-how and technology across its entire bearing 
portfolio.

A bearing is a mechanical device that reduces friction between moving parts. The purpose of a bearing is to carry a 
load while allowing a machine shaft to rotate freely. The basic elements of the bearing generally include two rings, 
called races; a set of rolling elements that rotate around the bearing raceway; and a cage to separate and guide the 
rolling elements. Bearings come in a number of designs, featuring tapered, spherical, cylindrical or ball rolling elements. 
The various bearing designs accommodate radial and/or thrust loads differently, making certain bearing types better 
suited for specific applications. 

Selection and development of bearings for customer applications and demand for high reliability require sophisticated 
engineering and analytical techniques. High precision tolerances, proprietary internal geometries and quality materials 
provide Timken bearings with high load-carrying capacity, excellent friction-reducing qualities and long service lives. 
The uses for bearings are diverse and can be found in transportation applications that include passenger cars and 
trucks, heavy trucks, helicopters, airplanes and trains. Ranging in size from precision bearings the size of a pencil 
eraser to those roughly three meters in diameter, Timken components also are used in a wide variety of industrial 
applications, including: paper and steel mills, mining, oil and gas extraction and production, agriculture, construction, 
machine tools, gear drives, health and positioning control, wind turbines and food processing.

1

Tapered Roller Bearings. Timken tapered roller bearings can increase power density and can include customized 
geometries, engineered surfaces and specialized sealing solutions. The Company’s tapered roller bearing line comes 
in  thousands  of  combinations  in  single-,  double-  and  four-row  configurations. Tapered  roller  designs  permit  ready 
absorption of both radial and axial load combinations, which makes them particularly well-adapted to reducing friction 
where shafts, gears or wheels are used. 

Spherical and Cylindrical Roller Bearings. Timken also produces spherical and cylindrical roller bearings that are 
used in gear drives, rolling mills and other industrial and infrastructure development applications. These products are 
sold worldwide to original equipment manufacturers ("OEMs") and industrial distributors serving major end-market 
sectors, including construction and mining, natural resources, wind energy, defense, pulp and paper production, rolling 
mills and general industrial goods.

Ball Bearings. Timken radial, angular and precision ball bearings are used by customers in a variety of market sectors, 
including aerospace, agriculture, construction, health, machine tool, the automotive aftermarket and general industries. 
Radial ball bearings are designed to tolerate relatively high-speed operation under a range of load conditions. These 
bearing types consist of an inner and outer ring with a cage containing a complement of precision balls. Angular contact 
ball bearings are designed for a combination of radial and axial loading. Precision ball bearings are manufactured to 
tight tolerances and come in miniature and instrument, thin section and ball screw support designs.

Housed Units. Timken markets among the broadest range of bearing housed units in the industry. These products 
deliver  durable,  heavy-duty  components  designed  to  protect  spherical,  tapered  and  ball  bearings  in  debris-filled, 
contaminated  or  high-moisture  environments.  Common  housed  unit  applications  include  material  handling  and 
processing equipment.

Power Transmission Products:

Linear Motion Products. The Company designs and manufactures a global portfolio of Rollon® engineered linear 
motion products, including linear guides, telescopic rails and linear actuators. These engineered products are highly 
customized to control movements with different variability and complexity based on the application.  Rollon products 
serve a wide range of industries, including passenger rail, aerospace, packaging and logistics, medical and automation.

Gear Drives. The Company’s Philadelphia Gear® line of low- and high-speed gear drive designs are used in large-
scale industrial applications such as crushing and pulverizing equipment, conveyors and pumps, power generation 
and military marine.  These gear drive configurations are custom made to meet user specifications, offering a wide-
array of size, footprint and gear arrangements. Timken also offers Cone Drive® high-torque worm gears, harmonic 
solutions and precision slew drives.  Common applications for Cone Drive products are found in solar, automation, 
aerial platforms and food and beverage industries. 

Lubrication Systems. The Company's Groeneveld® lubrication solutions include a wide variety of automatic lubrication 
delivery devices, oil management systems and safety support systems designed to enhance vehicle and machine 
uptime in on- and off-highway applications. These systems complement the Company's Interlube® line of lubrication 
systems, which are used by the commercial vehicle, mining, and heavy and general industries. Timken also offers 27 
formulations of grease, leveraging its knowledge of tribology and anti-friction bearings to enable smooth equipment 
operation. 

Belts. The Company makes and markets a full line of Timken® and Carlisle® belts used in industrial, commercial and 
consumer applications. The portfolio features more than 20,000 parts designed for demanding applications, which are 
sold to original equipment and aftermarket customers.  These belts are engineered for maximum performance and 
durability,  with  products  available  in  wrap  molded,  raw  edge,  v-ribbed  and  synchronous  belt  designs.  Common 
applications include agriculture, construction, industrial machinery, outdoor power equipment and powersports.

2

Chain. Timken manufactures precision Drives® roller chain, pintle chain, agricultural conveyor chain, engineering class 
chain and oil field roller chain. These highly engineered products are used in a wide range of mobile and industrial 
machinery applications, including agriculture, oil and gas, aggregate and mining, primary metals, forest products and 
other heavy industries. These products also are utilized in the food and beverage and packaged goods sectors, which 
often require high-end, specialty products, including stainless-steel and corrosion-resistant roller chain.

Couplings. The Company offers a full range of industrial couplings within its power transmission products portfolio. 
The Lovejoy brand is widely known for its flexible coupling design and as the creator of the jaw-style coupling. Lovejoy® 
couplings  are  available  in  curved  jaw,  jaw  in-shear,  s-flex,  gear-torsional  and  disc  style  configurations.  These 
components are used in a wide range of industries such as steel, pulp and paper, power generation, food processing, 
mining and construction. The Company also offers an extensive line of torsional couplings offered under the Torsion 
Control Products brand.

Aerospace Drive Systems. The Company's portfolio of parts, systems and services for the aerospace market sector 
includes products used in helicopters for military and commercial use.  Timken designs, manufactures and tests a wide 
variety of power transmission and drive train components, including transmissions, gears and rotor-head assemblies 
and  housings. In  addition  to  original  equipment,  Timken  provides  aftermarket  overhaul  and  repair  services  for 
transmissions, gearboxes and other components.

Industrial Clutches and Brakes. Timken offers a selection of engineered clutches, brakes, hydraulic power take-off 
units and other torque management devices marketed under the PT Tech brand. These products are custom engineered 
for original equipment manufacturers and used in mining, aggregate, wood recycling and metals industries.

Other Products. The Company also offers a full line of seals, augers and other power transmission components. 
Timken industrial sealing solutions come in a variety of types and material options that are used in manufacturing, food 
processing, mining, power generation, chemical processing, primary metals, pulp and paper, and oil and gas industry 
applications. The  Company  also  designs  and  manufactures  Drives®  helicoid  and  sectional  augers  for  agricultural 
applications, like conveying, digging and combines. 

Services:

Power Systems. Timken services components in the industrial customer's drive train, including switch gears, electric 
motors and generators, gearboxes, bearings, couplings and central panels. The Company’s Philadelphia Gear services 
for  gear  drive  applications  include  onsite  technical  services;  inspection,  repair  and  upgrade  capabilities;  and 
manufacturing of parts to OEM specifications. In addition, the Company’s Wazee, Smith Services, Schulz, Standard 
Machine and H&N service centers provide customers with services that include motor and generator rewind and repair 
and uptower wind turbine maintenance and repair. Timken Power Systems commonly serves customers in the power, 
wind energy, hydro and fossil fuel, water management, paper, mining and general manufacturing sectors.

Bearing  Repair.  Timken  bearing  repair  services  return  worn  bearings  to  like-new  specifications,  which  increases 
bearing  service  life  and  often  can  restore  bearings  in  less  time  than  required  to  manufacture  new.  Bearing 
remanufacturing is available for any bearing type or brand - including competitor products - and is well-suited to heavy 
industrial applications such as paper, metals, mining, power generation and cement; railroad locomotives, passenger 
cars and freight cars; and aerospace engines and gearboxes.

Services accounted for approximately 5% of the Company’s net sales for the year ended December 31, 2018.

3

Sales and Distribution:

Timken products are sold principally by its internal sales organizations. A portion of each segment's sales are made 
through authorized distributors. 

Customer collaboration is central to the Company's sales strategy. Therefore, Timken goes where its customers need 
us, with sales engineers primarily working in close proximity to customers rather than at production sites. In some 
cases, Timken may co-locate with a customer at its facility to ensure optimized collaboration. The Company's sales 
force continuously updates the team's training and knowledge regarding all friction management products and market 
sector trends, and Timken employees assist customers during development and implementation phases and provide 
ongoing service and support.

The Company has a joint venture in North America focused on joint logistics and e-business services. This joint venture, 
CoLinx, LLC, includes five equity members: Timken, SKF Group, Schaeffler Group, ABB Group and Gates Industrial 
Corp. The e-business service focuses on information and business services for authorized distributors in the Process 
Industries segment.

Timken has entered into individually negotiated contracts with some of its customers. These contracts may extend for 
one or more years and, if a price is fixed for any period extending beyond current shipments, customarily include a 
commitment by the customer to purchase a designated percentage of its requirements from Timken. Timken does not 
believe that there is any significant loss of earnings risk associated with any given contract.

Competition:

The anti-friction bearing business is highly competitive in every country where Timken sells products. Timken primarily 
competes based on total value, including price, quality, timeliness of delivery, product design and the ability to provide 
engineering support and service on a global basis. The Company competes with domestic manufacturers and many 
foreign  manufacturers  of  anti-friction  bearings,  including  SKF  Group,  Schaeffler  Group,  NTN  Corporation,  JTEKT 
Corporation and NSK Ltd.

Joint Ventures:

Investments in affiliated companies accounted for under the equity method were approximately $2.3 million and $2.5 
million, respectively, at December 31, 2018 and 2017. The investment balance at December 31, 2018 was reported 
in other non-current assets on the Consolidated Balance Sheets. 

Backlog:

The  following  table  provides  the  backlog  of  orders  for  the  Company's  domestic  and  overseas  operations  at 
December 31, 2018 and 2017: 

(Dollars in millions)
Segment:
Mobile Industries
Process Industries
Total Company

December 31,

2018

2017

$

$

955.0 $

699.3

882.3

588.3

1,654.3 $

1,470.6

Approximately 90% of the Company’s backlog at December 31, 2018 is scheduled for delivery in the succeeding 12 
months. Actual shipments depend upon customers' ever-changing production schedules. Accordingly, Timken does 
not believe that its backlog data and comparisons thereof, as of different dates, reliably indicate future sales or shipments.

4

Raw Materials:

The principal raw materials used by the Company to make engineered bearings are special bar quality ("SBQ") steel 
and steel components. SBQ steel and steel components are produced around the world by various suppliers. SBQ 
steel is purchased in bar, tube and wire forms, while steel components are commonly purchased as forgings, semi-
finished or finished components. The primary inputs to SBQ steel include scrap metal, iron ore, alloys, energy and 
labor. The availability and price of SBQ steel are subject to changes in supply and demand, commodity prices for 
ferrous scrap, ore, alloy, electricity, natural gas, transportation fuel, and labor costs. The Company manages price 
variability of commodities by using surcharge mechanisms on some of its contracts with its customers that provides 
for partial recovery of these cost increases in the price of bearing products.

The availability of bearing-quality tubing is relatively limited, and the Company has taken steps to limit its exposure to 
this particular form of SBQ steel. Overall, the Company believes that the number of suppliers of SBQ steel is adequate 
to support the needs of global bearing production, and, in general, the Company is not dependent on any single source 
of supply.

Research:

Timken operates a network of technology and engineering centers to support its global customers with sites in North 
America, Europe and Asia. This network develops and delivers innovative friction management and power transmission 
solutions and technical services. Timken's largest technical center is located at the Company's world headquarters in 
North  Canton,  Ohio.  Other  sites  in  the  United  States  include  Los Alamitos,  California;  Manchester,  Connecticut; 
Downer's Grove and Fulton, Illinois; Rochester Hills and Traverse City, Michigan; Springfield, Missouri; Keene and 
Lebanon, New Hampshire; and King of Prussia, Pennsylvania. Within Europe, the Company has technology facilities 
in Plymouth, England; Colmar, France; Werdohl, Germany; Valmadrera, Italy; Gorinchem, Netherlands; and Ploiesti, 
Romania. In Asia, Timken operates technology and engineering facilities in Bangalore, India and Shanghai, China.

Expenditures for research and development amounted to approximately $37.3 million, $35.3 million and $31.8 million
in 2018, 2017 and 2016, respectively. No amounts were funded by others in 2018, 2017 and 2016. 

Environmental Matters:

The  Company  continues  its  efforts  to  protect  the  environment  and  comply  with  environmental  protection  laws. 
Additionally, it has invested in pollution control equipment and updated plant operational practices. The Company is 
committed to implementing a documented environmental management system worldwide and to becoming certified 
under the ISO 14001 standard where appropriate to meet or exceed customer requirements. As of the end of 2018, 
18 of the Company’s plants had obtained ISO 14001 certification.

The Company establishes appropriate levels of reserves to cover its environmental expenses and has a well-established 
environmental compliance audit program for its domestic and international units. This program measures performance 
against applicable laws, as well as against internal standards that have been established for all units worldwide. It is 
difficult to assess the possible effect of compliance with future requirements that differ from existing requirements.

The Company and certain of its United States ("U.S.") subsidiaries previously have been and could in the future be 
identified as potentially responsible parties for investigation and remediation at off-site disposal or recycling facilities 
under  the  Comprehensive  Environmental  Response,  Compensation  and  Liability Act  ("CERCLA"),  known  as  the 
Superfund, or state laws similar to CERCLA. In general, such claims for investigation and remediation also have been 
asserted against numerous other entities.

Management believes any ultimate liability with respect to pending actions will not materially affect the Company’s 
operations, cash flows or consolidated financial position. The Company also is conducting environmental investigation 
and/or remediation activities at certain current or former operating sites. The costs of such investigation and remediation 
activities, in the aggregate, are not expected to be material to the operations or financial position of the Company.

New laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown 
contamination or the imposition of new clean-up requirements may require Timken to incur costs or become the basis 
for new or increased liabilities that could have a materially adverse effect on the Company's business, financial condition 
or results of operations.

5

 
Patents, Trademarks and Licenses:

Timken owns numerous U.S. and foreign patents, trademarks and licenses relating to certain products. While Timken 
regards  these  as  important,  it  does  not  deem  its  business  as  a  whole,  or  any  industry  segment,  to  be  materially 
dependent upon any one item or group of items.

Employment:

At December 31, 2018, Timken had more than 17,000 employees worldwide. Approximately 7.6% of Timken’s U.S. 
employees are covered under collective bargaining agreements.

Available Information:

The Company uses its Investor Relations website at http://investors.timken.com, as a channel for routine distribution 
of important information, including news releases, analyst presentations and financial information. The Company posts 
filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and 
Exchange Commission (the "SEC"), including its annual, quarterly and current reports on Forms 10-K, 10-Q and 8-K; 
its proxy statements; and any amendments to those reports or statements. All such postings and filings are available 
on the Company’s website free of charge. In addition, this website allows investors and other interested persons to 
sign up to automatically receive e-mail alerts when the Company posts news releases and financial information on the 
Company’s website. The SEC also maintains a website, www.sec.gov, which contains reports, proxy and information 
statements and other information regarding issuers that file electronically with the SEC. The content on any website 
referred to in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report unless expressly 
noted.

6

Item 1A. Risk Factors

The following are certain risk factors that could affect our business, financial condition and results of operations. The 
risks that are described below are not the only ones that we face. These risk factors should be considered in connection 
with evaluating forward-looking statements contained in this Annual Report on Form 10-K because these factors could 
cause our actual results and financial condition to differ materially from those projected in forward-looking statements. 
If any of the following risks actually occur, our business, financial condition or results of operations could be negatively 
affected. 

Risk Relating to our Business

The bearing industry is highly competitive, and this competition results in significant pricing pressure for our 
products that could affect our revenues and profitability. 

The  global  bearing  industry  is  highly  competitive.  We  compete  with  domestic  manufacturers  and  many  foreign 
manufacturers of anti-friction bearings, including SKF Group, Schaeffler Group, NTN Corporation, JTEKT Corporation 
and NSK Ltd., and an increasing number of emerging market competitors. Due to competitiveness within the bearing 
industry, we may not be able to increase prices for our products to cover increases in our costs or to achieve desired 
profitability. In many cases we face pressure from our customers to reduce prices, which could adversely affect our 
revenues and profitability. In addition, our customers may choose to purchase products from one of our competitors 
rather than pay the prices we seek for our products, which could adversely affect our revenues and profitability. 

Our business is capital intensive, and if there are downturns in the industries that we serve, we may be forced 
to  significantly  curtail  or  suspend  operations  with  respect  to  those  industries,  which  could  result  in  our 
recording asset impairment charges, restructuring charges or taking other measures that may adversely affect 
our results of operations and profitability. 

Our business operations are capital intensive, and we devote a significant amount of capital to certain industries. Our 
profitability is dependent on factors such as labor compensation and productivity and inventory management, which 
are subject to risks that we may not be able to control. If there are downturns in the industries that we serve, we may 
be  forced  to  significantly  curtail  or  suspend  our  operations  with  respect  to  those  industries,  including  laying-off 
employees, reducing production, recording asset impairment charges and other measures, which may adversely affect 
our results of operations and profitability. We have taken approximately $159 million in impairment and restructuring 
charges in the aggregate during the last five years. Changes in business or economic conditions, or our business 
strategy, may result in additional restructuring programs and may require us to take additional charges in the future, 
which could have a material adverse effect on our earnings.

Weakness in global economic conditions or in any of the industries or geographic regions in which we or our 
customers  operate,  as  well  as  the  cyclical  nature  of  our  customers'  businesses  generally  or  sustained 
uncertainty in financial markets, could adversely impact our revenues and profitability by reducing demand 
and margins. 

There has been significant volatility in the capital markets and in the end markets and geographic regions in which we 
and our customers operate, which has negatively affected our revenues. Our revenues also may be negatively affected 
by changes in customer demand, changes in the product mix and negative pricing pressure in the industries in which 
we operate. Margins in those industries are highly sensitive to demand cycles, and our customers in those industries 
historically  have  tended  to  delay  large  capital  projects,  including  expensive  maintenance  and  upgrades,  during 
economic downturns. As a result, our revenues and earnings are impacted by overall levels of industrial production. 

7

Our results of operations may be materially affected by conditions in global financial markets or in any of the 
geographic regions in which we, our customers, or our suppliers operate. If an end user cannot obtain financing 
to purchase our products, either directly or indirectly contained in machinery or equipment, demand for our 
products will be reduced, which could have a material adverse effect on our financial condition and earnings. 

Global  financial  markets  have  experienced  volatility  in  recent  years,  including  volatility  in  securities  prices  and 
diminished liquidity and credit availability. Our access to the financial markets cannot be assured and is dependent 
on, among other things, market conditions and company performance. Accordingly, we may be forced to delay raising 
capital, issue shorter tenors than we prefer or pay unattractive interest rates, which could increase our interest expense, 
decrease our profitability and significantly reduce our financial flexibility.

If a customer becomes insolvent or files for bankruptcy, our ability to recover accounts receivable from that customer 
would be affected adversely and any payment we received during the preference period prior to a bankruptcy filing 
potentially may be recoverable by the bankruptcy estate. Furthermore, if certain of our customers liquidate in bankruptcy, 
we may incur impairment charges relating to obsolete inventory and machinery and equipment. 

In  addition,  financial  instability  of  certain  companies  in  the  supply  chain  could  disrupt  production  in  any  particular 
industry. A disruption of production in any of the industries where we participate could have a material adverse effect 
on our financial condition and earnings. If any of our suppliers are unable or unwilling to provide the products or services 
that we require or materially increase their costs, our ability to offer and deliver our products on a timely and profitable 
basis could be impaired. We cannot assure you that any or all of our relationships will not be terminated or that such 
relationships  will  continue  as  presently  in  effect.  Furthermore,  if  any  of  our  suppliers  were  to  become  subject  to 
bankruptcy, receivership or similar proceedings, we may be unable to arrange for alternate or replacement relationships 
on favorable terms, which could harm our sales and operating results.

Our level of debt and financial covenants could limit our ability to invest in our business.

Due to our current level of debt, we may have less cash flow available for our business operations, capital expenditures, 
and strategic transactions and our ability to service our debt obligations or to obtain future financing could be negatively 
impacted by general adverse economic and industry conditions and interest rate trends. 

Any change in raw material prices or the availability or cost of raw materials could adversely affect our results 
of operations and profit margins.

We require substantial amounts of raw materials, including steel, to operate our business.  Our supply of raw materials 
could be interrupted for a variety of reasons, including availability and pricing.  Prices for raw materials necessary for 
production have fluctuated significantly in the past and could do so in the future.  We generally attempt to manage 
these fluctuations by passing along increased raw material prices to our customers in the form of price increases or 
surcharges; however, we may be unable to increase the price of our products due to pricing pressure, contract terms 
or other factors, which could adversely impact our revenue and profit margins.  

Moreover, future disruptions in the supply of our raw materials could impair our ability to manufacture our products for 
our customers or require us to pay higher prices in order to obtain these raw materials from other sources. Any significant 
increase in the prices for such raw materials could adversely affect our results of operations and profit margins.

8

 
Warranty, recall, quality or product liability claims could materially adversely affect our earnings. 

In our business, we are exposed to warranty and product liability claims. In addition, we may be required to participate 
in the recall of a product. If we fail to meet customer specifications for their products, we may be subject to product 
quality costs and claims. A successful warranty or product liability claim against us, or a requirement that we participate 
in a product recall, could have a material adverse effect on our earnings. 

Environmental  health  and  safety  laws  and  regulations  impose  substantial  costs  and  limitations  on  our 
operations and compliance may be more costly than we expect. 

We are subject to the risk of substantial environmental liability and limitations on our operations due to environmental 
laws and regulations. We are subject to extensive federal, state, local and foreign environmental, health and safety 
laws and regulations concerning matters such as air emissions, wastewater discharges, solid and hazardous waste 
handling  and  disposal  and  the  investigation  and  remediation  of  contamination. The  risks  of  substantial  costs  and 
liabilities related to compliance with these laws and regulations are an inherent part of our business, and future conditions 
may develop, arise or be discovered that create substantial environmental compliance or remediation liabilities and 
costs. 

Compliance  with  environmental,  health  and  safety  legislation  and  regulatory  requirements  may  prove  to  be  more 
limiting and costly than we anticipate. To date, we have committed significant expenditures in our efforts to achieve 
and maintain compliance with these requirements at our facilities, and we expect that we will continue to make significant 
expenditures related to such compliance in the future. From time to time, we may be subject to legal proceedings 
brought by private parties or governmental authorities with respect to environmental matters, including matters involving 
alleged noncompliance with or liability arising from environmental, health and safety laws, property damage or personal 
injury. New laws and regulations, including those that may relate to emissions of greenhouse gases, stricter enforcement 
of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-
up requirements could require us to incur costs or become the basis for new or increased liabilities that could have a 
material adverse effect on our business, financial condition or results of operations.

The Company may be subject to risks relating to its information technology systems, including the risk of 
security breaches.

The Company relies on information technology systems to manage and operate its business and to process, transmit 
and store sensitive and confidential data, including its intellectual property and other proprietary business information 
and that of its customers and suppliers. Despite security measures taken by the Company, the Company’s information 
technology systems may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other 
disruptions.  Any such breach in security could expose the Company and its employees, customers and suppliers to 
risks of misuse of confidential information, manipulation and destruction of data, production downtimes, litigation and 
operational disruptions, which in turn could adversely affect the Company's reputation, competitive position, business 
or results of operations. 

9

The global nature of our business exposes us to foreign currency fluctuations that may affect our asset values, 
results of operations and competitiveness. 

We are exposed to the risks of currency exchange rate fluctuations because a significant portion of our net sales, 
costs, assets and liabilities, are denominated in currencies other than the U.S. dollar. These risks include a reduction 
in our asset values, net sales, operating income and competitiveness. 

For those countries outside the United States where we have significant sales, a strengthening in the U.S. dollar or 
devaluation  in  the  local  currency  would  reduce  the  value  of  our  local  inventory  as  presented  in  our  Consolidated 
Financial Statements. In addition, a stronger U.S. dollar or a weaker local currency would result in reduced revenue, 
operating profit and shareholders' equity due to the impact of foreign exchange translation on our Consolidated Financial 
Statements. Fluctuations in foreign currency exchange rates may make our products more expensive for others to 
purchase or increase our operating costs, affecting our competitiveness and our profitability. 

Changes in exchange rates between the U.S. dollar and other currencies and volatile economic, political and market 
conditions in emerging market countries have in the past adversely affected our financial performance and may in the 
future adversely affect the value of our assets located outside the United States, our gross profit and our results of 
operations. 

Global political instability and other risks of international operations may adversely affect our operating costs, 
revenues and the price of our products. 

Our international operations expose us to risks not present in a purely domestic business, including primarily:

• 

• 
• 
• 
• 

• 

• 
• 

changes in international treaties or trade unions (e.g., the UK's potential withdrawal from the European Union, 
commonly referred to as "Brexit"), which may make our products or our customers' products more costly to 
export or import;
changes in tariff regulations, which may make our products more costly to export or import;
difficulties establishing and maintaining relationships with local OEMs, distributors and dealers; 
import and export licensing requirements; 
compliance  with  a  variety  of  foreign  laws  and  regulations,  including  unexpected  changes  in  taxation  and 
environmental or other regulatory requirements, which could increase our operating and other expenses and 
limit our operations; 
disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, 
including the Foreign Corrupt Practices Act ("FCPA");
difficulty in staffing and managing geographically diverse operations; and
tax exposures related to cross-border intercompany transfer pricing and other tax risks unique to international 
operations.

These and other risks also may increase the relative price of our products compared to those manufactured in other 
countries, reducing the demand for our products in the markets in which we operate, which could have a material 
adverse effect on our revenues and earnings. 

10

 
Changes  in  U.S.  trade  policy,  including  the  imposition  of  tariffs  and  the  resulting  consequences,  could 
adversely impact our revenue and profit margins.

The U.S. government has indicated an intent to renegotiate, or potentially terminate, certain existing bilateral or multi-
lateral trade agreements. It has also initiated the imposition of tariffs on certain foreign goods, including steel and other 
raw materials. Changes in U.S. trade policy have resulted in, and could further result in, U.S. trading partners adopting 
responsive trade policies that make it more difficult or costly for us to export our products to those countries. These 
measures have resulted in increased costs for goods imported into the U.S. If we are unable to increase the price of 
our products or otherwise mitigate these increased costs, it could adversely impact our revenue and profit margins. 

Expenses and contributions related to our defined benefit plans are affected by factors outside our control, 
including the performance of plan assets, interest rates, actuarial data and experience, and changes in laws 
and regulations, all of which could impact our funded status. 

Our future expense and funding obligations for defined benefit pension plans depend upon a number of factors, including 
the level of benefits provided for by the plans, the future performance of assets set aside in trusts for these plans, the 
level of interest rates used to determine the discount rate to calculate the amount of liabilities, actuarial data and 
experience, and any changes in government laws and regulations. In addition, if the various investments held by our 
pension trusts do not perform as expected or the liabilities increase as a result of discount rate changes and other 
actuarial changes, our pension expense and required contributions would increase and, as a result, could materially 
adversely affect our business or require us to record charges that could be significant and would cause a reduction in 
our shareholders' equity. We may be required legally to make contributions to the pension plans in the future in excess 
of our current expectations, and those contributions could be material.

Future actions involving our defined benefit and other postretirement plans, such as annuity purchases, lump-
sum  payouts,  and/or  plan  terminations  could  cause  us  to  incur  significant  pension  and  postretirement 
settlement and curtailment charges, and require cash contributions. 

We have purchased annuities and offered lump-sum payouts to defined benefit plan and other postretirement plan 
participants and retirees in the past. If we were to take similar actions in the future, we could incur significant pension 
settlement and curtailment charges related to the reduction in pension and postretirement obligations from annuity 
purchases, lump-sum payouts of benefits to plan participants, and/or plan terminations. Pursuing these types of actions 
could require us to make additional contributions to the defined benefit plans to maintain a legally required funded 
status. 

Work stoppages or similar difficulties could significantly disrupt our operations, reduce our revenues and 
materially affect our earnings. 

A work stoppage at one or more of our facilities, or at facilities of one or more of our suppliers, could have a material 
adverse effect on our business, financial condition and results of operations. Also, if one or more of our customers 
were to experience a work stoppage, that customer likely would halt or limit purchases of our products, which could 
have a material adverse effect on our business, financial condition and results of operations. 

11

 
We are subject to a wide variety of domestic and foreign laws and regulations that could adversely affect our 
results of operations, cash flow or financial condition. 

We are subject to a wide variety of domestic and foreign laws and regulations, and legal compliance risks, including 
securities laws, tax laws, employment and pension-related laws, data privacy regulations (including those under the 
European Union General Data Protection Regulation), competition laws, U.S. and foreign export and trade laws, and 
laws  governing  improper  business  practices.  We  are  affected  by  both  new  laws  and  regulations,  and  changes  to 
existing  laws  and  regulations  which  may  continue  to  evolve  through  interpretations  by  courts  and  regulators. 
Furthermore,  the  laws  and  regulations  to  which  we  are  subject  may  differ  from  jurisdiction  to  jurisdiction,  further 
increasing the cost of compliance, and the risk of noncompliance.

In addition, we could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws as well 
as export controls and economic sanction laws. The FCPA and similar anti-bribery laws in other jurisdictions generally 
prohibit companies and their intermediaries from making improper payments to non-U.S government officials for the 
purpose of obtaining or retaining business. Recently, there has been a substantial increase in the global enforcement 
of anti-corruption laws. We operate in many parts of the world that have experienced governmental corruption to some 
degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and 
practices. Our policies mandate compliance with these laws, but we cannot assure you that our internal controls and 
procedures will always protect us from the improper acts committed by our employees or agents. If we are found to 
be liable for FCPA, export control or sanction violations, we could suffer from criminal or civil penalties or other sanctions, 
including loss of export privileges or authorization needed to conduct aspects of our international business, which 
could have a material adverse effect on our business.

Compliance with the laws and regulations described above or with other applicable foreign, federal, state, and local 
laws  and  regulations  currently  in  effect  or  that  may  be  adopted  in  the  future  could  materially  adversely  affect  our 
competitive position, operating results, financial condition and liquidity. 

If we are unable to attract and retain key personnel, our business could be materially adversely affected. 

Our  business  substantially  depends  on  the  continued  service  of  key  members  of  our  management  and  other  key 
employees. The loss of the services of a significant number of members of our management or other key employees 
could have a material adverse effect on our business. Our future success also will depend on our ability to attract and 
retain  highly  skilled  personnel,  such  as  engineering,  finance,  marketing  and  senior  management  professionals. 
Competition for these types of employees is intense, and we could experience difficulty from time to time in hiring and 
retaining the personnel necessary to support our business. If we do not succeed in retaining our current employees 
and attracting new high quality employees, our business could be materially adversely affected. 

We may not realize the improved operating results that we anticipate from past and future acquisitions and 
we may experience difficulties in integrating acquired businesses. 

We  seek  to  grow,  in  part,  through  strategic  acquisitions,  joint  ventures  and  other  alliances,  which  are  intended  to 
complement  or  expand  our  businesses,  and  expect  to  continue  to  do  so  in  the  future. These  acquisitions  involve 
challenges and risks. In the event that we do not successfully integrate these acquisitions into our existing operations 
so as to realize the expected return on our investment, our results of operations, cash flow or financial condition could 
be adversely affected. 

12

Our operating results depend in part on continued successful research, development and marketing of new 
and/or improved products and services, and there can be no assurance that we will continue to successfully 
introduce new products and services. 

The success of new and improved products and services depends on their initial and continued acceptance by our 
customers. Our businesses are affected, to varying degrees, by technological change and corresponding shifts in 
customer demand, which could result in unpredictable product transitions or shortened life cycles, especially as it 
relates to market and technological changes driven by electrification, climate change requirements, the continued 
rising importance of e-commerce or increased digitization. We may experience difficulties or delays in the research, 
development, production, or marketing of new products and services that may prevent us from recouping or realizing 
a return on the investments required to bring new products and services to market. The end result could have a negative 
impact on our operating results.

If our internal controls are found to be ineffective, our financial results or our stock price may be adversely 
affected. 

Our most recent evaluation resulted in our conclusion that, as of December 31, 2018, our internal control over financial 
reporting was effective. We believe that we currently have adequate internal control procedures in place for future 
periods,  including  processes  related  to  newly  acquired  businesses;  however,  increased  risk  of  internal  control 
breakdowns generally exists in a business environment that is decentralized. In addition, if our internal control over 
financial reporting is found to be ineffective, investors may lose confidence in the reliability of our financial statements, 
which may adversely affect our stock price.

Changes in accounting guidance could have an adverse effect on our results of operations, as reported in 
our financial statements.

Our consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles 
("U.S. GAAP"), which is periodically revised and/or expanded.  Accordingly, from time to time we are required to adopt 
new or revised accounting guidance and related interpretations issued by recognized authoritative bodies, including 
the Financial Accounting Standards Board ("FASB") and the SEC.  The impact of accounting pronouncements that 
have been issued but not yet implemented is disclosed in this Annual Report on Form 10-K and our Quarterly Reports 
on Form 10-Q.  It is possible that future accounting guidance we are required to adopt, or future changes in accounting 
principles, could change the current accounting treatment that we apply to our consolidated financial statements and 
that such changes could have an adverse effect on our results of operations, as reported in our consolidated financial 
statements.

Certain members of our Board of Directors and management may have actual or potential conflicts of interest 
because of their ownership of shares of TimkenSteel Corporation ("TimkenSteel") or their relationships with 
TimkenSteel following the spinoff of TimkenSteel into an independent publicly traded company on June 30, 
2014 (the "Spinoff").

Certain members of our Board of Directors and management own shares of TimkenSteel and/or options to purchase 
shares of TimkenSteel, which could create, or appear to create, potential conflicts of interest when our directors and 
executive officers are faced with decisions that could have different implications for us and TimkenSteel. One of our 
directors, Ward J. Timken, Jr., is also Chairman, President and Chief Executive Officer of TimkenSteel. This may create, 
or  appear  to  create,  potential  conflicts  of  interest  if  Mr.  Timken  is  faced  with  decisions  that  could  have  different 
implications for TimkenSteel than the decisions have for us.

Item 1B. Unresolved Staff Comments

None.

13

 
Item 2. Properties

Timken has manufacturing facilities at multiple locations in the United States and in a number of countries outside the 
United States. The aggregate floor area of these facilities worldwide is approximately 11.8 million square feet, all of 
which, except for approximately 2.8 million square feet, is owned in fee. The facilities not owned in fee are leased. The 
buildings occupied by Timken are principally made of brick, steel, reinforced concrete and concrete block construction. 
The Company believes all buildings are in satisfactory operating condition to conduct business.

Timken’s Mobile Industries segment's manufacturing facilities and service centers in the United States are located in 
Los  Alamitos,  California;  Manchester,  Connecticut;  Carlyle,  Illinois;  Lenexa,  Kansas;  Keene  and  Lebanon,  New 
Hampshire; Iron Station, North Carolina; Bucyrus, Canton, New Philadelphia and Sharon Center, Ohio; Gaffney and 
Honea Path, South Carolina; Knoxville, Tennessee; and Ogden, Utah. These facilities, including warehouses at plant 
locations and a technology center and wind center in North Canton, Ohio, have an aggregate floor area of approximately 
3.1 million square feet.

Timken’s Mobile Industries segment’s manufacturing plants and service centers outside the United States are located 
in Belo Horizonte and Rio Clara, Brazil; Yantai, China; Cheltenham, Northampton and Plymouth, England; Colmar, 
France; Bharuch and Jamshedpur, India; Karmiel, Israel; Cassago, Valmadrea and Villa Carcina, Italy; Sosnowiec, 
Poland; Tikhvin, Russia and Gauteng, South Africa. These facilities, including warehouses at plant locations, have an 
aggregate floor area of approximately 2.8 million square feet. 

Timken's Process Industries segment's manufacturing plants and service centers in the United States are located in 
Hueytown, Alabama; Sante Fe Springs, California; Broomfield and Denver, Colorado; New Haven, Connecticut; New 
Castle, Delaware; Downers Grove, Fulton and Mokena, Illinois; Mishawaka, Indiana; Fort Scott, Kansas; Augusta and 
Portland, Maine; Springfield, Massachusetts; Ludington, Rochester Hills, South Haven and Traverse City, Michigan; 
Springfield,  Missouri;  Hackettstown,  New  Jersey;  Randleman  and  Rutherfordton,  North  Carolina;  Union,  South 
Carolina; Ferndale and Pasco, Washington; and Princeton, West Virginia; and Casper, Wyoming. These facilities, 
including warehouses at plant locations and a wind center in North Canton, Ohio, have an aggregate floor area of 
approximately 3.1 million square feet.  

Timken's Process Industries segment's manufacturing plants and service centers outside the United States are located 
in  Mississauga,  Prince  George  and  Sasakatoon,  Canada;  Chengdu,  Jiangsu,  Wuxi  and  Xiangtan,  China;  Dudley, 
England; Dusseldorf and Werdohl, Germany; Chennai and Durg, India; Arcore and Vimercate, Italy; and Ploiesti and 
Prahova,  Romania.  These  facilities,  including  warehouses  at  plant  locations,  have  an  aggregate  floor  area  of 
approximately 2.8 million square feet.

In addition to the manufacturing and distribution facilities discussed above, Timken owns or leases warehouses and 
distribution facilities in Argentina, Australia, Brazil, Canada, China, England, France, India, Mexico, New Zealand, 
Poland, South Africa, Singapore, Spain and the United States.

The extent to which the Company uses its properties varies by property and from time to time.  The Company believes 
that its capacity levels are adequate for its present and anticipated future needs.  Most of the Company’s manufacturing 
facilities remain capable of handling additional volume increases.

Item 3. Legal Proceedings

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion 
of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s 
consolidated financial position or results of operations.

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.

Item 4. Mine Safety Disclosures

Not applicable.

14

Item 4A. Executive Officers of the Registrant

The executive officers are elected by the Board of Directors normally for a term of one year and until the election of 
their successors. All executive officers have been employed by Timken or by a subsidiary of the Company during the 
past five-year period. The executive officers of the Company as of February 15, 2019 are as follows:

Name
Christopher A. Coughlin

Age Current Position and Previous Positions During Last Five Years

58

2014 Executive Vice President, Group President

2013 Group President

Philip D. Fracassa

50

2014 Executive Vice President and Chief Financial Officer

2013 Senior Vice President - Planning and Development

Richard G. Kyle

53

2014 President and Chief Executive Officer

2013 Chief Operating Officer - B&PT; Director

Ronald J. Myers

60

2017 Executive Vice President - Human Resources

2015 Vice President of Human Resources

2013 Vice President - Organizational Advancement

15

PART II.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity 
Securities

The Company’s common shares are traded on the New York Stock Exchange under the symbol “TKR". The estimated 
number of record holders of the Company’s common shares at December 31, 2018 was 3,831. The estimated number 
of beneficial shareholders at December 31, 2018 was 55,968.

The following table provides information about the high and low sales prices for the Company’s common shares and 
dividends paid for each quarter for the last two fiscal years.

2018

2017

Stock prices

High

Low

Dividends

per share

Stock prices

High

Low

Dividends

per share

$

$

$

$

55.65 $
50.55 $
52.45 $
50.42 $

41.85 $
41.95 $
42.65 $
33.98 $

0.27 $

0.28 $

0.28 $

0.28 $

46.45 $

51.75 $

49.95 $

53.10 $

40.05 $

42.50 $

42.55 $

44.73 $

0.26

0.27

0.27

0.27

First quarter

Second quarter

Third quarter

Fourth quarter

Issuer Purchases of Common Shares:

The following table provides information about purchases of its common shares by the Company during the quarter 
ended December 31, 2018.

Period
10/1/2018 - 10/31/2018

11/1/2018 - 11/30/2018

12/1/2018 - 12/31/2018

Total

Total number
of shares 
purchased (1)

Average
price paid 
per share (2)

2,639 $

435,919

477,528

916,086 $

43.42

40.12

37.96

39.00

Total number of
shares purchased as
part of publicly
announced
plans or programs

Maximum number
of shares that may
yet be purchased
under the
plans or programs (3)

—

435,919

475,000

910,919

7,700,485

7,264,566

6,789,566

—

(1)  Of the shares purchased in October, November and December, 162, zero and 428, respectively, represent 
common shares of the Company that were owned and tendered by employees to exercise stock options, and 
to satisfy withholding obligations in connection with the exercise of stock options and vesting of restricted 
shares.

(2)  For shares tendered in connection with the vesting of restricted shares, the average price paid per share is 
an average calculated using the daily high and low of the Company’s common shares as quoted on the New 
York Stock Exchange at the time of vesting. For shares tendered in connection with the exercise of stock 
options, the price paid is the real-time trading share price at the time the options are exercised.

(3)  On February 6, 2017, the Company's Board of Directors approved a share repurchase plan pursuant to which 
the Company may purchase up to ten million of its common shares, in the aggregate. This share purchase 
plan expires on February 28, 2021. Under this plan the Company purchased shares from time to time in open 
market  purchases  or  privately  negotiated  transactions  and  was  able  to  make  all  or  part  of  the  purchases 
pursuant to accelerated share repurchases or Rule 10b5-1 plans. 

16

 
 
 
 
*Total return assumes reinvestment of dividends. Fiscal years ending December 31. 

Timken
S&P 500
S&P 400 Industrials

2014

2015

2016

2017

2018

$

110 $
114
101

76 $

115
98

109 $
129
126

138 $
157
156

108
150
133

The line graph compares the cumulative total shareholder returns over five years for The Timken Company, the S&P 
500 Stock Index and the S&P 400 Industrials Index. The graph assumes, in each case, an initial investment of $100 
on January 1, 2014, in Timken common shares, S&P 500 Index and S&P 400 Industrials Index, based on market prices 
at the end of each fiscal year through and including December 31, 2018, and reinvestment of dividends (and taking 
into account the value of the TimkenSteel common shares distributed in the Spinoff). 

17

 
 
Item 6. Selected Financial Data

Summary of Operations and Other Comparative Data:

(Dollars in millions, except per share and per employee data)

2018

2017

2016

2015

2014

Statements of Income

Net sales

Gross profit

Operating income

Income from continuing operations

Net income attributable to The Timken Company

Balance Sheets

Total assets

Total debt

Total liabilities

Total equity

Other Comparative Data

Income from continuing operations / net sales

Net income attributable to The Timken Company / net sales
Return on equity (1)
Net sales per employee (2)
Capital expenditures

Capital expenditures / net sales

Depreciation and amortization

Dividends per share
Basic earnings per share - continuing operations (3)
Diluted earnings per share - continuing operations (3)
Basic earnings per share (4)
Diluted earnings per share (4)
Number of employees at year-end (5)
Number of shareholders (6)

$

3,580.8

$

3,003.8

$

2,669.8

$

2,872.3

$

3,076.2

1,040.1

454.5

305.5

302.8

4,445.2

1,681.6

2,802.5

$

$

812.1

299.5

202.3

203.4

3,402.4

962.3

1,927.5

$

$

706.3

244.4

141.1

140.8

2,763.2

659.2

1,452.3

$

$

803.8

333.2

191.4

188.6

2,789.0

656.5

1,439.4

$

$

898.7

240.2

85.2

113.2

3,002.9

526.4

1,408.6

$

$

$

1,642.7

$

1,474.9

$

1,310.9

$

1,349.6

$

1,594.3

8.5%

8.5%

18.6%

6.7%

6.8%

13.7%

5.3%

5.3%

10.8%

6.7%

6.6%

14.2%

$

220.5

$

206.3

$

185.3

$

197.5

$

112.6

104.7

137.5

105.6

2.8%

3.7%

5.3%

210.9

126.8

3.1%

3.5%

5.2%

3.7%

4.1%

146.0

137.7

131.7

130.8

137.0

$

$

1.11

3.93

3.86

3.93

3.86

$

1.07

2.62

2.58

2.62

2.58

$

1.04

1.79

1.78

1.79

1.78

$

1.03

2.23

2.21

2.23

2.21

1.00

0.92

0.91

1.25

1.24

17,477

55,968

15,006

56,244

14,111

43,458

14,709

40,257

14,378

44,271

(1)  Return on equity is defined as income from continuing operations divided by ending total equity.
(2)  Dollars in thousands, based on average number of employees employed during the year.
(3)  Based on average number of shares outstanding during the year.
(4)  Based on average number of shares outstanding during the year and includes discontinued operations for 2014.
(5)  Adjusted to exclude temporary employees for all periods.
(6)  Includes an estimated count of shareholders having common shares held for their accounts by banks, brokers 

and trustees for benefit plans.

18

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollars in millions, except per share data)

OVERVIEW

Introduction:

The Timken  Company  designs  and  manages  a  growing  portfolio  of  engineered  bearings  and  power  transmission 
products. With more than a century of innovation and increasing knowledge, we continuously improve the reliability 
and efficiency of global machinery and equipment to move the world forward. Timken posted $3.6 billion in sales in 
2018 and employs more than 17,000 people globally, operating in 35 countries. The Company operates under two 
reportable segments: (1) Mobile Industries and (2) Process Industries. The following further describes these business 
segments:

•  Mobile Industries serves OEM customers that manufacture off-highway equipment for the agricultural, mining 
and construction markets; on-highway vehicles including passenger cars, light trucks, and medium- and heavy-
duty trucks; rail cars and locomotives; outdoor power equipment; rotorcraft and fixed-wing aircraft; and other 
mobile equipment. Beyond service parts sold to OEMs, aftermarket sales and services to individual end users, 
equipment owners, operators and maintenance shops are handled directly or through the Company's extensive 
network of authorized automotive and heavy-truck distributors.

•  Process Industries serves OEM and end-user customers in industries that place heavy demands on the fixed 
operating equipment they make or use in heavy and other general industrial sectors. This includes metals, 
cement and aggregate production; coal power generation and renewable energy sources; oil and gas extraction 
and refining; pulp and paper and food processing; automation and robotics; and health and critical motion 
control equipment. Other applications include marine equipment, gear drives, cranes, hoists and conveyors. 
This segment also supports aftermarket sales and service needs through its global network of authorized 
industrial distributors and through the provision of services directly to end users.

Timken creates value by understanding customer needs and applying its know-how to serve a broad range of customers 
in attractive markets and industries across the globe. The Company’s business strengths include its product technology, 
end-market diversity, geographic reach and aftermarket mix. Timken collaborates with OEMs to improve equipment 
efficiency  with  its  engineered  products  and  captures  subsequent  equipment  replacement  cycles  by  selling  largely 
through independent channels in the aftermarket. Timken focuses its international efforts and footprint in regions of 
the world where strong macroeconomic factors such as urbanization, infrastructure development and sustainability 
create demand for its products and services. 

The Company's strategy has three primary elements:

Outgrowing Our Markets. The Company intends to expand into new and existing markets by leveraging its collective 
knowledge  of  metallurgy,  friction  management  and  mechanical  power  transmission  to  create  value  for  Timken 
customers. Using a highly collaborative technical selling approach, the Company places particular emphasis on creating 
unique solutions for challenging and/or demanding applications. The Company intends to grow in attractive market 
sectors around the world, emphasizing those spaces that are highly fragmented, demand high service and value the 
reliability and efficiency offered by Timken products. The Company also targets those applications that offer significant 
aftermarket demand, thereby providing product and services revenue throughout the equipment’s lifetime.

Operating With Excellence. Timken operates with a relentless drive for exceptional results and a passion for superior 
execution.  The  Company  embraces  a  continuous  improvement  culture  that  is  charged  with  increasing  efficiency, 
lowering costs, eliminating waste, encouraging organizational agility and building greater brand equity to fuel future 
growth. This requires the Company’s ongoing commitment to attract, retain and develop the best talent across the 
world.

Deploying Capital to Drive Shareholder Value. The Company is intently focused on providing the highest returns 
for shareholders through its capital allocation framework, which includes: (1) investing in the core business through 
capital expenditures, research and development and other organic growth initiatives; (2) pursuing strategic acquisitions 
to broaden its portfolio and capabilities across diverse markets, with a focus on bearings, adjacent power transmission 
products and related services; (3) returning capital to shareholders through dividends and share repurchases; and (4) 
maintaining a strong balance sheet and sufficient liquidity. As part of this framework, the Company may also restructure, 
reposition or divest underperforming product lines or assets.

19

The following items highlight certain of the Company's more significant strategic accomplishments in 2018:

•  On  August  30,  2018,  the  Company's  majority-owned  subsidiary,  Timken  India  Limited  ("Timken  India"), 
completed the acquisition of ABC Bearings Limited ("ABC Bearings"), a manufacturer of tapered, cylindrical 
and spherical roller bearings and slewing rings in India with expected annual sales at the time of acquisition 
of approximately $30 million. The acquisition was funded primarily with Timken India stock. 

•  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. Cone Drive, located in Traverse City, Michigan operates in the U.S. and China and had 
expected annual sales at the time of acquisition of approximately $100 million. The acquisition was funded 
primarily with new debt. 

•  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 attractive applications such as passenger rail, aerospace, 
packaging  and  logistics,  medical  and  automation.  Rollon,  located  near  Milan,  Italy  has  manufacturing 
operations  in  Italy,  Germany  and  the  U.S  and  had  expected  annual  sales  at  the  time  of  acquisition  of 
approximately $140 million. The acquisition was primarily funded with new debt. 

•  On September 19, 2018, the Company divested Groeneveld Information Technology Holding B.V. (the "ICT 
Business"), located in Gorinchem, Netherlands. The Company acquired the ICT business in July 2017 as part 
of the Groeneveld Group ("Groeneveld") acquisition. The ICT Business, a non-core telematics business, is 
separate from the Groeneveld lubrications solutions business and employed approximately 70 people. The 
ICT Business had sales of approximately $15 million for the twelve months ended September 30, 2018.

20

RESULTS OF OPERATIONS
2018 vs. 2017 

Overview: 

Net sales

Net income

Net income (loss) attributable to noncontrolling interest

Net income attributable to The Timken Company

Diluted earnings per share

Average number of diluted shares

2018

2017

$ Change

% Change

$

$

$

3,580.8 $

3,003.8 $

305.5

2.7

302.8 $

3.86 $

202.3

(1.1)

203.4 $

2.58 $

78,337,481

78,911,149

577.0

103.2

3.8

99.4

1.28

—

19.2%

51.0%

(345.5%)

48.9%

49.6%

(0.7%)

The increase in net sales was primarily due to organic revenue growth driven by higher end-market demand, the benefit 
of acquisitions and the impact of higher pricing. The increase in net income in 2018 compared with 2017 was primarily 
due to improved performance across the business, driven by the impact of higher volume, favorable price/mix, the net 
benefit of acquisitions and improved manufacturing performance, as well as lower net actuarial losses ("Mark-to-Market 
Charges") due to the remeasurement of pension and other postretirement assets and obligations, restructuring charges 
and interest expense. These factors were partially offset by the impact of higher selling, general and administrative 
("SG&A") expenses, higher income tax expenses and higher material and logistics costs (including tariffs).

Outlook:

The Company expects 2019 full-year sales to increase approximately 8% to 10% compared with 2018 primarily due 
to increased demand across most end-market sectors and the benefit of acquisitions, including the recently completed 
ABC Bearings, Cone Drive and Rollon acquisitions, offset partially by unfavorable currency. The Company's earnings 
are expected to be higher in 2019 than 2018, primarily due to the impact of higher volume, favorable price/mix and 
the benefit of acquisitions, partially offset by higher material, logistics (including tariffs) and SG&A expenses, as well 
as higher income tax and interest expenses. Additionally, depreciation and amortization expense is expected to increase  
in 2019, primarily due to incremental depreciation and amortization from acquisitions completed in 2018.

The Company expects to generate operating cash of approximately $450 million in 2019, an increase from 2018 of 
approximately  $118  million,  or  35%,  as  the  Company  anticipates  higher  net  income  and  lower  working  capital 
requirements. The Company expects capital expenditures to be approximately $150 million in 2019, compared with 
$113 million in 2018.

21

THE STATEMENTS OF INCOME

Sales:

Net sales

2018

2017

$ Change % Change

$

3,580.8 $

3,003.8 $

577.0

19.2%

Net sales increased in 2018 compared with 2017, primarily due to higher organic revenue of $396 million and the 
benefit of acquisitions of $177 million. The increase in organic revenue was driven by higher demand across all of the 
Company's end-market sectors, as well as the impact of higher pricing.

Gross Profit:

Gross profit

Gross profit % to net sales

2018

2017

$ Change

Change

$ 1,040.1

$

812.1

$

228.0

28.1%

29.0%

27.0%

—

200 bps

Gross profit increased in 2018 compared with 2017, primarily due to the impact of higher volume of $133 million, 
favorable price/mix of $66 million, the benefit of acquisitions of $54 million, improved manufacturing performance of 
$12 million and lower restructuring costs of $6 million. These factors were partially offset by higher material and logistics 
costs of $44 million (including tariffs).

Selling, General and Administrative Expenses:

Selling, general and administrative expenses

$

580.7

$

508.3

$

Selling, general and administrative expenses % to net sales

16.2%

16.9%

72.4

—

14.2%

(70) bps

2018

2017

$ Change

Change

The increase in SG&A expenses in 2018 compared with 2017 was primarily due to the impact of acquisitions of $39 
million, higher compensation expense and other spending increases to support the higher sales levels.

Interest Expense and Income:

Interest expense

Interest income

2018

2017

$ Change

% Change

$

(51.7) $

(37.1) $

2.1

2.9

(14.6)

(0.8)

39.4%

(27.6%)

Interest expense increased in 2018 compared to 2017 primarily due to an increase in outstanding debt to fund the 
acquisitions of Groeneveld, Rollon and Cone Drive. Refer to Note 9 - Financing Arrangements in the Notes to the 
Consolidated Financial Statements for further discussion. 

22

Other Income (Expense):

Non-service pension and other postretirement costs
Other income, net

$

(6.2) $

9.4

(15.0) $

9.6

8.8

(0.2)

(58.7%)

(2.1%)

2018

2017

$ Change

% Change

The decrease in non-service pension and other postretirement costs for 2018 compared with 2017 was primarily due 
to lower Mark-to-Market Charges of $8.8 million. The Mark-to-Market Charges resulted from the remeasurement of 
pension and postretirement plan obligations and assets due to changes in actuarial assumptions, partially offset by 
the benefit of curtailments for two of the U.S. pension plans.  Refer to Note 12 - Retirement Benefit Plans in the Notes 
to the Consolidated Financial Statements for more information. 

Income Tax Expense:

Income tax expense

Effective tax rate

2018

2017

$ Change

Change

$

102.6

$

25.1%

57.6

$

22.2%

45.0

—

78.1%

290 bps

The effective tax rate for 2018 was 25.1%, which was unfavorable to the U.S. federal statutory rate of 21% primarily 
due to earnings in certain foreign jurisdictions where the effective rate was higher than 21%, unfavorable U.S. permanent 
differences and U.S. state and local income tax expenses. These impacts were partially offset by reductions to the 
one-time net charge related to the taxation of unremitted foreign earnings and the remeasurement of U.S. deferred 
tax balances to reflect the new U.S. corporate income tax rate enacted under the Tax Cuts and Jobs Act of 2017 (“U.S. 
Tax Reform”).

The effective tax rate for 2017 was 22.2%, which was favorable to the U.S. federal statutory rate of 35% primarily due 
to earnings in certain foreign jurisdictions where the effective tax rate was less than 35%, U.S. foreign tax credits 
realized on earnings distributed to the United States, and favorable U.S. permanent deductions and tax credits. The 
effective tax rate was also favorably impacted by the net reversal of accruals for prior year uncertain tax positions, a 
valuation allowance release and other discrete items.

These favorable impacts were partially offset by provisional amounts for the one-time net charge related to the taxation 
of unremitted foreign earnings and the remeasurement of U.S. deferred tax balances to reflect the new U.S. corporate 
income tax rate enacted under U.S. Tax Reform. U.S. Tax Reform included a number of changes to existing U.S. tax 
laws that impacted the Company, most notably a reduction of the U.S. corporate income tax rate from 35% to 21% for 
tax years beginning after December 31, 2017. U.S. Tax Reform also required companies to pay a one-time net charge 
related to the taxation of unremitted foreign earnings, created new taxes on certain foreign sourced earnings and 
allowed for immediate expensing of certain depreciable assets after September 27, 2017.

The change in the effective rate for 2018 compared with 2017 was an increase of 2.9%. The increase was primarily 
due to the net reversal of accruals for prior year uncertain tax positions in 2017. The effective tax rate also increased 
due to earnings in certain foreign jurisdictions where the effective rate was higher than 21%, unfavorable U.S. permanent 
differences and the release of valuations allowances in 2017. These impacts were partially offset by reductions to the 
one-time net charge related to the taxation of unremitted foreign earnings and the remeasurement of U.S. deferred 
tax balances to reflect the new U.S. corporate income tax rate.

Refer to Note 16 - Income Taxes in the Notes to the Consolidated Financial Statements for more information on the 
computation of the income tax expense in interim periods.

23

BUSINESS SEGMENTS

The Company's reportable segments are business units that serve different industry sectors. While the segments often 
operate using shared infrastructure, each reportable segment is managed to address specific customer needs in these 
diverse market sectors. The primary measurement used by management to measure the financial performance of 
each segment is EBIT. Refer to Note 15 - Segment Information in the Notes to the Consolidated Financial Statements 
for the reconciliation of EBIT by segment to consolidated income before income taxes.  

The presentation of segment results below includes a reconciliation of the changes in net sales for each segment 
reported in accordance with U.S. GAAP to net sales adjusted to remove the effects of acquisitions completed in 2018
and 2017 and foreign currency exchange rate changes. The effects of acquisitions and foreign currency exchange 
rate changes on net sales are removed to allow investors and the Company to meaningfully evaluate the percentage 
change in net sales on a comparable basis from period to period.

The  following  items  highlight  the  Company's  acquisitions  completed  in  2018  and  2017  by  segment  based  on  the 
customers and underlying markets served:

•  The Company acquired ABC Bearings, Cone Drive and Rollon during the third quarter of 2018. Substantially 
all of the results for ABC Bearings are reported in the Mobile Industries segment. Results for Cone Drive and 
Rollon  are  reported  in  the  Mobile  Industries  and  Process  Industries  segments  based  on  customers  and 
underlying market sectors served.

•  The  Company  acquired  Groeneveld  during  the  third  quarter  of  2017.  Substantially  all  of  the  results  for 

Groeneveld are reported in the Mobile Industries segment.

•  The Company acquired Torsion Control Products, Inc. ("Torsion Control Products") and PT Tech, Inc. ("PT 
Tech")  during  the  second  quarter  of  2017.  Substantially  all  of  the  results  for Torsion  Control  Products  are 
reported  in  the  Mobile  Industries  segment.  Results  for  PT Tech  are  reported  in  the  Mobile  Industries  and 
Process Industries segments based on customers and underlying market sectors served. 

Mobile Industries Segment:

Net sales
EBIT
EBIT margin

Net sales
Less: Acquisitions
         Currency
Net sales, excluding the impact of acquisitions and

currency

$
$

$

2018
1,903.7
198.7

10.4%

2018
1,903.7
98.6
(2.3)

$
$

$

2017
1,640.0
139.0

8.5%

2017
1,640.0
—
—

$
$

$

$ Change

Change

263.7
59.7
—

16.1%
42.9%
190 bps

$ Change

% Change

263.7
98.6
(2.3)

16.1%
NM
NM

$

1,807.4

$

1,640.0

$

167.4

10.2%

The Mobile Industries segment's net sales, excluding the effects of acquisitions and foreign currency exchange rate 
changes, increased in 2018 compared with 2017, reflecting organic growth across all market sectors, as well as higher 
pricing. EBIT increased in 2018 compared with 2017, primarily due to higher volume of $53 million, the benefit of 
acquisitions of $15 million, favorable price/mix of $11 million, lower restructuring charges of $9 million and improved 
manufacturing performance of $5 million.  These factors were partially offset by higher material and logistics costs of 
$24 million (including tariffs) and higher SG&A expenses of $8 million.

Full-year sales for the Mobile Industries segment are expected to be up approximately 4% to 6% in 2019 compared 
with 2018. This reflects expected growth across most end-market sectors, led by rail, off-highway and aerospace, as 
well as the benefit of acquisitions, partially offset by the impact of foreign currency translation adjustments. EBIT for 
the Mobile Industries segment is expected to increase in 2019 compared with 2018 primarily due to the impact of 
higher volume, favorable price/mix, improved manufacturing performance, and the impact of acquisitions, partially 
offset by impact of foreign currency exchange rate changes, higher material, logistics (including tariffs) and SG&A 
expenses.

24

  
Process Industries Segment:

Net sales

EBIT

EBIT margin

Net sales

Less: Acquisitions

         Currency

2018

2017

$ Change

Change

$

$

1,677.1

333.8

$

$

1,363.8

222.3

$

$

19.9%

16.3%

313.3

111.5

—

23.0%

50.2%

360 bps

2018

2017

$ Change

% Change

$

1,677.1

$

1,363.8

$

313.3

23.0%

78.7

6.0

—

—

78.7

6.0

NM

NM

Net sales, excluding the impact of acquisitions and

currency

$

1,592.4

$

1,363.8

$

228.6

16.8%

The Process Industries segment's net sales, excluding the effects of acquisitions and foreign currency exchange rate 
changes, increased in 2018 compared with 2017 reflecting increased demand across all market sectors, as well as 
higher pricing. EBIT increased in 2018 compared with 2017 primarily due to the impact of higher volume of $84 million, 
favorable price/mix of $51 million, improved manufacturing performance of $6 million and the benefit of acquisitions 
of $12 million (excluding inventory step-up expense of $8 million). These factors were partially offset by higher material 
and logistics costs of $20 million (including tariffs) and higher SG&A expenses of $16 million.

Full-year sales for the Process Industries segment are expected to be up approximately 13% to 15% in 2019 compared 
with 2018. This reflects expected growth across most market sectors, as well as the benefit of acquisitions, partially 
offset by the impact of foreign currency translation adjustments. EBIT for the Process Industries segment is expected 
to increase in 2019 compared with 2018 primarily due to the impact of higher volume, favorable price/mix, and the 
impact of acquisitions, partially offset by higher operating costs.

Corporate:

Corporate expenses

Corporate expenses % to net sales

2018

2017

$ Change

Change

$

62.0

$

49.1

$

1.7%

1.6%

12.9

—

26.3%

10 bps

Corporate expense increased in 2018 compared with 2017 primarily due to the impact of acquisition-related costs of 
$10 million.

25

  
RESULTS OF OPERATIONS:
2017 vs. 2016

Overview:

Net sales

Net income

Income attributable to noncontrolling interest

Net income attributable to The Timken Company

Diluted earnings per share

Average number of diluted shares

2017

2016

$ Change

% Change

$

$

$

3,003.8 $

2,669.8 $

334.0

202.3

(1.1)

203.4 $

2.58 $

141.1

0.3

140.8 $

1.78 $

78,911,149

79,234,324

61.2

(1.4)

62.6

0.80

—

12.5%

43.4%

(466.7%)

44.5%

44.9%

(0.4%)

The increase in net sales was primarily due to higher end-market demand and the benefit of acquisitions. The increase 
in net income in 2017 compared with 2016 was primarily due to improved performance across the business, as well 
as lower Mark-to-Market Charges, restructuring charges, and income tax expense, partially offset by lower pre-tax 
U.S. Continued Dumping and Subsidy Offset Act ("CDSOA") income of $59.6 million. The improvement in business 
performance reflects higher volume, favorable manufacturing performance, the benefit of acquisitions and the favorable 
impact of foreign currency exchange rate changes, partially offset by unfavorable price/mix and higher material, logistics 
and SG&A expenses.

THE STATEMENTS OF INCOME

Sales:

Net sales

2017

2016

$ Change

% Change

$

3,003.8 $

2,669.8 $

334.0

12.5%

Net sales increased in 2017 compared with 2016 primarily due to higher organic revenue of $186 million, the benefit 
of acquisitions of $131 million and the favorable impact of foreign currency exchange rate changes of $17 million. The 
increase in organic revenue was driven by higher demand across most of the Company's market sectors led by the 
off-highway, industrial distribution and heavy truck sectors, partially offset by lower demand in the rail sector.

Gross Profit:

Gross profit

Gross profit % to net sales

2017

2016

$ Change

Change

$

812.1

$

706.3

$

105.8

27.0%

26.5%

—

15.0%

50 bps

Gross profit increased in 2017 compared with 2016 primarily due to the impact of higher volume of $74 million, the 
benefit of acquisitions of $52 million and favorable manufacturing performance of $49 million. These factors were 
partially offset by higher material and logistics costs of $34 million and unfavorable price/mix of $34 million.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses

$

508.3

$

440.2

$

Selling, general and administrative expenses % to net sales

16.9%

16.5%

68.1
—

15.5%
40 bps

2017

2016

$ Change

Change

The increased in SG&A expenses in 2017 compared with 2016 was primarily due to the impact of acquisitions and 
higher incentive compensation expense.

26

Impairment and Restructuring Charges:

Impairment charges

Severance and related benefit costs

Exit costs

Total

2017

2016

$ Change

$

$

0.1 $
3.5

0.7

4.3 $

3.9 $

15.3

2.5

21.7 $

(3.8)

(11.8)

(1.8)

(17.4)

Impairment and restructuring charges of $4.3 million in 2017 were primarily comprised of severance and related benefit 
costs associated with initiatives to reduce headcount and right-size the Company's manufacturing footprint, including 
the planned closure of its bearing plant in Pulaski, Tennessee ("Pulaski").

Impairment and restructuring charges of $21.7 million in 2016 were primarily comprised of severance and related 
benefit costs associated with initiatives to reduce headcount and right-size the Company's manufacturing footprint, 
including the planned closures of its bearing plants in Altavista, Virginia ("Altavista"), Pulaski and Benoni, South Africa 
("Benoni"). In addition, the Company recognized impairment charges of $3.9 million during 2016 that were primarily 
associated with the planned closures of the Altavista and Benoni bearing plants. 

Interest Expense and Income:

Interest expense

Interest income

2017

2016

$ Change

% Change

$

$

(37.1) $

2.9 $

(33.5) $

1.9 $

(3.6)

1.0

10.7%

52.6%

Interest expense increased in 2017 compared to 2016 primarily due to an increase in outstanding debt mostly associated 
with the Groeneveld acquisition. Refer to Note 9 - Financing Arrangements in the Notes to the Consolidated Financial 
Statements for further discussion. 

Other Income (Expense):

CDSOA income, net

Non-service pension and other postretirement costs
Other income (expense), net

2017

2016

$ Change

% Change

$

$

— $

(15.0)

9.4 $

59.6 $

(69.9)

(0.9) $

(59.6)

54.9

10.3

NM

(78.5%)

NM

CDSOA income, net in 2016 represents income recorded in connection with funds distributed to the Company from 
monies collected by U.S. Customs and Border Protection ("U.S. Customs") from antidumping cases, net of related 
professional fees. Refer to Note 20 - Continued Dumping and Subsidy Offset Act in the Notes to the Consolidated 
Financial Statements for further discussion. 

The decrease in non-service pension and other postretirement costs for 2017 compared to 2016 was primarily due to 
lower Mark-to-Market Charges of $47 million. The increase in other income (expense), net for 2017, compared to 2016 
was primarily due to lower foreign currency exchange losses and gains recorded from the sale of the Company's former 
manufacturing facilities in Benoni and Altavista during 2017.

27

 
Income Tax Expense:

Income tax expense

Effective tax rate

2017

2016

$ Change

Change

$

57.6

$

22.2%

60.5

$

30.0%

(2.9)

—

(4.8%)

(780) bps

The effective tax rate for 2017 was 22.2%, which was favorable to the U.S. federal statutory rate of 35% due to earnings 
in certain foreign jurisdictions where the effective rate is less than 35%, U.S. foreign tax credits realized on earnings 
distributed to the United States, and favorable U.S. permanent deductions and tax credits. The effective tax rate was 
further impacted favorably by the net reversal of accruals for prior year uncertain tax positions, a valuation allowance 
release, and other discrete items. 

These favorable impacts were partially offset by provisional amounts for the one-time net charge related to the taxation 
of unremitted foreign earnings and the remeasurement of U.S. deferred tax balances to reflect the new U.S. corporate 
income tax rate enacted under the U.S. Tax Reform. U.S. Tax Reform includes a number of changes to existing U.S. 
tax laws that impact the Company, most notably a reduction of the U.S. corporate income tax rate from 35% to 21% 
for tax years beginning after December 31, 2017. U.S. Tax Reform also requires companies to pay a one-time net 
charge related to the taxation of unremitted foreign earnings, creates new taxes on certain foreign sourced earnings 
and allows for immediate expensing of certain depreciable assets after September 27, 2017.

The effective tax rate for 2016 was favorable relative to the U.S. federal statutory rate primarily due to U.S. foreign tax 
credits, earnings in certain foreign jurisdictions where the effective tax rate is less than 35%, the U.S. manufacturing 
deduction, and certain discrete tax benefits (net). These favorable impacts were partially offset by U.S. taxation of 
foreign income and losses at certain foreign subsidiaries where no tax benefit could be recorded.

The change in the effective rate for 2017 compared with 2016 was primarily due to favorable discrete tax items. Refer 
to the table below for additional detail of the impact of each item on income tax expense.

Impact of global earnings at the U.S. statutory rate of 35%
Foreign taxation impact
U.S. taxation (1)
U.S. Tax Reform
Net reversal of accruals for uncertain tax positions (2)
Other discrete items, net
Total

2016 to 2017
$ Change

$

$

20.4
(10.3)
(9.5)
35.3
(26.3)
(12.5)
(2.9)

(1) U.S. taxation includes the impact of foreign tax credits, U.S. manufacturing deductions, the U.S. research and experimentation credit, U.S. state 
and local taxation, U.S. taxation of foreign earnings and other U.S. items.

(2) Net reversal of accruals for uncertain tax positions were primarily driven by expiration of applicable statutes of limitations.

28

BUSINESS SEGMENTS

The primary measurement used by management to measure the financial performance of each segment is EBIT. Refer 
to Note 15 - Segment Information in the Notes to the Consolidated Financial Statements for the reconciliation of EBIT 
by segment to consolidated income before income taxes. 

The presentation of segment results below includes a reconciliation of the changes in net sales for each segment 
reported in accordance with U.S. GAAP to net sales adjusted to remove the effects of acquisitions completed in 2017
and 2016 and foreign currency exchange rate changes. The effects of acquisitions and foreign currency exchange 
rate changes on net sales are removed to allow investors and the Company to meaningfully evaluate the percentage 
change in net sales on a comparable basis from period to period.

The following items highlight the Company's acquisitions and divestitures completed in 2017 and 2016:

•  The  Company  acquired  Groeneveld  during  the  third  quarter  of  2017.  Substantially  all  of  the  results  for 

Groeneveld are reported in the Mobile Industries segment.

•  The Company acquired Torsion Control Products and PT Tech during the second quarter of 2017. Results for 
PT Tech are reported in the Mobile Industries and Process Industries segments based on customers and 
underlying market sectors served.  

•  The Company acquired EDT Corp. ("EDT") during the fourth quarter of 2016. Substantially all of the results 

for EDT are reported in the Process Industries segment.

•  The Company acquired Lovejoy, Inc. ("Lovejoy") during the third quarter of 2016. Substantially all of the results 

for Lovejoy are reported in the Process Industries segment. 

Mobile Industries Segment:

Net sales

EBIT

EBIT margin

Net sales

Less: Acquisitions

         Currency

2017

2016

$ Change

Change

$

$

1,640.0

139.0

$

$

1,446.4

116.8

$

$

8.5%

8.1%

193.6

22.2

—

13.4%

19.0%

40 bps

2017

2016

$ Change

% Change

$

1,640.0 $

1,446.4 $

96.9

9.7

—

—

193.6

96.9

9.7

13.4%

NM

NM

Net sales, excluding the impact of acquisitions and
currency

$

1,533.4 $

1,446.4 $

87.0

6.0%

The Mobile Industries segment's net sales, excluding the effects of acquisitions and foreign currency exchange rate 
changes, increased in 2017 compared with 2016, reflecting organic growth in the off-highway and heavy truck market 
sectors, partially offset by decreased demand in the rail sector. EBIT increased in 2017 compared with 2016 primarily 
due to higher volume of $32 million, favorable manufacturing performance of $18 million, the benefit of acquisitions 
of $16 million, lower restructuring charges of $9 million and the impact of foreign currency exchange rate changes of 
$6 million. These factors were offset partially by higher material and logistics costs of $26 million, increased SG&A 
expense of $19 million and unfavorable price/mix of $16 million. The higher SG&A expense was primarily due to higher 
incentive compensation expense.

29

  
Process Industries Segment:

Net sales

EBIT

EBIT margin

Net sales

Less: Acquisitions

 Currency

2017

2016

$ Change

Change

$

$

1,363.8

222.3

$

$

1,223.4

168.2

$

$

16.3%

13.7%

140.4

54.1

—

11.5%

32.2%

260 bps

2017

2016

$ Change

% Change

$

1,363.8

$

1,223.4

$

33.9

7.4

—

—

140.4

33.9

7.4

11.5%

NM

NM

Net sales, excluding the impact of acquisitions and
currency

$

1,322.5

$

1,223.4

$

99.1

8.1%

The Process Industries segment's net sales, excluding the effects of acquisitions and foreign currency exchange rate 
changes, increased $99.1 million, or 8.1%, in 2017 compared with 2016. The increase was primarily driven by organic 
growth in the industrial distribution, general industrial OE and military marine sectors. EBIT increased in 2017 compared 
with 2016 primarily due to the impact of higher volume of $49 million, favorable manufacturing performance of $29 
million, lower restructuring charges of $7 million and the benefit of acquisitions. These factors were partially offset by 
unfavorable price/mix of $26 million, higher material and logistics costs of $8 million and higher SG&A expense of $7 
million. The higher SG&A expense was due to higher incentive compensation expense.

Corporate:

Corporate expenses

Corporate expenses % to net sales

2017

2016

$ Change

Change

$

49.1

$

44.4

$

2.3%

1.6%

4.7

—

10.6%

70 bps

30

  
THE BALANCE SHEETS

The following discussion is a comparison of the Consolidated Balance Sheets at December 31, 2018 and 2017.

Current Assets:

Cash and cash equivalents
Restricted cash
Accounts receivable, net
Unbilled receivables
Inventories, net
Deferred charges and prepaid expenses
Other current assets

Total current assets

December 31,

2018

2017

$ Change

% Change

$

$

132.5 $
0.6
546.6
116.6
835.7
28.2
77.0
1,737.2 $

121.6 $
3.8
524.9
—
738.9
29.7
81.2
1,500.1 $

10.9
(3.2)
21.7
116.6
96.8
(1.5)
(4.2)
237.1

9.0%
(84.2%)
4.1%
NM
13.1%
(5.1%)
(5.2%)
15.8%

Refer to the "Cash Flows" section for discussion on the change in Cash and cash equivalents.  Accounts receivable 
increased primarily due to higher sales in December 2018 compared to December 2017, an increase in average days 
outstanding,  which  includes  the  impact  of  acquisitions  in  2018,  partially  offset  by  the  reclassification  of  revenue 
recognized in excess of billings to Unbilled receivables under the Accounting Standards Update ("ASU") 2014-09, 
"Revenue from Contracts with Customers (Topic 606)" ("new revenue standard") and the impact of foreign currency 
exchange rate changes of $19.3 million. 

Unbilled receivables is now presented on the Consolidated Balance Sheet due to the adoption of the new revenue 
standard, including revenue recognized in excess of billings. Prior to the adoption of the new revenue standard, the 
Company recognized a portion of its revenues on the percentage-of-completion method. As of December 31, 2017, 
revenue recognized in excess of billings of $67.3 million related to these revenues was included in "Accounts receivable, 
less allowances" on the Consolidated Balance Sheet. In accordance with the new revenue standard, $72.7 million of 
revenue  recognized  in  excess  of  billings  related  to  these  revenues  are  included  in  "Unbilled  receivables"  on  the 
Consolidated Balance Sheet at December 31, 2018. In addition, as part of the adoption of the new revenue standard, 
the Company identified other customer arrangements in which there is continuous transfer of control to the customer, 
resulting in an additional $43.9 million of unbilled receivables as of December 31, 2018. Refer to Note 1 - Significant 
Accounting Policies in the Notes to the Consolidated Financial Statements for additional information. 

Inventories increased due to the impact of higher production to meet anticipated customer demand and $61.6 million 
from the businesses acquired during 2018, partially offset by the impact of foreign currency exchange rate changes 
of $30.4 million. 

Property, Plant and Equipment, Net:

Property, plant and equipment
Less: accumulated depreciation

Property, plant and equipment, net

December 31,

2018

2017

$ Change

% Change

$

$

2,486.5 $
(1,574.4)

912.1 $

2,405.6 $
(1,541.4)

864.2 $

80.9
(33.0)
47.9

3.4%
(2.1%)
5.5%

The increase in property, plant and equipment, net in 2018 was primarily due to capital expenditures of $106.7 million 
and $71.7 million from businesses acquired in 2018, partially offset by depreciation of $99.3 million and the net impact 
of foreign currency exchange rate changes of $29.5 million in 2018.

31

  
  
  
  
  
  
  
  
Other Assets:

Goodwill
Other intangible assets
Non-current pension assets
Deferred income taxes
Other non-current assets
Total other assets

December 31,

2018

2017

$ Change

% Change

$

$

960.5 $
733.2
6.2
59.0
37.0
1,795.9 $

511.8 $
420.6
19.7
61.0
25.0
1,038.1 $

448.7
312.6
(13.5)
(2.0)
12.0
757.8

87.7%
74.3%
(68.5%)
(3.3%)
48.0%
73.0%

The increase in goodwill in 2018 was primarily due to acquisitions in 2018. The increase in other intangible assets was 
primarily due to acquisitions of $372.6 million in 2018, partially offset by amortization of $46.8 million and the impact 
of foreign currency exchange rate changes of $10.6 million in 2018.  The decrease in non-current pension assets was 
primarily due to a decrease in the Company's United Kingdom defined benefit pension plan discount rates and by a 
change in funded status of two of the Company's U.S. defined benefit pension plans from overfunded to underfunded. 
The increase in other non-current assets is primarily due to the acquisitions in 2018.

Current Liabilities:

Short-term debt

Current portion of long-term debt

Accounts payable

Salaries, wages and benefits

Income taxes payable

Other current liabilities

Total current liabilities

December 31,

2018

2017

$ Change % Change

$

33.6 $

105.4 $

(71.8)

9.4

273.2

174.9

23.5

171.0

2.7

265.2

127.9

9.8

160.7

$

685.6 $

671.7 $

6.7

8.0

47.0

13.7

10.3

13.9

(68.1%)

248.1%

3.0%

36.7%

139.8%

6.4%

2.1%

The decrease in short-term debt was primarily due to the reclassification of borrowings under the Company's Asset 
Securitization Agreement (the "Accounts Receivable Facility") from short-term debt to long-term debt due to the renewal 
of the Accounts Receivable Facility for a period of three years (until November 30, 2021) in the third quarter of 2018 
and lower borrowings under foreign lines of credit. The increase in accrued salaries, wages and benefits was primarily 
due to the reclassification of $22.5 million from non-current pension liabilities to current pension liabilities, most of 
which relates to the expected 2019 payout of deferred compensation to a former executive officer of the Company, as 
well as higher accruals for incentive compensation and the impact of acquisitions in 2018.   

32

  
  
  
  
  
  
  
  
Non-Current Liabilities:

Long-term debt

Accrued pension cost

Accrued postretirement benefits cost

Deferred income taxes

Other non-current liabilities

Total non-current liabilities

December 31,

2018

2017

$ Change

% Change

$

1,638.6 $

854.2 $

161.3

108.7

138.0

70.3

167.3

122.6

44.0

67.7

$

2,116.9 $

1,255.8 $

784.4

(6.0)

(13.9)

94.0

2.6

861.1

91.8%

(3.6%)

(11.3%)

213.6%

3.8%

68.6%

The increase in long-term debt was primarily due to the issuance of $400 million aggregate principal amount of senior 
notes due 2028 ("2028 Notes") and $350 million of borrowings under the variable-rate term loan due in 2023 ("2023 
Term Loan") used to finance the Rollon and Cone Drive acquisitions, as well as the reclassification of borrowings under 
the Company's Accounts Receivable Facility from short-term debt to long-term debt due to the renewal of this facility 
for a period of three years (until November 30, 2021).  

The decrease in accrued pension costs was primarily due the reclassification of $22.5 million from non-current pension 
liabilities to current pension liabilities, most of which relates to the expected 2019 payout of deferred compensation to 
a former executive officer of the Company, partially offset by a change in funded status of two of the Company's U.S. 
defined benefit pension plans from overfunded to underfunded. 

The decrease in accrued postretirement benefit costs was primarily due to an increase in the discount rate used to 
measure the Company's postretirement benefit plan obligation and the results of an opt out program offered to current 
retirees, partially offset by lower than expected asset returns and postretirement accrual additions through acquisitions 
in  2018. The  increase  in  deferred  income  taxes  was  primarily  due  to  recording  of  deferred  tax  liabilities  for  non-
deductible intangible assets from acquisitions in 2018.

Shareholders’ Equity:

Common stock

Earnings invested in the business

Accumulated other comprehensive loss

Treasury shares

Noncontrolling interest

Total equity

December 31,

2018

2017

$ Change

% Change

$

1,005.0 $

956.9 $

1,630.2

1,408.4

(95.3)

(960.3)

63.1

(38.3)

(884.3)

32.2

$

1,642.7 $

1,474.9 $

48.1

221.8

(57.0)

(76.0)

30.9

167.8

5.0%

15.7%

148.8%

(8.6%)

96.0%

11.4%

Earnings invested in the business in 2018 increased primarily by net income attributable to the Company of $302.8 
million, partially offset by dividends declared of $85.7 million. The increase in accumulated other comprehensive loss 
was primarily due to foreign currency adjustments of $60.5 million.  See "Other Disclosures - Foreign Currency" for 
further discussion regarding the impact of foreign currency translation.

The increase in treasury shares was primarily due to the Company's purchase of 2.3 million of its common shares for 
$98.5 million, partially offset by $22.4 million of net shares issued for stock compensation plans for 2018. The increase
in noncontrolling interest was primarily due to the shares of Timken India used for the acquisition of ABC Bearings. 

33

  
  
  
  
  
  
  
  
CASH FLOWS

Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash

Increase (decrease) in cash and cash equivalents

Operating Activities:

2018

2017

$ Change

$

$

332.5 $
(865.2)
553.1
(12.7)

7.7 $

236.8 $
(448.7)
168.2
17.6
(26.1) $

95.7
(416.5)
384.9
(30.3)
33.8

The increase in net cash provided by operating activities in 2018 compared with 2017 was primarily due to higher net 
income of $103.2 million and the favorable impact of income taxes on cash of $17.1 million and other balance sheet 
line items, partially offset by an increase in cash used for working capital items of $95.9 million. Refer to the table 
below for additional detail of the impact of each line on net cash provided by operating activities. 

The following chart displays the impact of working capital items on cash during 2018 and 2017, respectively: 

Cash (Used) provided:
Accounts receivable
Unbilled receivables
Inventories
Trade accounts payable
Other accrued expenses
 Cash used in working capital items

2018

2017

$ Change

$

$

(66.4) $
(21.8)
(87.1)
(20.2)
32.2
(163.3) $

(42.3) $
—
(132.1)
70.7
36.3
(67.4) $

(24.1)
(21.8)
45.0
(90.9)
(4.1)
(95.9)

The following table displays the impact of income taxes on cash during 2018 and 2017, respectively: 

Accrued income tax expense
Income tax payments
Other miscellaneous
 Change in income taxes

Investing Activities:

2018

2017

$ Change

$

$

102.6 $
(121.3)
(0.8)
(19.5) $

57.6 $
(89.9)
(4.3)
(36.6) $

45.0
(31.4)
3.5
17.1

The increase in net cash used in investing activities in 2018 compared with 2017 was primarily due to a $418.6 million
increase in cash used for acquisitions and $7.9 million increase in cash used in capital expenditures when compared 
to the prior year, partially offset by $14.0 million in cash proceeds from the divestiture of the ICT Business.

Financing Activities:

The increase in net cash provided by financing activities in 2018 compared with 2017 was primarily due to an increase 
in net borrowings of $455.5 million needed to fund the Cone Drive and Rollon acquisitions in 2018, partially offset by 
an increase in cash used for share repurchases of $55.1 million and a reduction in proceeds from stock option activity 
of $20.1 million during 2018 compared with 2017.

34

LIQUIDITY AND CAPITAL RESOURCES

Reconciliation of total debt to net debt and the ratio of net debt to capital:

Net Debt:

Short-term debt

Current portion of long-term debt

Long-term debt

Total debt

Less: Cash and cash equivalents

 Restricted cash

Net debt

Ratio of Net Debt to Capital:

Net debt

Total equity

Capital (net debt + total equity)

Ratio of net debt to capital

December 31,

2018

2017

33.6 $

9.4

1,638.6

1,681.6 $

132.5

0.6

1,548.5 $

105.4

2.7

854.2

962.3

121.6

3.8

836.9

December 31,

2018

1,548.5

1,642.7

3,191.2

$

$

2017

836.9

1,474.9

2,311.8

48.5%

36.2%

$

$

$

$

$

The Company presents net debt because it believes net debt is more representative of the Company's financial position 
than total debt due to the amount of cash and cash equivalents held by the Company.

At  December 31,  2018,  $130.0  million  of  the  Company's  $132.5  million  of  cash  and  cash  equivalents  resided  in 
jurisdictions outside the U.S. It is the Company's practice to use available cash in the U.S. to pay down its Amended 
and Restated Credit Agreement ("Senior Credit Facility") or Accounts Receivable Facility in order to minimize total 
interest  expense.  Repatriation  of  non-U.S.  cash  could  be  subject  to  taxes  and  some  portion  may  be  subject  to 
governmental restrictions. Part of the Company's strategy is to grow in attractive market sectors, many of which are 
outside the U.S. This strategy includes making investments in facilities, equipment and potential new acquisitions. The 
Company plans to fund these investments, as well as meet working capital requirements, with cash and cash equivalents 
and unused lines of credit within the geographic location of these investments where feasible.

The Company expects that any cash requirements in excess of cash on hand and cash generated from operating 
activities will be met by the committed funds available under its Accounts Receivable Facility and Senior Credit Facility. 
Management believes it has sufficient liquidity to meet its obligations through the term of the Senior Credit Facility and 
expects to renew the Senior Credit Facility prior to its maturity in June 2020.

On September 28, 2018, the Company renewed its $100 million Accounts Receivable Facility, which now matures on 
November 30, 2021. The Accounts Receivable Facility is subject to certain borrowing base limitations and is secured 
by certain domestic accounts receivable of the Company. Borrowings under the Accounts Receivable Facility were 
not reduced by any such borrowing base limitations at December 31, 2018. As of December 31, 2018, the Company 
had $75.0 million in outstanding borrowings, which reduced the availability under the facility to $25.0 million. The 
interest rate on the Accounts Receivable Facility is variable and was 3.22% as of December 31, 2018, which reflects 
the prevailing commercial paper rate plus facility fees. 

35

  
  
  
  
The Company has a $500.0 million Senior Credit Facility that matures on June 19, 2020. At December 31, 2018, the 
Senior Credit Facility had outstanding borrowings of $43.9 million, which reduced the availability to $456.1 million. The 
Senior Credit Facility has two financial covenants: a consolidated leverage ratio and a consolidated interest coverage 
ratio. The maximum consolidated leverage ratio permitted under the Senior Credit Facility is 3.5 to 1.0 (3.75 to 1.0 for 
a limited period up to four quarters following an acquisition with a purchase price of $200 million or greater). As of 
December 31, 2018, the Company’s consolidated leverage ratio was 2.45 to 1.0. The minimum consolidated interest 
coverage  ratio  permitted  under  the  Senior  Credit  Facility  is  3.5  to  1.0. As  of  December 31,  2018,  the  Company’s 
consolidated interest coverage ratio was 13.74 to 1.0.

The interest rate under the Senior Credit Facility is variable with a spread based on the Company’s debt rating. The 
average rate on outstanding U.S. Dollar borrowings was 3.40% and the average rate on outstanding Euro borrowings 
was 1.10% as of December 31, 2018. In addition, the Company pays a facility fee based on the consolidated leverage 
ratio multiplied by the aggregate commitments of all of the lenders under the Senior Credit Facility.

Other sources of liquidity include short-term lines of credit for certain of the Company’s foreign subsidiaries, which 
provide for borrowings up to approximately $273.4 million. Most of these credit lines are uncommitted. At December 31, 
2018, the Company had borrowings outstanding of $33.6 million and bank guarantees of $0.4 million, which reduced 
the aggregate availability under these facilities to $239.4 million.

On September 6, 2018, the Company issued the 2028 Notes in the aggregate principal amount of $400 million. On 
September 11, 2018, the Company entered into the 2023 Term Loan and borrowed $350 million. 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. Refer to Note 9 - Financing Arrangements to the Notes to 
the Consolidated Financial Statements for additional information.

On September 7, 2017, the Company issued senior unsecured notes that mature on September 7, 2027 (the "2027 
Notes")  in  the  aggregate  principal  amount  of  €150  million.  On  September 18,  2017,  the  Company  entered  into  a 
variable-rate €100 million term loan that matures on September 18, 2020 (the "2020 Term Loan"). On June 14, 2018, 
the Company repaid approximately €6.5 million under the 2020 Term Loan, reducing the principal balance to €93.5 
million as of December 31, 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 
December 31, 2018, the Company was in full compliance with both of these covenants. The 2028 Notes have no 
specific financial covenants. 

The Company expects to generate operating cash of approximately $450 million in 2019, an increase from 2018 of 
approximately  $118  million  or  35%,  as  the  Company  anticipates  higher  net  income  and  lower  working  capital 
requirements. The Company expects capital expenditures to be approximately $150 million in 2019, compared with 
$113 million in 2018.

36

CONTRACTUAL OBLIGATIONS

The Company’s contractual debt obligations and contractual commitments outstanding as of December 31, 2018 were 
as follows:

Long-term debt, including current portion

1,648.0

Payments due by period:

Contractual Obligations
Interest payments

Short-term debt

Purchase commitments
Operating leases

Retirement benefits

Total

Total

Less than
1 Year

1-3 Years

3-5 Years

More than
5 Years

$

443.2 $

63.8 $

122.8 $

111.5 $

33.6

40.3

114.8

242.7

9.4

33.6

34.5

36.1

39.9

230.2

338.9

—

4.1

44.0

38.1

—

1.7

17.2

27.1

145.1

1,069.5

—

—

17.5

137.6

$

2,522.6 $

217.3 $

439.2 $

496.4 $

1,369.7

The interest payments beyond five years primarily relate to long-term fixed-rate notes. Refer to Note 9 - Financing 
Arrangements in the Notes to the Consolidated Financial Statements for additional information. 

Purchase commitments are defined as an agreement to purchase goods or services that are enforceable and legally 
binding  on  the  Company.  Included  in  purchase  commitments  above  are  certain  obligations  related  to  take-or-pay 
contracts, capital commitments, service agreements and utilities. Many of these commitments relate to take-or-pay 
contracts in which the Company guarantees payment to ensure availability of products or services. These purchase 
commitments do not represent the entire anticipated purchases in the future, but represent only those items that the 
Company contractually is obligated to purchase. The majority of the products and services purchased by the Company 
are purchased as needed, with no commitment.

In  order  to  maintain  minimum  funding  requirements,  the  Company  is  required  to  make  contributions  to  the  trusts 
established for its defined benefit pension plans and other postretirement benefit plans. The table above shows the 
expected future minimum cash contributions to the trusts for the funded plans as well as estimated future benefit 
payments to participants for the unfunded plans.  Those minimum funding requirements and estimated benefit payments 
can vary significantly. The amounts in the table above are based on actuarial estimates using current assumptions for, 
among other things, discount rates, expected return on assets and health care cost trend rates. Refer to Note 12 - 
Retirement Benefit Plans and Note 13 - Other Postretirement Benefit Plans in the Notes to the Consolidated Financial 
Statements for additional information. 

During 2018, the Company made cash contributions of approximately $11.3 million to its global defined benefit pension 
plans and $7.4 million to its other postretirement benefit plans. The Company currently expects to make contributions 
to its global defined benefit pension plans totaling approximately $34 million in 2019, most of which relates to the 
expected 2019 payout of deferred compensation to a former executive officer of the Company. The Company also 
expects to make payments of approximately $5 million to its other postretirement benefit plans in 2019. Excluding 
Mark-to-Market Charges, the Company expects slightly lower pension expense in 2019. Mark-to-Market Charges are 
not accounted for in the 2019 outlook because the amount will not be known until the fourth quarter of 2019, or on an 
interim basis if specific events trigger a remeasurement. Refer to Note 12 - Retirement Benefit Plans and Note 13 - 
Other Postretirement Benefit Plans in the Notes to the Consolidated Financial Statements for additional information.

Refer to Note 10 - Contingencies and Note 16 - Income Taxes in the Notes to the Consolidated Financial Statements 
for additional information regarding the Company's exposure for certain legal and tax matters.

The Company does not have any off-balance sheet arrangements with unconsolidated entities or other persons.

37

New Accounting Guidance Issued and Not Yet Adopted

Information required for this Item is incorporated by reference to Note 1 - Significant Accounting Policies in the Notes 
to the Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the 
United States. The preparation of these financial statements requires management to make estimates and assumptions 
that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts 
of revenues and expenses during the periods presented. The following paragraphs include a discussion of some critical 
areas that require a higher degree of judgment, estimates and complexity.

Revenue recognition:
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. Refer to Note 1 - Significant Accounting Policies in the Notes to the Consolidated Financial Statements 
for further discussion around the Company's revenue policy.

Unbilled Receivables:
"Unbilled receivables" on the Consolidated Balance Sheet primarily include unbilled amounts typically resulting from 
sales under long-term contracts when the following conditions exist; (i) cost-to-cost method of revenue recognition is 
utilized; (ii) the revenue recognized exceeds the amount billed to the customer; and (iii) the right to payment is primarily 
subject only to the passage of time. The amounts recorded for unbilled amounts do not exceed their net realizable 
value. Refer to Note 1 - Significant Accounting Policies in the Notes to the Consolidated Financial Statements for 
further discussion around the Company's policy relating to "Unbilled receivables".

Inventory:
Inventories are valued at the lower of cost or market, 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, while all of the Company’s international inventories are valued by the FIFO 
method. 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 are based on management’s 
estimates  of  expected  year-end  inventory  levels  and  costs.  Because  these  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. The Company recognized a decrease in its LIFO reserve of $6.2 million during 2018 compared 
to an increase in its LIFO reserve of $4.7 million during 2017.

Goodwill and Indefinite-lived Intangible Assets:
The  Company  tests  goodwill  and  indefinite-lived  intangible  assets  for  impairment  at  least  annually,  performing  its 
annual impairment test as of October 1st. Furthermore, goodwill and indefinite-lived intangible assets are reviewed 
for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. 
Each interim period, the Company assesses whether or not an indicator of impairment is present that would necessitate 
a goodwill and indefinite-lived intangible assets impairment analysis be performed in an interim period other than during 
the fourth quarter.

The Company reviews goodwill for impairment at the reporting unit level. The Mobile Industries segment has four 
reporting  units  and  the  Process  Industries  segment  has  two  reporting  units. The  reporting  units  within  the  Mobile 
Industries  segment  are  Mobile  Industries,  Lubrication  Systems,  Aerospace  Drive  Systems  (formerly  Aerospace 
Transmissions) and Aerospace Bearing Inspection (formerly Aerospace Aftermarket). The reporting units within the 
Process Industries segment are Process Industries and Industrial Services. The Lubrication Systems reporting unit 
was established as a result of the Groeneveld acquisition. 

38

Accounting  guidance  permits  an  entity  to  first  assess  qualitative  factors  to  determine  whether  additional  goodwill 
impairment  testing  is  required.  The  Company  chose  to  utilize  this  qualitative  assessment  in  the  annual  goodwill 
impairment testing of the Mobile Industries, Aerospace Bearing Inspection, Process Industries, Industrial Services and 
Lubrication Systems reporting units in the fourth quarter of 2018. Based on this qualitative assessment, the Company 
concluded that it was more likely than not that the fair values of these reporting units were exceeding their respective 
carrying values. 

The Company chose to perform a quantitative goodwill impairment analysis in the annual goodwill impairment testing 
of  the Aerospace  Drive  Systems  reporting  unit  with  a  goodwill  balance  of  $1.8  million.  The  quantitative  goodwill 
impairment analysis compares the carrying amount of the reporting unit to its estimated fair value. To the extent that 
the carrying value of the reporting unit exceeds its estimated fair value, impairment exists and must be recognized.

The Company prepares its quantitative goodwill impairment analysis by comparing the estimated fair value of each 
reporting unit, using an income approach (a discounted cash flow model), with its carrying value. The income approach 
requires several assumptions including future sales growth, EBIT margins and capital expenditures. The Company’s 
Aerospace Drive Systems reporting unit provided their forecast of results for the next four years. These forecasts are 
the basis for the information used in the discounted cash flow model. The discounted cash flow model also requires 
the use of a discount rate and a terminal revenue growth rate (the revenue growth rate for the period beyond the four 
years forecast by the reporting units), as well as projections of future operating margins (for the period beyond the 
forecast four years). During the fourth quarter of 2018, the Company used a discount rate for the  Aerospace Drive 
Systems reporting unit of 13.0% and a terminal revenue growth rate of 2.0%. The quantitative analysis using these 
assumptions supported the Company's conclusion that the fair value of this reporting unit exceeded its carrying value.

As of December 31, 2018, the Company had $960.5 million of goodwill on its Consolidated Balance Sheet, of which 
$349.7 million was attributable to the Mobile Industries segment and $610.8 million was attributable to the Process 
Industries segment. See Note 8 - Goodwill and Other Intangible Assets in the Notes to the Consolidated Financial 
Statements for the carrying amount of goodwill by segment. Material goodwill does not exist at reporting units that are 
at risk of failing the quantitative goodwill impairment analysis. 

Restructuring costs:
The Company’s policy is to recognize restructuring costs in accordance with Accounting Standards Codification ("ASC") 
Topic  420,  “Exit  or  Disposal  Cost  Obligations,”  and  ASC  Topic  712,  “Compensation  and  Non-retirement  Post-
Employment Benefits.” Detailed contemporaneous documentation is maintained and updated to ensure that accruals 
are properly supported. If management determines that there is a change in estimate, the accruals are adjusted to 
reflect this change.

Income taxes:
Significant management judgment is required in determining the provision for income taxes, deferred tax assets and 
liabilities, valuation allowances against deferred tax assets, and accruals for uncertain tax positions.

The Company, which is subject to income taxes in the United States and numerous non-U.S. jurisdictions, accounts 
for income taxes in accordance with ASC Topic 740, “Income Taxes.”  Deferred tax assets and liabilities are recorded 
for the future tax consequences attributable to differences between financial statement carrying amounts of existing 
assets and liabilities and their respective tax bases, as well as net operating losses and tax credit carryforwards. 
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the 
years in which temporary differences are expected to be recovered or settled. Deferred tax assets relate primarily to 
pension and postretirement benefit obligations in the United States, which the Company believes are more likely than 
not to result in future tax benefits. The Company records valuation allowances against deferred tax assets by tax 
jurisdiction when it is more likely than not that such assets will not be realized. In determining the need for a valuation 
allowance,  the  historical  and  projected  financial  performance  of  the  entity  recording  the  net  deferred  tax  asset  is 
considered along with any other pertinent information. There were no valuation allowance reversals in 2018 and 2016.
The Company recorded $12.6 million of tax benefit related to the reversal of valuation allowances in 2017. Refer to 
Note 16 - Income Taxes in the Notes to the Consolidated Financial Statements for further discussion on the valuation 
allowance reversals. 

39

In the ordinary course of the Company’s business, there are many transactions and calculations where the ultimate 
income tax determination is uncertain. The Company is regularly under audit by tax authorities. Accruals for uncertain 
tax positions are provided for in accordance with the requirements of ASC Topic 740. The Company records interest and 
penalties related to uncertain tax positions as a component of income tax expense. In 2018, the Company recorded 
$3.2 million of net tax benefits for uncertain tax positions which consisted of $6.6 million related to the net reversal of 
accruals for prior year uncertain tax positions and settlements with tax authorities. This benefit was partially offset by 
$3.4 million of increases to current and prior year uncertain tax positions. The Company also recorded $14.8 million 
of uncertain tax positions related to prior years for acquisitions made during 2018.  

The SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) in December 2017 to address the application of U.S. 
GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed (including 
computations) in reasonable detail to complete the accounting for certain income tax effects of U.S. Tax Reform. In 
accordance with SAB 118, the accounting for the tax effects of U.S. Tax Reform is complete as of December 31, 2018. 
Refer to Note 16 - Income Taxes in the Notes to the Consolidated Financial Statements for further discussion on the 
uncertain tax positions reserve reversals. 

Purchase accounting and business combinations:
Assets acquired and liabilities assumed as part of a business combination are recognized at their acquisition date fair 
values. Refer to Note 1 - Significant Accounting Policies for further discussion regarding the fair value process and 
Note 2 - Acquisitions and Divestitures for further discussion regarding assumptions and estimates.

Benefit Plans:
The Company sponsors a number of defined benefit pension plans that cover eligible associates. The Company also 
sponsors several funded and unfunded postretirement plans that provide health care and life insurance benefits for 
eligible retirees and their dependents. These plans are accounted for in accordance with ASC Topic 715-30, "Defined 
Benefit Plans – Pension," and ASC Topic 715-60, "Defined Benefit Plans – Other Postretirement."

The measurement of liabilities related to these plans is based on management's assumptions related to future events, 
including discount rates, rates of return on pension plan assets, rates of compensation increases and health care cost 
trend rates. Management regularly evaluates these assumptions and adjusts them as required and appropriate. Other 
plan  assumptions  also  are  reviewed  on  a  regular  basis  to  reflect  recent  experience  and  the  Company's  future 
expectations. Actual experience that differs from these assumptions may affect future liquidity, expense and the overall 
financial position of the Company. While the Company believes that current assumptions are appropriate, significant 
differences in actual experience or significant changes in these assumptions may affect materially the Company's 
pension and other postretirement employee benefit obligations and its future expense and cash flow.

The discount rate is used to calculate the present value of expected future pension and postretirement cash flows as 
of the measurement date. The Company establishes the discount rate by constructing a notional portfolio of high-
quality corporate bonds and matching the coupon payments and bond maturities to projected benefit payments under 
the  Company's  pension  and  postretirement  welfare  plans. The  bonds  included  in  the  portfolio  generally  are  non-
callable. A lower discount rate will result in a higher benefit obligation; conversely, a higher discount rate will result in 
a lower benefit obligation. The discount rate also is used to calculate the annual interest cost, which is a component 
of net periodic benefit cost.

The expected rate of return on plan assets is determined by analyzing the historical long-term performance of the 
Company's pension plan assets, as well as the mix of plan assets between equities, fixed-income securities and other 
investments, the expected long-term rate of return expected for those asset classes and long-term inflation rates. 
Short-term asset performance can differ significantly from the expected rate of return, especially in volatile markets. 
A lower-than-expected rate of return on pension plan assets will increase pension expense and future contributions. 

The Company recognizes actuarial gains and losses immediately through net periodic benefit cost upon the annual 
remeasurement in the fourth quarter, or on an interim basis if specific events trigger a remeasurement. 

40

Defined Benefit Pension Plans:

The Company recognized actuarial losses of $38.8 million during 2018 primarily due to lower than expected returns 
on plan assets of $83.4 million driven by negative returns on fixed income investments offset by the increase in discount 
rates used to measure the obligation of $62.4 million. The impact of experience losses and other changes in valuation 
assumptions resulted in losses of approximately $17.8 million. The discount rate used to measure the U.S. obligation 
increased by 56 basis points compared to 2017.

In 2019, the Company expects net periodic benefit cost of $9.2 million for defined benefit pension plans, compared 
with net periodic benefit cost of $35.0 million in 2018. Net periodic benefit cost for 2019 does not include Mark-to-
Market Charges that will be recognized immediately through earnings in the fourth quarter of 2019, or on an interim 
basis if specific events trigger a remeasurement. Excluding the actuarial losses of $38.8 million recognized in 2018, 
the expected net periodic benefit cost of $9.2 million in 2019 compares to net periodic benefit cost of $6.4 million in 
2018 as the Company expects lower expected return on plan assets of $4.9 million, partially offset by lower service 
costs of $2.2 million. 

The Company expects to contribute to its defined benefit pension plans or pay directly to participants of defined benefit 
plans approximately $34.0 million in 2019 compared with $11.3 million in 2018. The increase in 2019 planned employer 
contributions/payments is primarily due to the expected payout of deferred compensation to a former executive officer 
of the Company.

For expense purposes in 2018, the Company applied a weighted-average discount rate of 3.80% to its U.S. defined 
benefit pension plans. For expense purposes in 2019, the Company will apply a weighted-average discount rate of 
4.36% to its U.S. defined benefit pension plans. 

For expense purposes in 2018, the Company applied an expected weighted-average rate of return of 5.78% for the 
Company’s U.S. pension plan assets. For expense purposes in 2019, the Company will apply an expected weighted-
average rate of return on plan assets of 6.12%.

The following table presents the sensitivity of the Company's U.S. projected pension benefit obligation ("PBO") and 
2018 expense to the indicated increase/decrease in key assumptions:

Assumption:
Discount rate
Actual return on plan assets
Expected return on assets

+ / - Change at
December 31, 2018
PBO

Change to
2018 Expense

Change

+/- 0.25% $
+/- 0.25%
+/- 0.25%

16.6 $
 N/A
 N/A

16.6
1.0
—

In the table above, a 25 basis point decrease in the discount rate will increase the PBO by $16.6 million and decrease 
income before income taxes by $16.6 million. Defined benefit pension plans in the United States represent 66% of the 
Company's benefit obligation and 64% of the fair value of the Company's plan assets at December 31, 2018.

41

Other Postretirement Benefit Plans:

The Company recognized actuarial gains of $16.7 million during 2018 primarily due to the impact of a 73 basis point 
increase in the discount rate used to measure the Company's defined benefit postretirement obligation and due to a 
number of participants opting out of coverage from the plans in response to a financial incentive program offered to 
eligible participants of the Company's retiree health and life insurance plans.  The Company recognized actuarial gains 
of $10.6 million as a result of the increase in the discount rate and $10.4 million as a result of the impact of the opt-
out program. 

In 2019, the Company expects net periodic benefit cost of $2.4 million for other postretirement benefit plans, compared 
to net periodic benefit credit of $14.4 million in 2018. Net periodic benefit cost for 2019 does not include Mark-to-Market 
Charges that will be recognized immediately through earnings in the fourth quarter of 2019, or on an interim basis if 
specific events trigger a remeasurement. Excluding the actuarial gain of $16.7 million recognized in 2018, the expected 
net periodic benefit cost of $2.4 million in 2019 compares to net periodic benefit cost of $2.4 million in 2018 as the 
Company expects lower amortization of prior service cost of $0.5 million, partially offset by a lower expected return 
on plan assets of $0.5 million. The lower expected return on plan assets is primarily due to a reduction in return on 
assets in the Company's Voluntary Employee Beneficiary Association ("VEBA") trust in 2018 that will affect the expected 
return on plan assets in 2019. 

For expense purposes in 2018, the Company applied a discount rate of 3.57% to its other postretirement benefit plans. 
For expense purposes in 2019, the Company will apply a discount rate of 4.30% to its other postretirement benefit 
plans. For expense purposes in 2018, the Company applied an expected rate of return of 4.50% to the VEBA trust 
assets. For expense purposes in 2019, the Company will apply an expected rate of return of 4.85% to the VEBA trust 
assets. 

The  following  table  presents  the  sensitivity  of  the  Company's  accumulated  other  postretirement  benefit  obligation 
("ABO") and 2018 expense to the indicated increase/decrease in key assumptions:

Assumption:

Discount rate

Actual return on plan assets

Expected return on assets

+ / - Change at
December 31, 2018
ABO

Change to
2018 Expense

Change

+/- 0.25%

$

+/- 0.25%

+/- 0.25%

3.2 $

 N/A

 N/A

3.2

0.2

—

In the table above, a 25 basis point decrease in the discount rate will increase the ABO by $3.2 million and decrease 
income before income taxes by $3.2 million. 

For measurement purposes for postretirement benefits, the Company assumed a weighted-average annual rate of 
increase in per capita cost (health care cost trend rate) for medical and prescription drug benefits of 6.00% for 2019, 
declining steadily for the next six years to 5.00%; and 8.00% for HMO benefits for 2019, declining gradually for the 
next 13 years to 5.0%. The assumed health care cost trend rate may have a significant effect on the amounts reported.  
A one percentage point increase in the assumed health care cost trend rate would have increased the 2018 total 
service and interest cost components by $0.2 million and would have increased the postretirement obligation by $3.3 
million. A one percentage point decrease would provide corresponding reductions of $0.1 million and $3.0 million, 
respectively.

Other loss reserves:
The Company has a number of loss exposures that are incurred in the ordinary course of business such as environmental 
clean-up, product liability, product warranty, litigation and accounts receivable reserves. Establishing loss reserves for 
these  matters  requires  management’s  judgment  with  regards  to  estimating  risk  exposure  and  ultimate  liability  or 
realization. These loss reserves are reviewed periodically and adjustments are made to reflect the most recent facts 
and circumstances.

42

OTHER DISCLOSURES:

Foreign Currency:

Assets and liabilities of subsidiaries are translated at the rate of exchange in effect on the balance sheet date; income 
and expenses are translated at the average rates of exchange prevailing during the reporting period. Related translation 
adjustments are reflected as a separate component of accumulated other comprehensive loss. Foreign currency gains 
and losses resulting from transactions are included in the Consolidated Statements of Income.

The Company recognized a foreign currency exchange impact resulting from transactions of $1.3 million of income, 
$3.7 million and $5.6 million of expense for the years ended December 31, 2018, 2017 and 2016, respectively. For 
the  year  ended  December 31,  2018,  the  Company  recorded  a  negative  non-cash  foreign  currency  translation 
adjustment of $60.5 million that decreased shareholders’ equity, compared with a positive non-cash foreign currency 
translation adjustment of $44.7 million that increased shareholders’ equity for the year ended December 31, 2017. 
The foreign currency translation adjustments for the year ended December 31, 2018 were impacted negatively by the 
strengthening of the U.S. dollar relative to other currencies as of December 31, 2018 compared to December 31, 2017.

Trade Law Enforcement:

The U.S. government has an antidumping duty order in effect covering tapered roller bearings from China. The Company 
is a producer of these bearings, as well as ball bearings and other bearing types, in the U.S.

Quarterly Dividend:

On February 6, 2019, the Company’s Board of Directors declared a quarterly cash dividend of $0.28 per common 
share. The quarterly dividend will be paid on March 4, 2019 to shareholders of record as of February 20, 2019. This 
will be the 387th consecutive quarterly dividend paid on the common shares of the Company.

43

Forward-Looking Statements

Certain  statements  set  forth  in  this Annual  Report  on  Form  10-K  and  in  the  Company’s  2018 Annual  Report  to 
Shareholders that are not historical in nature (including the Company’s forecasts, beliefs and expectations)  are “forward-
looking”  statements  within  the  meaning  of  the  Private  Securities  Litigation  Reform  Act  of  1995.  In  particular, 
Management’s Discussion and Analysis contains numerous forward-looking statements. Forward-looking statements 
generally  will  be  accompanied  by  words  such  as  “anticipate,”  “believe,”  “could,”  “estimate,”  “expect,”  “forecast,” 
“outlook,” “intend,” “may,” “possible,” “potential,” “predict,” “project” or other similar words, phrases or expressions. You 
are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Annual 
Report on Form 10-K. The Company cautions readers that actual results may differ materially from those expressed 
or implied in forward-looking statements made by or on behalf of the Company due to a variety of factors, such as:

(a)  deterioration in world economic conditions, or in economic conditions in any of the geographic regions in 
which the Company or its customers or suppliers conduct business, including adverse effects from a global 
economic  slowdown,  terrorism  or  hostilities.  This  includes:  political  risks  associated  with  the  potential 
instability of governments and legal systems in countries in which the Company or its customers or suppliers 
conduct business, changes in currency valuations and recent world events that have increased the risks 
posed by international trade disputes, tariffs and sanctions;

(b)  the effects of fluctuations in customer demand on sales, product mix and prices in the industries in which 
the Company operates. This includes: the ability of the Company to respond to rapid changes in customer 
demand, the effects of customer or supplier bankruptcies or liquidations, the impact of changes in industrial 
business cycles, and whether conditions of fair trade continue in our markets;

(c)  competitive factors, including changes in market penetration, increasing price competition by existing or 
new foreign and domestic competitors, the introduction of new products by existing and new competitors, 
and new technology that may impact the way the Company’s products are produced, sold or distributed;

(d)  changes in operating costs. This includes: the effect of changes in the Company’s manufacturing processes; 
changes in costs associated with varying levels of operations and manufacturing capacity; availability and 
cost of raw materials and energy; changes in the expected costs associated with product warranty claims; 
changes resulting from inventory management and cost reduction initiatives; the effects of unplanned plant 
shutdowns; and changes in the cost of labor and benefits;

(e)  the success of the Company’s operating plans, announced programs, initiatives and capital investments; 
the ability to integrate acquired companies; and the ability of acquired companies to achieve satisfactory 
operating results, including results being accretive to earnings; 

(f) 

the  Company’s  ability  to  maintain  appropriate  relations  with  unions  or  works  councils  that  represent 
Company associates in certain locations in order to avoid disruptions of business;

(g)  unanticipated litigation, claims or assessments. This includes: claims or problems related to intellectual 

property, product liability or warranty, environmental issues, and taxes;

(h)  changes in worldwide financial and capital markets, including availability of financing and interest rates on 
satisfactory  terms,  which  affect:  the  Company’s  cost  of  funds  and/or  ability  to  raise  capital;  as  well  as 
customer demand and the ability of customers to obtain financing to purchase the Company’s products or 
equipment that contain the Company’s products;

(i) 

(j) 

the Company's ability to satisfy its obligations under its debt agreements, as well as its ability to renew or 
refinance borrowings on favorable terms; 

the impact on the Company's pension obligations and assets due to changes in interest rates, investment 
performance and other tactics designed to reduce risk; and

(k)  those items identified under Item 1A. Risk Factors on pages 6 through 11.

Additional risks relating to the Company’s business, the industries in which the Company operates or the Company’s 
common  shares  may  be  described  from  time  to  time  in  the  Company’s  filings  with  the  Securities  and  Exchange 
Commission. All of these risk factors are difficult to predict, are subject to material uncertainties that may affect actual 
results and may be beyond the Company’s control.

Readers are cautioned that it is not possible to predict or identify all of the risks, uncertainties and other factors that 
may affect future results and that the above list should not be considered to be a complete list. Except as required by 
the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking 
statement, whether as a result of new information, future events or otherwise.

44

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk:
Changes in short-term interest rates related to several separate funding sources impact the Company’s earnings. 
These sources are borrowings under the Accounts Receivable Facility, borrowings under the Senior Credit Facility 
and short-term bank borrowings by its international subsidiaries. If the market rates for short-term borrowings increased 
by one-percentage-point around the globe, the impact from our variable rate debt would be an increase in interest 
expense of $6.1 million annually, with a corresponding decrease in income from continuing operations before income 
taxes of the same amount. This amount was determined by considering the impact of hypothetical interest rates on 
the Company’s borrowing cost and year-end debt balances by category.

Foreign Currency Exchange Rate Change Risk:
Fluctuations in the value of the U.S. dollar compared to foreign currencies, including the Euro, also impact the Company’s 
earnings. The greatest risk relates to products shipped between the Company’s European operations and the United 
States, as well as intercompany loans between Timken affiliates. Foreign currency forward contracts are used to hedge 
a portion of these intercompany transactions. Additionally, hedges are used to cover third-party purchases of products 
and equipment. As of December 31, 2018, there were $218.8 million of hedges in place. A uniform 10% weakening of 
the U.S. dollar against all currencies would have resulted in a charge of $19.6 million related to these hedges, which 
would have partially offset the otherwise favorable impact of the underlying currency fluctuation. In addition to the 
direct impact of the hedged amounts, changes in exchange rates also affect the volume of sales or foreign currency 
sales price as competitors’ products become more or less attractive.

Commodity Price Risk:
In the ordinary course of business, the Company is exposed to market risk with respect to commodity price fluctuations, 
primarily related to our purchases of raw materials and energy, principally steel and natural gas. Whenever possible, 
the Company manages its exposure to commodity risks primarily through the use of supplier pricing agreements that 
enable  the  Company  to  establish  the  purchase  prices  for  certain  inputs  that  are  used  in  our  manufacturing  and 
distribution business.

45

Item 8. Financial Statements and Supplementary Data

Consolidated Statements of Income

(Dollars in millions, except per share data)

Net sales

Cost of products sold

Gross Profit

Selling, general and administrative expenses

Impairment and restructuring charges

Operating Income

Interest expense

Interest income

Continued Dumping and Subsidy Offset Act income, net

Non-service pension and other postretirement costs

Other income (expense), net

Income Before Income Taxes

Provision for income taxes

Net Income

Less: Net income (loss) attributable to noncontrolling interest

Net Income Attributable to The Timken Company

Net Income per Common Share Attributable to The Timken Company
 Common Shareholders

Basic earnings per share

Diluted earnings per share

Dividends per share

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

(Dollars in millions)

Net Income

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments

Pension and postretirement liability adjustment

Change in fair value of derivative financial instruments

Other comprehensive (loss) income, net of tax

Comprehensive Income, net of tax

Less: comprehensive (loss) income attributable to noncontrolling interest

Year Ended December 31,

2018

2017

2016

$

3,580.8 $

3,003.8 $

2,540.7

1,040.1

580.7

4.9

454.5

(51.7)

2.1

—

(6.2)

9.4

408.1

102.6

305.5

2.7

2,191.7

812.1

508.3

4.3

299.5

(37.1)

2.9

—

(15.0)

9.6

259.9

57.6

202.3

(1.1)

$

$

$

$

302.8 $

203.4 $

3.93 $

3.86 $

1.11 $

2.62 $

2.58 $

1.07 $

2,669.8

1,963.5

706.3

440.2

21.7

244.4

(33.5)

1.9

59.6

(69.9)

(0.9)

201.6

60.5

141.1

0.3

140.8

1.79

1.78

1.04

Year Ended December 31,

2018

2017

2016

$

305.5 $

202.3 $

141.1

(67.4)

0.4

3.8

(63.2)

242.3

(4.2)

47.1

(1.8)

(3.3)

42.0

244.3

1.3

(22.8)

1.1

0.1

(21.6)

119.5

2.0

117.5

Comprehensive Income Attributable to The Timken Company

$

246.5 $

243.0 $

See accompanying Notes to the Consolidated Financial Statements.

46

 
Consolidated Balance Sheets

(Dollars in millions)
ASSETS
Current Assets

Cash and cash equivalents

Restricted cash

Accounts receivable, less allowances (2018 - $21.9 million; 2017 - $20.3 million)

Unbilled receivables
Inventories, net
Deferred charges and prepaid expenses
Other current assets

Total Current Assets

Property, Plant and Equipment, Net

Other Assets

Goodwill

Other intangible assets
Non-current pension assets

Deferred income taxes

Other non-current assets

Total Other Assets

Total Assets

LIABILITIES AND EQUITY

Current Liabilities

Short-term debt

Current portion of long-term debt

Accounts payable, trade

Salaries, wages and benefits

Income taxes payable

Other current liabilities

Total Current Liabilities

Non-Current Liabilities

Long-term debt
Accrued pension cost

Accrued postretirement benefits cost
Deferred income taxes
Other non-current liabilities

Total Non-Current Liabilities

Shareholders’ Equity

Class I and II Serial Preferred Stock without par value:

Authorized - 10,000,000 shares each class, none issued

Common stock without par value:

Authorized - 200,000,000 shares

Issued (including shares in treasury) (2018 - 98,375,135; 2017 - 98,375,135 shares)

Stated capital
Other paid-in capital

Earnings invested in the business
Accumulated other comprehensive loss
Treasury shares at cost (2018 - 22,421,213; 2017 - 20,672,133 shares)

Total Shareholders’ Equity

Noncontrolling interest

Total Equity

Total Liabilities and Equity

See accompanying Notes to the Consolidated Financial Statements.

47

$

$

$

December 31,

2018

2017

132.5 $
0.6
546.6

116.6
835.7
28.2
77.0
1,737.2

912.1

960.5

733.2

6.2
59.0

37.0

121.6

3.8
524.9

—
738.9
29.7
81.2
1,500.1

864.2

511.8

420.6

19.7

61.0

25.0

1,795.9

4,445.2 $

1,038.1

3,402.4

33.6 $
9.4
273.2

174.9

23.5

171.0

685.6

1,638.6
161.3

108.7
138.0
70.3
2,116.9

105.4

2.7
265.2

127.9

9.8
160.7

671.7

854.2
167.3

122.6
44.0
67.7
1,255.8

—

—

53.1
951.9
1,630.2
(95.3)
(960.3)

1,579.6

63.1

1,642.7

$

4,445.2 $

53.1
903.8
1,408.4
(38.3)
(884.3)

1,442.7

32.2

1,474.9

3,402.4

 
Consolidated Statements of Cash Flows

(Dollars in millions)

CASH PROVIDED (USED)

Operating Activities

Year Ended December 31,

2018

2017

2016

Net income attributable to The Timken Company

Net income (loss)attributable to noncontrolling interest

$

302.8 $
2.7

203.4 $
(1.1)

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Impairment charges

Loss (gain) on sale of assets

Loss on divestitures

Deferred income tax benefit

Stock-based compensation expense

Pension and other postretirement expense

Pension contributions and other postretirement benefit contributions

Changes in operating assets and liabilities:

Accounts receivable

Unbilled receivables

Inventories

Accounts payable, trade

Other accrued expenses

Income taxes

Other, net

Net Cash Provided by Operating Activities

Investing Activities

Capital expenditures

Acquisitions, net of cash acquired of $30.1 million in 2018, $35.4 million in 2017
   and $2.5 million in 2016

Proceeds from disposals of property, plant and equipment
Proceeds from divestitures

Investments in short-term marketable securities, net

Other

Net Cash Used in Investing Activities

Financing Activities

Cash dividends paid to shareholders

Purchase of treasury shares

Proceeds from exercise of stock options

Shares surrendered for taxes

Proceeds from long-term debt

Payments on long-term debt

Deferred financing costs

Accounts receivable facility financing borrowings

Accounts receivable facility financing payments

Short-term debt activity, net

Other

Net Cash Provided by (Used in) Financing Activities

Effect of exchange rate changes on cash

Increase (decrease) In Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash at beginning of year

Cash, Cash Equivalents and Restricted Cash at End of Year

$

See accompanying Notes to the Consolidated Financial Statements.

146.0

1.3

0.3

0.8
(21.4)
32.3

20.7
(18.7)

(66.4)
(21.8)
(87.1)
(20.2)
32.2

1.9
27.1

332.5

(112.6)

(765.4)

1.5
14.0
(2.8)
0.1

(865.2)

(85.7)
(98.5)
12.8
(5.4)
1,391.1

(663.8)
(1.2)
152.0

(139.9)
(6.7)
(1.6)
553.1
(12.7)
7.7
125.4
133.1 $

137.7

0.1
(2.1)
—
(0.4)
24.7

28.9
(23.9)

(42.3)
—
(132.1)
70.7

36.3
(36.2)
(26.9)
236.8

(104.7)

(346.8)

7.1

—
(3.6)
(0.7)
(448.7)

(83.3)
(43.4)
32.9
(11.4)
927.8
(684.5)
(1.2)
56.7
(42.7)
19.9
(2.6)
168.2

17.6
(26.1)
151.5
125.4 $

140.8

0.3

131.7

3.9

1.6

—
(15.0)
14.1

84.0
(24.7)

20.3

—
10.1

12.2
(2.8)
23.5

3.9
403.9

(137.5)

(72.6)

1.5

—
(2.6)
0.2
(211.0)

(81.6)
(101.0)
4.3
(1.9)
340.5
(345.3)
—
50.0
(50.1)
7.2

9.1
(168.8)
(2.4)
21.7

129.8
151.5

48

Consolidated Statements of Shareholders’ Equity

The Timken Company Shareholders

Other
Paid-In
Capital

Earnings
Invested
in the
Business

Accumulated
Other
Comprehensive
Income (Loss)

Treasury
Shares

Non-
controlling
Interest

Total

Stated
Capital

(Dollars in millions, except per share data)

Year Ended December 31, 2016
Balance at January 1, 2016

Net income

Foreign currency translation adjustments
Pension and other postretirement liability adjustment
   (net of income tax expense of $13.1 million)

Change in fair value of derivative financial
   instruments, net of reclassifications
Investment in joint venture by noncontrolling
   interest party
Dividends declared to noncontrolling interest
Dividends – $1.04 per share
Excess tax benefit from stock compensation
Stock-based compensation expense
Purchase of treasury shares
Stock option exercise activity
Restricted share activity
Shares surrendered for taxes

Balance at December 31, 2016

Year Ended December 31, 2017

Cumulative effect of ASU 2016-09

Net income (loss)

Foreign currency translation adjustments

Pension and other postretirement liability adjustment
   (net of $1.1 income tax benefit)

Change in fair value of derivative financial
   instruments, net of reclassifications

Dividends declared to noncontrolling interest

Dividends – $1.07 per share

Stock-based compensation expense

Purchase of treasury shares

Stock option exercise activity

Restricted share activity

Shares surrendered for taxes

Balance at December 31, 2017

Year Ended December 31, 2018

Cumulative effect of the new revenue standard 
   (net of income tax benefit of $1.5 million)

Cumulative effect of ASU 2018-02

Net income

Foreign currency translation adjustments

Pension and other postretirement liability adjustment
   (net of $0.5 income tax expense)

Change in fair value of derivative financial
   instruments, net of reclassifications

Shares issued for the acquisition of ABC Bearings

Dividends – $1.11 per share
Stock-based compensation expense
Purchase of treasury shares
Stock option exercise activity
Restricted share activity
Shares surrendered for taxes

Balance at December 31, 2018

$ 1,349.6 $
141.1
(22.8)

1.1

0.1

9.3

(0.3)
(81.6)
(1.1)
14.1
(101.0)
4.3
—
(1.9)  
$ 1,310.9 $

0.5

202.3

47.1

(1.8)

(3.3)

(0.3)
(83.3)
24.7
(43.4)
32.9

—
(11.4)  
$ 1,474.9 $

4.0

—
305.5
(67.4)

0.4

3.8

66.0

(85.7)
32.3
(98.5)
12.8
—
(5.4)  
$ 1,642.7 $

See accompanying Notes to the Consolidated Financial Statements.

53.1 $ 905.1 $ 1,230.1 $

(54.6) $ (804.3) $

(24.5)

1.1

0.1

140.8

(81.6)

(1.1)
14.1

(2.5)
(8.7)

53.1 $ 906.9 $ 1,289.3 $

1.5

(1.0)
203.4

(101.0)
6.8
8.7
(1.9)  
(77.9) $ (891.7) $

44.7

(1.8)

(3.3)

(83.3)

24.7

(10.7)

(18.6)

53.1 $ 903.8 $ 1,408.4 $

(43.4)
43.6

18.6
(11.4)  
(38.3) $ (884.3) $

4.0

0.7
302.8

(85.7)

30.9

32.3

(3.8)
(11.3)

53.1 $ 951.9 $ 1,630.2 $

49

(0.7)

(60.5)

0.4

3.8

(98.5)
16.6
11.3
(5.4)  
(95.3) $ (960.3) $

20.2

0.3

1.7

9.3

(0.3)

31.2

(1.1)
2.4

(0.3)

32.2

2.7
(6.9)

35.1

63.1

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

Note 1 - Significant Accounting Policies 

Principles of Consolidation: 
The consolidated financial statements include the accounts and operations of the Company in which a controlling 
interest is maintained. Investments in affiliated companies where the Company exercises significant influence, but 
does not control, and the activities of which it is not the primary beneficiary, are accounted for using the equity method. 
All intercompany accounts and transactions are eliminated upon consolidation. 

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 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. 

The pricing and payment terms for non-U.S. government contracts are 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.

50

Note 1 – Significant Accounting Policies (continued)

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 such promised goods and services are immaterial to the 
customer contract taken as a whole, 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 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 enforceable rights and 
obligations or changing existing ones. 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.

Cash Equivalents:
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be 
cash equivalents.

Restricted Cash:
Cash of $0.6 million and $3.8 million at December 31, 2018 and 2017, respectively, was restricted. The decrease was 
primarily due to cash previously restricted for bank guarantees of $3.0 million and a reduction of unclaimed dividends 
by foreign subsidiaries to minority shareholders of $0.3 million.

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.

51

Note 1 – Significant Accounting Policies (continued)

Prior to the adoption of the new revenue standard, the Company recognized a portion of its revenues on the percentage-
of-completion method. As of December 31, 2017, revenue recognized in excess of billings of $67.3 million under the 
percentage-of-completion  method  were  included  in  "Accounts  receivable,  less  allowances"  on  the  Consolidated 
Balance Sheet. In accordance with the new revenue standard, $72.7 million of revenue recognized in excess of billings 
related to such revenues are included in "Unbilled receivables" on the Consolidated Balance Sheet at December 31, 
2018.

Unbilled Receivables:
"Unbilled receivables" on the Consolidated Balance Sheet primarily include unbilled amounts typically resulting from 
sales under long-term contracts when the following conditions exist; (i) cost-to-cost method of revenue recognition is 
utilized; (ii) the revenue recognized exceeds the amount billed to the customer; and (iii) the right to payment is primarily 
subject only to the passage of time. The amounts recorded for unbilled amounts do not exceed their net realizable 
value.

The $116.6 million balance of "Unbilled receivables" at December 31, 2018 resulted from the adoption of the new 
revenue standard. As discussed above, this included $72.7 million of unbilled receivables formerly accounted for under 
the percentage of completion method and previously included in "Accounts receivable, less allowances". In addition, 
as part of the adoption of the new revenue standard, the Company identified other customer arrangements in which 
there is continuous transfer of control to the customer, resulting in the recognition of an additional $43.9 million of 
unbilled receivables as of December 31, 2018. 

Inventories: 
Inventories are valued at the lower of cost or net realizable value, with approximately 56% valued by the FIFO method 
and the remaining 44% valued by the LIFO method. The majority of the Company’s domestic inventories are valued 
by the LIFO method, while all of the Company’s international inventories are valued by the FIFO method.

Investments: 
Short-term investments are investments with maturities between four months and one year and are valued at amortized 
cost, which approximates fair value. The Company held short-term investments as of December 31, 2018 and 2017
with a fair value and cost basis of $21.8 million and $16.4 million, respectively, which were included in other current 
assets on the Consolidated Balance Sheets.

Property, Plant and Equipment: 
Property,  plant  and  equipment,  net  is  valued  at  cost  less  accumulated  depreciation.  Maintenance  and  repairs  are 
charged to expense as incurred. The provision for depreciation is computed by the straight-line method based upon 
the estimated useful lives of the assets. The useful lives are approximately 30 years for buildings, three to 10 years
for computer software and three to 20 years for machinery and equipment.

The impairment of long-lived assets is evaluated when events or changes in circumstances indicate that the carrying 
amount of the asset or related group of assets may not be recoverable. If the expected future undiscounted cash flows 
are less than the carrying amount of the asset, an impairment loss is recognized at that time to reduce the asset to 
the lower of its fair value or its net book value.

Goodwill and Other Intangible Assets: 
Intangible assets subject to amortization are amortized on a straight-line method over their legal or estimated useful 
lives,  with  useful  lives  ranging  from  one  to  20  years.  Goodwill  and  indefinite-lived  intangible  assets  not  subject  to 
amortization are tested for impairment at least annually. The Company performs its annual impairment test as of October 
1st.  Furthermore,  goodwill  and  intangible  assets  are  reviewed  for  impairment  whenever  events  or  changes  in 
circumstances indicate that the carrying values may not be recoverable in accordance with accounting rules related 
to goodwill and other intangible assets. 

52

Note 1 – Significant Accounting Policies (continued)

Purchase accounting and business combinations:
Assets acquired and the liabilities assumed as part of a business combination are recognized at their acquisition date 
fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of 
the acquisition date fair values of the assets acquired and the liabilities assumed. The Company considers inputs to 
value the assets and liabilities by taking into account independent appraisals and historical data, supplemented by 
current and anticipated market conditions. The valuation inputs in these analyses are based on market participant 
assumptions.  The Company may refine these estimates and record adjustments to an asset or liability with the offset 
to goodwill during the measurement period, which may be up to one year from the acquisition date.  Upon the conclusion 
of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever 
comes first, any subsequent adjustments are recorded in the Company’s Consolidated Statements of Income. Refer 
to Note 2 - Acquisitions and Divestitures for additional details.

Product Warranties: 
The Company provides limited warranties on certain of its products. The Company accrues liabilities for warranties 
generally  based  upon  specific  claims  and  in  certain  instances  based  on  historical  warranty  claim  experience  in 
accordance with accounting rules relating to contingent liabilities. When the Company becomes aware of a specific 
potential warranty claim for which liability is probable and reasonably estimable, a specific charge is recorded and 
accounted for accordingly. Adjustments are made quarterly to the accruals as claim data and historical experience 
change.

Income Taxes: 
The  Company  accounts  for  income  taxes  in  accordance  with ASC  740,  “Income Taxes.”  Deferred  tax  assets  and 
liabilities are recorded for the future tax consequences attributable to differences between financial statement carrying 
amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss and tax credit 
carryforwards. The Company recognizes valuation allowances against deferred tax assets by tax jurisdiction when it 
is more likely than not those assets will not be realized. Accruals for uncertain tax positions are provided for in accordance 
with ASC 740-10. The Company recognizes interest and penalties related to uncertain tax positions as a component 
of income tax expense.

Foreign Currency:
Assets and liabilities of subsidiaries are translated at the rate of exchange in effect on the balance sheet date; income 
and  expenses  are  translated  at  the  average  rates  of  exchange  prevailing  during  the  reporting  period. Translation 
adjustments for assets and liabilities are reflected as a separate component of accumulated other comprehensive loss. 
Foreign currency gains and losses resulting from transactions are included in the Consolidated Statements of Income. 
The Company recognized a foreign currency exchange loss resulting from transactions of $1.3 million, $3.7 million
and $5.6 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Pension and Other Postretirement Benefits:
The Company recognizes actuarial gains and losses immediately through net periodic benefit cost upon the annual 
remeasurement in the fourth quarter, or on an interim basis if specific events trigger a remeasurement.

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 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. These changes in accounting principles were applied retrospectively; therefore, 
prior period amounts impacted have been revised accordingly herein. For further information, refer to the description 
of new accounting guidance adopted below.

53

Note 1 – Significant Accounting Policies (continued)

Stock-Based Compensation: 
The Company recognizes stock-based compensation expense over the related vesting period of the awards based 
on the fair value on the grant date. Stock options are issued with an exercise price equal to the opening market price 
of Timken common shares on the date of grant. The fair value of stock options is determined using a Black-Scholes 
option pricing model, which incorporates assumptions regarding the expected volatility, the expected option life, the 
risk-free interest rate and the expected dividend yield. The fair value of stock-based awards that will settle in Timken 
common shares, other than stock options, is based on the opening market price of Timken common shares on the 
grant date. The fair value of stock-based awards that will settle in cash are remeasured at each reporting period until 
settlement of the awards.

Earnings Per Share: 
Only  certain  unvested  restricted  share  grants  provide  for  the  payment  of  nonforfeitable  dividends.  The  Company 
considers these awards as participating securities. Earnings per share are computed using the two-class method. 
Basic  earnings  per  share  are  computed  by  dividing  net  income  less  undistributed  earnings  allocated  to  unvested 
restricted shares by the weighted-average number of common shares outstanding during the year. Diluted earnings 
per share are computed by dividing net income less undistributed earnings allocated to unvested restricted shares by 
the weighted-average number of common shares outstanding, adjusted for the dilutive impact of outstanding stock-
based awards.

Derivative Instruments: 
The Company recognizes all derivatives on the Consolidated Balance Sheets at fair value. Derivatives that are not 
designated as hedges are adjusted to fair value through earnings. If the derivative is designated and qualifies as a 
hedge, depending on the nature of the hedge, changes in the fair value of the derivatives are either offset against the 
change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated 
other comprehensive loss until the hedged item is recognized in earnings. The Company’s holdings of forward foreign 
currency  exchange  contracts  qualify  as  derivatives  pursuant  to  the  criteria  established  in  derivative  accounting 
guidance, and the Company has designated certain of those derivatives as hedges.

Use of Estimates: 
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles 
requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial 
statements and accompanying notes. Because actual results could differ from these estimates, the Company reviews 
and updates these estimates and assumptions regularly to reflect recent experience.

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 14 - 
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. 

54

Note 1 – Significant Accounting Policies (continued)

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) $

   Unbilled receivables

   Inventories, net

   Other current assets

   Deferred income taxes

LIABILITIES

   Other current liabilities

EQUITY

   Earnings invested in the business

—

738.9

81.2

61.0

160.7

1,408.4

95.7

(22.9)

3.0

(1.5)

3.0

4.0

457.6

95.7

716.0

84.2

59.5

163.7

1,412.4

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 year ended December 31, 2018.

Consolidated Statement of Income for the year ended December 31, 2018:

Net sales

Cost of products sold

Selling, general, and administrative expenses

Income before income taxes

Provision for income taxes

Net income

Net income attributable to The Timken Company

Basic earnings per share

Diluted earnings per share

Previous
Accounting
Method

Effect of
Accounting
Change

As Reported

$

3,566.7 $

14.1 $

2,532.5

578.9

404.0

101.6

302.4

$

$

$

299.7 $

3.89 $

3.82 $

8.2

1.8

4.1

1.0

3.1

3.1 $

0.04 $

0.04 $

3,580.8

2,540.7

580.7

408.1

102.6

305.5

302.8

3.93

3.86

55

Note 1 – Significant Accounting Policies (continued)

Consolidated Balance Sheet as of December 31, 2018:

Previous
Accounting
Method

Effect of
Accounting
Change

As Reported

ASSETS

   Accounts receivable, less allowances

$

619.3 $

(72.7) $

   Unbilled receivables

   Inventories, net

   Other current assets

   Deferred income taxes

LIABILITIES

   Other current liabilities

EQUITY

—

866.8

74.1

61.5

168.1

116.6

(31.1)

2.9

(2.5)

546.6

116.6

835.7

77.0

59.0

2.9

171.0

   Earnings invested in the business

1,619.9

10.3

1,630.2

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 "Non-service pension and 
other postretirement costs" 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 year ended December 31, 2017:

Cost of products sold

Selling, general, and administrative expenses

Operating income

Non-service pension and other postretirement costs

For the year ended December 31, 2016:

Cost of products sold

Selling, general, and administrative expenses

Pension settlement charges

Operating income
Non-service pension and other postretirement costs

As
Previously
Reported

Effect of
Accounting
Change

As Adjusted

$

2,193.4 $

(1.7) $

2,191.7

521.4

284.7

—

(13.1)

14.8

(15.0)

508.3

299.5

(15.0)

As
Previously
Reported

Effect of
Accounting
Change

As Adjusted

$

2,001.3 $

(37.8) $

1,963.5

470.7

1.6

174.5
—

(30.5)

(1.6)

69.9
(69.9)

440.2

—

244.4
(69.9)

56

Note 1 – Significant Accounting Policies (continued)

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 year ended December 31, 2018 and 2017, restricted cash balances 
of $0.6 million and $3.8 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 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.

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 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 adopted ASU 2017-04 on October 1, 2018 in 
conjunction with the Company's annual goodwill impairment test. The adoption of this standard had no impact on the 
Company's results of operations and financial condition in the current year.

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.

57

Note 1 – Significant Accounting Policies (continued)

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. The Company also 
elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, 
lease classification and initial direct costs. The Company has created a cross-functional implementation team to identify 
all leases 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 right-to-use asset and a lease liability between $95 million and $115 million 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.

58

Note 2 - Acquisitions and Divestitures 

The Company completed three acquisitions in 2018. On September 18, 2018, the Company completed the acquisition 
of 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 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,  completed  the  acquisition  of ABC 
Bearings, a manufacturer of tapered, cylindrical and spherical roller bearings and slewing rings in India. Consideration 
for  the  acquisition  of  ABC  Bearings  consisted  of  Timken  India  stock.  Refer  to  the  Consolidated  Statement  of 
Shareholders' Equity for more information on the acquisition of ABC Bearings. The expected annual sales at the time 
of acquisition for Rollon, Cone Drive, and ABC Bearings were approximately $140 million, $100 million, and $30 million, 
respectively. The total purchase price for these acquisitions, net of cash acquired of $30.1 million, was $834.3 million, 
which included $540.0 million for Rollon. The Company incurred acquisition-related costs of $9.6 million in 2018 to 
complete these acquisitions. Based on markets and customers served, the majority 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.

During 2017, the Company completed three acquisitions. On July 3, 2017, the Company completed the acquisition of 
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, 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,  a 
manufacturer of engineered torsional couplings used in the construction, agriculture and mining industries. Aggregate 
sales for these companies for the most recent 12 months prior to their respective acquisitions totaled approximately 
$146.2 million. The total purchase price for these acquisitions was $346.2 million, net of $35.4 million of cash received. 
In  2017,  the  Company  incurred  acquisition-related  costs  of  $3.7  million  to  complete  these  acquisitions.  Based  on 
markets and customers served, substantially all of the results for Groeneveld, PT Tech and Torsion Control Products 
are reported in the Mobile Industries segment. Certain measurement period adjustments related to these acquisitions 
were recorded in 2018, resulting in a $3.2 million reduction to Goodwill. 

59

Note 2 - Acquisitions and Divestitures (continued)

The purchase price allocations at fair value, net of cash acquired for acquisitions in 2018 and 2017, as well as any 
purchase price adjustments from acquisitions made in prior periods, are presented below:

Assets:
Accounts receivable
Inventories
Other current assets
Property, plant and equipment
Goodwill
Other intangible assets
Other non-current assets
Total assets acquired

Liabilities:
Accounts payable, trade
Salaries, wages and benefits
Income taxes payable
Other current liabilities
Short-term debt
Long-term debt
Accrued pension cost
Accrued postretirement liability
Deferred taxes
Other non-current liabilities
Total liabilities assumed
Net assets acquired

2018

2017

$

$

$

$
$

42.5 $
61.6
11.2
71.7
465.0
372.6
20.2
1,044.8 $

35.2 $
9.1
2.5
8.1
2.5
3.0
5.7
11.7
115.5
17.2
210.5 $
834.3 $

27.6
29.4
3.3
31.5
149.7
173.6
1.8
416.9

9.5
5.8
—
8.6
0.1
2.9
—
—
42.2
1.0
70.1
346.8

The 2018 acquisitions presented above include goodwill of $311.5 million and intangible assets of $261.7 million for 
Rollon.

In determining the fair value of the amounts above, the Company utilized various forms of the income, cost and market 
approaches depending on the asset or liability being valued. The estimation of fair value required significant judgment 
related to future net cash flows, discount rates, competitive trends, market comparisons and other factors. Inputs were 
generally determined by taking into account independent appraisals and historical data, supplemented by current and 
anticipated market conditions.

In addition to measurement period adjustments occurring in 2018 for 2017 acquisitions, the amounts for 2018 in the 
table above represent the preliminary purchase price allocation for Rollon, Cone Drive and ABC Bearings. This purchase 
price allocation, including the residual amount allocated to goodwill, is based on preliminary information and is subject 
to  change  as  additional  information  concerning  final  asset  and  liability  valuations  is  obtained. The  purchase  price 
allocation is preliminary as a result of the proximity of the acquisition dates to December 31, 2018. The primary areas 
of the preliminary purchase price allocation that have not been finalized relate to the fair value of inventories, accounts 
receivables,  intangible  assets,  contingencies  and  the  related  impacts  on  deferred  income  taxes.  During  the 
measurement period, we will adjust assets and liabilities if new information is obtained about facts and circumstances 
that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets 
or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected 
as if the adjustments had been completed on the acquisition date. 

60

Note 2 - Acquisitions and Divestitures (continued)

The following table summarizes the preliminary purchase price allocation at fair value for identifiable intangible assets 
acquired in 2018 and 2017:

2018

2017

Weighted-
Average Life

Trade names (indefinite life)
Trade names (finite life)
Technology and know-how
Customer relationships
Other
Capitalized software
Total intangible assets

$

46.8
3.7
121.8
199.6
0.2
0.5

$ 372.6  

Indefinite $
11 years
17 years
18 years
6 years
5 years

31.1
2.2

29.8

108.9
0.2
1.4
$ 173.6

Weighted-
Average Life
Indefinite
13 years

16 years

17 years
5 years
3 years

Divestiture:
On September 19, 2018, the Company completed the sale of 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. 

Note 3 - Investment in Joint Venture 

On March 6, 2014, Timken Lux Holdings II S.á r.l, a subsidiary of the Company, entered into a joint venture agreement 
with Holme Services Limited ("joint venture partner"). During 2015, the Company and its joint venture partner established 
TUBC Limited, a Cyprus entity, for the purpose of producing bearings to serve the rail market sector in Russia. The 
Company and its joint venture partner have a 51% controlling interest and 49% controlling interest, respectively, in 
TUBC  Limited.  During  2016,  the  Company  and  its  joint  venture  partner  amended  and  restated  the  joint  venture 
agreement and contributed $9.7 million and $9.3 million, respectively, to TUBC Limited. No additional contributions 
were made during 2017 or 2018.

Note 4 - Earnings Per Share 

The following table sets forth the reconciliation of the numerator and the denominator of basic earnings per share and 
diluted earnings per share for the years ended December 31, 2018, 2017 and 2016: 

Numerator:

Net income attributable to The Timken Company

Less: undistributed earnings allocated to nonvested stock

Net income available to common shareholders for basic and diluted
earnings per share

Denominator:

Weighted average number of shares outstanding - basic
Effect of dilutive securities:

Stock options and awards - based on the treasury stock
method

Weighted average number of shares outstanding, assuming
dilution of stock options and awards

Basic earnings per share

Diluted earnings per share

2018

2017

2016

302.8 $

203.4 $

—

—

140.8

—

302.8 $

203.4 $

140.8

77,119,602

77,736,398

78,516,029

1,217,879

1,174,751

718,295

78,337,481

78,911,149

79,234,324

3.93 $

3.86 $

2.62 $

2.58 $

1.79

1.78

$

$

$

$

The exercise prices for certain stock options that the Company has awarded exceed the average market price of the 
Company’s common shares. Such stock options are antidilutive and were not included in the computation of diluted 
earnings per share. The antidilutive stock options outstanding were 1,139,146, 512,657 and 2,826,733 during 2018, 
2017 and 2016, respectively.

61

Note 5 - Accumulated Other Comprehensive Income (Loss) 

The following tables present details about components of accumulated other comprehensive income (loss) for the 
years ended December 31, 2018 and December 31, 2017, respectively:

Foreign 
currency 
translation 
adjustments

Pension and 
postretirement 
liability 
adjustments

Change in fair 
value of 
derivative 
financial 
instruments

Total

$

(35.1) $

(0.3) $

(2.9) $

Balance at December 31, 2017

Cumulative effect of ASU 2018-02

Balance at January 1, 2018

Other comprehensive (loss) income before reclassifications
and income taxes

Amounts reclassified from accumulated other comprehensive
(loss) income, before income tax

Income tax expense

Net current period other comprehensive (loss) income, net of
income taxes

Noncontrolling interest

Net current period comprehensive (loss) income, net of
income taxes, noncontrolling interest and cumulative effect of
accounting change

—

(35.1)

(67.4)

—

—

(67.4)

6.9

(60.5)

(0.1)

(0.4)

0.9

—

(0.5)

0.4

—

0.3

Balance at December 31, 2018

$

(95.6) $

— $

(0.6)

(3.5)

6.4

(1.3)

(1.3)

3.8

—

3.2

0.3 $

(38.3)

(0.7)

(39.0)

(60.1)

(1.3)

(1.8)

(63.2)

6.9

(57.0)

(95.3)

Foreign 
currency 
translation 
adjustments

Pension and 
postretirement 
liability 
adjustments

Change in fair 
value of 
derivative 
financial 
instruments

Total

Balance at December 31, 2016

$

(79.8) $

1.5 $

0.4 $

(77.9)

Other comprehensive  income (loss) before reclassifications
and income taxes

Amounts reclassified from accumulated other comprehensive
income (loss), before income tax

Income tax benefit

Net current period other comprehensive income (loss), net of
income taxes

Noncontrolling interest

Net current period comprehensive income (loss), net of
income taxes and noncontrolling interest

47.1

—

—

47.1

(2.4)

44.7

(4.0)

1.1

1.1

(1.8)

—

(1.8)

Balance at December 31, 2017

$

(35.1) $

(0.3) $

(7.1)

1.8

2.0

(3.3)

—

(3.3)

(2.9) $

36.0

2.9

3.1

42.0

(2.4)

39.6

(38.3)

Other comprehensive (loss) income before reclassifications and income taxes includes the effect of foreign currency. 

62

Note 6 - Inventories 

The components of inventories at December 31, 2018 and 2017 were as follows:

Manufacturing supplies

Raw materials

Work in process

Finished products

Subtotal

Allowance for surplus and obsolete inventory

Total Inventories, net

2018

2017

32.4 $

102.4

287.7

452.7

875.2 $

(39.5)

835.7 $

29.0

90.4

245.2

404.3

768.9

(30.0)

738.9

$

$

$

Inventories at December 31, 2018 valued on the FIFO cost method were 56% and the remaining 44% were valued 
by the LIFO method. If all inventories had been valued at FIFO, inventories would have been $173.9 million and $167.6 
million greater at December 31, 2018 and 2017, respectively. The Company recognized an increase in its LIFO reserve 
of $6.2 million during 2018, compared to a decrease in its LIFO reserve of $11.9 million during 2017. The impacts of 
LIFO liquidations in 2018 were immaterial. The decrease in the LIFO reserve in 2017 was due to lower unit costs 
primarily driven by favorable efficiency variances that more than offset higher material and labor costs. 

Note 7 - Property, Plant and Equipment 

The components of property, plant and equipment, net at December 31, 2018 and 2017 were as follows:

Land and buildings

Machinery and equipment

Subtotal

Less: accumulated depreciation

Property, Plant and Equipment, net

2018

2017

484.1 $

2,002.4

2,486.5 $

483.0

1,922.6

2,405.6

(1,574.4)

(1,541.4)

912.1 $

864.2

$

$

$

Total depreciation expense was $99.2 million, $97.7 million and $95.5 million in 2018, 2017 and 2016, respectively. 
Additionally,  depreciation  expense  is  expected  to  increase  in  2019,  primarily  due  to  incremental  deprecation  from 
acquisitions completed in 2018.

63

Note 8 - Goodwill and Other Intangible Assets 

Goodwill:
The Company tests goodwill and indefinite-lived intangible assets for impairment at least annually, performing its annual 
impairment  test  as  of  October  1st.  Furthermore,  goodwill  and  indefinite-lived  intangible  assets  are  reviewed  for 
impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. 

The Company reviews goodwill for impairment at the reporting unit level. The Mobile Industries segment has four
reporting units and the Process Industries segment has two reporting units.

Changes in the carrying value of goodwill were as follows:

Year ended December 31, 2018:

Beginning Balance

Acquisitions

Divestiture

Foreign currency translation adjustments and other changes

Ending Balance

Mobile
Industries

Process
Industries

Total

$

254.3 $

257.5 $

108.4

356.6

(5.1)

(7.9)

—

(3.3)

511.8

465.0

(5.1)

(11.2)

$

349.7 $

610.8 $

960.5

The $465.0 million addition from acquisitions resulted primarily from the acquisitions of Rollon, Cone Drive and ABC 
Bearings, partially offset by measurement period adjustments of $3.2 million recorded in 2018 for 2017 acquisitions. 
In addition, goodwill was reduced by $5.1 million as a result of the divestiture of the ICT Business. The Company does 
not expect the goodwill from the Rollon and Cone Drive acquisitions to be tax deductible, but is still evaluating the tax 
deductibility of goodwill from the ABC Bearings acquisition. Refer to Note 2 - Acquisitions and Divestitures for further 
information.  

Year ended December 31, 2017:

Beginning Balance

Acquisitions

Other

Ending Balance

Mobile
Industries

Process
Industries

Total

$

$

97.2 $

260.3 $

150.8

6.3

(1.1)

(1.7)

357.5

149.7

4.6

254.3 $

257.5 $

511.8

The Groeneveld, PT Tech and Torsion Control Products acquisitions added a total of $150.8 million of goodwill to the 
Mobile Industries segment. The $14.1 million of goodwill acquired through the PT Tech and Torsion Control Products 
acquisitions  is  expected  to  be  tax  deductible  over  15  years.  The  $136.7  million  of  goodwill  acquired  through  the 
Groeneveld acquisition is not expected to be tax deductible. The Company paid a net purchase price adjustment of 
$0.6 million in January 2017 in connection with the acquisition of EDT, which resulted in an increase to goodwill. The 
Company also adjusted its purchase price allocation for the Lovejoy acquisition in 2017, which resulted in a $1.7 million
reduction to goodwill.

No goodwill impairment losses were recorded in 2018 or 2017. 

64

Note 8 – Goodwill and Other Intangible Assets (continued)

Intangible Assets:
The following table displays intangible assets as of December 31, 2018 and 2017:

Gross
Carrying
Amount

2018

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

2017

Accumulated
Amortization

Net
Carrying
Amount

Intangible assets subject
 to amortization:

Customer relationships

Technology and know-how
Trade names

Capitalized Software
Other

Intangible assets not
 subject to amortization:

Trade names

FAA air agency certificates

Total intangible assets

$

$

$

$

$

481.5 $
245.0

11.3
266.4

40.8
1,045.0 $

96.2

8.7
104.9
1,149.9 $

99.8 $
40.4

381.7 $
204.6

324.6 $
128.7

103.0 $
33.8

4.8
236.5

35.2

6.5
29.9

5.6

8.6
261.5

10.3

4.3
226.5

6.2

221.6
94.9

4.3
35.0

4.1

416.7 $

628.3 $

733.7 $

373.8 $

359.9

$

$

416.7 $

96.2 $

8.7

104.9 $

733.2 $

52.0

8.7

60.7

$

$

52.0

8.7

60.7

794.4 $

373.8 $

420.6

Intangible assets acquired in 2018 totaled $372.6 million from the Rollon, Cone Drive and ABC Bearings acquisitions. 
Intangible assets subject to amortization were assigned useful lives of three to 20 years and had a weighted-average 
amortization period of 17.2 years. Intangible assets acquired in 2017 totaled $173.6 million from the acquisitions of 
Groeneveld, PT Tech and Torsion Control Products. Intangible assets subject to amortization acquired in 2017 were 
assigned useful lives of two to 20 years and had a weighted-average amortization period of 16.8 years. 

Amortization  expense  for  intangible  assets  was  $46.8  million,  $40.0  million  and  $36.2  million  for  the  years  ended 
December 31,  2018,  2017  and  2016,  respectively. Amortization  expense  for  intangible  assets  is  estimated  to  be 
approximately $55.1 million in 2019, $50.4 million in 2020, $46.4 million in 2021, $41.9 million in 2022, and $39.3 
million in 2023.

65

  
 
 
Note 9 - Financing Arrangements 

Short-term debt as of December 31, 2018 and 2017 was as follows:

Variable-rate Accounts Receivable Facility with an interest rate of 2.15% at 
December 31, 2017

Borrowings under variable-rate lines of credit for certain of the Company’s foreign 
subsidiaries with various banks with interest rates ranging from 0.29% to 1.00% at 
December 31, 2018 and 0.32% to 2.22% at December 31, 2017

Short-term debt

2018

2017

— $

62.9

33.6

33.6 $

42.5

105.4

$

$

On September 28, 2018, the Company extended the maturity date of its $100 million 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 are limited to certain borrowing base 
limitations  however,  the Accounts  Receivable  Facility  was  not  reduced  by  any  such  borrowing  base  limitations  at 
December 31, 2018. As of December 31, 2018, there were outstanding borrowings of $75.0 million under the Accounts 
Receivable Facility, which reduced the availability under this facility to $25.0 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 outstanding balance under the Accounts Receivable Facility 
was classified as short-term or long-term in accordance with the terms of the agreement.  The Accounts Receivable 
Facility was reclassified from short-term debt to long-term debt due to the renewal of this facility for a period of three 
years. The yield rate was 3.22%, 2.15% and 1.65%, at December 31, 2018, 2017 and 2016, respectively.

The lines of credit for certain of the Company’s foreign subsidiaries provide for short-term borrowings up to $273.4 
million in the aggregate. Most of these lines of credit are uncommitted. At December 31, 2018, the Company’s foreign 
subsidiaries had borrowings outstanding of $33.6 million and guarantees of $0.4 million, which reduced the aggregate 
availability under these facilities to $239.4 million. The weighted-average interest rate on these lines of credit during 
the year were 0.6%, 0.7% and 0.7% in 2018, 2017 and 2016, respectively. The weighted-average interest rate on lines 
of credit outstanding at December 31, 2018 and 2017 was 0.32% and 0.41%, respectively. The decrease in the weighted-
average interest rate was primarily due to a decrease in borrowing rates in Europe. 

Long-term debt as of December 31, 2018 and 2017 was as follows:

Variable-rate Senior Credit Facility with an average interest rate on U.S. Dollar of 
3.40% and Euro of 1.10% at December 31, 2018 and 2.40% and 1.10%, respectively, 
at December 31, 2017  
Variable-rate Euro Term Loan(1) with an interest rate of 1.13% at December 31, 2018 
and December 31, 2017

Variable-rate Accounts Receivable Facility with an interest rate of 3.22% at December 
31, 2018
Variable-rate Term Loan(1) with an interest rate of 3.77% at December 31, 2018
Fixed-rate Senior Unsecured Notes(1), maturing on September 1, 2024, with an interest 
rate of 3.875%
Fixed-rate Euro Senior Unsecured Notes(1), maturing on September 7, 2027, with an 
interest rate of 2.02%
Fixed-rate Senior Unsecured Notes(1), maturing on December 15, 2028, with an interest 
rate of 4.50%
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%
Other

Total debt

Less current maturities

Long-term debt

(1) Net of discount and fees

66

2018

2017

$

43.9 $

52.0

107.1

119.7

75.0
347.1

—
—

347.7

346.9

171.4

179.3

395.8

154.6

5.4

—

154.5

4.5

$

$

1,648.0 $

856.9

9.4

2.7

1,638.6 $

854.2

Note 9 – Financing Arrangements (continued)

The Company has a $500 million Senior Credit Facility, which matures on June 19, 2020. At December 31, 2018, the 
Company had $43.9 million of outstanding borrowings under the Senior Credit Facility, which reduced the availability 
under this facility to $456.1 million. The Senior Credit Facility has two financial covenants: a consolidated leverage 
ratio and a consolidated interest coverage ratio. At December 31, 2018, the Company was in full compliance with both 
of these covenants.

On  September 6,  2018,  the  Company  issued  $400  million  aggregate  principal  amount  of  fixed-rate  4.50%  senior 
unsecured notes, the 2028 Notes. On September 11, 2018, the Company entered into the $350 million variable-rate 
term  loan,  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, the 2027 Notes. On September 18, 2017, the Company entered into the €100 million variable-rate 
term loan, 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 December 31, 2018. Proceeds from the 2027 Notes and 2020 Term Loan 
were used to repay amounts drawn from the Senior Credit Facility to fund the Groeneveld acquisition, which closed 
on July 3, 2017. Refer to Note 2 - Acquisitions and Divestitures for additional information. 

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 
December 31, 2018, the Company was in full compliance with both of these covenants. The 2028 Notes have no 
specific financial covenants.

The maturities of long-term debt and capital leases for the five years subsequent to December 31, 2018 are as follows:

Year

2019

2020

2021

2022

2023

Thereafter

$

9.4

152.5

77.7

0.5

338.4

1,069.5

Interest  paid  was  $42.5  million  in  2018,  $31.5  million  in  2017  and  $30.1  million  in  2016. This  differs  from  interest 
expense due to the timing of payments and interest capitalized of $0.4 million in 2018, $0.7 million in 2017 and $1.1 
million in 2016.

The Company and its subsidiaries lease a variety of real property and equipment. Rent expense under operating leases 
amounted to $35.7 million, $35.2 million and $30.0 million in 2018, 2017 and 2016, respectively.

Future minimum lease payments for noncancelable operating leases at December 31, 2018 are as follows:

Year
2019
2020
2021
2022
2023
Thereafter

$

36.1
27.1
16.9
11.1
6.1
17.5

67

Note 10 - 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 $5.5 million and $5.0 million for various known environmental matters 
that  are  probable  and  reasonably  estimable  as  of  December 31,  2018  and  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.

Product Warranties:

In addition to the contingencies above, the Company provides limited warranties on certain products. The product 
warranty liability included in "Other current liabilities" on the Consolidated Balance Sheets for 2018 and 2017 was $7.1 
million and $5.8 million, respectively. The Company is also currently evaluating claims raised by certain customers 
with respect to the performance of bearings sold into the wind energy sector. Management believes that the outcome 
of these claims will not have a material effect on the Company’s consolidated financial position; however, the effect of 
any such outcome may be material to the results of operations of any particular period in which costs in excess of 
amounts provided, if any, are recognized. 

68

Note 11 - Stock Compensation Plans

Under its long-term incentive plan, the Company’s common shares have been made available for grant, at the discretion 
of the Compensation Committee of the Board of Directors, to officers and key employees in the form of stock option 
awards. Stock option awards typically have a ten-year term and generally vest in 25% increments annually beginning 
on the first anniversary of the date of grant. 

During 2018, 2017 and 2016, the Company recognized stock-based compensation expense of $4.8 million ($3.7 million
after tax or $0.05 per diluted share), $5.2 million ($3.2 million after tax or $0.04 per diluted share) and $5.9 million
($3.7 million after tax or $0.05 per diluted share), respectively, for stock option awards.

The fair value of stock option awards granted was estimated at the date of grant using a Black-Scholes option-pricing 
method with the following assumptions:

Weighted-average fair value per option

Risk-free interest rate

Dividend yield

Expected stock volatility

Expected life - years

2018

2017

2016

$

10.29

$

10.60

$

2.62%

2.30%

1.96%

2.96%

6.49

1.22%

3.04%

27.78%

32.25%

34.12%

5

5

5

Historical information was the primary basis for the selection of the expected dividend yield, expected volatility and the 
expected lives of the options. The dividend yield was calculated based upon the last dividend prior to the grant compared 
to the trailing 12 months' daily stock prices. The risk-free interest rate was based upon yields of U.S. zero coupon 
issues with a term equal to the expected life of the option being valued.

A summary of stock option award activity for the year ended December 31, 2018 is presented below:

Number of
Shares

Weighted-average
Exercise Price

Weighted-average
Remaining
Contractual Term

Aggregate 
Intrinsic Value
(millions)

Outstanding - beginning of year

Granted - new awards
Exercised
Canceled or expired

Outstanding - end of year
Options expected to vest
Options exercisable

3,151,121 $
481,520
(394,751)
(47,940)
3,189,950 $
3,189,950 $
1,992,857 $

36.65
44.65
33.50
39.66
38.21
38.21
37.15

6 years $
6 years $
5 years $

19.3
19.3
5.3

The total intrinsic value of stock option awards exercised during the years ended December 31, 2018, 2017 and 2016 
was $6.7 million, $14.7 million and $1.7 million, respectively. Net cash proceeds from the exercise of stock option 
awards were $12.8 million, $32.9 million and $4.3 million, respectively.  

In addition to stock option awards, the Company has granted performance-based restricted stock units, time-based 
restricted stock units, deferred shares and restricted shares under its long-term incentive plan. A summary of those 
awards granted in 2018 is presented below:

Performance-based restricted stock units
Time-based restricted stock units

Deferred shares

Expected to
Settled in
Equity

Expected to
Settled in
Cash

Total
Awards
Granted

232,690
151,835

4,000

5,670
3,440

238,360
155,275

4,000

69

Note 11 - Stock Compensation Plans (continued)

Performance-based  restricted  stock  units  are  calculated  and  awarded  based  on  the  achievement  of  specified 
performance objectives and cliff vest three years from the date of grant. The majority of time-based restricted stock 
units vest in 25% increments annually beginning on the first anniversary of the grant, with the remainder fully-vesting 
on the first anniversary of the grant. Deferred shares cliff vest 5 years from the date of grant. For time-based restricted 
stock units that are expected to settle in cash, the Company had $0.8 million and $0.7 million accrued in "Salaries, 
wages and benefits" as of December 31, 2018 and 2017, respectively, on the Consolidated Balance Sheets.

A summary of stock award activity, including performance-based restricted stock units, time-based restricted stock 
units, deferred shares and restricted shares that will settle in common shares for the year ended December 31, 2018
is as follows:

Outstanding - beginning of year

Granted - new awards

Vested

Canceled or expired

Outstanding - end of year

Number of Shares

1,245,274 $

Weighted-average
Grant Date Fair Value
37.56

388,525

(290,287)

(147,020)

1,196,492 $

44.83

40.49

41.23

38.76

As of December 31, 2018, a total of 1,196,492 stock awards have been awarded that have not yet vested. The Company 
distributed shares totaling 290,287 in 2018, 445,036 in 2017, and 188,383 in 2016 due to the vesting of stock awards; 
the grant date fair value of these vested shares was $11.8 million, $16.5 million and $7.8 million, respectively. Shares 
awarded totaled 388,525 in 2018, 407,436 in 2017 and 613,165 in 2016. The Company recognized compensation 
expense of $27.5 million, $19.5 million and $8.2 million for the years ended December 31, 2018, 2017 and 2016, 
respectively, relating to stock award activity.

As of December 31, 2018, the Company had unrecognized compensation expense of $35.9 million related to stock 
options and stock awards, which is expected to be recognized over a total weighted-average period of two years. The 
number of shares available for future grants for all plans at December 31, 2018 was 3,759,864.

70

Note 12 - 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 generally are noncontributory. Pension benefits earned 
generally are based on years of service and compensation during active employment. The cash contributions for the 
Company’s defined benefit pension plans were $11.3 million, $11.5 million and $15.0 million in 2018, 2017 and 2016, 
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

2018

2017

2016

2018

2017

2016

Components of net periodic benefit
cost:

Service cost

Interest cost

Expected return on plan assets

Amortization of prior service cost

Recognition of net actuarial losses

Curtailment

$

12.6 $

12.2 $

13.1 $

24.0

(29.3)

1.7

30.0

(10.2)

24.6

(28.0)

1.4

23.1

(1.1)

26.6

(30.1)

1.7

41.5

—

1.7 $

7.2

1.6 $

7.5

(11.6)

(11.1)

0.1

8.8

—

—

0.1

—

Net periodic benefit cost

$

28.8 $

32.2 $

52.8 $

6.2 $

(1.9) $

1.4

10.5

(10.7)

0.1

19.4

(0.1)

20.6

Assumptions

U.S. Plans:

Discount rate

Future compensation assumption

Expected long-term return on plan assets

International Plans:

Discount rate

Future compensation assumption

Expected long-term return on plan assets

2018

2017

2016

3.75% to 3.94%

4.34% to 4.50%

4.50% to 4.70%

2.50% 2.50% to 3.00%

2.50% to 3.00%

5.75% to 6.50%

5.75% to 6.50%

5.75% to 6.75%

1.25% to 9.00%

1.25% to 9.00%

2.00% to 8.50%

2.00% to 8.00%

2.00% to 8.00%

2.20% to 8.00%

2.50% to 9.00%

0.75% to 9.25%

0.82% to 9.25%

The Company recognized actuarial losses of $38.8 million during 2018 primarily due to lower than expected returns 
on plan assets of $83.4 million driven by negative returns on fixed income investments offset by the increase in discount 
rates used to measure the obligation of $62.4 million. The impact of experience losses and other changes in valuation 
assumptions resulted in losses of approximately $17.8 million. The discount rate used to measure the U.S. obligation 
increased by 56 basis points from 3.80% during 2017 compared to 4.36% in 2018.

During the fourth quarter of 2018, the Board of Directors approved the freezing of the benefits for two of the Company's 
U.S.  defined  benefit  pension  plans,  effective  December  31,  2022.  In  conjunction  with  this  action,  the  Company 
recognized a curtailment gain of $10.2 million in 2018.   

The Company recognized actuarial losses of $23.2 million during 2017 primarily due to the impact of a net reduction 
in the discount rate used to measure its defined benefit pension obligations of $52.9 million and the impact of experience 
losses and other changes in valuation assumptions of $8.7 million, partially offset by higher than expected returns on 
plan assets of $38.4 million. The impact of the net reduction in the discount rate used to measure the Company's 
defined benefit obligation was primarily driven by a 54 basis point reduction in the discount rate used to measure its 
U.S. defined benefit plan obligations, which decreased from 4.34% in 2016 to 3.80% in 2017. 

71

Note 12 - Retirement Benefit Plans (continued)

The Company recognized actuarial losses of $60.9 million during 2016 primarily due to the impact of a net reduction 
in the discount rate used to measure its defined benefit pension obligations of $86.9 million and the impact of experience 
losses and other changes in valuation assumptions of $10.2 million, partially offset by higher than expected returns 
on plan assets of $36.2 million. The impact of the net reduction in the discount rate used to measure the Company's 
defined benefit obligation was primarily driven by a 125 and 36 basis point reduction in the discount rate used to 
measure its defined benefit plan obligations in the United Kingdom and U.S., respectively. 

For expense purposes in 2018, the Company applied a weighted-average discount rate of 3.80% to its U.S. defined 
benefit pension plans. For expense purposes in 2019, the Company will apply a weighted-average discount rate of 
4.36% to its U.S. defined benefit pension plans. 

For expense purposes in 2018, 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 2019, the Company will apply a weighted-average 
expected rate of return on plan assets of 6.12%. 

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, 2018 and 
2017:

Change in benefit obligation:

Benefit obligation at beginning of year

Service cost

Interest cost

Plan amendments

Actuarial losses

International plan exchange rate change

Curtailment

Benefits paid

Acquisitions

Benefit obligation at end of year

Change in plan assets:

Fair value of plan assets at beginning of year

Actual return on plan assets
Company contributions / payments
International plan exchange rate change
Acquisitions
Benefits paid

Fair value of plan assets at end of year

Funded status at end of year

U.S. Plans

International Plans

2018

2017

2018

2017

$

643.0 $

612.4 $

335.2 $

314.2

12.6

24.0

—

(36.7)

—

(10.2)

(95.8)

49.7

12.2

24.6

2.8

60.5

—

(1.8)

(67.7)

—

1.7

7.2

3.6

(7.4)

(17.2)

—

(24.8)

2.0

1.6

7.5

—

0.9

32.2

—

(21.2)

—

586.6 $

643.0 $

300.3 $

335.2

531.9 $

529.6 $

292.4 $

268.7

$

$

(37.5)

5.3

—

44.4

(95.8)

448.3

65.5

4.5

—

—

(67.7)

531.9

(5.1)

6.0

(15.4)

1.5

(24.8)

254.6

$

(138.3) $

(111.1) $

(45.7) $

12.0

7.0

25.9

—

(21.2)

292.4

(42.8)

72

Note 12 - Retirement Benefit Plans (continued)

Amounts recognized on the Consolidated Balance Sheets:

Non-current assets

Current liabilities

Non-current liabilities

U.S. Plans

International Plans

2018

2017

2018

2017

$

— $

6.7 $

6.2 $

(27.4)

(4.8)

(110.9)

(113.0)

(1.5)

(50.4)

$

(138.3) $

(111.1) $

(45.7) $

13.0

(1.5)

(54.3)

(42.8)

Amounts recognized in accumulated other comprehensive loss:

Net prior service cost

Accumulated other comprehensive loss

Changes in prior service cost recognized in accumulated other
comprehensive loss:

Accumulated other comprehensive loss at beginning of year

$

$

$

Prior service cost

Recognized prior service cost

(Loss) gain recognized due to curtailment

6.4 $

6.4 $

8.1 $

8.1 $

4.0 $

4.0 $

8.1 $

7.4 $

0.5 $

—

(1.7)

—

2.8

(1.4)

(0.7)

—

(0.1)

3.6

Total recognized in accumulated other comprehensive loss at
December 31

$

6.4 $

8.1 $

4.0 $

0.5

0.5

0.5

—

—

—

0.5

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

U.S. Plans:

Discount rate

Future compensation assumption

International Plans:

Discount rate

Future compensation assumption

2018

2017

4.05% to 4.43% 3.75% to 3.80%

2.50%

2.50%

1.50% to 11.00% 1.25% to 9.00%

2.00% to 8.23% 2.00% to 8.00%

Defined benefit pension plans in the United States represent 66% of the benefit obligation and 64% of the fair value 
of plan assets as of December 31, 2018.

Certain of the Company’s defined benefit pension plans were overfunded as of December 31, 2018. As a result, $6.2 
million and $19.7 million at December 31, 2018 and 2017, 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 $28.9 million and $6.4 million at December 31, 2018 and 2017, 
respectively.  The  increase  in  the  current  portion  of  accrued  pension  cost  relates  to  the  expected  2019  deferred 
compensation to a former executive officer of the Company. In 2018, 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, 2018 exceeded the market value of plan assets for several of the 
Company’s pension plans. For these plans, the projected benefit obligation was $599.2 million, the accumulated benefit 
obligation was $583.3 million and the fair value of plan assets was $410.7 million at December 31, 2018.

73

Note 12 - Retirement Benefit Plans (continued)

The total pension accumulated benefit obligation for all plans was $864.9 million and $941.5 million at December 31, 
2018 and 2017, respectively.

Investment performance decreased the value of the Company’s pension assets by 5.1% in 2018.

As of December 31, 2018 and 2017, the Company’s defined benefit pension plans did not directly hold any of the 
Company’s common shares.

The estimated 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 is $1.8 million. 

Plan Assets:
The Company’s target allocation for pension plan assets, as well as the actual pension plan asset allocations as of 
December 31, 2018 and 2017, was as follows: 

Asset Category
Equity securities

Fixed income securities

Other investments

Total

Current Target
Allocation

15% to

70% to

4% to

21%

80%

10%

Percentage of Pension Plan
Assets at December 31,
2017
2018

18%

76%

6%

100%

14%

80%

6%

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, and are reviewed regularly by management. 
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.

74

Note 12 - Retirement Benefit Plans (continued)

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 - 

Level 2 - 

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

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, 2018:

Assets:

Cash and cash equivalents

$

18.6 $

— $

— $

18.6 $

0.8 $

— $

— $

0.8

U.S. Pension Plans

Level 1 Level 2 Level 3

Total

International Pension Plans
Total

Level 1 Level 2 Level 3

Government and agency securities

Corporate bonds - investment grade

Mutual funds - fixed income

Mutual funds - international equity

Mutual funds - domestic equity

Mutual funds - other assets

Other assets

29.9

—

60.8

24.0

2.6

1.2

0.1

2.7

71.7

—

—

—

—

—

—

—

—

—

—

—

—

32.6

71.7

60.8

24.0

2.6

1.2

0.1

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

$ 137.2 $

74.4 $

— $ 211.6 $

0.8 $

— $

— $

0.8

Investments measured at net asset value:

Cash and cash equivalents

Equity securities - international companies

Common collective funds - domestic equities
Common collective funds - international equities

Common collective funds - fixed income

Limited partnerships

Real estate partnerships

Liability hedging investments

Common collective fund - diversified growth

Other assets

 Total Assets

$

0.2

—

54.0

9.4

137.3

24.0

11.8

—

—

—

$ 448.3

$

—

2.2

—

13.6

76.2

—

—

122.9

18.5

20.4

$ 254.6

75

Note 12 - Retirement Benefit Plans (continued)

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, 2017:

U.S. Pension Plans

Level 1 Level 2 Level 3

Total

International Pension Plans
Total

Level 1 Level 2 Level 3

Assets:

Cash and cash equivalents

$

27.2 $

— $

— $

27.2 $

4.8 $

— $

— $

4.8

Government and agency securities

Corporate bonds - investment grade

Mutual funds - fixed income

Mutual funds - international equity

15.5

3.4

— 105.1

44.9

17.5

—

—

—

18.9

— 105.1

—

—

44.9

17.5

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

$ 105.1 $ 108.5 $

— $ 213.6 $

4.8 $

— $

— $

4.8

Investments measured at net asset value:

Cash and cash equivalents

Equity securities - international companies

Common collective funds - domestic equities

Common collective funds - international equities

Common collective funds - fixed income

Limited partnerships

Real estate partnerships

Liability hedging investments

Common collective fund - diversified growth

Other assets

 Total Assets

$

0.2

—

37.0

11.5

220.9

31.8

16.9

—

—

—

$ 531.9

$

0.1

1.0

—

25.3

86.2

—

—

132.5

21.2

21.3

$ 292.4

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.

Liability hedging investments mainly include investments in index-linked liability driven investing open-end swap funds.  
These funds invest in cash held deposits that reflect the index-linked deferred annuity with payment terms of specific 
years linked to UK inflation measures.  The underlying assets in this investment are valued daily.  

Common collective funds - diversified growth investments are pooled funds that invest in a multiple underlying asset 
classes, such as equities, fixed income, commodities, alternative investments, and cash in an effort to achieve returns 
on investment through capital appreciation and income.  The underlying assets in this investment are valued daily.   

76

Note 12 - Retirement Benefit Plans (continued)

Cash Flows:

Employer Contributions to Defined Benefit Plans

2017

2018

2019 (planned)

$

11.5

11.3

34.0

The increase in 2019 planned employer contributions/payments is primarily due to the expected payout of deferred 
compensation to a former executive officer of the Company.

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

Benefit Payments

2019

2020

2021

2022

2023

2024-2028

$

89.4

62.9

73.9

63.3

60.7

273.1

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. The Company made contributions to its defined contribution 
plans of $23.7 million, $21.8 million and $20.2 million in 2018, 2017 and 2016, respectively. Participants in certain of 
these plans may elect to hold a portion of their investments in the Company's common shares. At December 31, 2018, 
the plans held 2,614,501 of the Company’s common shares with a fair value of $97.6 million. The Company paid 
dividends totaling $2.9 million, $3.0 million and $3.7 million in 2018, 2017 and 2016, respectively, to plans to be disbursed 
to participant accounts holding the Company’s common shares. 

77

 
Note 13 - Other Postretirement Benefit Plans 

The Company and its subsidiaries sponsor several funded and unfunded postretirement plans that provide health care 
and  life  insurance  benefits  for  eligible  retirees  and  dependents.  Depending  on  retirement  date  and  employee 
classification, certain health care plans contain contribution and cost-sharing features such as deductibles, coinsurance 
and limitations on employer-provided subsidies. The remaining health care and life insurance plans are noncontributory.

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:

Components of net periodic benefit cost:

Service cost

Interest cost

Expected return on plan assets

Amortization of prior service (credit) cost

Recognition of net actuarial (gains) losses

Curtailment

Net periodic benefit cost

Assumptions:

Discount rate

Rate of return

2018

2017

2016

$

0.2 $

0.1 $

7.6

(3.7)

(1.7)

(16.7)

—

9.1

(5.6)

(1.0)

(4.0)

—

$

(14.3) $

(1.4) $

0.3

11.0

(6.3)

1.0

4.5

0.1

10.6

2018

2017

2016

3.57%

4.50%

3.97%

6.00%

4.39%

6.00%

The Company recognized actuarial gains of $16.7 million during 2018 primarily due to the impact of a 73 basis point 
increase in the discount rate used to measure the Company's defined benefit postretirement obligation, which increased 
from 3.57% in 2017 to 4.30% in 2018 and due to a number of participants opting out of coverage from the plans in 
response  to  a  financial  incentive  program  offered  to  eligible  participants  of  the  Company's  retiree  health  and  life 
insurance plans.  The Company recognized actuarial gains of $10.6 million as a result of the increase in the discount 
rate and $10.4 million as a result of the impact of the opt-out program. These actuarial gains were partially offset by 
lower than expected returns on plan assets of $4.0 million and by the impact of experience losses and other changes 
in valuation assumptions of $0.3 million. 

The Company recognized actuarial gains of $4.0 million during 2017 primarily due to a number of participants opting 
out  of  coverage  from  the  plans  in  response  to  a  financial  incentive  program  offered  to  eligible  participants  of  the 
Company's retiree health and life insurance plans. In addition, the Company adopted the MP-2017 scales as its best 
estimate of future mortality improvements for defined benefit postretirement obligations. The Company recognized 
actuarial gains of $14.4 million as a result of the impact of the opt-out program, $5.0 million as a result of changes in 
mortality tables and higher than expected returns on plan assets of $3.7 million. These actuarial gains were partially 
offset by the impact of experience losses and other changes in valuation assumptions of $12.2 million and a $6.9 
million impact of a 40 basis point reduction in the discount rate used to measure its defined benefit postretirement 
obligations, which decreased from 3.97% in 2016 to 3.57%. 

The Company recognized actuarial losses of $4.5 million during 2016 primarily due to the impact of a 42 basis point 
reduction in the discount rate used to measure its defined benefit postretirement obligations of $8.2 million and lower 
than expected returns on plan assets of $0.2 million, partially offset by and the impact of experience gains and other 
changes in valuation assumptions of $3.9 million. 

The discount rate assumption is based on current rates of high-quality long-term corporate bonds over the same period 
that benefit payments will be required to be made. The expected rate of return on plan assets assumption is based on 
the weighted-average expected return on the various asset classes in the plans’ portfolio. The asset class return is 
developed using historical asset return performance as well as current market conditions such as inflation, interest 
rates and equity market performance.

78

Note 13 - Other Postretirement Benefit Plans (continued)

For expense purposes in 2018, the Company applied a discount rate of 3.57% to its other postretirement benefit plans. 
For expense purposes in 2019, the Company will apply a discount rate of 4.30% to its other postretirement benefit 
plans. 

For expense purposes in 2018, the Company applied an expected rate of return of 4.50% to the VEBA trust assets. 
For expense purposes in 2019, the Company will apply an expected rate of return of 4.85% to the VEBA trust assets. 

The following tables set forth the change in benefit obligation, change in plan assets, funded status and amounts 
recognized on the Consolidated Balance Sheets of the other postretirement benefit plans as of December 31, 2018
and 2017:

Change in benefit obligation:

Benefit obligation at beginning of year

Service cost

Interest cost

Plan amendments

Actuarial gains

International plan exchange rate change

Benefits paid

Acquisitions

Benefit obligation at end of year

Change in plan assets:

Fair value of plan assets at beginning of year

Company contributions / payments

Return on plan assets

Benefits paid

Fair value of plan assets at end of year

Funded status at end of year

Amounts recognized on the Consolidated Balance Sheets:

Current liabilities

Non-current liabilities

Amounts recognized in accumulated other comprehensive income:
Net prior service cost
Accumulated other comprehensive income

Changes to prior service cost recognized in accumulated other comprehensive
(income) loss:

Accumulated other comprehensive income at beginning of year

Prior service (credit) cost
Recognized prior service credit

Total recognized in accumulated other comprehensive income at December 31

2018

2017

$

219.8 $

241.4

0.2

7.6

(4.4)

(20.7)

(0.1)

(27.2)

11.7

186.9 $

92.4 $

7.4

(0.3)

(27.2)

72.3

0.1

9.1

1.2

(0.3)

—

(31.7)

—

219.8

102.4

12.4

9.3

(31.7)

92.4

(114.6) $

(127.4)

(5.9) $

(108.7)

(114.6) $

(4.8)

(122.6)

(127.4)

(10.8) $

(10.8) $

(8.1)

(8.1)

(8.1) $
(4.4)
1.7
(10.8) $

(10.3)
1.2
1.0
(8.1)

$

$

$

$

$

$

$

$

$

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

79

  
 
Note 13 - Other Postretirement Benefit Plans (continued)

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

Assumptions:

Discount rate

2018

2017

4.30%

3.57%

The current portion of accrued postretirement benefit cost, which was included in salaries, wages and benefits on the 
Consolidated Balance Sheets, was $5.9 million and $4.8 million at December 31, 2018 and 2017, respectively. In 2018, 
the current portion of accrued postretirement benefit cost related to unfunded plans and represented the actuarial 
present value of expected payments related to the plans to be made over the next 12 months.

The  estimated  prior  service  cost  for  the  postretirement  plans  that  will  be  amortized  from  accumulated  other 
comprehensive loss into net periodic benefit cost over the next fiscal year is a credit of $2.2 million. 

For measurement purposes, the Company assumed a weighted-average annual rate of increase in the per capita cost 
(health care cost trend rate) for medical benefits of 6.0% for 2019, declining gradually to 5.0% in 2023 and thereafter; 
and 6.0% for 2019, declining gradually to 5.0% in 2023 and thereafter for prescription drug benefits; and 8.0% for 2019, 
declining gradually to 5.0% in 2031 and thereafter for HMO benefits. Most of the Company's postretirement plans 
include caps that limit the amount of the benefit provided by the Company to participants each year, which lessens the 
impact of health care inflation costs to the Company.

The assumed health care cost trend rate may have a significant effect on the amounts reported. A one percentage 
point increase in the assumed health care cost trend rate would have increased the 2018 total service and interest 
cost components by $0.2 million and would have increased the postretirement benefit obligation by $3.3 million. A one 
percentage point decrease would provide corresponding reductions of $0.2 million and $3.0 million, respectively.

Plan Assets:
The Company’s target allocation for the VEBA trust assets, as well as the actual VEBA trust asset allocation as of 
December 31, 2018 and 2017, was as follows:

Asset Category
Equity securities
Fixed income securities

Total

Current Target
Allocation

Percentage of VEBA Assets
at December 31,

14% to
80% to

20%
86%

2018
17%
83%
100%

2017
17%
83%
100%

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 postretirement 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.

The following table presents those investments of the Company’s VEBA trust assets measured at net asset value on 
a recurring basis as of December 31, 2018 and 2017, respectively:

Assets:
Cash and cash equivalents

Common collective fund - U.S. equities

Common collective fund - international equities

Common collective fund - fixed income

Total Assets

80

2018

2017

$

$

9.9 $

6.8

5.2

50.4

72.3 $

13.0

9.5

6.7

63.2

92.4

Note 13 - Other Postretirement Benefit Plans (continued)

Cash and cash equivalents are valued at redemption value. Common collective funds are valued based on a net asset 
value per share, which is used as a practical expedient to fair value. When such prices are unavailable, the plan trustee 
determines a valuation from the market maker dealing in the particular security.

Cash Flows:

The Company did not make any employer contributions to the VEBA Trust in 2018 and 2017. The Company does not 
expect to make any employer contributions in 2019.

Future benefit payments are expected to be as follows:

2019

2020

2021

2022

2023

2024-2028

$

Future
Benefit
Payments

20.8

19.7

18.5

17.4

16.4

67.5

81

Note 14 - Revenue 

The following table presents details deemed most relevant to the users of the financial statements about total 
revenue for the years ended December 31, 2018 and 2017:

United States

Americas excluding United States

Europe / Middle East / Africa

Asia-Pacific

Net sales

United States

Americas excluding United States

Europe / Middle East / Africa

Asia-Pacific

Net sales

United States

Americas excluding United States

Europe / Middle East / Africa

Asia-Pacific

Net sales

December 31, 2018

Mobile

Process

Total

$

1,028.8 $

769.5 $

1,798.3

208.9

382.5

283.5

176.7

380.2

350.7

385.6

762.7

634.2

$

1,903.7 $

1,677.1 $

3,580.8

December 31, 2017
Process(1)

Total(1)

Mobile(1)

$

938.4 $

664.6 $

1,603.0

182.5

305.0

214.1

150.7

265.3

283.2

333.2

570.3

497.3

$

1,640.0 $

1,363.8 $

3,003.8

December 31, 2016
Process(1)

Total(1)

Mobile(1)

$

853.1 $

625.6 $

1,478.7

175.1

242.9

175.3

133.1

218.4

246.3

308.2

461.3

421.6

$

1,446.4 $

1,223.4 $

2,669.8

(1) Prior period amounts have not been adjusted under the modified retrospective adoption method.

When reviewing revenues by sales channel, the Company separates net sales to original equipment manufacturers 
from sales to distributors and end users. The following table presents the percent of revenues by sales channel for 
the year ended December 31, 2018: 

Revenue by sales channel

Original equipment manufacturers

Distribution/end users

December 31, 2018

58%

42%

In addition to disaggregating revenue by segment and geography and by sales channel as shown above, the Company 
believes information about the timing of transfer of goods or services, type of customer and distinguishing service 
revenue from product sales is also relevant. During the year ended December 31, 2018, approximately 10% of total 
net sales were recognized on an over-time basis because of the continuous transfer of control to the customer, with 
the remainder recognized as of a point in time. The payment terms with the U.S. government or its contractors, which 
represented approximately 7% of total net sales, differ from those of non-government customers. Finally, approximately 
5% of total net sales represented service revenue. 

Remaining Performance Obligations:
Remaining performance obligations represent the transaction price of orders meeting the definition of a contract in the 
new revenue standard for which work has not been performed and excludes unexercised contract options. Performance 
obligations having a duration of more than one year are concentrated in contracts for certain products and services 
provided to the U.S. government or its contractors. The aggregate amount of the transaction price allocated to remaining 
performance obligations for such contracts with a duration of more than one year was approximately $127 million at 
December 31, 2018.

82

Note 14 - Revenue (continued)

Unbilled Receivables:
The following table contains a rollforward of unbilled receivables for the year ended December 31, 2018:

Beginning balance, January 1

Additional unbilled revenue recognized

Less: amounts billed to customers

Ending balance

December 31,
2018

$

$

95.7

342.3

(321.4)

116.6

There were no impairment losses recorded on unbilled receivables for the year ended December 31, 2018.

83

Note 15 - Segment Information 

The Company operates under two reportable segments: (1) Mobile Industries and (2) Process Industries. 

Description of types of products and services from which each reportable segment derives its revenues:
The Company's reportable segments are business units that target different industry sectors. While the segments often 
operate using a shared infrastructure, each reportable segment is managed to address specific customer needs in 
these diverse market segments.

Mobile Industries offers an extensive portfolio of bearings, seals, lubrication devices and systems, as well as power 
transmission  components,  engineered  chain,  augers,  belts,  couplings,  clutches,  brakes  and  related  products  and 
maintenance services, to OEMs and end users of: off-highway equipment for the agricultural, construction, mining, 
outdoor power equipment and powersports markets; on-highway vehicles including passenger cars, light trucks and 
medium- and heavy-duty trucks; rail cars and locomotives. Beyond service parts sold to OEMs, aftermarket sales and 
services to individual end users, equipment owners, operators and maintenance shops are handled directly or through 
the Company's extensive network of authorized automotive and heavy-truck distributors, and include hub units, specialty 
kits and more. Mobile Industries also provides power transmission systems and flight-critical components for civil and 
military  aircraft,  which  include  bearings,  helicopter  transmission  systems,  rotor-head  assemblies,  turbine  engine 
components, gears and housings. 

Process Industries supplies industrial bearings and assemblies, power transmission components such as gears and 
gearboxes, linear motion products, couplings, seals, lubricants, chains, belts and related products and services to 
OEMs and end users in industries that place heavy demands on operating equipment they make or use. This includes:  
metals, mining, cement and aggregate production; wind energy and solar; coal power generation and oil and gas; pulp 
and paper in applications including printing presses; packaging and automation; and cranes, hoists, drawbridges, gear 
drives, conveyors, health and critical motion control equipment, marine equipment and food processing equipment. 
This segment also supports aftermarket sales and service needs through its global network of authorized industrial 
distributors and through the provision of services directly to end users. In addition, the Company’s industrial services 
group offers end users a broad portfolio of maintenance support and capabilities that include repair and service for 
bearings and gearboxes as well as electric motor rewind, repair and services. 

Measurement of segment profit or loss and segment assets:
The Company evaluates performance and allocates resources based on return on capital and profitable growth. The 
primary measurement used by management to measure the financial performance of each segment is EBIT. 

The accounting policies of the reportable segments are the same as those described in the summary of significant 
accounting policies. 

Factors used by management to identify the enterprise’s reportable segments:
Net sales by geographic area are reported by the destination of net sales, which is reflective of how the Company 
operates its segments. Long-lived assets by geographic area are reported by the location of the subsidiary. 

Timken’s non-U.S. operations are subject to normal international business risks not generally applicable to a domestic 
business.  These  risks  include  currency  fluctuation,  changes  in  tariff  restrictions,  difficulties  in  establishing  and 
maintaining relationships with local distributors and dealers, import and export licensing requirements, difficulties in 
staffing and managing geographically diverse operations and restrictive regulations by foreign governments, including 
price and exchange controls, compliance with a variety of foreign laws and regulations, including unexpected changes 
in  taxation  and  environmental  regulatory  requirements,  and  disadvantages  of  competing  against  companies  from 
countries that are not subject to U.S. laws and regulations, including the FCPA.

84

 
Note 15 - Segment Information (continued)

Business Segment Information:
The following tables provide segment financial information and a reconciliation of segment results to consolidated 
results:

Net sales to external customers:

Mobile Industries

Process Industries

Segment EBIT:

Mobile Industries

Process Industries

Total EBIT, for reportable segments

Corporate expenses

CDSOA income, net
Corporate pension-related charges (1)
Interest expense

Interest income

Income before income taxes

$

$

$

$

2018

2017

2016

1,903.7 $

1,640.0 $

1,677.1

1,363.8

3,580.8 $

3,003.8 $

1,446.4

1,223.4

2,669.8

198.7 $

139.0 $

333.8

222.3

532.5 $

361.3 $

(62.0)

—

(12.8)

(51.7)

2.1

(49.1)

—

(18.1)

(37.1)

2.9

$

408.1 $

259.9 $

116.8

168.2

285.0

(44.4)

59.6

(67.0)

(33.5)

1.9

201.6

(1) Corporate pension-related charges represent curtailments, professional fees associated with pension de-risking and actuarial (losses) and gains 
that resulted from the remeasurement of pension and other postretirement plan assets and obligations as a result of changes in assumptions.

Assets employed at year-end:
Mobile Industries
Process Industries
Corporate (2)

(2) Corporate assets include corporate buildings and cash and cash equivalents.

Capital expenditures:
Mobile Industries
Process Industries
Corporate

Depreciation and amortization:
Mobile Industries
Process Industries
Corporate

2018

2017

$

$

1,984.5 $
2,211.3
249.4
4,445.2 $

1,775.7
1,383.1
243.6
3,402.4

2018

2017

2016

$

$

$

$

48.3 $
63.3
1.0
112.6 $

71.3 $
73.5
1.2
146.0 $

57.3 $
46.2
1.2
104.7 $

70.0 $
66.6
1.1
137.7 $

88.4
48.4
0.7
137.5

64.9
65.6
1.2
131.7

85

 
 
 
 
Note 15 - Segment Information (continued)

Geographic Financial Information:

Property, Plant and Equipment, net:
United States
Americas excluding United States
Europe / Middle East / Africa
Asia-Pacific

2018

2017

2016

$

$

371.7 $
13.7
236.6
290.1
912.1 $

392.1 $
14.7
203.4
254.0
864.2 $

418.0
14.9
141.1
230.4
804.4

Refer to Note 14 - Revenue for further information pertaining to geographic net sales information.

Note 16 - Income Taxes 

Income before income taxes, based on geographic location of the operations to which such earnings are attributable, 
is provided below. As the Company has elected to treat certain foreign subsidiaries as branches for U.S. income tax 
purposes, pretax income attributable to the United States shown below may differ from the pretax income reported in 
the Company’s annual U.S. federal income tax return.

Income before income taxes:

United States
Non-United States

Income before income taxes

The provision for income taxes consisted of the following:

Current:
Federal
State and local
Foreign

Deferred:
Federal
State and local
Foreign

United States and foreign tax provision on income

2018

2017

2016

202.0 $
206.1
408.1 $

107.4 $
152.5
259.9 $

102.3
99.3
201.6

2018

2017

2016

46.1 $
9.9
68.0
124.0 $

(19.9) $
(0.7)
(0.8)
(21.4) $
102.6 $

9.1 $
4.6
44.3
58.0 $

13.6 $
(4.6)
(9.4)
(0.4) $
57.6 $

44.1
0.1
31.3
75.5

(20.5)
0.1
5.4
(15.0)
60.5

$

$

$

$

$

$
$

The Company made net income tax payments of $121.3 million, $89.9 million and $49.7 million in 2018, 2017 and 
2016, respectively.

86

 
 
 
  
 
Note 16 - Income Taxes (continued)

The following table is the reconciliation between the provision for income taxes and the amount computed by applying 
the U.S. federal income tax rate 21% (35% in 2017 and 2016) to income before taxes:

Income tax at the U.S. federal statutory rate
Adjustments:
 State and local income taxes, net of federal tax benefit
 Tax on foreign remittances and U.S. tax on foreign income
 Foreign losses without current tax benefits
 Foreign earnings taxed at different rates including tax holidays
 U.S. domestic manufacturing deduction
 U.S. foreign tax credit
 Accruals and settlements related to tax audits
 Valuation allowance changes
 U.S. Tax Reform
 Other items, net

 Provision for income taxes

Effective income tax rate

2018

2017

2016

$

85.7

$

91.0

$

70.6

6.8
21.1
3.7
11.1
—
(21.2)
(3.8)
—
(10.6)
9.8
102.6

25.1%

$

3.1
93.0
8.9
(18.0)
(3.9)
(104.2)
(34.4)
(12.6)
35.3
(0.6)
57.6
22.2%

$

$

2.6
8.3
6.4
(5.2)
(5.0)
(8.0)
(8.1)
0.2
—
(1.3)
60.5
30.0%

U.S. Tax Reform reduced the U.S. federal statutory rate from 35% to 21% beginning in 2018. U.S. Tax Reform also 
required companies to pay a one-time net charge related to the taxation of unremitted foreign earnings and to remeasure 
its U.S. deferred tax balances to the lower corporate income tax rate for the 2017 tax year. Additionally, U.S. Tax Reform 
created taxes on certain foreign sourced earnings known as the global intangible low-taxed income (“GILTI”) tax for 
tax year 2018. The Company has elected to account for GILTI as a period cost in the year the tax is incurred. The SEC 
issued SAB 118 in December 2017 to address the application of U.S. GAAP in situations when a registrant does not 
have  the  necessary  information  available,  prepared  or  analyzed  (including  computations)  in  reasonable  detail  to 
complete the accounting for certain income tax effects of U.S. Tax Reform. In accordance with SAB 118, the accounting 
for the tax effects of U.S. Tax Reform was completed as of December 31, 2018. 

Provisional estimates of $25.2 million for the one-time net charge related to the taxation of unremitted foreign earnings 
and $10.1 million related to the remeasurement of U.S. deferred tax balances to reflect the new U.S. corporate income 
tax rate were recognized as components of income tax expense for the year ended December 31, 2017. For the year 
ended December 31, 2018, the Company recorded $8.2 million of tax benefit for changes to the provisional estimate 
for the remeasurement of net U.S. deferred tax balances as a result of adjustments to finalize purchase accounting 
for prior-year acquisitions, the remeasurement of anticipatory tax credits for foreign branches and changes to U.S. 
deferred tax assets included in the 2017 U.S. federal income tax return. Over the same period, the Company recorded 
$2.4 million of tax benefit for changes in the provisional estimate of the 2017 one-time net charge related to the taxation 
of unremitted foreign earnings as a result of additional federal and state regulatory guidance issued and the filing of 
the Company's 2017 U.S. federal income tax return.

The Company has recorded its adjustments to provisional estimates throughout the SAB 118 period and that period 
has concluded as of December 31, 2018. The Company has now completed the accounting for the enactment date 
income tax effects. The U.S. Treasury and Internal Revenue Service ("IRS") continue to issue regulatory and interpretive 
guidance related to U.S. Tax Reform. Final regulations for the one-time net charge related to the taxation of unremitted 
foreign earnings were released in January 2019. The Company expects to record additional tax expense related to 
these final regulations in the first quarter of 2019.

No additional income tax provision has been made on any remaining undistributed foreign earnings not subject to the 
one-time net charge related to the taxation of unremitted foreign earnings or any additional outside basis differences 
as these amounts continue to be indefinitely reinvested in foreign operations. The Company has concluded its evaluation 
of its indefinite reinvestment assertion of undistributed foreign earnings in light of U.S. Tax Reform. The amounts of 
undistributed foreign earnings were $651.1 million and $479.6 million at December 31, 2018 and 2017, respectively. 
It is not practicable to calculate taxes that might be payable on such earnings that are indefinitely reinvested outside 
the United States.

87

Note 16 - Income Taxes (continued)

The effect of temporary differences giving rise to deferred tax assets and liabilities at December 31, 2018 and 2017
was as follows:

Deferred tax assets:
Accrued postretirement benefits cost
Accrued pension cost
Other employee benefit accruals
Tax loss and credit carryforwards
Other, net
Valuation allowances

Deferred tax liabilities - principally depreciation and amortization

Net deferred tax (liabilities) assets

2018

2017

$

$

$

28.9 $
59.5
16.8
86.1
42.9
(77.5)
156.7 $
(235.7)

(79.0) $

35.7
53.4
6.4
92.6
29.0
(79.4)
137.7
(120.7)
17.0

The Company has U.S. federal and state tax credit and loss carryforwards with tax benefits totaling $1.8 million, portions 
of which will expire in 2019 and continue until 2038. In addition, the Company has loss carryforwards in various non-
U.S. jurisdictions with tax benefits totaling $84.3 million, portions of which will expire in 2019 while others will be carried 
forward  indefinitely.  The  Company  has  provided  valuation  allowances  of  $69.1  million  against  certain  of  these 
carryforwards. A majority of the non-U.S. loss carryforwards represent local country net operating losses for branches 
of the Company or entities treated as branches of the Company under U.S. tax law. Tax benefits have been recorded 
for these losses in the United States. Substantially all of the related local country net operating loss carryforwards are 
offset fully by valuation allowances. In addition to loss and credit carryforwards, the Company has provided valuation 
allowances of $8.4 million against other deferred tax assets.

As of December 31, 2018, the Company had $26.0 million of total gross unrecognized tax benefits, all of which would 
favorably impact the Company’s effective income tax rate in any future period if such benefits were recognized. As of 
December 31, 2018, the Company believes it is reasonably possible that the amount of unrecognized tax positions 
could decrease by approximately $1.0 million during the next 12 months. The potential decrease would be primarily 
driven  by  settlements  with  tax  authorities  and  the  expiration  of  various  applicable  statutes  of  limitation. As  of 
December 31, 2018, the Company had accrued $2.5 million of interest and penalties related to uncertain tax positions. 
The Company records interest and penalties related to uncertain tax positions as a component of income tax expense.

As of December 31, 2017, the Company had $14.0 million of total gross unrecognized tax benefits, all of which would 
favorably impact the Company’s effective income tax rate in any future period if such benefits were recognized.  As of 
December 31, 2017, the Company had accrued $3.0 million of interest and penalties related to uncertain tax positions. 

As of December 31, 2016, the Company had $39.2 million of total gross unrecognized tax benefits. Included in this 
amount was $35.9 million of unrecognized tax benefits that would favorably impact the Company’s effective income 
tax rate in any future period if such benefits were recognized. As of December 31, 2016, the Company had accrued 
$8.5 million of interest and penalties related to uncertain tax positions. 

The following table reconciles the Company’s total gross unrecognized tax benefits for the years ended December 31, 
2018, 2017 and 2016:

Beginning balance, January 1
Tax positions related to the current year:
 Additions
Tax positions related to prior years:
 Additions
 Reductions
Settlements with tax authorities
Lapses in statutes of limitation
Ending balance, December 31

2018

2017

2016

$

14.0 $

39.2 $

50.4

0.4

2.7

—

17.8
(2.9)
(2.2)
(1.1)
26.0 $

6.9
(5.2)
—
(29.6)
14.0 $

5.7
(7.8)
(9.1)
—
39.2

$

88

Note 16 - Income Taxes (continued)

During 2018, gross unrecognized tax benefits increased primarily for prior year tax matters in multiple jurisdictions 
related to acquisitions. These increases were partially offset by settlements with the tax authorities for prior year tax 
matters related to the Company’s international operations.

During 2017, gross unrecognized tax benefits decreased primarily due to expiration of applicable statutes of limitations 
in multiple jurisdictions. These decreases were partially offset by accruals related to both current and prior year tax 
matters, including certain U.S. federal taxes, U.S. state and local taxes and taxes related to the Company’s international 
operations.

During 2016, gross unrecognized tax benefits decreased primarily due to settlements with tax authorities related to 
various prior year tax matters, including certain U.S. federal taxes, U.S. state and local taxes and taxes related to the 
Company’s international operations. The decrease also was related to reductions in unrecognized tax benefits for 
changes in judgment regarding prior year tax matters in multiple jurisdictions. These decreases were partially offset 
by accruals related to prior year tax matters, including certain U.S. federal taxes, U.S. state and local taxes and taxes 
related to the Company’s international operations.

As of December 31, 2018, the Company is subject to examination by the IRS for tax years 2015 to the present. The 
Company also is subject to tax examination in various U.S. state and local tax jurisdictions for tax years 2011 to the 
present, as well as various foreign tax jurisdictions, including Mexico, China, Poland and India for tax years as early 
as 2002 to the present. The Company’s unrecognized tax benefits were presented on the Consolidated Balance Sheets 
as a component of other non-current liabilities.

89

Note 17 - Fair Value 

The following tables present the fair value hierarchy for those assets and liabilities on the Consolidated Balance Sheets 
measured at fair value on a recurring basis as of December 31, 2018 and 2017:

Assets:

Cash and cash equivalents
Cash and cash equivalents measured at net
 asset value
Restricted cash

Short-term investments

Short-term investments measured at net asset value

Foreign currency hedges

Total Assets

Liabilities:

Foreign currency hedges

Total Liabilities

December 31, 2018

Total

Level 1

Level 2

Level 3

$

105.9 $

104.4 $

1.5 $

26.6

0.6

21.8

—

4.6

0.6

—

—

$

$

$

159.5 $

105.0 $

0.7 $

0.7 $

— $

— $

—

21.8

4.6

27.9 $

0.7 $

0.7 $

—

—

—

—

—

—

—

90

 
  
Note 17 - Fair Value (continued)

Assets:

Cash and cash equivalents
Cash and cash equivalents measured at net
 asset value
Restricted cash

Short-term investments

Short-term investments measured at net asset value

Foreign currency hedges

Total Assets

Liabilities:

Foreign currency hedges

Total Liabilities

December 31, 2017

Total

Level 1

Level 2

Level 3

$

108.5 $

107.3 $

1.2 $

13.1

3.8

16.2

0.2

1.3

3.8

—

—

$

$

$

143.1 $

111.1 $

7.1 $

7.1 $

— $

— $

—

16.2

1.3

18.7 $

7.1 $

7.1 $

—

—

—

—

—

—

—

Cash and cash equivalents are highly liquid investments with maturities of three months or less when purchased and 
are valued at redemption value. Short-term investments are investments with maturities between four months and one 
year  and  generally  are  valued  at  amortized  cost,  which  approximates  fair  value. A  portion  of  the  cash  and  cash 
equivalents and short-term investments are valued based on net asset value. The Company uses publicly available 
foreign currency forward and spot rates to measure the fair value of its foreign currency forward contracts.

Additionally, the Company remeasures certain assets to fair value, using Level 3 measurements, as a result of the 
occurrence of triggering events such as purchase accounting for acquisitions. See Note 2 - Acquisitions and Divestitures
for further discussion.

The Company does not believe it has significant concentrations of risk associated with the counterparts to its financial 
instruments.

No material assets were measured at fair value on a nonrecurring basis during the years ended December 31, 2018
and 2017. 

Financial Instruments:
The  Company’s  financial  instruments  consist  primarily  of  cash  and  cash  equivalents,  short-term  investments,  net 
accounts receivable, trade accounts payable, short-term borrowings and long-term debt. Due to their short-term nature, 
the carrying value of cash and cash equivalents, short-term investments, accounts receivable, trade accounts payable, 
and short-term borrowings are a reasonable estimate of their fair value. Due to the nature of fair value calculations for 
variable-rate debt, the carrying value of the Company's long-term variable-rate debt is a reasonable estimate of its fair 
value. The fair value of the Company’s long-term fixed-rate debt, based on quoted market prices, was $1,077.5 million
and $720.3 million at December 31, 2018 and 2017, respectively. The carrying value of this debt was $1,070.7 million
and  $682.4  million  at  December 31,  2018  and  2017,  respectively. The  fair  value  of  long-term  fixed-rate  debt  was 
measured using Level 2 inputs.

91

 
  
Note 18 - Derivative Instruments and Hedging Activities 

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by 
using derivative instruments are foreign currency exchange rate risk and interest rate risk. Forward contracts on various 
foreign currencies are entered into in order to manage the foreign currency exchange rate risk associated with certain 
of the Company's commitments denominated in foreign currencies. From time to time, interest rate swaps are used 
to manage interest rate risk associated with the Company’s fixed, and floating-rate borrowings.

The Company designates certain foreign currency forward contracts as cash flow hedges of forecasted revenues and 
certain interest rate hedges as cash flow hedges of fixed-rate borrowings. 

The Company does not purchase or hold any derivative financial instruments for trading purposes. As of December 31, 
2018 and 2017, the Company had $218.8 million and $386.9 million, respectively, of outstanding foreign currency 
forward contracts at notional value. Refer to Note 17 - Fair Value for the fair value disclosure of derivative financial 
instruments.

Cash Flow Hedging Strategy:
For certain derivative instruments that are designated and qualify as cash flow hedges (i.e., hedging the exposure to 
variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss 
on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings 
in the same line item associated with the forecasted transaction and in the same period or periods during which the 
hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative 
change in the present value of future cash flows of the hedged item, if any (i.e., the ineffective portion), or hedge 
components excluded from the assessment of effectiveness, are recognized in the Consolidated Statement of Income 
during the current period.

To protect against a reduction in the value of forecasted foreign currency cash flows resulting from export sales, the 
Company has instituted a foreign currency cash flow hedging program. The Company hedges portions of its forecasted 
cash flows denominated in foreign currencies with forward contracts. When the dollar strengthens significantly against 
foreign currencies, the decline in the present value of future foreign currency revenue is offset by gains in the fair value 
of the forward contracts designated as hedges. Conversely, when the dollar weakens, the increase in the present value 
of future foreign currency cash flows is offset by losses in the fair value of the forward contracts.

The maximum length of time over which the Company hedges it exposure to the variability in future cash flows for 
forecast transactions is generally eighteen months or less.

Purpose for Derivative Instruments not designated as Hedging Instruments:

For  derivative  instruments  that  are  not  designated  as  hedging  instruments,  the  instruments  are  typically  forward 
contracts.  In  general,  the  practice  is  to  reduce  volatility  by  selectively  hedging  transaction  exposures  including 
intercompany loans, accounts payable and accounts receivable. Intercompany loans between entities with different 
functional currencies typically are hedged with a forward contract at the inception of loan with a maturity date at the 
maturity of the loan. The revaluation of these contracts, as well as the revaluation of the underlying balance sheet 
items, is recorded directly to the income statement so the adjustment generally offsets the revaluation of the underlying 
balance sheet items to protect cash payments and reduce income statement volatility.

The following table presents the impact of derivative instruments not designated as hedging instruments for the years 
ended December 31, 2018, 2017, and 2016, and the related location within the Consolidated Statements of Income.

Derivatives not designated as
hedging instruments

Location of gain or (loss)
recognized in income

2018

2017

2016

Foreign currency forward contracts Other income (expense), net $

5.1 $

(10.2) $

0.1

Amount of gain or (loss) 
recognized in income 
Year Ended December 31,

92

Note 19 - Research and Development 

The Company performs research and development under Company-funded programs and under contracts with the 
federal government and others. Expenditures committed to research and development amounted to $37.3 million, 
$35.3 million and $31.8 million in 2018, 2017 and 2016, respectively. Expenditures may fluctuate from year-to-year 
depending on special projects and needs.

Note 20 - Continued Dumping and Subsidy Offset Act 

CDSOA provides for distribution of monies collected by U.S. Customs on entries of merchandise subject to antidumping 
orders that entered the United States prior to October 1, 2007, to qualifying domestic producers where the domestic 
producers have continued to invest in their technology, equipment and people. During the year ended December 31, 
2016, the Company recognized pretax CDSOA income of $59.6 million, net of related expenses. 

In September 2002, the World Trade Organization ruled that CDSOA payments are not consistent with international 
trade rules. In February 2006, U.S. legislation was enacted that ended CDSOA distributions for imports covered by 
antidumping duty orders entering the United States after September 30, 2007. Instead, any such antidumping duties 
collected would remain with the U.S. Treasury. 

CDSOA has been the subject of significant litigation since 2002, and U.S. Customs has withheld CDSOA distributions 
in recent years while litigation was ongoing. In recent months, much of the CDSOA litigation that involves antidumping 
orders where Timken is a qualifying domestic producer has concluded. 

During 2016, the Company received CDSOA distributions of $60.6 million, representing funds that would have been 
distributed to the Company at the end of calendar years 2011 through 2016.

93

Note 21 - Quarterly Financial Data 

(Unaudited)

Net sales

Gross profit

Selling, general and administrative expenses

Impairment and restructuring charges
Net income (1)
Net income attributable to noncontrolling interests

Net income attributable to The Timken Company

Net income per share - Basic:

Net income per share - Diluted:

Dividends per share

Net sales

Gross profit

Selling, general and administrative expenses

Impairment and restructuring charges
Net income (2)
Net (loss) income attributable to noncontrolling interests

Net income attributable to The Timken Company

Net income per share - Basic:

Net income per share - Diluted:

Dividends per share

1st

2nd

2018

3rd

4th

Total

$

883.1 $

906.3 $

881.3 $

910.1 $

3,580.8

264.9

148.6

0.2

80.5

0.3

80.2

267.4

141.8

0.3

91.9

0.9

91.0

253.3

142.0

2.6

72.3

0.7

71.6

254.5

148.3

1.8

60.8

0.8

60.0

1.03 $

1.02 $

0.27 $

1.18 $

1.16 $

0.28 $

0.93 $

0.91 $

0.28 $

0.78 $

0.77 $

0.28 $

1,040.1

580.7

4.9

305.5

2.7

302.8

3.93

3.86

1.11

1st

2nd

2017

3rd

4th

Total

703.8 $

750.6 $

771.4 $

778.0 $

3,003.8

182.2

117.6

1.7

38.1

(0.1)

38.2

0.49 $

0.48 $

0.26 $

201.1

123.9

0.8

82.0

(0.5)

82.5

1.06 $

1.04 $

0.27 $

216.1

134.0

1.3

54.1

0.6

53.5

0.69 $

0.68 $

0.27 $

212.7

132.8

0.5

28.1

(1.1)

29.2

0.38 $

0.37 $

0.27 $

812.1

508.3

4.3

202.3

(1.1)

203.4

2.62

2.58

1.07

$

$

$

$

$

$

$

Earnings per share are computed independently for each of the quarters presented; therefore, the sum of the quarterly 
earnings per share may not equal the total computed for the year.

(1)  Net  income  for  the  fourth  quarter  of  2018  included  net  actuarial  losses  of  $19.7  million,  partially  offset  by 

curtailment gains of $10.2 million. 

(2)  Net income for the second quarter of 2017 included a $34 million reversal of accruals for uncertain tax positions. 
Net income for the fourth quarter of 2017 included net actuarial losses of $13.7 million and $35.3 million of 
income tax expense related to U.S. Tax Reform. 

94

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of The Timken Company and subsidiaries

Opinion on the Financial Statements
We  have  audited  the  accompanying  consolidated  balance  sheets  of  The  Timken  Company  and  subsidiaries  (the 
Company) as of December 31, 2018 and 2017, and the related consolidated statements of income, comprehensive 
income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2018, and 
the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the 
“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material 
respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and 
its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally 
accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United 
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria 
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the 
Treadway Commission (2013 framework) and our report dated February 15, 2019 expressed an unqualified opinion 
thereon.

Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an 
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm 
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the 
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and 
the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and 
perform  the  audit  to  obtain  reasonable  assurance  about  whether  the  financial  statements  are  free  of  material 
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material 
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to 
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures 
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates 
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our 
audits provide a reasonable basis for our opinion.

/s/Ernst & Young LLP

We have served as the Company’s auditor since 1910.

Cleveland, OH
February 15, 2019 

95

 
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, the Company’s management carried out an 
evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal 
financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures 
as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, the principal executive officer and principal 
financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the 
period covered by this Annual Report on Form 10-K.

There have been no changes during the Company’s fourth quarter of 2018 in the Company’s internal control over 
financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal 
control over financial reporting.

Report of Management on Internal Control Over Financial Reporting

The management of The Timken Company is responsible for establishing and maintaining adequate internal control 
over  financial  reporting  for  the  Company.  Timken’s  internal  control  system  was  designed  to  provide  reasonable 
assurance regarding the preparation and fair presentation of published financial statements. Because of its inherent 
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any 
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of 
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Timken  management  assessed  the  effectiveness  of  the  Company’s  internal  control  over  financial  reporting  as  of 
December 31,  2018.  In  making  this  assessment,  it  used  the  criteria  set  forth  by  the  Committee  of  Sponsoring 
Organizations of the Treadway Commission ("COSO"). Based on this assessment under COSO’s “Internal Control-
Integrated Framework,” management believes that, as of December 31, 2018, Timken’s internal control over financial 
reporting is effective.

On August 30,  2018,  the  Company's  majority-owned  subsidiary,  Timken  India,  completed  the  acquisition  of ABC 
Bearings. On September 1, 2018, the Company completed the acquisition of Cone Drive. On September 18, 2018, 
the Company completed the acquisition of Rollon. As permitted by SEC guidance, the scope of Timken's evaluation 
of internal control over financial reporting as of December 31, 2018 did not include the internal control over financial 
reporting of ABC Bearings, Cone Drive and Rollon. The results of ABC Bearings, Cone Drive and Rollon are included 
in the Company's consolidated financial statements beginning August 30, 2018, September 1, 2018 and September 
18, 2018, respectively. The combined total assets of ABC Bearings, Cone Drive and Rollon represented 24% and 51% 
of the Company's of total and net assets, respectively, at December 31, 2018. The combined net sales of ABC Bearings, 
Cone Drive and Rollon represented 3% of the Company's consolidated net sales for 2018 and the combined net income 
of ABC Bearings, Cone Drive and Rollon represented less than 1% of the Company's net income for 2018. The Company 
will include ABC Bearings, Cone Drive and Rollon in the Company's internal control over financial reporting assessment 
as of December 31, 2019.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2018 has been audited 
by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is presented 
in this Annual Report on Form 10-K.

96

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of The Timken Company and subsidiaries

Opinion on Internal Control over Financial Reporting
We have audited The Timken Company and subsidiaries’ internal control over financial reporting as of December 31, 
2018, based on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring 
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, The Timken Company 
and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting 
as of December 31, 2018, based on the COSO criteria.

As indicated in the accompanying Report of Management on Internal Control Over Financial Reporting, management’s 
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal 
controls of ABC Bearings Limited (“ABC Bearings”), Apiary Investments Holding Limited (“Cone Drive”), and Rollon 
S.p.A (“Rollon”), which are included in the 2018 consolidated financial statements of the Company and constituted 
24% and 51% of total and net assets, respectively, as of December 31, 2018 and 3% and less than 1% of revenues 
and  net  income,  respectively,  for  the  year  then  ended.  Our  audit  of  internal  control  over  financial  reporting  of  the 
Company also did not include an evaluation of the internal control over financial reporting of ABC Bearings, Cone 
Drive, and Rollon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United 
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, and the 
related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of 
the three years in the period ended December 31, 2018, and the related notes and the financial statement schedule 
listed in the Index at Item 15(a) of the Company and our report dated February 15, 2019 expressed an unqualified 
opinion thereon.

Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for 
its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of 
Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s 
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB 
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws 
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and 
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was 
maintained in all material respects. 

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a 
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on 
the  assessed  risk,  and  performing  such  other  procedures  as  we  considered  necessary  in  the  circumstances.  We 
believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding 
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with 
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies 
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect 
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions 
are  recorded  as  necessary  to  permit  preparation  of  financial  statements  in  accordance  with  generally  accepted 
accounting principles, and that receipts and expenditures of the company are being made only in accordance with 
authorizations  of  management  and  directors  of  the  company;  and  (3)  provide  reasonable  assurance  regarding 
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have 
a material effect on the financial statements.

97

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become 
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may 
deteriorate.

 /s/ Ernst & Young LLP

Cleveland, OH
February 15, 2019 

98

 
 
 
 
 
Item 9B. Other Information

Not applicable.

PART III.

Item 10. Directors, Executive Officers and Corporate Governance

Required information is set forth under the captions "Nominees" and “Section 16(a) Beneficial Ownership Reporting 
Compliance” in the proxy statement filed in connection with the annual meeting of shareholders to be held on or about 
May 10, 2019 (the "Proxy Statement"), and is incorporated herein by reference. Information regarding the executive 
officers of the registrant is included in Part I hereof. Information regarding the Company’s Audit Committee and its 
Audit Committee Financial Expert is set forth under the caption “Audit Committee” in the Proxy Statement, and is 
incorporated herein by reference.

The General Policies and Procedures of the Board of Directors of the Company and the charters of its Audit Committee, 
Compensation Committee and Nominating and Corporate Governance Committee are also available on the Company’s 
website at www.timken.com/about/governance-documents and are available to any shareholder upon request to the 
Corporate Secretary. The information on the Company’s website is not incorporated by reference into this Annual 
Report on Form 10-K.

The Company has adopted a code of ethics that applies to all of its employees, including its principal executive officer, 
principal financial officer and principal accounting officer, as well as its directors. The Company’s code of ethics, The 
Timken  Company  Standards  of  Business  Ethics  Policy,  is  available  on  its  website  at  www.timken.com/about/
governance-documents. The Company intends to disclose any amendment to, or waiver from, its code of ethics by 
posting such amendment or waiver, as applicable, on its website.

Item 11. Executive Compensation

Required  information  is  set  forth  under  the  captions  “Compensation  Discussion  and Analysis,”  “2018  Summary 
Compensation Table,” “2018 Grants of Plan-Based Awards,” “Outstanding Equity Awards at 2018 Year-End,” “2018 
Option Exercises and Stock Vested,” “2018 Pension Benefits Table,” “2018 Nonqualified Deferred Compensation,” 
“Potential Payments Upon Termination or Change-in-Control,” “Director Compensation,” “Compensation Committee,” 
and “Compensation Committee Report” in the Proxy Statement, and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

Required information, including with respect to institutional investors owning more than 5% of the Company’s common 
shares,  is  set  forth  under  the  caption  “Beneficial  Ownership  of  Common  Shares”  in  the  Proxy  Statement,  and  is 
incorporated herein by reference.

Required information is set forth under the caption “Equity Compensation Plan Information” in the Proxy Statement, 
and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Required information is set forth under the captions "Nominees," "Independence Determinations" and "Related Party 
Transactions Approval Policy" in the Proxy Statement, and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

Required information regarding fees paid to and services provided by the Company’s independent auditor during the 
years ended December 31, 2018 and 2017 and the pre-approval policies and procedures of the Audit Committee of 
the Company’s Board of Directors is set forth under the caption “Auditor” in the Proxy Statement, and is incorporated 
herein by reference.

99

PART IV.

Item 15. Exhibits and Financial Statement Schedules

(a)(1) - Financial Statements are included in Part II, Item 8 of the Annual Report on Form 10-K. 

(a)(2) - Schedule II - Valuation and Qualifying Accounts is submitted as a separate section of this report. Schedules 
I, III, IV and V are not applicable to the Company and, therefore, have been omitted. 

(a)(3) Listing of Exhibits 

Exhibit

(2.1)

(3.1)

(3.2)

(4.1)

Share Purchase Agreement Dated June 27, 2017, between Mr. H.J. Groeneveld and Timken Europe B.V., was 
filed on July 3, 2017 with Form 8-K (Commission File No. 1-1169) and is incorporated herein by reference.

Amended Articles of Incorporation of  Registrant, (effective May 7, 2013) were filed on July 31, 2013 with Form 
10-Q (Commission File No. 1-1169) and are incorporated herein by reference.

Amended Regulations of the Registrant adopted on May 10, 2016, were filed on July 28, 2016 with Form 10-Q 
(Commission File No. 1-1169) and are incorporated herein by reference.

Third Amended and Restated Credit Agreement, dated as of June 19, 2015, by and among: The Timken Company; 
Bank  of  America,  N.A.  and  KeyBank  National  Association  as  Co-Administrative  Agents;  KeyBank  National 
Association as Paying Agent, L/C Issuer and Swing Line Lender; and the other Lenders party thereto, was filed 
on June 23, 2015 with Form 8-K (Commission File No. 1-1169) and is incorporated herein by reference.

(4.2) Credit Agreement, dated as of September 11, 2018, among The Timken Company, KeyBank National Association, 
as  Administrative  Agent,  and  the  Lenders  party  thereto,  was  filed  on  September  14,  2018  with  Form  8-K 
(Commission File No. 1-1169) and is incorporated herein by reference.

(4.3)

Indenture dated as of July 1, 1990, between The Timken Company and Ameritrust Company of New York, was 
filed with Form S-3 dated July 12, 1990 (Registration No. 333-35773) and is incorporated herein by reference.

(4.4)

(4.5)

(4.6)

(4.7)

(4.8)

First Supplemental Indenture, dated as of July 24, 1996, by and between The Timken Company and Mellon
Bank, N.A. was filed on November 13, 1996 with Form 10-Q (Commission File No. 1-1169) and is incorporated
herein by reference.

Indenture, dated as of February 18, 2003, between The Timken Company and The Bank of New York, as Trustee, 
providing for Issuance of Notes in Series was filed on March 27, 2003 with Form 10-K (Commission File No. 
1-1169) and is incorporated herein by reference.

Indenture, dated as of August 20, 2014, by and between The Timken Company and The Bank of New York
Mellon Trust Company, N.A., was filed on August 20, 2014 with Form 8-K (Commission File No. 1-1169) and is
incorporated herein by reference.

Indenture, dated as of September 6, 2018, by and between The Timken Company and The Bank of New York
Mellon Trust Company, N.A., as Trustee, was filed on September 6, 2018 with Form 8-K (Commission File No.
1-1169) and is incorporated herein by reference.

First Supplemental Indenture, dated as of September 6, 2018, by and between The Timken Company and The
Bank of New York Mellon Trust Company, N.A., as Trustee (including Form of Note), was filed on September
6, 2018 with Form 8-K (Commission File No. 1-1169) and is incorporated herein by reference.

(4.9) The Company is also a party to agreements with respect to other long-term debt in total amount less than 10%
of the Registrant's consolidated total assets. The Registrant agrees to furnish a copy of such agreements upon
request.

Management Contracts and Compensation Plans

(10.1)

(10.2)

(10.3)

The Timken Company 1996 Deferred Compensation Plan for officers and other key employees, amended and 
restated effective December 31, 2010, was filed on February 17, 2012 with Form 10-K (Commission File No. 
1-1169) and is incorporated herein by reference.

The Timken Company Director Deferred Compensation Plan, amended and restated effective December 31, 
2008, was filed on February 25, 2010 with Form 10-K (Commission File No. 1-1169) and is incorporated herein 
by reference.

Form of The Timken Company 1996 Deferred Compensation Plan Election Agreement, amended and restated 
as of January 1, 2008, was filed on February 25, 2010 with Form 10-K (Commission File No. 1-1169) and is 
incorporated herein by reference.

100

 
 
 
 
Management Contracts and Compensation Plans

(10.4)

(10.5)

(10.6)

(10.7)

(10.8)

(10.9)

(10.10)

(10.11)

(10.12)

Form of The Timken Company Director Deferred Compensation Plan Election Agreement, amended and restated 
as of January 1, 2008, was filed on February 25, 2010 with Form 10-K (Commission File No. 1-1169) and is 
incorporated herein by reference.

The Timken Company Long-Term Incentive Plan for directors, officers and other key employees as amended 
and restated as of February 5, 2008 and approved by the shareholders on May 1, 2008 was filed on March 18, 
2008 as Appendix A to the Registrant's Definitive Proxy Statement on Schedule 14A (Commission File No. 1-1169) 
and is incorporated herein by reference.

The Timken Company 2011 Long-Term Incentive Plan, as amended and restated as of February 13, 2015 for
directors, officers and other key employees as approved by the shareholders on May 7, 2015 was filed on
March 27, 2015 with Definitive Proxy Statement on Schedule 14A (Commission File No. 1-1169) and is
incorporated herein by reference.

Amended and Restated Supplemental Pension Plan of The Timken Company, amended and restated effective 
as of January 1, 2011, was filed on February 17, 2012 with Form 10-K (Commission File No. 1-1169) and is 
incorporated herein by reference.

Amended and Restated Supplemental Pension Plan of The Timken Company, effective as of June 30, 2014,
was filed on October 30, 2018 with Form 10-Q (Commission File No. 1-1169) and is incorporated herein by
reference.

Amendment No. 1 to the Amended and Restated Supplemental Pension Plan of The Timken Company,
effective as of June 30, 2014, was filed on October 30, 2018 with Form 10-Q (Commission File No. 1-1169)
and is incorporated herein by reference.

Amended and Restated Supplemental Pension Plan of The Timken Company, effective as of October 1, 2018,
was filed on October 30, 2018 with Form 10-Q (Commission File No. 1-1169) and is incorporated herein by
reference.

The Timken Company Senior Executive Management Performance Plan, as amended and restated as of February 
13, 2015 and approved by shareholders on May 7, 2015, was filed on March 27, 2015 with Definitive Proxy 
Statement on Schedule 14A (Commission File No. 1-1169) and is incorporated herein by reference.

Form of Severance Agreement (for Executive Officers appointed on or after November 12, 2015), as adopted
on November 12, 2015, was filed on February 24, 2016 with Form 10-K (Commission File No. 1-1169) and is
incorporated herein by reference.

(10.13)

Form of Severance Agreement as adopted on December 9, 2010 was filed on February 22, 2011 with Form
10-K (Commission File No. 1-1169) and is incorporated herein by reference.

(10.14)

Form of Indemnification Agreement entered into with all Directors who are not Executive Officers of the
Company was filed on July 31, 2013 with Form 10-Q (Commission File No. 1-1169) and is incorporated herein
by reference.

(10.15)

Form of Indemnification Agreement entered into with all Directors who are not Executive Officers of the Company 
was filed on July 31, 2013 with Form 10-Q (Commission File No. 1-1169) and is incorporated herein by reference.

(10.16)

(10.17)

(10.18)

(10.19)

(10.20)

(10.21)

Form of Indemnification Agreement entered into with all Executive Officers of the Company who are not Directors 
of the Company was filed on July 31, 2013 with Form 10-Q (Commission File No. 1-1169) and is incorporated 
herein by reference.

Form of Amended and Restated Employee Excess Benefits Agreement entered into with certain Executive
Officers and certain key employees of the Company, was filed on February 26, 2009 with Form 10-K
(Commission File No. 1-1169) and is incorporated herein by reference

Form of Amended and Restated Employee Excess Benefits Agreement entered into with certain Executive Officers 
and certain key employees of the Company, was filed on February 26, 2009 with Form 10-K (Commission File 
No. 1-1169) and is incorporated herein by reference.

Form of Employee Excess Benefits Agreement, entered into with all Executive Officers after January 1, 2011,
was filed on August 4, 2011 with Form 10-Q (Commission File No. 1-1169) and is incorporated herein by
reference.

Amendment No. 1 to the Employee Excess Benefits Agreement, dated January 1, 2011, entered into with
Richard G. Kyle, approved as of November 8, 2018 is attached hereto as Exhibit 10.1.

Form of Amendment No. 1 to The Amended and Restated Employee Excess Benefit Agreement, entered into
with certain Executive Officers and certain key employees of the Company, was filed on September 2, 2009
with Form 8-K (Commission File No. 1-1169) and is incorporated herein by reference.

101

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Management Contracts and Compensation Plans

(10.22)

(10.23)

(10.24)

(10.25)

(10.26)

(10.27)

(10.28)

(10.29)

(10.30)

(10.31)

(10.32)

(10.33)

(10.34)

(10.35)

(10.36)

(10.37)

(10.38)

Form of Amendment No. 1 to The Amended and Restated Employee Excess Benefits Agreement with all Executive 
Officers after January 1, 2011 and Form of Amendment No. 2 to the Amended and Restated Excess Benefits 
Agreement with certain Executive Officers and certain key employees of the Company, as adopted December 
8, 2011, was filed on February 17, 2012 with Form 10-K (Commission File No. 1-1169) and is incorporated herein 
by reference.

Amendment No. 2 to the Amended and Restated Employee Excess Benefits Agreement, dated December 17,
2008, entered into with Christopher A. Coughlin, approved as of November 8, 2018 is attached hereto as
Exhibit 10.2.

Amendment No. 3 to the Amended and Restated Employee Excess Benefits Agreement, dated December 18,
2008, entered into with Philip D. Fracassa, approved as of November 8, 2018 is attached hereto as Exhibit
10.3.

Form of Amendment No. 1 to The Amended and Restated Employee Excess Benefits Agreement entered into
with the Chief Executive Officer, as adopted December 8, 2011, was filed on February 17, 2012 with Form 10-
K (Commission File No. 1-1169) and is incorporated herein by reference.

Form of Amendment No. 2 to The Amended and Restated Employee Excess Benefits Agreement entered into
with the Chief Executive Officer, as adopted December 8, 2011, was filed on February 17, 2012 with Form 10-
K (Commission File No. 1-1169) and is incorporated herein by reference.

Form of Nonqualified Stock Option Agreement for transferable options for Officers, as adopted on August 12,
2015, was filed on February 24, 2016 with Form 10-K (Commission File No. 1-1169) and is incorporated
herein by reference.

Form of Nonqualified Stock Option Agreement for Officers, as adopted on November 6, 2008, was filed on
February 26, 2009 with Form 10-K (Commission File No. 1-1169) and is incorporated herein by reference.

Form of Nonqualified Stock Option Agreement for Officers, as adopted on December 10, 2009, was filed on
February 25, 2010 with Form 10-K (Commission File No. 1-1169), and is incorporated herein by reference.

Form of Nonqualified Stock Option Agreement for Non-Employee Directors, as adopted on December 8, 2011,
was filed on February 17, 2012 with Form 10-K (Commission File No. 1-1169) and is incorporated herein by
reference.

Form of Nonqualified Stock Option Agreement for transferable options for Officers, as adopted on December
8, 2011, was filed on February 17, 2012 with Form 10-K (Commission File No. 1-1169) and is incorporated
herein by reference.

Form of Nonqualified Stock Option Agreement for non-transferable options for Non-Officer Employees, as
adopted on December 8, 2011, was filed on February 17, 2012 with Form 10-K (Commission File No. 1-1169)
and is incorporated herein by reference.

Form of Nonqualified Stock Option Agreement, as adopted on February 8, 2018, was filed on May 1, 2018 with
Form 10-Q (Commission File No. 1-1169) and is incorporated herein by reference.

Form of Nonqualified Stock Option Agreement (U.S), as adopted on September 24, 2018, was filed on
October 30, 2018 with Form 10-Q (Commission File No. 1-1169) and is incorporated herein by reference.

Form of Nonqualified Stock Option Agreement (Non-U.S), as adopted on September 24, 2018, was filed on
October 30, 2018 with Form 10-Q (Commission File No. 1-1169) and is incorporated herein by reference.

Form of Restricted Share Agreement for Non-Employee Directors, as adopted on December 8, 2011, was filed
on February 17, 2012 with Form 10-K (Commission File No. 1-1169) and is incorporated herein by reference.

Form of Restricted Share Agreement for Non-Employee Directors (ratable vesting over five years), as adopted
on August 12, 2015, was filed on February 24, 2016 with Form 10-K (Commission File No. 1-1169) and is
incorporated herein by reference.

Form of Restricted Share Agreement for Non-Employee Directors (one year vesting), as adopted on February
12, 2015, was filed on February 24, 2016 with Form 10-K (Commission File No. 1-1169) and is incorporated
herein by reference.

(10.39)

Form of Performance Shares Agreement was filed on February 11, 2010 with Form 8-K (Commission File No. 
1-1169) and is incorporated herein by reference.

(10.40)

Form of Deferred Shares Agreement, as adopted on February 2, 2009, was filed on February 17, 2012 with Form 
10-K (Commission File No. 1-1169) and is incorporated herein by reference.

(10.41)

Form of Deferred Shares Agreement (five year cliff vesting) entered into with employees after January 1, 2012, 
as adopted on December 8, 2011, was filed on February 17, 2012 with Form 10-K (Commission File No. 1-1169) 
and is incorporated herein by reference.

102

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Management Contracts and Compensation Plans

(10.42)

(10.43)

(10.44)

(10.45)

(10.46)

(10.47)

(10.48)

Form of Deferred Shares Agreement (five year cliff vesting) entered into with employees after August 12,
2015, as adopted on August 12, 2015, was filed on February 24, 2016 with Form 10-K (Commission File No.
1-1169) and is incorporated herein by reference.

Form of Deferred Shares Agreement (three year cliff vesting) entered into with employees after November 12,
2015, as adopted on November 12, 2015, was filed on February 24, 2016 with Form 10-K (Commission File
No. 1-1169) and is incorporated herein by reference.

Form of Deferred Shares Agreement (three year cliff vesting), as adopted on February 8, 2018, was filed on
May 1, 2018 with Form 10-Q (Commission File No. 1-1169) and is incorporated herein by reference.

Form of Deferred Shares Agreement (five year cliff vesting), as adopted on February 8, 2018, was filed on
May 1, 2018 with Form 10-Q (Commission File No. 1-1169) and is incorporated herein by reference.

Form of Deferred Shares Agreement (three year cliff vesting), as adopted on September 24, 2018, was filed
on October 30, 2018 with Form 10-Q (Commission File No. 1-1169) and is incorporated herein by reference.

Form of Deferred Shares Agreement (five year cliff vesting), as adopted on September 24, 2018, was filed on
October 30, 2018 with Form 10-Q (Commission File No. 1-1169) and is incorporated herein by reference.

Form of Performance-Based Restricted Stock Unit Agreement entered into with key employees was filed on
May 2, 2012 with Form 10-Q (Commission File No. 1-1169) and is incorporated herein by reference.

(10.49)

Form of Performance-Based Restricted Stock Unit Agreement, as adopted on February 8, 2018, was filed on 
May 1, 2018 with Form 10-Q (Commission File No. 1-1169) and is incorporated herein by reference.

(10.50)

(10.51)

(10.52)

(10.53)

(10.54)

Form of Time-Based Restricted Stock Unit Agreement entered into with key employees was filed on May 2,
2012 with Form 10-Q (Commission File No. 1-1169) and is incorporated herein by reference.

Form of Time-Based Restricted Stock Unit Agreement (Cliff Vesting) entered into with key employees was filed
on February 28, 2014 with Form 10-K (Commission File No. 1-1169) and is incorporated herein by reference.

Form of Time-Based Restricted Stock Unit Agreement, as adopted on February 8, 2018, was filed on May 1,
2018 with Form 10-Q (Commission File No. 1-1169) and is incorporated herein by reference.

Form of Time-Based Restricted Stock Unit Agreement for Nonemployee Directors (annual grant), as adopted
February 8, 2018, was filed on May 1, 2018 with Form 10-Q (Commission File No. 1-1169) and is incorporated
herein by reference.

Form of Time-Based Restricted Stock Unit Agreement for Nonemployee Directors (new member grant), as
adopted February 8, 2018, was filed on May 1, 2018 with Form 10-Q (Commission File No. 1-1169) and is
incorporated herein by reference.

(10.55)

Form of Associate Non-Compete Agreement entered into with key employees was filed on December 3, 2012
with Form 10-Q/A (Commission File No. 1-1169) and is incorporated herein by reference.

103

Listing of Exhibits (continued)

(10.1)

(10.2)

(10.3)

Amendment No. 1 to the Employee Excess Benefits Agreement entered into with Richard G. Kyle

Amendment No. 2 to the Amended and Restated Employee Excess Benefits Agreement entered into with
Christopher A. Coughlin.

Amendment No. 3 to the Amended and Restated Employee Excess Benefits Agreement entered into with
Philip D. Fracassa.

(12)

  Computation of Ratio of Earnings to Fixed Charges. 

(21)

  A list of subsidiaries of the Registrant. 

(23)

  Consent of Independent Registered Public Accounting Firm. 

(24)

  Power of Attorney. 

(31.1)

  Principal Executive Officer's Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(31.2)

  Principal Financial Officer's Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32)

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act 
of 2002. 

(101)

Financial statements from the Annual Report on Form 10-K of The Timken Company for the year ended December 
31, 2018, formatted in XBRL: (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of 
Comprehensive Income (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, 
(v)  the  Consolidated  Statements  of  Shareholders'  Equity  and  (vi)  the  Notes  to  the  Consolidated  Financial 
Statements.

104

 
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly 
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

THE TIMKEN COMPANY

By: /s/ Richard G. Kyle

Richard G. Kyle

By: /s/ Philip D. Fracassa

Philip D. Fracassa

President, Chief Executive Officer and Director

Executive Vice President and Chief Financial Officer

(Principal Executive Officer)

Date: February 15, 2019

(Principal Financial Officer)

Date: February 15, 2019

By: /s/ Shelly M. Chadwick

Shelly M. Chadwick

Vice President - Finance and Chief
   Accounting Officer
(Principal Accounting Officer)

Date: February 15, 2019

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following 
persons on behalf of the registrant and in the capacities and on the dates indicated.

By: /s/ Maria A. Crowe *

Maria A. Crowe, Director

Date: February 15, 2019

By: /s/ Elizabeth A. Harrell *

Elizabeth A. Harrell
Date: February 15, 2019

By: /s/ Richard G. Kyle *

Richard G. Kyle, Director

Date: February 15, 2019

By: /s/ John A. Luke, Jr.*

John A. Luke, Jr., Director
Date: February 15, 2019

By: /s/ Christopher L. Mapes *
Christopher L. Mapes, Director
Date: February 15, 2019

By: /s/ James F. Palmer *
James F. Palmer, Director
Date: February 15, 2019

By: /s/ Ajita G. Rajendra *

Ajita G. Rajendra, Director

Date: February 15, 2019

By: /s/ Joseph W. Ralston *

Joseph W. Ralston, Director

Date: February 15, 2019

By: /s/ Frank C. Sullivan *

Frank C. Sullivan, Director
Date: February 15, 2019

By: /s/ John M. Timken, Jr.*

John M. Timken, Jr., Director
Date: February 15, 2019

By: /s/ Ward J. Timken, Jr.*

Ward J. Timken, Jr., Director
Date: February 15, 2019

By: /s/ Jacqueline F. Woods *

Jacqueline F. Woods, Director
Date: February 15, 2019

* By: /s/ Philip D. Fracassa

Philip D. Fracassa, attorney-in-fact

By authority of Power of Attorney
filed as Exhibit 24 hereto
Date: February 15, 2019

105

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schedule II—Valuation and Qualifying Accounts

The Timken Company and Subsidiaries

Allowance for uncollectible accounts:
Balance at beginning of period

Additions:
 Charged to costs and expenses (1)
 Charged to other accounts (2)
Deductions (3)
Balance at end of period

Allowance for surplus and obsolete inventory:

Balance at beginning of period

Additions:
 Charged to costs and expenses (4)
 Charged to other accounts (2)
Deductions (5)
Balance at end of period

Valuation allowance on deferred tax assets:

Balance at beginning of period

Additions
 Charged to costs and expenses (6)
Deductions (7)
Balance at end of period

2018

2017

2016

$

20.3 $

20.2 $

16.9

3.1

1.3

2.8

3.8

0.4

4.1

21.9 $

20.3 $

4.8

0.2

1.7

20.2

2018

2017

2016

30.0 $

21.1 $

18.4

16.1
2.3
8.9

10.3
6.0
7.4

39.5 $

30.0 $

13.4
0.4
11.1

21.1

2018

2017

2016

79.4 $

85.5 $

83.7

—

1.9

6.5

12.6

77.5 $

79.4 $

3.8

2.0

85.5

$

$

$

$

$

(1)  Provision for uncollectible accounts included in expenses.
(2)  Currency translation and change in reserves due to acquisitions, net of divestitures.
(3)  Actual accounts written off against the allowance, net of recoveries.
(4)  Provision for surplus and obsolete inventory included in expenses.
(5)  Inventory items written off against the allowance.
(6)  Increase in valuation allowance is recorded as a component of the provision for income taxes.
(7)  Amount primarily relates to the reversal of valuation allowances due to the realization of net operating loss.

106

 
Exhibit 31.1 

Principal Executive Officer’s Certifications 
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 

I, Richard G. Kyle, certify that: 

1.   

I have reviewed this quarterly report on Form 10-K of The Timken Company; 

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to 

2. 
state a material fact necessary to make the statements made, in light of the circumstances under which such 
statements were made, not misleading with respect to the period covered by this report; 

Based on my knowledge, the financial statements, and other financial information included in this report, 

3. 
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as 
of, and for, the periods presented in this report; 

4. 
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure 
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over 
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

(a) 
Designed such disclosure controls and procedures, or caused such disclosure controls and 
procedures to be designed under our supervision, to ensure that material information relating to the 
registrant, including its consolidated subsidiaries, is made known to us by others within those entities, 
particularly during the period in which this report is being prepared; 

Designed such internal control over financial reporting, or caused such internal control over 

(b) 
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the 
reliability of financial reporting and the preparation of financial statements for external purposes in 
accordance with generally accepted accounting principles; 

(c) 
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in 
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end 
of the period covered by this report based on such evaluation; and 

Disclosed in this report any change in the registrant’s internal control over financial reporting that 

(d) 
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of 
an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s 
internal control over financial reporting: and 

5. 
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal 
control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors 
(or persons performing the equivalent functions): 

All significant deficiencies and material weaknesses in the design or operation of internal control 

(a) 
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, 
process, summarize and report financial information; and 

Any fraud, whether or not material, that involves management or other employees who have a 

(b) 
significant role in the registrant’s internal control over financial reporting. 

Date:  February 15, 2019 

By: /s/ Richard G. Kyle 

Richard G. Kyle 
President and Chief Executive Officer 
(Principal Executive Officer)

 
 
 
 
 
 
 
Exhibit 31.2 

Principal Financial Officer’s Certifications 
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 

I, Philip D. Fracassa, certify that: 

1. 

I have reviewed this quarterly report on Form 10-K of The Timken Company; 

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to 

2. 
state a material fact necessary to make the statements made, in light of the circumstances under which such 
statements were made, not misleading with respect to the period covered by this report; 

Based on my knowledge, the financial statements, and other financial information included in this report, 

3. 
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as 
of, and for, the periods presented in this report; 

4. 
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure 
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over 
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

(a) 
Designed such disclosure controls and procedures, or caused such disclosure controls and 
procedures to be designed under our supervision, to ensure that material information relating to the 
registrant, including its consolidated subsidiaries, is made known to us by others within those entities, 
particularly during the period in which this report is being prepared; 

Designed such internal control over financial reporting, or caused such internal control over 

(b) 
financial reporting to be designed under our supervision, to provide reasonable assurance regarding the 
reliability of financial reporting and the preparation of financial statements for external purposes in 
accordance with generally accepted accounting principles; 

(c) 
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in 
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end 
of the period covered by this report based on such evaluation; and 

Disclosed in this report any change in the registrant’s internal control over financial reporting that 

(d) 
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of 
an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s 
internal control over financial reporting: and 

5. 
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal 
control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors 
(or persons performing the equivalent functions): 

All significant deficiencies and material weaknesses in the design or operation of internal control 

(a) 
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, 
process, summarize and report financial information; and 

Any fraud, whether or not material, that involves management or other employees who have a 

(b) 
significant role in the registrant’s internal control over financial reporting. 

Date:  February 15, 2019 

By: /s/ Philip D. Fracassa 

Philip D. Fracassa 
Executive Vice President and Chief Financial Officer 
(Principal Financial Officer) 

 
 
 
 
 
 
Exhibit 32 

Certification Pursuant to 

18 U.S.C. Section 1350, 

As Adopted Pursuant to 

 Section 906 of the Sarbanes-Oxley Act of 2002 

In  connection  with  the  quarterly  report  of  The  Timken  Company  (the  “Company”)  on  Form  10-K  for  the 
period ended December 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the 
“Report”),  each  of  the  undersigned  officers  of  the  Company  certifies,  pursuant  to  18  U.S.C.  1350,  as  adopted 
pursuant to 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge: 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act 

of 1934; and 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition 
and results of operations of the Company as of the dates and for the periods expressed in the Report. 

Date:  February 15, 2019 

By: /s/ Richard G. Kyle 

Richard G. Kyle 
President and Chief Executive Officer 
(Principal Executive Officer)

By: /s/ Philip D. Fracassa 

Philip D. Fracassa 
Executive Vice President and Chief Financial Officer 
(Principal Financial Officer) 

The foregoing certification is being furnished solely pursuant to 18 U.S.C. 1350 and is not being filed as part of the 
Report or as a separate disclosure document. 

 
 
 
 
 
 
 
 
 
 
 
 
 
APPENDIX: RECONCILIATION OF GAAP TO NON-GAAP MEASURES

RECONCILIATION OF NET INCOME TO ADJUSTED NET INCOME, EBIT AND MARGIN1

2018

2017

2016

2015

Net Sales

Net Income Attributable to The Timken Company

Discontinued operations

Income from Continuing Operations

CDSOA income, net of expense

Pension related charges5

Impairment and restructuring charges6

Loss (gain) on divestitures and sale of real estate

Acquisition related charges

Tax Indemnification and related items

Health care plan modification costs

Fixed asset write-off

Noncontrolling interest

Provision for income taxes

Adjusted Net Income

Net income (loss) attributable to noncontrolling interest

Provision for income taxes (as reported)

Interest expense

Interest income

Less: Noncontrolling interest

Less: Provision for income taxes

Adjusted EBIT

Adjusted EBIT Margin (% of net sales)

RECONCILIATION OF DILUTED EPS TO ADJUSTED EPS1

Diluted Earnings per Share (EPS)—Continuing Operations

Adjusted EPS—Continuing Operations

Diluted Shares

RECONCILIATION OF ADJUSTED NET OPERATING PROFIT AFTER TAXES
Adjusted EBIT

Adjusted tax rate

Calculated income taxes

Adjusted net operating profit after taxes (ANOPAT)

RECONCILIATION OF ADJUSTED INVESTED CAPITAL

Total debt

Total equity

Invested capital (Total debt + Total equity)

Invested capital (two-point average)

CALCULATION OF RETURN ON ADJUSTED INVESTED CAPITAL2

ANOPAT

Invested capital (two-point average)

Return on invested capital

RECONCILIATION OF FREE CASH FLOW3

Net cash provided from operating activities

Less: capital expenditures

Free cash flow

RECONCILIATION OF NET DEBT4

Short-term debt

Long-term debt

Total debt

Less: Cash, cash equivalents and restricted cash

Net debt

CALCULATION OF NET DEBT TO CAPITAL4

Net debt
Total equity

Total capital

Net debt to capital

20087

$3,346.8

267.7

(163.1)

104.6

(9.1)

-

35.3

0.8

-

-

-

-

-

(5.3)

$126.3

$3,580.8

$3,003.8

$2,669.8

$2,872.3

302.8

-

302.8

-

12.8

7.1

0.8

20.6

1.5

-

-

(1.3)

(16.8)

$327.5
2.7

102.6

51.7

(2.1)

(1.3)

(16.8)

203.4

-

203.4

-

18.1

13.1

(3.6)

9.0

(1.0)

(0.7)

-

-

(30.8)

$207.5
(1.1)

57.6

37.1

(2.9)

-

(30.8)

140.8

-

140.8

(59.6)

67.0

28.0

(0.5)

4.2

-

2.9

-

-

(13.8)

$169.0
0.3

60.5

33.5

(1.9)

-

(13.8)

188.6

-

188.6

-

100.0

15.9

(28.7)

5.7

-

-

9.7

-

(74.6)

$216.6
2.8

26.3

33.4

(2.7)

-

(74.6)

$500.5

$329.0

$275.2

$351.0

14.0%

11.0%

10.3%

12.2%

2018

$3.86

$4.18

2017

$2.58

$2.63

2016

$1.78

$2.13

2015

$2.21

$2.54

20087

$1.09

$1.32

78,337,481

78,911,149

79,234,324

85,346,246

95,947,643

2017
$329.0

30.0%

98.7

2016
$275.2

30.5%

83.9

$230.3

$191.3

2018
$500.5

26.5%

132.6

$367.9

2018

$1,681.6

1,642.7

3,324.3

2017

$962.3

1,474.9

2,437.2

$2,880.8

$2,203.7

2018

$367.9

2,880.8

2017

$230.3

2,203.7

2016

$659.2

1,310.9

$1,970.1

$1,988.1

2016

$191.3

1,988.1

2015
$351.0

31.0%

108.8

$242.2

2015

$656.5

1,349.6

2,006.1

$2,063.4

2015

$242.2

2,063.4

2014

$526.4

1,594.3

$2,120.7

12.8%

10.5%

9.6%

11.7%

2018

$332.5

112.6

$219.9

2018

$43.0

1,638.6

1,681.6

133.1

2017

$236.8

104.7

$132.1

2017

$108.1

854.2

962.3

125.4

$1,548.5

$836.9

2018

$1,548.5
1,642.7

3,191.2

2017

$836.9
1,474.9

2,311.8

48.5%

36.2%

1 Management believes consolidated earnings before interest and taxes (EBIT) is a non-GAAP measure that is useful to investors as it is representative of the Company's performance and that it is
appropriate to compare GAAP net income to consolidated EBIT. Management also believes that non-GAAP measures of adjusted EBIT, adjusted EBIT Margin, adjusted net income and adjusted
diluted earnings per share are useful to investors as they are representative of the Company's core operations and are used in the management of the business, including decisions concerning the
allocation of resources and assessment of performance.

2 The Company uses ANOPAT/Average Invested Capital as a non-GAAP ratio that indicates return on invested capital, which is useful to investors as a measure of return on their investment.
3 Management believes that free cash flow is a non-GAAP measure that is useful to investors because it is a meaningful indicator of cash generated from operating activities available for the

execution of its business strategy.

4 Capital, used for the ratio of net debt to capital, is a non-GAAP measure defined as total debt less cash, cash equivalents and restricted cash plus total shareholders' equity. Management

believes Net Debt and the ratio of Net Debt to Capital are important measures of the Company's financial position, due to the amount of cash, cash equivalents and restricted cash on hand.
5 Pension related charges represent curtailments, professional fees associated with pension de-risking and actuarial gains and losses that resulted from the remeasurement of pension plan assets
and obligations as a result of changes in assumptions. The Company recognizes actuarial gains and losses through earnings in connection with the annual remeasurement in the fourth quarter,
or on an interim basis if specific events trigger a remeasurement. Pension related charges also include pension settlement charges.

6 Impairment and restructuring charges, including items recorded in cost of products sold, are related to plant closures, the rationalization of certain plants and severance related to cost

reduction initiatives. The Company re-assesses its operating footprint and makes adjustments as needed that result in restructuring charges. However, management believes these actions are
not representative of the Company’s core operations.

7 Data for 2008 is shown on a pro forma basis and reflects the carve out of the TimkenSteel business, which was spun-off on June 30, 2014. These results have not been audited, but were

prepared in a consistent manner with years that were audited and recast at the time of the spin-off of TimkenSteel. This unaudited pro forma 2008 financial data is being supplied to provide
comparable results for 2008 to be considered in connection with the stated 12% compound annual growth rate for adjusted EPS from 2008 to 2018 on page 1 of the Annual Report. The 2008
unaudited pro forma consolidated financial information is not necessarily indicative of operating results or financial position that would have occurred had the spinoff of TimkenSteel occurred
at that time.

Shareholder
Information

World Headquarters

Publications 

Shareholder Information

The Timken Company
4500 Mount Pleasant St. NW
North Canton, OH 44720-5450

The Annual Meeting Notice
and Proxy Card are mailed to 
shareholders in March.

234-262-3000

www.timken.com

Stock Listing

Timken shares are traded on the
New York Stock Exchange under 
the symbol TKR.

Annual Meeting of Shareholders 

May 10, 2019, 10 a.m.
Timken World Headquarters

Independent Registered
Public Accounting Firm

Ernst & Young LLP
950 Main Ave.
Suite 1800
Cleveland, OH 44113-7214

Copies of the Annual Report, 
Proxy Statement, Forms 10-K 
and 10-Q may be obtained from 
the company’s website, 
http://investors.timken.com/
or by written request at no
charge from:

The Timken Company 
Treasury/Shareholder Relations
WHQ-03
4500 Mount Pleasant St. NW
North Canton, OH 44720-5450

Investor Relations

Jason Hershiser 
Manager – Investor Relations
The Timken Company
4500 Mount Pleasant St. NW
North Canton, OH 44720-5450

234-262-7101
jason.hershiser@timken.com

Dividends on common shares 
are generally payable in March,
June, September and December.

The Timken Company offers
an open enrollment dividend 
reinvestment and stock purchase
plan through its transfer agent
EQ. This program allows 
current shareholders and
new investors the opportunity
to purchase common shares
without a broker.

Shareholders of record may 
increase their investment in the 
company by reinvesting their 
dividends at no cost. Shares held 
in the name of a broker must be
transferred to the shareholder’s 
name to permit reinvestment. 
Information and enrollment 
materials are available online or 
by contacting EQ.

Inquiries regarding dividend
reinvestment, dividend 
payments, change of address
(cid:82)(cid:85)(cid:3)(cid:79)(cid:82)(cid:86)(cid:87)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:76)(cid:403)(cid:70)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:86)(cid:75)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:69)(cid:72)
directed to:

EQ
Shareowner Services
P.O. Box 64874
St. Paul, MN 55164-0874

800-468-9716 or
651-450-4064

www.shareowneronline.com

4.2M 03-19:30 Order No. 11211  |  Timken® is a registered trademark of The Timken Company  |  © 2019 The Timken Company  |  Printed in the U.S.A.