UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~September 30, 2017~~March 31, 2018



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

For the transition period from to

Commission file number: 1-1169

THE TIMKEN COMPANY

(Exact name of registrant as specified in its charter)



OHIO		34-0577130
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4500 Mount Pleasant Street NW North Canton, Ohio		44720-5450
(Address of principal executive offices)		(Zip Code)

234.262.3000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, ~~or a~~ smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” a “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	o

		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No ý

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



	Class		Outstanding at ~~September 30, 2017~~March 31, 2018
	Common Shares, without par value		~~77,617,122~~77,596,991 shares

THE TIMKEN COMPANY

INDEX TO FORM 10-Q REPORT



			PAGE
I.	PART I.
	Item 1.	Financial Statements	1
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2823
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4838
	Item 4.	Controls and Procedures	4838
II.	PART II.
	Item 1.	Legal Proceedings	4939
	Item1A.	Risk Factors	4939
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4939
	Item 6.	Exhibits	5040

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE TIMKEN COMPANY AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017
(Dollars in millions, except per share data)				(Revised)						(Revised)						(Revised)
Net sales	$	771.4		$	657.4		$	2,225.8		$	2,015.0		$	883.1		$	703.8
Cost of products sold	554.4			487.7			1,626.5			1,477.7			618.2			521.6
Gross Profit	217.0			169.7			599.3			537.3			264.9			182.2
Selling, general and administrative expenses	134.0			107.2			377.4			331.3			148.6			117.6
Pension settlement expenses	—			0.1			—			1.3
Impairment and restructuring charges	1.3			5.3			3.8			18.7			0.2			1.7
Operating Income	81.7			57.1			218.1			186.0			116.1			62.9
Interest expense	(10.1		)	(8.0		)	(26.5		)	(25.1		)	(10.0		)	(7.9		)
Interest income	0.7			0.4			2.0			1.1			0.4			0.6
Continued Dumping & Subsidy Offset Act income (expense), net	—			(0.2		)	—			53.6
Other income (expense), net	2.9			(0.1		)	9.1			(1.8		)	2.3			(2.0		)
Income Before Income Taxes	75.2			49.2			202.7			213.8			108.8			53.6
Provision for income taxes	21.1			15.2			28.5			65.8			28.3			15.5
Net Income	54.1			34.0			174.2			148.0			80.5			38.1
Less: Net income attributable to noncontrolling interest	0.6			0.4			—			0.3
Net Income attributable to The Timken Company	$	53.5		$	33.6		$	174.2		$	147.7

Net Income per Common Share attributable to The Timken Company's Common Shareholders
Less: Net income (loss) attributable to noncontrolling interest													0.3			(0.1		)
Net Income Attributable to The Timken Company													$	80.2		$	38.2
Net Income per Common Share Attributable to The Timken Company Common Shareholders
Basic earnings per share	$	0.69		$	0.43		$	2.24		$	1.87		$	1.03		$	0.49

Diluted earnings per share	$	0.68		$	0.43		$	2.21		$	1.86		$	1.02		$	0.48

Dividends per share	$	0.27		$	0.26		$	0.80		$	0.78		$	0.27		$	0.26

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016		2017			2016			2018			2017
(Dollars in millions)				(Revised)					(Revised)

Net Income	$	54.1		$	34.0	$	174.2		$	148.0		$	80.5		$	38.1
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	10.9			3.7		42.8			5.2			8.4			20.4
Pension and postretirement liability adjustment	0.1			0.4		0.2			1.2			—			0.1
Change in fair value of derivative financial instruments	(2.0		)	—		(4.2		)	(1.6		)	0.8			(0.8		)
Other comprehensive income, net of tax	9.0			4.1		38.8			4.8			9.2			19.7
Comprehensive Income, net of tax	63.1			38.1		213.0			152.8			89.7			57.8
Less: comprehensive income attributable to noncontrolling interest	0.5			1.0		1.9			2.2
Comprehensive Income attributable to The Timken Company	$	62.6		$	37.1	$	211.1		$	150.6
Less: comprehensive (loss) income attributable to noncontrolling interest												(0.3		)	2.5
Comprehensive Income Attributable to The Timken Company												$	90.0		$	55.3

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Balance Sheets



	(Unaudited)
	March 31, 2018			December 31, 2017
(Dollars in millions)
ASSETS
Current Assets
Cash and cash equivalents	$	116.4		$	121.6
Restricted cash	3.9			3.8
Accounts receivable, less allowances (2018 – $21.1 million; 2017 – $20.3 million)	535.1			524.9
Contract assets	111.4			—
Inventories, net	776.8			738.9
Deferred charges and prepaid expenses	29.2			29.7
Other current assets	73.0			81.2
Total Current Assets	1,645.8			1,500.1
Property, Plant and Equipment, net	865.4			864.2
Other Assets
Goodwill	515.9			511.8
Non-current pension assets	23.9			19.7
Other intangible assets	414.6			420.6
Deferred income taxes	58.0			61.0
Other non-current assets	25.9			25.0
Total Other Assets	1,038.3			1,038.1
Total Assets	$	3,549.5		$	3,402.4
LIABILITIES AND EQUITY
Current Liabilities
Short-term debt	$	167.1		$	105.4
Current portion of long-term debt	2.7			2.7
Accounts payable, trade	266.6			265.2
Salaries, wages and benefits	96.8			127.9
Income taxes payable	12.2			9.8
Other current liabilities	156.9			160.7
Total Current Liabilities	702.3			671.7
Non-Current Liabilities
Long-term debt	896.5			854.2
Accrued pension cost	168.5			167.3
Accrued postretirement benefits cost	122.5			122.6
Deferred income taxes	44.0			44.0
Other non-current liabilities	72.9			67.7
Total Non-Current Liabilities	1,304.4			1,255.8
Shareholders’ Equity
Class I and II Serial Preferred Stock, without par value:
Authorized – 10,000,000 shares each class, none issued	—			—
Common shares, without par value:
Authorized – 200,000,000 shares
Issued (including shares in treasury) (2018 – 98,375,135 shares; 2017 – 98,375,135 shares)
Stated capital	53.1			53.1
Other paid-in capital	901.5			903.8
Earnings invested in the business	1,475.9			1,408.4
Accumulated other comprehensive loss	(29.2		)	(38.3		)
Treasury shares at cost (2018 – 20,778,144 shares; 2017 – 20,672,133 shares)	(890.4		)	(884.3		)
Total Shareholders’ Equity	1,510.9			1,442.7
Noncontrolling Interest	31.9			32.2
Total Equity	1,542.8			1,474.9
Total Liabilities and Equity	$	3,549.5		$	3,402.4

(Unaudited) (Revised)
September 30,
2017 December 31,
2016
(Dollars in millions)
ASSETS
Current Assets
Cash and cash equivalents $ 137.2
$ 148.8
Restricted cash 3.3
2.7
Accounts receivable, less allowances (2017 – $20.5 million; 2016 – $20.2 million) 542.2
438.0
Inventories, net 687.5
553.7
Deferred charges and prepaid expenses 39.9
20.3
Other current assets 64.2
48.4
Total Current Assets 1,474.3
1,211.9

Property, Plant and Equipment, net 842.2
804.4

Other Assets
Goodwill 510.3
357.5
Non-current pension assets 31.6
32.1
Other intangible assets 428.9
271.0
Deferred income taxes 47.9
51.4
Other non-current assets 28.4
34.9
Total Other Assets 1,047.1
746.9
Total Assets $ 3,363.6
$ 2,763.2

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 41.1
$ 19.2
Current portion of long-term debt 5.0
5.0
Accounts payable, trade 248.1
176.2
Salaries, wages and benefits 112.2
85.9
Income taxes payable 7.4
16.9
Other current liabilities 154.9
149.5
Total Current Liabilities 568.7
452.7

Non-Current Liabilities
Long-term debt 959.8
635.0
Accrued pension cost 160.3
154.7
Accrued postretirement benefits cost 126.7
131.5
Deferred income taxes 44.9
3.9
Other non-current liabilities 47.3
74.5
Total Non-Current Liabilities 1,339.0
999.6

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) (2017 – 98,375,135 shares; 2016 – 98,375,135 shares)
Stated capital 53.1
53.1
Other paid-in capital 898.2
906.9
Earnings invested in the business 1,400.2
1,289.3
Accumulated other comprehensive loss (41.0 ) (77.9 )
Treasury shares at cost (2017 – 20,758,013 shares; 2016 – 20,925,492 shares) (887.5 ) (891.7 )
Total Shareholders’ Equity 1,423.0
1,279.7
Noncontrolling Interest 32.9
31.2
Total Equity 1,455.9
1,310.9
Total Liabilities and Shareholders’ Equity $ 3,363.6
$ 2,763.2

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2018			2017
(Dollars in millions)				(Revised)						(Revised)
CASH PROVIDED (USED)
Operating Activities
Net income attributable to The Timken Company	$	174.2		$	147.7		$	80.2		$	38.2
Net income attributable to noncontrolling interest	—			0.3
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss) attributable to noncontrolling interest							0.3			(0.1		)
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization	102.5			98.3			35.8			32.9
Impairment charges	—			3.8
(Gain) loss on sale of assets	(2.6		)	0.8
Deferred income tax provision	7.5			4.6
Loss on sale of assets							0.6			0.1
Deferred income tax (benefit) provision							(0.2		)	1.5
Stock-based compensation expense	18.2			10.9			10.3			5.6
Pension and other postretirement expense	12.6			14.5			2.0			7.2
Pension contributions and other postretirement benefit payments	(16.3		)	(22.3		)
Pension contributions and other postretirement benefit contributions							(6.1		)	(6.1		)
Changes in operating assets and liabilities:
Accounts receivable	(61.6		)	12.2			(72.1		)	(50.3		)
Contract assets							(11.5		)	—
Inventories	(85.4		)	(13.6		)	(53.8		)	(6.5		)
Accounts payable, trade	55.7			15.0			(2.3		)	48.6
Other accrued expenses	15.9			(17.5		)	(38.7		)	(28.4		)
Income taxes	(59.6		)	22.9			13.6			6.7
Other, net	(18.2		)	1.1			(2.4		)	(2.7		)
Net Cash Provided by Operating Activities	142.9			278.7

Net Cash (Used in) Provided by Operating Activities							(44.3		)	46.7
Investing Activities
Capital expenditures	(62.5		)	(84.4		)	(17.8		)	(19.3		)
Acquisitions, net of cash received	(347.2		)	(62.8		)	—			(0.6		)
Proceeds from disposal of property, plant and equipment	6.8			1.5			0.1			0.1
Investments in short-term marketable securities, net	(4.2		)	2.1			3.7			(6.8		)
Other	(0.3		)	0.3			—			(0.3		)
Net Cash Used in Investing Activities	(407.4		)	(143.3		)	(14.0		)	(26.9		)

Financing Activities
Cash dividends paid to shareholders	(62.4		)	(61.4		)	(21.1		)	(20.3		)
Purchase of treasury shares	(41.0		)	(83.3		)	(22.7		)	(8.1		)
Proceeds from exercise of stock options	27.7			0.7			8.4			16.6
Shares surrendered for taxes	(10.8		)	(1.6		)	(4.4		)	(8.2		)
Accounts receivable facility borrowings	51.2			50.0			51.0			23.1
Accounts receivable facility payments	(25.3		)	(30.1		)	(15.0		)	(10.0		)
Proceeds from long-term debt	862.7			275.5			75.0			48.5
Payments on long-term debt	(574.4		)	(290.1		)	(42.4		)	(90.3		)
Deferred financing costs	(1.1		)	—
Short-term debt activity, net	12.8			(1.4		)	24.6			5.8
Increase in restricted cash	(0.5		)	(2.5		)
Other	(2.6		)	4.5			(1.1		)	—
Net Cash Provided by (Used in) Financing Activities	236.3			(139.7		)	52.3			(42.9		)
Effect of exchange rate changes on cash	16.6			3.7			0.9			3.9
Decrease in Cash and Cash Equivalents	(11.6		)	(0.6		)
Cash and cash equivalents at beginning of year	148.8			129.6
Cash and Cash Equivalents at End of Period	$	137.2		$	129.0
Decrease in Cash, Cash Equivalents and Restricted Cash							(5.1		)	(19.2		)
Cash, cash equivalents and restricted cash at beginning of year							125.4			151.6
Cash, Cash Equivalents and Restricted Cash at End of Period							$	120.3		$	132.4

See accompanying Notes to the Consolidated Financial Statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions, except per share data)

Note 1 - Basis of Presentation

The accompanying Consolidated Financial Statements (unaudited) for The Timken Company (the "Company") have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by the accounting principles generally accepted in the United States ("U.S. GAAP") for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to the Consolidated Financial Statements and accompanying Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017. ~~Certain amounts recorded in 2016 consolidated financial statements and accompanying footnotes have been reclassified to conform to the current presentation.~~

Note 2 - ~~Change in~~Significant Accounting ~~Principles~~

Effective January 1, 2017, the Company voluntarily changed its accounting principles for recognizing actuarial gains and losses and expected returns on plan assets for its defined benefit pension and other postretirement benefit plans, with retrospective application to prior periods. Prior to 2017, the Company amortized, as a component of pension and other postretirement expense, unrecognized actuarial gains and losses (included within accumulated other comprehensive income (loss)) over the average remaining service period of active plan participants expected to receive benefits under the plan, or average remaining life expectancy of inactive plan participants when all or almost all of individual plan participants were inactive. The Company also historically calculated the market-related value of plan assets based on a five-year market adjustment. Under the new principles, actuarial gains and losses will be immediately recognized through net periodic benefit cost in the Statement of Income, upon the annual remeasurement in the fourth quarter, or on an interim basis if specific events trigger a remeasurement. In addition, the Company has changed its accounting policy for measuring the market-related value of plan assets from a calculated amount (based on a five-year smoothing of asset returns) to fair value. The Company believes these changes are preferable as they result in an accelerated recognition of actuarial gains and losses and changes in fair value of plan assets in its Consolidated Statement of Income, which provides greater transparency and better aligns with fair value principles by fully reflecting the impact of interest rate and economic changes on the Company's pension and other postretirement benefit liabilities and assets in the Company's operating results in the year in which the gains and losses are incurred. As of January 1, 2017, the cumulative effect of the change in accounting principles resulted in a decrease of $239 million in earnings invested in the business and a corresponding increase of $244 million in accumulated other comprehensive loss that was partially offset by the net impact of the direct effects of these changes on inventory and deferred taxes of $5 million.

The following tables reflect the changes to financial statement line items as a result of the change in accounting principles for the periods presented in the accompanying unaudited consolidated financial statements:

~~Consolidated Statements of Income:~~

Three Months Ended
September 30, 2017 September 30, 2016
Previous Accounting Method As Reported Effect of Accounting Change As Previously Reported Revised Effect of Accounting Change
Cost of products sold $ 556.7
$ 554.4
$ (2.3 ) $ 489.9
$ 487.7
$ (2.2 )
Gross profit 214.7
217.0
2.3
167.5
169.7
2.2
Selling, general and administrative expense 136.8
134.0
(2.8 ) 109.5
107.2
(2.3 )
Pension settlement expenses 3.9
—
(3.9 ) 10.3
0.1
(10.2 )
Operating income 72.7
81.7
9.0
42.4
57.1
14.7
Income before income taxes 66.2
75.2
9.0
34.5
49.2
14.7
Provision for income taxes 18.0
21.1
3.1
13.5
15.2
1.7
Net income 48.2
54.1
5.9
21.0
34.0
13.0
Net income attributable to The Timken Company $ 47.6
$ 53.5
$ 5.9
$ 20.6
$ 33.6
$ 13.0
Basic earnings per share $ 0.61
$ 0.69
$ 0.08
$ 0.26
$ 0.43
$ 0.17
Diluted earnings per share $ 0.60
$ 0.68
$ 0.08
$ 0.26
$ 0.43
$ 0.17

~~Consolidated Statements of Income:~~

Nine Months Ended
September 30, 2017 September 30, 2016
Previous Accounting Method As Reported Effect of Accounting Change As Previously Reported Revised Effect of Accounting Change
Cost of products sold $ 1,630.9
$ 1,626.5
$ (4.4 ) $ 1,484.3
$ 1,477.7
$ (6.6 )
Gross profit 594.9
599.3
4.4
530.7
537.3
6.6
Selling, general and administrative expense 383.8
377.4
(6.4 ) 338.0
331.3
(6.7 )
Pension settlement expenses 15.7
—
(15.7 ) 11.9
1.3
(10.6 )
Operating income 191.6
218.1
26.5
162.1
186.0
23.9
Income before income taxes 176.2
202.7
26.5
189.9
213.8
23.9
Provision for income taxes 19.3
28.5
9.2
61.1
65.8
4.7
Net income 156.9
174.2
17.3
128.8
148.0
19.2
Net income attributable to The Timken Company $ 156.9
$ 174.2
$ 17.3
$ 128.5
$ 147.7
$ 19.2
Basic earnings per share $ 2.02
$ 2.24
$ 0.22
$ 1.63
$ 1.87
$ 0.24
Diluted earnings per share $ 1.99
$ 2.21
$ 0.22
$ 1.62
$ 1.86
$ 0.24

~~Consolidated Statements of Comprehensive Income:~~

Three Months Ended
September 30, 2017 September 30, 2016
Previous Accounting Method As Reported Effect of Accounting Change As Previously Reported Revised Effect of Accounting Change
Net Income $ 48.2
$ 54.1
$ 5.9
$ 21.0
$ 34.0
$ 13.0
Foreign currency translation adjustments 10.9
10.9
—
2.2
3.7
1.5
Pension and postretirement liability adjustment 6.0
0.1
(5.9 ) 15.0
0.4
(14.6 )
Other comprehensive income, net of tax 14.9
9.0
(5.9 ) 17.2
4.1
(13.1 )
Comprehensive Income, net of tax 63.1
63.1
—
38.2
38.1
(0.1 )
Less: comprehensive income attributable to noncontrolling interest 0.5
0.5
—
0.9
1.0
0.1
Comprehensive income attributable to
The Timken Company
$ 62.6
$ 62.6
$ —
$ 37.3
$ 37.1
$ (0.2 )

Nine Months Ended
September 30, 2017 September 30, 2016
Previous Accounting Method As Reported Effect of Accounting Change As Previously Reported Revised Effect of Accounting Change
Net Income $ 156.9
$ 174.2
$ 17.3
$ 128.8
$ 148.0
$ 19.2
Foreign currency translation adjustments 42.8
42.8
—
(1.4 ) 5.2
6.6
Pension and postretirement liability adjustment 17.5
0.2
(17.3 ) 27.0
1.2
(25.8 )
Other comprehensive income, net of tax 56.1
38.8
(17.3 ) 24.0
4.8
(19.2 )
Comprehensive Income, net of tax 213.0
213.0
—
152.8
152.8
—
Less: comprehensive income attributable to noncontrolling interest 1.9
1.9
—
2.1
2.2
0.1
Comprehensive income attributable to
The Timken Company
$ 211.1
$ 211.1
$ —
$ 150.7
$ 150.6
$ (0.1 )

~~Consolidated Balance Sheets:~~

September 30, 2017 December 31, 2016
Previous Accounting Method As Reported Effect of Accounting Change As Previously Reported Revised Effect of Accounting Change
Inventories, net $ 679.6
$ 687.5
$ 7.9
$ 545.8
$ 553.7
$ 7.9
Total current assets 1,466.4
1,474.3
7.9
1,204.0
1,211.9
7.9
Deferred income taxes 50.9
47.9
(3.0 ) 54.4
51.4
(3.0 )
Total other assets 1,050.1
1,047.1
(3.0 ) 749.9
746.9
(3.0 )
Total assets 3,358.7
3,363.6
4.9
2,758.3
2,763.2
4.9
Earnings invested in the business 1,622.2
1,400.2
(222.0 ) 1,528.6
1,289.3
(239.3 )
Accumulated other comprehensive loss (267.8 ) (41.0 ) 226.8
(322.0 ) (77.9 ) 244.1
Total shareholders' equity 1,418.2
1,423.0
4.8
1,274.9
1,279.7
4.8
Noncontrolling interest 32.8
32.9
0.1
31.1
31.2
0.1
Total equity 1,451.0
1,455.9
4.9
1,306.0
1,310.9
4.9
Total liabilities and shareholders' equity $ 3,358.7
$ 3,363.6
$ 4.9
$ 2,758.3
$ 2,763.2
$ 4.9

~~Consolidated Statements of Cash Flows:~~

Nine Months Ended
September 30, 2017 September 30, 2016
Previous Accounting Method As Reported Effect of Accounting Change As Previously Reported Revised Effect of Accounting Change
Net income attributable to The Timken Company $ 156.9
$ 174.2
$ 17.3
$ 128.5
$ 147.7
$ 19.2
Deferred income tax (benefit) provision (1.7 ) 7.5
9.2
(0.1 ) 4.6
4.7
Pension and other postretirement expense 39.1
12.6
(26.5 ) 38.4
14.5
(23.9 )

~~Note 3 - Recent Accounting Pronouncements~~Policies

~~New~~The Company's significant accounting policies are detailed in "Note 1 - Significant Accounting ~~Guidance Adopted:~~

Policies" of the Annual Report on Form 10-K for the year ended December 31, 2017. In ~~March 2016,~~May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~2016-09, "Compensation~~2014-09, "Revenue from Contracts with Customers (Topic 606)", which was adopted by the Company on January 1, 2018. Also, in March 2017, the FASB issued ASU 2017-07, “Compensation - ~~Stock Compensation~~Retirement Benefits (Topic ~~718)~~715): ~~Improvements~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Significant changes to ~~Employee Share-Based Payment Accounting."~~the Company's accounting policies as a result of adopting ASU ~~2016-09 simplifies various aspects~~2014-09 (the “new revenue standard”) and ASU 2017-07 are discussed below:

Revenue:

A contract exists when it has approval and commitment from both parties, the rights of the ~~accounting for stock-based payments. The simplifications include:~~parties are identified, payment terms are identified, the contract has commercial substance and collectibility of consideration is probable.


a.	recording all tax effects associated with stock-based compensation through the income statement, as opposed to recording certain amounts in other paid-in capital, which eliminates the requirements to calculate a “windfall pool”;


b.	allowing entities to withhold shares to satisfy the employer’s statutory tax withholding requirement up to the highest marginal tax rate applicable to employees rather than the employer’s minimum statutory rate, without requiring liability classification for the award;


c.	modifying the requirement to estimate the number of awards that will ultimately vest by providing an accounting policy election to either estimate the number of forfeitures or recognize forfeitures as they occur;


d.	changing certain presentation requirements in the statement of cash flows, including removing the requirement to present excess tax benefits as an inflow from financing activities and an outflow from operating activities and requiring the cash paid to taxing authorities arising from withheld shares to be classified as a financing activity; and


e.	amending the assumed proceeds from applying the treasury stock method when computing earnings per share to exclude the amount of excess tax benefits that would be recognized in additional paid-in capital.

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

For certain service contracts, this continuous transfer of control to the customer occurs as the Company's service enhances assets that the customer owns and controls at all times and the Company is contractually entitled to payment for work performed to date plus a reasonable margin.

For United States ("U.S.") government contracts, the customer is allowed to unilaterally terminate the contract for convenience, and is required to pay the Company for costs incurred plus a reasonable margin and 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 of 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 is based on the Company's standard terms and conditions or the 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 "Contract assets" on the Consolidated Balance Sheet. The portion of the payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer.

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

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

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

Accounts Receivable, Less Allowances:

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

Prior to the adoption of the new revenue standard, the Company recognized a portion of its revenues on the percentage-of-completion method measured on the cost-to-cost basis. As of December 31, 2017, revenue recognized in excess of billings of $67.3 million related to these revenues were included in "Accounts receivable, less allowances" on the Consolidated Balance Sheet. In accordance with the new revenue standard, $74.8 million of revenue recognized in excess of billings related to these revenues are included in "Contract assets" on the Consolidated Balance Sheet at March 31, 2018.

Contract Assets:

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

Pension and Other Postretirement Benefits:

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

Recent Accounting Pronouncements:

New Accounting Guidance Adopted:

Revenue recognition

The new revenue standard introduces a five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new revenue standard also requires disclosures sufficient to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments and assets recognized from the costs to obtain or fulfill a contract. For further information about the Company's revenues from contracts with customers, refer to Note 10 - Revenue.

On January 1, 2018, the Company adopted the new revenue standard and all of the related amendments using the modified retrospective method and applied those provisions to all open contracts. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

The cumulative effect of changes made to the balance sheet as of January 1, 2018 for the adoption of the new revenue standard was as follows:



	Balance at December 31, 2017		Effect of Accounting Change			Balance at January 1, 2018
ASSETS
Accounts receivable, less allowances	$	524.9	$	(67.3	)	$	457.6
Contract assets	—		100.5			100.5
Inventories, net	738.9		(22.9		)	716.0
Other current assets	81.2		3.0			84.2
Deferred income taxes	61.0		(2.6		)	58.4
LIABILITIES
Other current liabilities	160.7		3.0			163.7
EQUITY
Earnings invested in the business	1,408.4		7.7			1,416.1

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 three months ended March 31, 2018.

Consolidated Statement of Income for the three months ended March 31, 2018:



	Previous Accounting Method		Effect of Accounting Change		As Reported
Net sales	$	879.1	$	4.0	$	883.1
Cost of products sold	616.5		1.7		618.2
Selling, general, and administrative expenses	148.0		0.6		148.6
Income before income taxes	107.1		1.7		108.8
Provision for income taxes	27.9		0.4		28.3
Net income	79.2		1.3		80.5
Net income attributable to The Timken Company	$	78.9	$	1.3	$	80.2
Basic earnings per share	$	1.01	$	0.02	$	1.03
Diluted earnings per share	$	1.00	$	0.02	$	1.02

Consolidated Balance Sheet as of March 31, 2018:



	Previous Accounting Method		Effect of Accounting Change			As Reported
ASSETS
Accounts receivable, less allowances	$	609.9	$	(74.8	)	$	535.1
Contract assets	—		111.4			111.4
Inventories, net	801.4		(24.6		)	776.8
Other current assets	69.9		3.1			73.0
Deferred income taxes	61.0		(3.0		)	58.0
LIABILITIES
Other current liabilities	153.8		3.1			156.9
EQUITY
Earnings invested in the business	1,466.9		9.0			1,475.9

Pension and other postretirement benefits

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

The following table reflects the changes to financial statement line items for the three months ended March 31, 2017 resulting from the adoption of ASU 2017-07:



	As Previously Reported		Effect of Accounting Change			As Adjusted
Cost of products sold	$	523.3	$	(1.7	)	$	521.6
Selling, general, and administrative expenses	119.6		(2.0		)	117.6
Other income (expense), net	1.7		(3.7		)	(2.0		)

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 ~~2016-09. The presentation~~2016-18 on a retrospective basis, which resulted in the addition of restricted cash balances and movements in the ~~Consolidated~~Company’s Statement of Cash Flows for ~~shares surrendered by employees to meet the minimum statutory withholding requirement was applied retrospectively.~~all periods presented. As a result, for the three months ended March 31, 2018 and 2017, restricted cash balances of ~~the adoption of ASU 2016-09, $1.6~~$3.9 million ~~was reclassified from the other accrued expenses line~~and $2.9 million, respectively, were included in the ~~operating activities section of~~Company's ending balance on the ~~Consolidated~~ Statement of Cash ~~Flows to the shares surrendered for taxes line in the financing activities section for the first~~ ~~nine~~ ~~months of 2016.~~Flows.

In addition, the adoption of ASU 2016-09 resulted in the Company making an accounting policy election to change how it will recognize the number of stock awards that will ultimately vest. In the past, the Company applied a forfeiture rate to shares granted. With the adoption of ASU 2016-09, the Company will recognize forfeitures as they occur. This change resulted in the Company making a cumulative effect change to retained earnings of $0.9 million. For additional information, refer to ~~Note 10 - Equity~~ for the disclosure of the cumulative effect change. In addition, the Company began recording the tax effects associated with stock-based compensation through the income statement on a prospective basis, which resulted in a tax benefit of $1.9 million for the first nine months of 2017. Finally, the Company adjusted dilutive shares to remove the excess tax benefits from the calculation of earnings per share on a prospective basis. The revised calculation is more dilutive, but it did not change earnings per share for prior years.

~~In July 2015,~~February 2018, the FASB issued ASU ~~2015-11, "Inventory~~2018-02, "Income Statement-Reporting Comprehensive Income (Topic ~~330)~~220): ~~Simplifying the Measurement~~Reclassification of ~~Inventory.~~Certain Tax Effects from Accumulated Other Comprehensive Income." ASU ~~2015-11 requires inventory~~2018-02 allows for certain tax effects resulting from the Tax Cuts and Jobs Act of 2017 (“U.S. Tax Reform”) to be ~~measured at the lower of cost~~reclassified from accumulated other comprehensive income (or loss) to retained earnings. This standard is effective for fiscal years, and ~~net realizable value, which is defined as the estimated selling price~~interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. Also, ASU 2018-02 may be applied in the ~~ordinary course~~period of ~~business less reasonably predictable costs~~adoption or retrospectively to each period in which the effect of ~~completion, disposal and transportation. Under existing guidance, net realizable value is one of several acceptable measures of market value that could be used to measure inventory at~~ the ~~lower of cost or market and, as such, the new guidance reduces the complexity~~change in the ~~measurement.~~statutory income tax rate in the U.S. Tax Reform is recognized. On January 1, ~~2017,~~2018, the Company early adopted the provisions of ASU ~~2015-11 on a prospective basis. The adoption~~2018-02, with the related impact applied in the period of ~~ASU 2015-11 did not have a material impact on~~adoption. In doing so, the ~~Company's results~~Company elected to reclassify $0.7 million of ~~operations or financial condition. For our disclosures~~ related income tax effects from accumulated other comprehensive loss to ~~inventories, refer to~~ ~~Note 5 - Inventories~~.retained earnings in the first quarter of 2018.

New Accounting Guidance Issued and Not Yet Adopted:

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities", which impacts both designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 amends and clarifies the requirements to qualify for hedge accounting, removes the requirement to recognize changes in fair value from certain hedges in current earnings, and specifies the presentation of changes in fair value in the income statement for all hedging instruments. ASU ~~2017-02~~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 is currently evaluating the effect that the adoption of ASU 2017-12 will have on the Company's results of operations and financial condition.

In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting." ASU 2017-09 provides clarity on which changes to the terms or conditions of share-based payment awards require entities to apply the modification accounting provisions required in Topic 718. ASU 2017-09 is effective for public companies for annual reporting periods beginning after December 15, 2017, with early adoption permitted, including adoption in any interim period for which financial statements have not yet been issued. The Company does not expect that the adoption of ASU 2017-09 will have a material impact on the Company's results of operations and financial condition, as the Company does not anticipate future modifications of share-based payment awards.

In March 2017, the FASB issued ASU 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” ASU 2017-07 impacts where the components of net benefit cost are presented within an entity’s income statement. Service cost will be included in other employee compensation costs within operating income and is the only component that may be capitalized when applicable. The other components of net periodic benefit cost will be presented separately outside of operating income. ASU 2017-07 is effective for public companies for annual reporting periods beginning after December 15, 2017 and interim periods within that reporting period. Early adoption is permitted as of the beginning of an annual reporting period for which financial statements have not been issued or made available for issuance. Our initial assessment has indicated that the adoption of ASU 2017-07 will result in the reclassification of certain amounts out of "Cost of products sold" and "Selling, general and administrative ("SG&A") expenses" into "Other expense, net" in the Consolidated Statement of Income. Also, the adoption of this standard will result in the reclassification of certain amounts from "Cost of products sold" and "SG&A expenses" for the Mobile Industries and Process Industries segments into Corporate "Other expense, net". The amounts impacted may be material. The Company is currently performing further analysis on the effect that the adoption of ASU 2017-07 will have on the Company's results of operations.

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 ~~the~~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 ~~exceeds~~exceeded its fair value, Step 2 was required to be completed. Step 2 involved determining the implied fair value of goodwill and comparing it to the carrying amount of that goodwill to measure the impairment loss, if any. ASU 2017-04 eliminates Step 2 of the current goodwill impairment ~~test. ASU 2017-04~~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 is currently evaluating~~While the actual effect ~~that the adoption~~ of adopting ASU 2017-04 will ~~have on~~not be known until the period of adoption, the Company currently does not expect it to materially impact the Company's results of operations and financial condition.

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 expects to recognize a right-to-use asset and a lease liability for its operating lease commitments on the Consolidated Balance Sheet and is ~~currently evaluating~~assessing the ~~effect that the adoption of ASU 2016-02~~impact this new standard will have on ~~the Company's~~its consolidated financial condition and results of ~~operations and financial condition.~~

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU 2014-09 introduces a new 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. ASU 2014-09 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. On July 9, 2015, the FASB decided to delay the effective date of this new accounting guidance by one year, which will result in it being effective for public companies for annual periods beginning after December 15, 2017. Although early adoption is permitted, the Company intends to adopt the new accounting standard effective January 1, 2018.

The two permitted transition methods under the new standard are: (1) the full retrospective method, in which case the standard would be applied to each prior reporting period presented, subject to allowable practical expedients and the cumulative effect of applying the standard would be recognized at the earliest period shown and (2) the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application accompanied by additional disclosures comparing the current period results presented under the new standard to the prior periods presented under the current revenue recognition standards. The Company plans to use the modified retrospective method.

operations. The Company has ~~substantially completed the assessment phase of the project,~~created an implementation team to identify all leases involved, determine which, ~~has identified potential differences from the application of the new standard. Upon adoption,~~if any, practical expedients to utilize, and perform all data gathering required to comply. Additionally, the Company ~~expects that certain revenue streams currently accounted for using a point-in-time model will utilize~~is implementing an ~~over-time model due~~enterprise-wide lease management system to assist in the related accounting and is evaluating additional changes to the ~~continuous transfer of control to customers. The Company is currently designing~~related processes and ~~implementing procedures and related~~ internal controls to ~~address the potential differences identified, including the expanded~~ensure requirements are met for reporting and disclosure requirements resulting from the new standard, and performing a deeper analysis of those potential differences to quantify the impacts of applying the new standard. The Company expects to finalize its evaluation of these potential differences that may result from applying the new standard to the Company's contracts with customers in 2017 and will provide updates on its progress in future filings.purposes.

Note ~~4 - Acquisitions~~

~~During the first nine months of 2017, the Company completed three acquisitions. On~~ ~~July~~ 3 ~~2017, the Company completed the acquisition of Groeneveld Group ("Groeneveld"), a leading provider of automatic lubrication solutions used in on- and off-highway applications. On~~ ~~May 5, 2017~~, the Company completed the acquisition of the assets of PT Tech, Inc. ("PT Tech"), a manufacturer of engineered clutches, brakes, hydraulic power take-off units and other torque management devices used in mining, aggregate, wood recycling and metals industries. On ~~April 3, 2017~~, the Company completed the acquisition of Torsion Control Products, Inc. ("Torsion Control Products"), a manufacturer of engineered torsional couplings used in the construction, agriculture and mining industries. Aggregate sales for these companies for the most recent twelve months prior to their respective acquisitions totaled approximately $146.2 million. The total purchase price for these acquisitions was $346.6 million, net of $35.0 million cash received. The Company incurred acquisition-related costs of $3.6 million to complete these acquisitions. The 2017 acquisitions are subject to post-closing purchase price allocation adjustments. ~~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.~~

~~The following table presents the initial purchase price allocation for acquisitions in 2017:~~

Initial Purchase Price Allocation
Assets:
Accounts receivable, net $ 27.6
Inventories, net 29.1
Other current assets 4.7
Property, plant and equipment, net 31.6
Goodwill 147.6
Other intangible assets 175.3
Other non-current assets 1.9
Total assets acquired $ 417.8
Liabilities:
Accounts payable, trade $ 9.5
Salaries, wages and benefits 5.8
Other current liabilities 8.2
Short-term debt 1.0
Long-term debt 2.0
Deferred income taxes 42.4
Other non-current liabilities 2.3
Total liabilities assumed $ 71.2
Net assets acquired $ 346.6

~~The following table summarizes the initial purchase price allocation for identifiable intangible assets acquired in 2017:~~

Initial Purchase
Price Allocation
Weighted -
Average Life
Trade names (indefinite life) $ 33.4
Indefinite
Trade names (finite life) 2.2
13 years
Technology and know-how 29.9
16 years
Customer relationships 108.2
17 years
Other 0.2
5 years
Capitalized software 1.4
3 years
Total intangible assets $ 175.3

On ~~July 5, 2017~~, the Company announced that the Company's majority-owned subsidiary, Timken India Ltd. ("Timken India"), entered into a definitive agreement to acquire ABC Bearings Limited ("ABC Bearings"). Timken India is a public limited company listed on the National Stock Exchange of India Limited and BSE Limited. ABC Bearings is a manufacturer of tapered, cylindrical and spherical roller bearings and slewing rings in India. ~~The transaction is structured as a merger of ABC Bearings into Timken India, whereby shareholders of ABC Bearings will receive shares of Timken India as consideration.~~ ~~The transaction is subject to receipt of various approvals in India, which are expected to~~ ~~be completed in the first half of 2018~~. ABC Bearings, located in Mumbai, India, operates primarily out of manufacturing facilities in Bharuch, Gujarat and Dehradun, Uttarakhand and had annual sales of approximately $29 million for the twelve months ended March 31, 2017.

~~During 2016, the Company completed two acquisitions. On~~ ~~October 31, 2016, the Company completed the acquisition of EDT Corp. ("EDT"), a manufacturer of polymer housed units and stainless steel ball bearings used primarily in the food and beverage industry. On~~ ~~July 8, 2016, the Company completed the acquisition of Lovejoy Inc. ("Lovejoy"), a manufacturer of premium industrial couplings and universal joints.~~

In January 2017, the Company paid a net purchase price adjustment of $0.6 million in connection with the EDT acquisition, resulting in an adjustment to goodwill. During the second quarter of 2017, the Company re-evaluated the fair value of certain contingent liabilities assumed in the Lovejoy acquisition, resulting in adjustments to other current assets, goodwill, other current liabilities and other non-current liabilities. The following table presents the final purchase price allocation for both the Lovejoy and the EDT acquisitions:

Initial Purchase Price Allocation Adjustment Final Purchase Price Allocation
Assets:
Accounts receivable, net $ 8.4
$ 8.4
Inventories, net 17.8
17.8
Other current assets 5.3
(0.2 ) 5.1
Property, plant and equipment, net 16.5
16.5
Goodwill 29.9
(1.1 ) 28.8
Other intangible assets 27.9
27.9
Other non-current assets 0.1
0.1
Total assets acquired $ 105.9
$ (1.3 ) $ 104.6
Liabilities:
Accounts payable, trade $ 8.1
$ 8.1
Salaries, wages and benefits 1.3
1.3
Other current liabilities 4.4
(0.6 ) 3.8
Long-term debt 2.2
2.2
Deferred taxes 10.4
10.4
Other non-current liabilities 7.6
(1.3 ) 6.3
Total liabilities assumed $ 34.0
$ (1.9 ) $ 32.1
Net assets acquired $ 71.9
$ 0.6
$ 72.5

~~Note 5~~ - Inventories

The components of inventories at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 were as follows:


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Manufacturing supplies	$	29.5		$	28.2		$	30.2		$	29.0
Raw materials	85.7			54.9			95.5			90.4
Work in process	238.4			182.9			254.6			245.2
Finished products	367.4			308.8			430.3			404.3
Subtotal	$	721.0		$	574.8		810.6			768.9
Allowance for obsolete and surplus inventory	(33.5		)	(21.1		)	(33.8		)	(30.0		)
Total Inventories, net	$	687.5		$	553.7		$	776.8		$	738.9

Inventories are valued at the lower of cost or market, with approximately 55% valued by the first-in, first-out ("FIFO") method and the remaining 45% valued by the last-in, first-out ("LIFO") method. The majority of the Company's domestic inventories are valued by the LIFO method and all of the Company's international ~~(outside the United States)~~ inventories are valued by the FIFO method.

The LIFO reserves at March 31, 2018 and December 31, 2017 were $167.2 million and $167.6 million, respectively. An actual valuation of the inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on management’s estimates of expected year-end inventory levels and costs. Because these calculations are subject to many factors beyond management’s control, annual results may differ from interim results as they are subject to the final year-end LIFO inventory valuation.

~~The LIFO reserves at~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ ~~were $167.4 million and $179.5 million, respectively. The Company recognized a decrease in its LIFO reserve of $12.1 million during the first~~ ~~nine~~ ~~months of~~ ~~2017, compared with a decrease in its LIFO reserve of $0.2 million during the first~~ ~~nine~~ ~~months of~~ ~~2016~~.

~~Note 6 - Property, Plant and Equipment~~

~~The components of property, plant and equipment at September 30, 2017 and December 31, 2016 were as follows:~~

September 30,
2017 December 31,
2016
Land and buildings $ 478.2
$ 425.4
Machinery and equipment 1,882.4
1,807.6
Subtotal $ 2,360.6
$ 2,233.0
Accumulated depreciation (1,518.4 ) (1,428.6 )
Property, plant and equipment, net $ 842.2
$ 804.4

~~Total depreciation expense for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016~~ ~~was $73.3 million and~~ ~~$71.1 million, respectively.~~

Note 74 - Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 were as follows:


	Mobile Industries		Process Industries			Total		Mobile Industries		Process Industries		Total
Beginning balance	$	97.2	$	260.3		$	357.5	$	254.3	$	257.5	$	511.8
Acquisitions	147.6		(1.1		)	146.5
Foreign currency translation adjustments	4.0		2.3			6.3		3.9		0.2		4.1
Ending balance	$	248.8	$	261.5		$	510.3	$	258.2	$	257.7	$	515.9

The Groeneveld, PT Tech and Torsion Control Products acquisitions added a total of $147.6 million of goodwill to the Mobile Industries segment. The goodwill acquired from PT Tech and Torsion Control Products is expected to be tax-deductible over 15 years. The goodwill acquired from Groeneveld 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. The goodwill resulting from the EDT and Lovejoy acquisitions was allocated to the Process Industries segment.

The following table displays intangible assets as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:


	As of September 30, 2017						As of December 31, 2016						Balance at March 31, 2018						Balance at December 31, 2017
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible assets subject to amortization:
Customer relationships	$	322.4	$	97.6	$	224.8	$	211.4	$	84.4	$	127.0	$	327.2	$	108.6	$	218.6	$	324.6	$	103.0	$	221.6
Technology and know-how	126.4		29.9		96.5		95.2		25.4		69.8		129.3		35.4		93.9		128.7		33.8		94.9
Trade names	8.6		4.2		4.4		6.5		3.8		2.7		8.5		4.4		4.1		8.6		4.3		4.3
Capitalized software	260.0		223.4		36.6		251.7		211.8		39.9		262.1		229.8		32.3		261.5		226.5		35.0
Other	12.2		8.1		4.1		11.0		7.5		3.5		10.6		6.4		4.2		10.3		6.2		4.1
	$	729.6	$	363.2	$	366.4	$	575.8	$	332.9	$	242.9	$	737.7	$	384.6	$	353.1	$	733.7	$	373.8	$	359.9
Intangible assets not subject to amortization:
Trade names	$	53.8			$	53.8	$	19.4			$	19.4	$	52.8			$	52.8	$	52.0			$	52.0
FAA air agency certificates	8.7				8.7		8.7				8.7		8.7				8.7		8.7				8.7
	$	62.5			$	62.5	$	28.1			$	28.1	$	61.5			$	61.5	$	60.7			$	60.7
Total intangible assets	$	792.1	$	363.2	$	428.9	$	603.9	$	332.9	$	271.0	$	799.2	$	384.6	$	414.6	$	794.4	$	373.8	$	420.6

Amortization expense for intangible assets was ~~$29.2~~$10.8 million and ~~$27.2~~$9.0 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively. Amortization expense for intangible assets is estimated to be ~~$40.5 million in 2017; $39.8~~$41.5 million in 2018; ~~$36.0~~$36.1 million in 2019; ~~$29.9~~$31.5 million in 2020; ~~and $27.3~~$27.5 million in ~~2021.~~2021; and $23.3 million in 2022.

Acquisitions:

The amounts in the tables above include the impact of the final purchase price allocations for the Torsion Control Products, Inc. ("Torsion Control Products") and PT Tech, Inc. ("PT Tech") acquisitions and the impact of the preliminary purchase price allocation for the Groeneveld Group ("Groeneveld") acquisition. The purchase accounting for the Groeneveld acquisition is incomplete as it relates to the final determination of fair value for the contingent liabilities assumed in the acquisition, fixed asset valuation adjustments and other potential post-closing indemnification adjustments.

Note 85 - Financing Arrangements

Short-term debt at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 was as follows:

September 30,
2017 December 31,
2016
Variable-rate Accounts Receivable Facility with an interest rate of 2.07% at September 30, 2017 $ 5.6
$ —
Borrowings under variable-rate lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 0.32% to 1.75% at September 30, 2017 and 0.50% at December 31, 2016, respectively 35.5
19.2
Short-term debt $ 41.1
$ 19.2



	March 31, 2018		December 31, 2017
Variable-rate Accounts Receivable Facility with an interest rate of 2.47% at March 31, 2018 and 2.15% at December 31, 2017	$	98.9	$	62.9
Borrowings under variable-rate lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 0.32% to 10.00% at March 31, 2018 and 0.32% to 2.22% at December 31, 2017	68.2		42.5
Short-term debt	$	167.1	$	105.4

The Company has a $100 million Amended and Restated Asset Securitization Agreement ("Accounts Receivable Facility") that matures on November 30, 2018. The Company is exploring opportunities to refinance the facility prior to its maturity. 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 ~~which,~~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~~may be limited byto certain borrowing base ~~limitations. These~~ limitations, ~~reduced the availability of~~however the Accounts Receivable Facility ~~to $80.3 million~~was not reduced by any such borrowing base limitations at ~~September 30, 2017.~~March 31, 2018. As of ~~September 30, 2017,~~March 31, 2018, there were outstanding borrowings of ~~$74.8~~$98.9 million under the Accounts Receivable Facility, which reduced the availability under this facility to ~~$5.5~~$1.1 million. The cost of this facility, which is the prevailing commercial paper rate plus ~~program~~facility fees, is considered a financing cost and is included in ~~interest expense~~"Interest expense" in the Consolidated ~~Statement~~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~~because the agreement ~~and reflects the Company's expectations relative to the minimum borrowing base.~~matures in less than one year.

The lines of credit for certain of the Company’s foreign subsidiaries provide for short-term borrowings up to ~~$250.0~~$310.8 million in the aggregate. Most of these lines of credit are uncommitted. At ~~September 30, 2017,~~March 31, 2018, the Company’s foreign subsidiaries had borrowings outstanding of ~~$35.5~~$68.2 million and bank guarantees of ~~$2.0~~$0.1 million, which reduced the aggregate availability under these facilities to ~~$212.5~~$242.5 million.

Long-term debt at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 was as follows:


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Fixed-rate Medium-Term Notes, Series A, maturing at various dates through May 2028, with interest rates ranging from 6.74% to 7.76%	$	159.5	$	159.5	$	154.5	$	154.5
Fixed-rate Senior Unsecured Notes, maturing on September 1, 2024, with an interest rate of 3.875%	346.6		345.9		347.1		346.9
Variable-rate Senior Credit Facility with a weighted-average interest rate of 1.59% at September 30, 2017 and 1.50% at December 31, 2016	91.2		83.8
Variable-rate Accounts Receivable Facility with an interest rate of 2.07% at September 30, 2017 and 1.65% at December 31, 2016	69.2		48.9
Variable-rate Senior Credit Facility with a weighted-average interest rate of 1.65% at March 31, 2018 and 1.83% at December 31, 2017					86.3		52.0
Fixed-rate Euro Senior Unsecured Notes, maturing on September 7, 2027, with an interest rate of 2.02%	176.5		—		184.2		179.3
Variable-rate Euro Term Loan with an interest rate of 1.13% at September 30, 2017	117.8		—
Variable-rate Euro Term Loan with an interest rate of 1.13% at March 31, 2018 and December 31, 2017					123.0		119.7
Other	4.0		1.9		4.1		4.5
	$	964.8	$	640.0	899.2		856.9
Less: Current maturities	5.0		5.0		2.7		2.7
Long-term debt	$	959.8	$	635.0	$	896.5	$	854.2

The Company has a $500 million Amended and Restated Credit Agreement ("Senior Credit Facility"), which matures on June 19, 2020. At ~~September 30, 2017,~~March 31, 2018, the Company had ~~$91.2~~$86.3 million of outstanding borrowings under the Senior Credit Facility, which reduced the availability under this facility to ~~$408.8~~$413.7 million. The Senior Credit Facility has two financial covenants: a consolidated leverage ratio and a consolidated interest coverage ratio. At ~~September 30, 2017,~~March 31, 2018, the Company was in full compliance with both of these covenants.

On September 7, 2017, the Company issued €150 million of fixed-rate 2.02% senior unsecured notes that mature on September 7, 2027 ~~("2027~~(the "2027 Notes"). On September 18, 2017, the Company entered into a €100 million variable-rate term loan that matures on September 18, 2020 ("2020 Term Loan"). ~~The increased borrowings~~Proceeds from the 2027 Notes and 2020 Term Loan were ~~primarily~~used to ~~refinance~~repay amounts drawn from the Senior Credit Facility to fund the acquisition of Groeneveld, ~~that~~which closed on July 3, 2017. ~~Refer to~~ ~~Note 4 - Acquisitions~~ ~~for additional information.~~ These debt instruments have two financial covenants: a consolidated leverage ratio and a consolidated interest coverage ratio. These covenants are ~~the same as~~similar to those in the Senior Credit Facility. At ~~September 30, 2017,~~March 31, 2018, the Company was in full compliance with both of these covenants.

Note 96 - 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”). 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 $5.1 million and $5.0 million for various known environmental matters that are probable and reasonably estimable as of March 31, 2018andDecember 31, 2017, respectively, which includes the Lovejoy matter discussed above. These accruals were recorded based upon the best estimate of costs to be incurred in light of the progress made in determining the magnitude of remediation costs, the timing and extent of remedial actions required by governmental authorities and the amount of the Company’s liability in proportion to other responsible parties.

In addition, the Company is subject to various lawsuits, claims and proceedings, which arise in the ordinary course of its business. The Company accrues costs associated with legal and non-income tax matters when they become probable and reasonably estimable. Accruals are established based on the estimated undiscounted cash flows to settle the obligations and are not reduced by any potential recoveries from insurance or other indemnification claims. Management believes that any ultimate liability with respect to these actions, in excess of amounts provided, will not materially affect the Company’s Consolidated Financial Statements.

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

Product Warranties:

~~The~~In addition to the contingencies above, the Company provides limited warranties on certain of its products. The following table is a rollforward of the warranty liability for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 and the twelve months ended December 31, ~~2016:~~2017:


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Beginning balance, January 1	$	6.9		$	5.4		$	5.8		$	6.9
Additions	2.6			2.4			0.5			2.7
Payments	(2.1		)	(0.9		)	(0.4		)	(3.8		)
Ending balance	$	7.4		$	6.9		$	5.9		$	5.8

The product warranty liability at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 was included in ~~other~~"Other current ~~liabilities~~liabilities" on the Consolidated Balance Sheets.

~~Currently, the~~The Company currently is evaluating claims raised by certain customers with respect to the performance of bearings sold into the wind energy sector. Accruals related to this matter are included in the table above. 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.

Note 107 - Equity

The changes in the components of equity ~~components~~ for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 were as follows:


				The Timken Company Shareholders																				The Timken Company Shareholders
	Total			Stated Capital		Other Paid-In Capital			Earnings Invested in the Business			Accumulated Other Comprehensive (Loss)			Treasury Stock			Non- controlling Interest			Total			Stated Capital		Other Paid-In Capital			Earnings Invested in the Business			Accumulated Other Comprehensive (Loss)			Treasury Stock			Non- controlling Interest
Balance at December 31, 2016	$	1,310.9		$	53.1	$	906.9		$	1,289.3		$	(77.9	)	$	(891.7	)	$	31.2
Cumulative effect of ASU 2016-09	0.5					1.4			(0.9		)
Balance at December 31, 2017																					$	1,474.9		$	53.1	$	903.8		$	1,408.4		$	(38.3	)	$	(884.3	)	$	32.2
Cumulative effect of the new revenue standard (net of income tax benefit of $2.6 million)																					7.7								7.7
Cumulative effect of ASU 2018-02																					—								0.7			(0.7		)
Net income	174.2								174.2									—			80.5								80.2									0.3
Foreign currency translation adjustment	42.8											40.9						1.9			8.4											9.0						(0.6		)
Pension and postretirement liability adjustments (net of $0.1 income tax benefit)	0.2											0.2
Change in fair value of derivative financial instruments, net of reclassifications	(4.2		)									(4.2		)							0.8											0.8
Dividends paid to noncontrolling interest	(0.2		)															(0.2		)
Dividends – $0.80 per share	(62.4		)						(62.4		)
Stock-based compensation expense	18.2					18.2
Dividends – $0.27 per share																					(21.1		)						(21.1		)
Stock-based compensation																					10.3					10.3
Stock purchased at fair market value	(41.0		)												(41.0		)				(22.7		)												(22.7		)
Stock option exercise activity	27.7					(9.7		)							37.4						8.4					(1.4		)							9.8
Restricted share activity	—					(18.6		)							18.6						—					(11.2		)							11.2
Shares surrendered for taxes	(10.8		)												(10.8		)				(4.4		)												(4.4		)
Balance at September 30, 2017	$	1,455.9		$	53.1	$	898.2		$	1,400.2		$	(41.0	)	$	(887.5	)	$	32.9
Balance at March 31, 2018																					$	1,542.8		$	53.1	$	901.5		$	1,475.9		$	(29.2	)	$	(890.4	)	$	31.9

Note 118 - Accumulated Other Comprehensive Income (Loss)

The following tables present details about components of accumulated other comprehensive loss for the three ~~and~~ ~~nine~~months ended ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ respectively:

Foreign currency translation adjustments Pension and postretirement liability adjustments Change in fair value of derivative financial instruments Total
Balance at June 30, 2017 $ (49.9 ) $ 1.6
$ (1.8 ) $ (50.1 )
Other comprehensive income (loss) before
reclassifications and income tax 10.9
—
(4.0 ) 6.9
Amounts reclassified from accumulated other
comprehensive income, before income tax —
0.1
0.9
1.0
Income tax expense —
—
1.1
1.1
Net current period other comprehensive
income (loss), net of income taxes 10.9
0.1
(2.0 ) 9.0
Noncontrolling interest 0.1
—
—
0.1
Net current period comprehensive income (loss),
net of income taxes and noncontrolling interest
11.0
0.1
(2.0 ) 9.1
Balance at September 30, 2017 $ (38.9 ) $ 1.7
$ (3.8 ) $ (41.0 )

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 tax 42.8
—
(7.1 ) 35.7
Amounts reclassified from accumulated other
comprehensive income, before income tax —
0.3
0.4
0.7
Income tax expense (benefit) —
(0.1 ) 2.5
2.4
Net current period other comprehensive
income (loss), net of income taxes 42.8
0.2
(4.2 ) 38.8
Noncontrolling interest (1.9 ) —
—
(1.9 )
Net current period comprehensive income (loss),
net of income taxes and noncontrolling interest
40.9
0.2
(4.2 ) 36.9
Balance at September 30, 2017 $ (38.9 ) $ 1.7
$ (3.8 ) $ (41.0 )



	Foreign currency translation adjustments			Pension and postretirement liability adjustments			Change in fair value of derivative financial instruments			Total
Balance at December 31, 2017	$	(35.1	)	$	(0.3	)	$	(2.9	)	$	(38.3	)
Cumulative effect of ASU 2018-02	—			(0.1		)	(0.6		)	(0.7		)
Balance at January 1, 2018	(35.1		)	(0.4		)	(3.5		)	(39.0		)
Other comprehensive income (loss) before reclassifications and income tax	8.4			—			(0.4		)	8.0
Amounts reclassified from accumulated other comprehensive income, before income tax	—			—			1.4			1.4
Income tax benefit	—			—			(0.2		)	(0.2		)
Net current period other comprehensive income, net of income taxes	8.4			—			0.8			9.2
Noncontrolling interest	0.6			—			—			0.6
Net current period comprehensive income (loss), net of income taxes, noncontrolling interest and cumulative effect of accounting change	9.0			(0.1		)	0.2			9.1
Balance at March 31, 2018	$	(26.1	)	$	(0.4	)	$	(2.7	)	$	(29.2	)

Foreign currency translation adjustments Pension and postretirement liability adjustments Change in fair value of derivative financial instruments Total
Balance at June 30, 2016 $ (55.1 ) $ 1.2
$ (1.3 ) $ (55.2 )
Other comprehensive income (loss) before
reclassifications and income tax 3.7
—
(0.5 ) 3.2
Amounts reclassified from accumulated other
comprehensive income, before income tax —
0.7
0.5
1.2
Income tax benefit —
(0.3 ) —
(0.3 )
Net current period other comprehensive
income, net of income taxes 3.7
0.4
—
4.1
Noncontrolling interest (0.6 ) —
—
(0.6 )
Net current period comprehensive income,
net of income taxes and noncontrolling interest
3.1
0.4
—
3.5
Balance at September 30, 2016 $ (52.0 ) $ 1.6
$ (1.3 ) $ (51.7 )


	Foreign currency translation adjustments			Pension and postretirement liability adjustments			Change in fair value of derivative financial instruments			Total			Foreign currency translation adjustments			Pension and postretirement liability adjustments		Change in fair value of derivative financial instruments			Total
Balance at December 31, 2015	$	(55.3	)	$	0.4		$	0.3		$	(54.6	)
Balance at December 31, 2016													$	(79.8	)	$	1.5	$	0.4		$	(77.9	)
Other comprehensive income (loss) before reclassifications and income tax	5.2			—			(2.5		)	2.7			20.4			—		(1.1		)	19.3
Amounts reclassified from accumulated other comprehensive income (loss), before income tax	—			2.0			(0.1		)	1.9			—			0.1		(0.2		)	(0.1		)
Income tax (benefit) expense	—			(0.8		)	1.0			0.2
Income tax expense													—			—		0.5			0.5
Net current period other comprehensive income (loss), net of income taxes	5.2			1.2			(1.6		)	4.8			20.4			0.1		(0.8		)	19.7
Noncontrolling interest	(1.9		)	—			—			(1.9		)	(2.6		)	—		—			(2.6		)
Net current period comprehensive income (loss), net of income taxes and noncontrolling interest	3.3			1.2			(1.6		)	2.9			17.8			0.1		(0.8		)	17.1
Balance at September 30, 2016	$	(52.0	)	$	1.6		$	(1.3	)	$	(51.7	)
Balance at March 31, 2017													$	(62.0	)	$	1.6	$	(0.4	)	$	(60.8	)

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

The before-tax reclassification of pension and postretirement liability adjustments was due to the amortization of prior service costs and was included in costs of products sold and SG&A expenses in the Consolidated Statement of Income. The reclassification of the remaining components of accumulated other comprehensive loss was included in "Other income (expense), net" in the Consolidated Statement of Income.

Note 129 - 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 three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016~~2017, respectively:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2017		2016		2017		2016		2018		2017
Numerator:
Net income attributable to The Timken Company	$	53.5	$	33.6	$	174.2	$	147.7	$	80.2	$	38.2
Less: undistributed earnings allocated to nonvested stock	—		—		—		—		—		—
Net income available to common shareholders for basic earnings per share and diluted earnings per share	$	53.5	$	33.6	$	174.2	$	147.7
Net income available to common shareholders for basic and diluted earnings per share									$	80.2	$	38.2
Denominator:
Weighted average number of shares outstanding, basic	77,694,974		77,935,783		77,766,828		78,808,179
Weighted average number of shares outstanding - basic									77,734,153		77,731,793
Effect of dilutive securities:
Stock options and awards based on the treasury stock method	1,109,322		681,693		1,123,102		663,577
Stock options and awards - based on the treasury stock method									1,279,032		1,162,161
Weighted average number of shares outstanding, assuming dilution of stock options and awards	78,804,296		78,617,476		78,889,930		79,471,756		79,013,185		78,893,954
Basic earnings per share	$	0.69	$	0.43	$	2.24	$	1.87	$	1.03	$	0.49
Diluted earnings per share	$	0.68	$	0.43	$	2.21	$	1.86	$	1.02	$	0.48

The exercise prices for certain stock options that the Company has awarded ~~exceed~~exceeded the average market price of the Company’s common ~~shares.~~shares during the three months ended March 31, 2018. Such stock options are antidilutive and were not included in the computation of diluted earnings per share. The antidilutive stock options outstanding during the three months ended ~~September 30,~~March 31, 2018 and 2017 were 699,902 and ~~2016 were 473,694 and 2,706,711,~~647,540, respectively. ~~During~~

Note 10 - Revenue

The following table presents details deemed most relevant to the users of the financial statements about total revenue for the ~~nine~~three months ended ~~September 30,~~March 31, 2018 and 2017, respectively:



	Three Months Ended						Three Months Ended
	March 31, 2018						March 31, 2017
	Mobile		Process		Total		Mobile⁽¹⁾		Process⁽¹⁾		Total⁽¹⁾
United States	$	257.4	$	178.6	$	436.0	$	228.7	$	162.0	$	390.7
Americas excluding United States	55.2		46.7		101.9		43.3		34.9		78.2
Europe / Middle East / Africa	102.9		88.0		190.9		63.1		61.1		124.2
Asia-Pacific	73.0		81.3		154.3		47.9		62.8		110.7
Net sales	$	488.5	$	394.6	$	883.1	$	383.0	$	320.8	$	703.8

⁽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 ~~2016,~~end users. The following table presents the ~~antidilutive stock options outstanding were 529,020~~percent of revenues by sales channel for the three months ended March 31, 2018:



	Three Months Ended
Revenue by sales channel	March 31, 2018
Original equipment manufacturers	57%
Distribution/end users	43%

In addition to disaggregating revenue by segment and ~~3,080,133, respectively.~~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. Approximately 9% of total net sales is 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 represent approximately 6% of total net sales, differ from those of non-government customers. Finally, approximately 5% of total net sales represent 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 $175 million at March 31, 2018.

Contract Assets:

The following table contains a rollforward of contract assets for the three months ended March 31, 2018:



	March 31, 2018
Beginning balance, January 1	$	100.5
Additional revenue recognized in excess of billings	80.2
Less: amounts billed to customers	(69.3		)
Ending balance	$	111.4

There were no impairment losses recorded on contract assets for the three months ended March 31, 2018.

Note 1311 - Segment Information

The primary measurement used by management to measure the financial performance of each segment is earnings before interest and taxes ("EBIT").


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017
Net sales:
Mobile Industries	$	422.8		$	353.1		$	1,214.2		$	1,104.1		$	488.5		$	383.0
Process Industries	348.6			304.3			1,011.6			910.9			394.6			320.8
	$	771.4		$	657.4		$	2,225.8		$	2,015.0

Net sales													$	883.1		$	703.8
Segment EBIT:
Mobile Industries	$	34.9		$	25.9		$	100.1		$	95.3		$	51.1		$	32.6
Process Industries	61.7			42.0			164.9			123.7			81.6			44.1
Total EBIT, for reportable segments	$	96.6		$	67.9		$	265.0		$	219.0		$	132.7		$	76.7
Corporate expenses	(12.0		)	(10.9		)	(37.8		)	(34.8		)	(14.3		)	(15.8		)
Continued Dumping & Subsidy Offset Act income (expense), net	—			(0.2		)	—			53.6
Interest expense	(10.1		)	(8.0		)	(26.5		)	(25.1		)	(10.0		)	(7.9		)
Interest income	0.7			0.4			2.0			1.1			0.4			0.6
Income before income taxes	$	75.2		$	49.2		$	202.7		$	213.8		$	108.8		$	53.6

~~Note 14 - Impairment and Restructuring Charges~~

~~Impairment and restructuring charges by segment are comprised of the following:~~

~~For the~~ ~~three~~ ~~months ended~~ ~~September 30, 2017~~:

Mobile Industries Process Industries Corporate Total
Severance and related benefit costs $ 1.3
$ —
$ —
$ 1.3
Total $ 1.3
$ —
$ —
$ 1.3

~~For the~~ ~~three~~ ~~months ended~~ ~~September 30, 2016~~:

Mobile Industries Process Industries Corporate Total
Impairment charges $ 1.2
$ —
$ —
$ 1.2
Severance and related benefit costs 2.9
0.4
—
3.3
Exit costs 0.3
0.5
—
0.8
Total $ 4.4
$ 0.9
$ —
$ 5.3

~~For the~~ ~~nine~~ ~~months ended September 30, 2017:~~

Mobile Industries Process Industries Corporate Total
Severance and related benefit costs $ 3.1
$ 0.1
$ —
$ 3.2
Exit costs 0.1
—
0.5
0.6
Total $ 3.2
$ 0.1
$ 0.5
$ 3.8

~~For the~~ ~~nine~~ ~~months ended September 30, 2016:~~

Mobile Industries Process Industries Corporate Total
Impairment charges $ 3.8
$ —
$ —
$ 3.8
Severance and related benefit costs 7.7
4.9
—
12.6
Exit costs 1.6
0.7
—
2.3
Total $ 13.1
$ 5.6
$ —
$ 18.7

The following discussion explains the impairment and restructuring charges recorded for the periods presented; however, it is not intended to reflect a comprehensive discussion of all amounts in the tables above.

On September 29, 2016, the Company announced the closure of its bearing plant in Pulaski, Tennessee ("Pulaski"), which is expected to close during the fourth quarter of 2017 and to affect approximately 120 employees. During the three and ~~nine~~ months ended September 30, 2017, the Company recognized severance and related benefit costs of $0.2 million and $1.3 million, respectively, related to this closure. During the three months ended September 30, 2016, the Company recorded severance and related benefit costs of $1.7 million related to this closure. The Company has incurred pretax costs related to this closure of $8.1 million as of September 30, 2017, including rationalization costs recorded in cost of products sold.

In August 2016, the Company completed the consultation process to close the manufacturing operations in Benoni, South Africa ("Benoni") affecting 85 employees. Benoni will continue to recondition bearings and assemble rail bearings. During the three months ended September 30, 2016, the Company recorded impairment charges of $0.5 million and severance and related benefit costs of $0.8 million related to this closure.

On ~~March 17, 2016~~, the Company announced the closure of its bearing plant in Altavista, Virginia ("Altavista"). The Company completed the closure of this manufacturing facility on March 31, 2017. During the three months ended September 30, 2016, the Company recorded impairment charges of $0.7 million and severance and related benefit costs of $0.2 million related to this closure. During the ~~nine~~ months ended September 30, 2016, the Company recorded impairment charges of $3.1 million and severance and related benefit costs of $1.7 million in connection with this closure. The Company has incurred pretax costs related to this closure of $11.5 million as of September 30, 2017, including rationalization costs recorded in cost of products sold.

~~During the three months and~~ ~~nine~~ months ended September 30, 2017, the Company recognized $0.7 million and $1.5 million, respectively, of severance and related benefit costs to eliminate approximately 50 positions in the aggregate. The amounts recognized for the three months and ~~nine~~ ~~months ended September 30, 2017 primarily related to the Mobile Industries segment. During the~~ ~~nine~~ ~~months ended September 30, 2016, the Company recognized $7.7 million of severance and related benefit costs to eliminate approximately 175 positions. Of the $7.7 million charge for the first~~ ~~nine~~ ~~months of 2016, $2.9 million related to the Mobile Industries segment and $4.8 million related to the Process Industries segment.~~

~~Consolidated Restructuring Accrual:~~

~~The following is a rollforward of the consolidated restructuring accrual for the~~ ~~nine~~ ~~months ended September 30, 2017 and the twelve months ended~~ ~~December 31, 2016~~:

September 30,
2017 December 31,
2016
Beginning balance, January 1 $ 10.1
$ 11.3
Expense 3.8
17.8
Payments (9.2 ) (19.0 )
Ending balance $ 4.7
$ 10.1

~~The restructuring accruals at~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016~~ ~~were included in other current liabilities on the Consolidated Balance Sheets.~~

Note 1512 - Retirement Benefit Plans

The following table sets forth the net periodic benefit cost for the Company’s defined benefit pension plans. The amounts for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 are based on calculations prepared by the Company's actuaries and represent the Company’s best estimate of ~~each~~the respective period’s proportionate share of the amounts to be recorded for the year ending December 31, ~~2017~~2018.


	U.S. Plans						International Plans						Total						U.S. Plans						International Plans						Total
	Three Months Ended September 30,																		Three Months Ended March 31,
	2017			2016			2017			2016			2017			2016			2018			2017			2018			2017			2018			2017
Components of net periodic benefit cost:
Service cost	$	3.1		$	3.3		$	0.4		$	0.4		$	3.5		$	3.7		$	3.2		$	3.1		$	0.4		$	0.4		$	3.6		$	3.5
Interest cost	6.2			6.6			1.9			2.6			8.1			9.2			5.9			6.2			1.9			1.8			7.8			8.0
Expected return on plan assets	(7.0		)	(7.4		)	(2.9		)	(2.6		)	(9.9		)	(10.0		)	(7.3		)	(7.0		)	(3.0		)	(2.7		)	(10.3		)	(9.7		)
Amortization of prior service cost	0.3			0.4			0.1			0.1			0.4			0.5			0.4			0.3			—			—			0.4			0.3
Recognition of actuarial loss																			—			4.4			—			—			—			4.4
Net periodic benefit cost	$	2.6		$	2.9		$	(0.5	)	$	0.5		$	2.1		$	3.4		$	2.2		$	7.0		$	(0.7	)	$	(0.5	)	$	1.5		$	6.5

U.S. Plans International Plans Total
Nine Months Ended
September 30, Nine Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016 2017 2016
Components of net periodic benefit cost:
Service cost $ 9.2
$ 9.9
$ 1.2
$ 1.1
$ 10.4
$ 11.0
Interest cost 18.5
20.0
5.6
8.2
24.1
28.2
Expected return on plan assets (21.0 ) (22.3 ) (8.3 ) (8.0 ) (29.3 ) (30.3 )
Amortization of prior service cost 1.0
1.2
0.1
0.1
1.1
1.3
Recognition of actuarial loss 4.4
—
—
—
4.4
—
Net periodic benefit cost $ 12.1
$ 8.8
$ (1.4 ) $ 1.4
$ 10.7
$ 10.2

During the first three months of 2017, the Company recognized actuarial losses of $4.4 million as a result of the remeasurement of plan assets and obligations for one of the Company’s ~~United States ("~~U.S.") defined benefit pension plans. The remeasurement was due to lump sum payments exceeding service and interest costs for this plan.

Note 1613 - Other Postretirement Benefit Plans

The following table sets forth the net periodic benefit cost for the Company’s other postretirement benefit plans. The amounts for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 are based on calculations prepared by the Company's actuaries and represent the Company’s best estimate of ~~each~~the respective period’s proportionate share of the amounts to be recorded for the year ending December 31, ~~2017.~~2018.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017
Components of net periodic benefit cost:
Service cost	$	—		$	0.1		$	0.1		$	0.3
Interest cost	2.3			2.7			6.8			8.2			$	1.8		$	2.3
Expected return on plan assets	(1.4		)	(1.6		)	(4.2		)	(4.9		)	(0.9		)	(1.4		)
Amortization of prior service cost	(0.3		)	0.2			(0.8		)	0.7
Amortization of prior service credit													(0.4		)	(0.2		)
Net periodic benefit cost	$	0.6		$	1.4		$	1.9		$	4.3		$	0.5		$	0.7

Note 1714 - Income Taxes

The Company's provision for income taxes in interim periods is computed by applying the estimated annual effective tax rates to income or loss before income taxes for the period. In addition, non-recurring or discrete items are recorded during the period(s) in which they occur.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2018			2017
Provision for income taxes	$	21.1		$	15.2		$	28.5		$	65.8		$	28.3		$	15.5
Effective tax rate	28.1		%	30.9		%	14.1		%	30.8		%	26.0		%	28.9		%

The income tax expense for the ~~third~~ ~~quarter and first~~ ~~nine~~three months of ~~2017~~2018 was calculated using the forecasted multi-jurisdictional annual effective tax rates to determine a blended annual effective tax rate. The effective tax rate differs from the U.S. federal statutory rate of ~~35%~~21% primarily due to the projected mix of earnings in international jurisdictions with relatively ~~lower~~higher tax rates, ~~and tax benefits related to foreign tax credits, which are partially offset by~~ losses in jurisdictions with no tax benefit due to valuation ~~allowances.~~allowances and U.S. state and local income taxes.

The effective tax rate for the three months ended March 31, 2018 is 26.0%. The reduction in the effective tax rate as compared with the prior year period primarily reflects the net benefits of U.S. Tax Reform, which reduced the U.S. statutory rate from 35% to 21% beginning in 2018 and made other changes to the U.S. federal income tax laws affecting both domestic and foreign income.

U.S. Tax Reform was enacted on December 22, 2017 and reduced the U.S. federal corporate rate from 35% to 21%. It requires companies to pay a one-time net charge related to the taxation of unremitted foreign earnings and creates new taxes, including a tax on certain foreign sourced earnings known as the global intangible low-taxed income (“GILTI”) tax. Also on December 22, 2017, SEC Staff Accounting Bulletin No. 118 (“SAB 118”) was issued 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 not complete as of March 31, 2018; however, reasonable estimates have been made.

~~Income~~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 ~~increased~~as of December 31, 2017. Reasonable estimates were also been made for the ~~third~~ ~~quarter~~effects of ~~2017 compared~~other provisions of U.S. Tax Reform, but they do not have a material impact on the Company's consolidated financial statements. No changes have been made to these provisional estimates during the ~~third~~ quarter of 2016 primarily due to the significant increase in pre-tax earnings, primarily in non-U.S. jurisdictions. The expense was partially offset by favorable U.S. tax deductions, tax credits and favorable discrete tax amounts.

~~Income tax expense for the~~ ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018. Additional information and analysis of U.S. Tax Reform is ~~lower than~~still needed to prepare a more detailed analysis of the ~~nine~~ ~~months ended September 30, 2016 primarily due~~Company’s deferred tax assets and liabilities, as well as historical foreign earnings and profits and potential correlative adjustments. Any subsequent adjustments to the ~~net reversal~~Company's provisional estimates will be recorded to current tax expense in the quarter of ~~accruals for prior year uncertain~~2018 when further analysis is complete. These changes could be material to income tax ~~positions recorded discretely and favorable U.S. tax deductions and tax credits.~~expense.

~~The following table is~~A provisional estimate for the GILTI provisions was not recognized as a ~~rollforward~~component of income tax expense as of December 31, 2017 as the Company had not completed its assessment or made an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to record it as a period cost if and when incurred. At March 31, 2018, given the complexity of the ~~Company's gross unrecognized~~GILTI provisions, the Company is still evaluating the effects of the GILTI provisions and determining projections of future taxable income that is subject to the GILTI provisions. The Company has included GILTI related to current-year operations only in the forecasted annual effective tax ~~benefits~~rate and has not provided additional GILTI as a deferred amount.

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 difference as these amounts continue to be indefinitely reinvested in foreign operations. The Company is still evaluating whether to change its indefinite reinvestment assertion in light of U.S. Tax Reform and considers this conclusion to be incomplete. If the Company subsequently changes its assertion, it will account for the ~~nine~~ ~~months ended September 30, 2017:~~

September 30,
2017
Beginning balance, January 1 $ 39.1
Tax positions related to the prior years:
  Additions 5.6
  Reductions (1.3 )
  Lapses in statutes of limitation (28.6 )
Ending Balance $ 14.8

change in the quarter when the analysis is complete.

Note 1815 - Fair Value

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

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

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

Level 3 – Unobservable inputs for the asset or liability.

The following tables present the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:


	September 30, 2017								March 31, 2018
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	125.4	$	120.5	$	4.9	$	—	$	104.5	$	103.3	$	1.2	$	—
Cash and cash equivalents measured at net asset value	11.8		—		—		—		11.9
Restricted cash	3.3		3.3		—		—		3.9		3.9		—		—
Short-term investments	16.5		—		16.5		—		13.3		—		13.3		—
Short-term investments measured at net asset value	0.2		—		—		—		0.2
Foreign currency hedges	1.6		—		1.6		—		2.5		—		2.5		—
Total Assets	$	158.8	$	123.8	$	23.0	$	—	$	136.3	$	107.2	$	17.0	$	—
Liabilities:
Foreign currency hedges	$	3.9	$	—	$	3.9	$	—	$	11.7	$	—	$	11.7	$	—
Total Liabilities	$	3.9	$	—	$	3.9	$	—	$	11.7	$	—	$	11.7	$	—


	December 31, 2016								December 31, 2017
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	129.6	$	125.0	$	4.6	$	—	$	108.5	$	107.3	$	1.2	$	—
Cash and cash equivalents measured net asset value	19.2		—		—		—
Cash and cash equivalents measured at net asset value									13.1
Restricted cash	2.7		2.7		—		—		3.8		3.8		—		—
Short-term investments	9.4		—		9.4		—		16.2		—		16.2		—
Short-term investments measured at net asset value	2.3		—		—		—		0.2
Foreign currency hedges	9.9		—		9.9		—		1.3		—		1.3		—
Total Assets	$	173.1	$	127.7	$	23.9	$	—	$	143.1	$	111.1	$	18.7	$	—
Liabilities:
Foreign currency hedges	$	2.1	$	—	$	2.1	$	—	$	7.1	$	—	$	7.1	$	—
Total Liabilities	$	2.1	$	—	$	2.1	$	—	$	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 the 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.

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

~~2017~~

No material assets were measured at fair value on a nonrecurring basis ~~for~~during the ~~nine~~three months ended ~~September 30, 2017.~~

~~2016~~

~~The following table presents those assets measured at fair value on a nonrecurring basis for the~~ ~~nine~~ ~~months ended September 30, 2016 using Level 3 inputs:~~

Carrying Value Fair Value Adjustment Fair Value
Long-lived assets held for sale:
Land $ 0.2
$ (0.2 ) $ —
Total long-lived assets held for sale $ 0.2
$ (0.2 ) $ —

Long-lived assets held and used:
Altavista bearing plant $ 5.6
$ (3.1 ) $ 2.5
Equipment at Benoni bearing plant 0.5
(0.5 ) —
Total long-lived assets held and used $ 6.1
$ (3.6 ) $ 2.5

Assets held for sale of $0.2 million were written down to their fair value of zero during the first quarter of 2016, resulting in an impairment charge of $0.2 million. The fair value of these assets was based on the price that the Company expected to receive when it disposed of these assets.

~~On March 17, 2016, the Company announced the closure of its Altavista bearing plant. The Company completed the closure of this manufacturing facility on~~ March 31, 2017. The Altavista bearing plant, with a carrying value of $5.6 million, was written down to its fair value of $3.2 million during the first quarter of 2016, resulting in an impairment charge of $2.4 million. The fair value for the plant was based on the price that the Company expected to receive from the sale of this facility. During the third quarter of 2016, the Company reevaluated the fair value of this facility. The Altavista bearing plant was written down to its fair value of $2.5 million during the third quarter of 2016, resulting in an additional impairment of $0.7 million. During the second quarter of2018 and 2017, ~~this facility was reclassified to assets held for sale and included in other current assets on the Consolidated Balance Sheet. On~~ ~~July 14, 2017, this facility was sold for a pretax gain of approximately $1.6 million.~~

In August 2016, the Company completed the consultation process to close the manufacturing operations in Benoni. The Benoni facility will continue to recondition bearings and assemble rail bearings. Equipment at this facility, with a carrying value of ~~$0.5 million~~, was written down to its fair value of zero during the third quarter of 2016, resulting in an impairment charge of $0.5 million. The fair value for the equipment was based on the price that the Company expected to receive from the sale of the equipment.respectively.

Financial Instruments:

The Company’s financial instruments consist primarily of cash and cash equivalents, ~~restricted cash,~~ short-term investments, accounts receivable, ~~net,~~trade accounts payable, ~~trade,~~ short-term borrowings and long-term debt. Due to their short-term nature, the carrying value of cash and cash equivalents, ~~restricted cash,~~ short-term investments, accounts receivable, ~~net,~~trade accounts payable ~~trade~~ 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~~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 ~~$723.9~~$704.5 million and ~~$532.2~~$720.3 million at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. The carrying value of this debt was ~~$684.3~~$687.2 million and ~~$507.3~~$682.4 million at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. The fair value of long-term fixed-rate debt was measured using Level 2 inputs.

Note 1916 - 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 ~~commodity price risk~~ and interest rate risk. Forward ~~exchange~~ 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~~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 ~~expenses and~~ certain interest rate hedges as ~~fair value~~cash flow hedges of fixed-rate borrowings.

The Company does not purchase or hold any derivative financial instruments for trading purposes. As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Company had ~~$223.2~~$412.2 million and ~~$282.8~~$386.9 million, respectively, of outstanding foreign currency forward contracts at notional value. Refer to Note 1815 - 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, ~~over the next year,~~ the Company has instituted a foreign currency cash flow hedging program. The Company hedges portions of its forecasted ~~revenue or expense~~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 its exposure to the variability in future cash flows for ~~forecasted~~forecast transactions is generally 18eighteen months or less.

~~Fair Value Hedging Strategy:~~

~~For derivative instruments that are designated and qualify as fair value hedges (i.e~~., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in the same line item associated with the hedged item (~~i.e., in interest expense when the hedged item is fixed-rate debt).~~

Purpose for Derivative Instruments not ~~Designated~~designated as Hedging Instruments:

For derivative instruments that are not designated as hedging instruments, the instruments are typically ~~are~~ 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 the loan with a maturity date atcorresponding to 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 fair value of the Company's derivative ~~instruments.~~instruments at March 31, 2018 and December 31, 2017. Those balances are presented ~~in the other~~within "Other non-current ~~assets/liabilities accounts within~~assets" and "Other non-current liabilities" in the Consolidated Balance Sheets.


	Derivative Assets				Derivatives Liabilities				Asset Derivatives				Liability Derivatives
Derivatives designated as hedging instruments	Fair Value at 9/30/17		Fair Value at 12/31/16		Fair Value at 9/30/17		Fair Value at 12/31/16
Derivatives designated as hedging instruments:									March 31, 2018		December 31, 2017		March 31, 2018		December 31, 2017
Foreign currency forward contracts	$	0.3	$	2.3	$	2.9	$	0.5	$	0.9	$	0.5	$	1.5	$	2.1

Derivatives not designated as hedging instruments
Derivatives not designated as hedging instruments:
Foreign currency forward contracts	1.3		7.6		1.0		1.6		1.6		0.8		10.2		5.0
Total Derivatives	$	1.6	$	9.9	$	3.9	$	2.1	$	2.5	$	1.3	$	11.7	$	7.1

The following tables present the impact of derivative instruments for the three months ended March 31, 2018 and 2017, respectively, and their location within the Consolidated Statements of Income:

Amount of gain or (loss) recognized in
Other Comprehensive Income on derivative instruments
Three Months Ended
September 30, Nine Months Ended
September 30,
Derivatives in cash flow hedging relationships 2017 2016 2017 2016
Foreign currency forward contracts $ (1.6 ) $ (0.5 ) $ (4.7 ) $ (2.5 )
Interest rate swaps (2.4 ) —
(2.4 ) —
Total $ (4.0 ) $ (0.5 ) $ (7.1 ) $ (2.5 )


	Amount of gain or (loss) reclassified from Accumulated Other Comprehensive Loss into income (effective portion)													Amount of gain or (loss) reclassified from Accumulated Other Comprehensive Loss into income (effective portion)
	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
Derivatives in cash flow hedging relationships	2017			2016			2017			2016
Derivatives in cash flow hedging relationships:													Location of gain or (loss) recognized in income	2018			2017
Foreign currency forward contracts	$	(0.9	)	$	(0.4	)	$	(0.2	)	$	0.4		Cost of products sold	$	(1.2	)	$	0.3
Interest rate swaps	—			(0.1		)	(0.2		)	(0.3		)	Interest expense	(0.2		)	(0.1		)
Total	$	(0.9	)	$	(0.5	)	$	(0.4	)	$	0.1			$	(1.4	)	$	0.2


		Amount of gain or (loss) recognized in income on derivative instruments												Amount of loss recognized in income
		Three Months Ended September 30,					Nine Months Ended September 30,							Three Months Ended March 31,
Derivatives not designated as hedging instruments	Location of gain or (loss) recognized in income on derivative	2017		2016			2017			2016
Derivatives not designated as hedging instruments:													Location of loss recognized in income	2018			2017
Foreign currency forward contracts	Other income (expense), net	$	2.7	$	(0.2	)	$	(5.6	)	$	(4.5	)	Other income (expense), net	$	(4.4	)	$	(1.2	)

~~Note 20 - Continued Dumping and Subsidy Offset Act~~

The U.S. Continued Dumping and Subsidy Offset Act ("CDSOA") provides for distribution of monies collected by U.S. Customs and Border Protection ("U.S. Customs") on entries of merchandise subject to antidumping orders that entered the U.S. 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 third quarter of 2016, the Company recognized CDSOA expense of $0.2 million. During the first nine months of 2016, the Company recognized pretax CDSOA income, net of related expenses, of $53.6 million.

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 U.S. 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 for certain years while litigation was ongoing. However, much of the CDSOA litigation that involves antidumping orders where Timken is a qualifying domestic producer has concluded.

Subsequently, the Company was notified by letters dated March 25, 2016 and June 24, 2016 that funds were being distributed to the Company. On April 1, 2016 and July 1, 2016, the Company received CDSOA distributions of $48.1 million and $6.3 million, respectively, representing funds that would have been distributed to the Company at the end of calendar years 2011 through 2015.

While some of the challenges to CDSOA have been resolved, others are still in litigation. Since there continue to be legal challenges to CDSOA, U.S. Customs has advised all affected domestic producers that it is possible that CDSOA distributions could be subject to clawback. Management of the Company believes that the likelihood of any clawback is remote.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

Overview

Introduction:

The Timken Company engineers, manufactures and markets bearings, transmissions, gearboxes, belts, chain, lubrication systems, couplings, industrial clutches and brakes and related ~~products and~~products. The Company also offers a variety of power system rebuild and repair services. The Company’s growing product and services portfolio features many strong industrial brands, such as Timken®, Fafnir®, Philadelphia Gear®, Drives®, Lovejoy® and Groeneveld®. Timken applies its deep knowledge of metallurgy, friction management and mechanical power transmission across the broad spectrum of bearings and related systems to improve the reliability and efficiency of machinery and equipment all around the world. Known for its quality products and collaborative technical sales model, Timken focuses on providing value to diverse markets worldwide through both ~~original equipment manufacturers ("OEMs")~~OEMs and aftermarket channels. With more than ~~14,000~~15,000 people operating in 3133 countries, Timken makes the world more productive and keeps industry in motion. 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; ~~and~~ rotorcraft and fixed-wing ~~aircraft.~~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 and wind power generation; oil and gas extraction and refining; pulp and paper and food processing; 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.~~distributors and through the provision of services directly to end users.

Timken creates value by understanding customer needs and applying its know-how in attractive market ~~sectors. The Company’s business strengths include its channel mix and end-market diversity,~~sectors, serving a broad range of customers 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 Timken Business Model is the specific framework for how the Company evaluates opportunities and differentiates itself in the market.

~~The Company’s Strategy~~ ~~is to apply the~~ ~~Timken Business Model~~ ~~and leverage the Company’s competitive differentiators and strengths to create customer value and drive increased growth and profitability by:~~

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 organic growth initiatives; (2) pursuing strategic acquisitions to broaden ~~our~~its portfolio and capabilities, with a focus on bearings, adjacent power transmission products and related services; and (3) returning capital to shareholders through dividends and share ~~repurchases and dividends.~~repurchases. As part of this framework, the Company may also ~~may~~ restructure, reposition or divest underperforming product lines or assets.

~~The following highlights the Company's recent significant strategic accomplishments:~~

On July 3, 2017, the Company completed the acquisition of Groeneveld, a leading provider of automated lubrication solutions used in on- and off-highway applications. Groeneveld, located in Gorinchem, Netherlands, with manufacturing facilities in Italy, had annual sales of approximately $105 million for the twelve months ended May 31, 2017. Based on markets and customers served, substantially all of the results for Groeneveld are reported in the Mobile Industries segment starting in the third quarter of 2017.

On July 5, 2017, the Company announced that the Company's majority-owned subsidiary, Timken India, entered into a definitive agreement to acquire ABC Bearings, a manufacturer of tapered, cylindrical and spherical roller bearings and slewing rings in India. The transaction is structured as a merger of ABC Bearings into Timken India, whereby shareholders of ABC Bearings will receive shares of Timken India as consideration. The transaction is subject to receipt of various approvals in India, which are expected to be completed in the first half of 2018. ABC Bearings, located in Mumbai, India, operates primarily out of manufacturing facilities in Bharuch, Gujarat and Dehradun, Uttarakhand and had annual sales of approximately $29 million for the twelve months ended May 31, 2017.

Overview:

Three Months Ended
September 30,
2017 2016 $ Change % Change
Net sales $ 771.4
$ 657.4
$ 114.0
17.3 %
Net income 54.1
34.0
20.1
59.1 %
Net income attributable to noncontrolling interest 0.6
0.4
0.2
50.0 %
Net income attributable to The Timken Company 53.5
33.6
19.9
59.2 %
Diluted earnings per share $ 0.68
$ 0.43
$ 0.25
58.1 %
Average number of shares – diluted 78,804,296
78,617,476
—
0.2 %


	Nine Months Ended September 30,									Three Months Ended March 31,
	2017		2016		$ Change			% Change		2018		2017			$ Change		% Change
Net sales	$	2,225.8	$	2,015.0	$	210.8		10.5	%	$	883.1	$	703.8		$	179.3	25.5	%
Net income	174.2		148.0		26.2			17.7	%	80.5		38.1			42.4		111.3	%
Net income attributable to noncontrolling interest	—		0.3		(0.3		)	(100.0	)%	0.3		(0.1		)	0.4		(400.0	)%
Net income attributable to The Timken Company	174.2		147.7		26.5			17.9	%	80.2		38.2			42.0		109.9	%
Diluted earnings per share	$	2.21	$	1.86	$	0.35		18.8	%	$	1.02	$	0.48		$	0.54	112.5	%
Average number of shares – diluted	78,889,930		79,471,756		—			(0.7	)%	79,013,185		78,893,954			—		0.2	%

The increase in net sales ~~for the~~ ~~third~~ ~~quarter of 2017 compared with the~~ ~~third~~ ~~quarter of 2016~~ was primarily due to higher organic revenue driven by improved end-market demand, ~~across most end markets and~~ the benefit of ~~acquisitions.~~acquisitions and the favorable impact of foreign currency exchange rate changes. The increase in net income for the ~~third~~first quarter of 2018 compared with the first quarter of 2017 was primarily due to improved performance across the business. The improvement in business performance was driven by the impact of higher volume, favorable price/mix and manufacturing performance, the benefit of acquisitions, lower net actuarial losses from the remeasurement of pension and other postretirement assets and obligations ("mark-to-market charges") and the impact of a lower income tax rate. These factors were partially offset by higher SG&A expenses, and logistics costs.

Outlook:

The Company expects 2018 full-year sales to increase approximately 17% compared with 2017 primarily due to increased demand across most end-market sectors, the ~~third~~ ~~quarter~~benefit of ~~2016 was~~acquisitions and the favorable impact of foreign currency exchange rate changes. The Company's earnings are expected to be higher in 2018 compared with 2017, primarily due to the impact of higher volume, favorable price/mix, improved manufacturing performance, the benefit of acquisitions, ~~favorable manufacturing performance,~~ the favorable impact of foreign currency exchange rate changes, and the impact of lower ~~impairment and restructuring charges. These factors were~~mark to market changes, partially offset by higher SG&A ~~expense and unfavorable price/mix.~~

~~The increase in net sales for the first~~ ~~nine~~ ~~months of 2017 compared with the first~~ ~~nine~~ ~~months of 2016 was primarily due to higher end-market demand and the net benefit of acquisitions. The change in net income for the first~~ ~~nine~~ ~~months of 2017 compared with the first~~ ~~nine~~ months of 2016 was primarily due to the impact of higher volume, lower income tax expense as a result of the net reversal of accruals for uncertain tax positions related to prior years, the benefit of acquisitions, lower restructuring charges, the favorable impact of foreign currency exchange rate changes and favorable manufacturing performance. These factors were partially offset by pre-tax CDSOA income of $53.6 million recognized in 2016 that did not reoccur in 2017, unfavorable price/mix, higher SG&A expense and a pension mark-to-market remeasurement charge recorded during the first quarter of 2017.

~~Outlook:~~

The Company expects 2017 full-year net sales to increase approximately 12% compared with 2016 primarily driven by higher demand in the industrial distribution, off-highway, heavy industries and heavy truck sectors and the benefit of acquisitions, partially offset by lower demand in the rail sector. The Company's earnings are expected to be higher in 2017 compared with 2016, primarily due to the impact of higher volume, favorable manufacturing performance, lower restructuring charges, lower income tax expense and the benefit of acquisitions. These factors are expected to be partially offset by unfavorable price/mix,expenses, higher material and logistics costs, ~~increased SG&A expense~~ and the ~~expected absence~~impact of ~~CDSOA~~a higher income ~~in 2017. The results for 2016 include the impacts~~tax rate (inclusive of ~~pension and other postretirement benefit~~discrete items). Current year mark-to-market ~~remeasurement~~ charges ~~which~~ are not accounted for in the ~~2017~~2018 outlook because the amount will not be known until ~~the fourth quarter.~~incurred.

The Company expects to generate operating cash of approximately ~~$280~~$370 million in ~~2017, a decrease~~2018, an increase from ~~2016~~2017 of approximately ~~$124~~$133 million or ~~31%, driven by the absence of CDSOA receipts, higher tax payments and unfavorable working capital, partially offset by higher operating income.~~56%. The Company expects capital expenditures to be ~~between 3% and~~approximately 3.5% of ~~net~~ sales in ~~2017, compared with 5% of net sales~~2018, which is consistent actual results in ~~2016.~~2017.

The Statement of Income

Sales:

Three Months Ended
September 30,
2017 2016 $ Change % Change
Net Sales $ 771.4
$ 657.4
$ 114.0
17.3 %

Nine Months Ended
September 30,
2017 2016 $ Change % Change
Net Sales $ 2,225.8
$ 2,015.0
$ 210.8
10.5 %



	Three Months Ended March 31,
	2018		2017		$ Change		% Change
Net Sales	$	883.1	$	703.8	$	179.3	25.5	%

Net sales increased for the ~~third~~first quarter of 2018 compared with the first quarter of 2017, ~~compared with the~~ ~~third~~ ~~quarter of 2016,~~ primarily due to higher organic revenue of ~~$61~~$108 million, the benefit of acquisitions of ~~$44~~$47 million and the favorable impact of foreign currency exchange rate ~~changes.~~changes of $24 million. The increase in organic ~~sales volume~~revenue was driven by higher demand across most of the Company's ~~market~~end-market sectors led by industrial distribution and ~~off-highway, partially offset by lower demand in the automotive market sector.~~

~~Net sales increased for the first~~ ~~nine~~ ~~months of 2017 compared with the first~~ ~~nine~~ months of 2016, primarily due to higher organic revenue of $121 million and the benefit of acquisitions of $86 million. The increase in organic sales volume was driven by higher demand across most of the Company's market sectors led by industrial distribution and off-highway, partially offset by lower demand in the rail and automotive market sectors.off-highway.

Gross Profit:

Three Months Ended
September 30,
2017 2016 $ Change Change
Gross profit $ 217.0
$ 169.7
$ 47.3
27.9%
Gross profit % to net sales 28.1 % 25.8 % —
230 bps


	Nine Months Ended September 30,									Three Months Ended March 31,
	2017			2016			$ Change		Change	2018			2017			$ Change		Change
Gross profit	$	599.3		$	537.3		$	62.0	11.5%	$	264.9		$	182.2		$	82.7	45.4	%
Gross profit % to net sales	26.9		%	26.7		%			20 bps	30.0		%	25.9		%	—		410	bps

Gross profit increased in the ~~third~~first quarter of 2018 compared with the first quarter of 2017, ~~compared with the~~ ~~third~~ ~~quarter of 2016,~~ primarily due to the impact of higher ~~sales~~ volume of ~~$23~~$37 million, the benefit of acquisitions of $21 million, favorable price/mix of $18 million, favorable manufacturing performance of ~~$14~~$9 million and ~~the favorable impact of~~ foreign currency exchange rate changes. These factors were partially offset by higher material and logistics costs of $9 ~~million and unfavorable price/mix.~~

~~Gross profit increased in the first~~ ~~nine~~ ~~months of 2017 compared with the first~~ ~~nine~~ months of 2016, primarily due to the impact of higher volume of $43 million, the benefit of acquisitions of $33 million and favorable manufacturing performance of $29 million. These factors were partially offset by unfavorable price/mix of $22 million and higher material and logistics costs of $20 million.

Selling, General and Administrative Expenses:

Three Months Ended
September 30,
2017 2016 $ Change Change
Selling, general and administrative expenses $ 134.0
$ 107.2
$ 26.8
25.0%
Selling, general and administrative expenses % to net sales 17.4 % 16.3 % —
110 bps


	Nine Months Ended September 30,									Three Months Ended March 31,
	2017			2016			$ Change		Change	2018			2017			$ Change		Change
Selling, general and administrative expenses	$	377.4		$	331.3		$	46.1	13.9%	$	148.6		$	117.6		$	31.0	26.4	%
Selling, general and administrative expenses % to net sales	17.0		%	16.4		%	—		60 bps	16.8		%	16.7		%	—		10	bps

The increase in SG&A expenses in the ~~third~~first quarter ~~and first~~ ~~nine~~ ~~months~~ of ~~2017~~2018 compared with the ~~third~~first quarter ~~and first~~ ~~nine~~ ~~months~~ of ~~2016~~2017 was primarily due to the impact of acquisitions of $13 million, higher incentive compensation ~~expense~~expenses and other increases to support the current business level, as well as the unfavorable impact of ~~acquisitions.~~foreign currency exchange rate changes.

Impairment and Restructuring:

Three Months Ended
September 30,
2017 2016 $ Change % Change
Impairment charges $ —
$ 1.2
$ (1.2 ) (100.0 )%
Severance and related benefit costs 1.3
3.3
(2.0 ) (60.6 )%
Exit costs —
0.8
(0.8 ) (100.0 )%
Total $ 1.3
$ 5.3
$ (4.0 ) (75.5 )%

Nine Months Ended
September 30,
2017 2016 $ Change % Change
Impairment charges $ —
$ 3.8
$ (3.8 ) (100.0 )%
Severance and related benefit costs 3.2
12.6
(9.4 ) (74.6 )%
Exit costs 0.6
2.3
(1.7 ) (73.9 )%
Total $ 3.8
$ 18.7
$ (14.9 ) (79.7 )%

~~Impairment and restructuring charges of $1.3 million and $3.8 million in the~~ ~~third~~ ~~quarter and first~~ ~~nine~~ months of 2017, respectively, were primarily comprised of severance and related benefit costs related to initiatives to reduce headcount and right-size the Company's manufacturing footprint, including the planned closure of the Pulaski bearing plant.

~~Impairment and restructuring charges of $5.3 million and $18.7 million in the~~ ~~third~~ ~~quarter and first~~ ~~nine~~ months of 2016, respectively, were primarily comprised of severance and related benefit costs related to initiatives to reduce headcount and right-size the Company's manufacturing footprint, including the planned closures of the Altavista, Pulaski and Benoni bearing plants. In addition, the Company also recognized impairment charges associated with the planned closure of the Altavista and Benoni bearing plants of $1.2 million and $3.6 million, respectively, during the ~~third~~ ~~quarter and first~~ ~~nine~~ ~~months of 2016.~~



	Three Months Ended March 31,
	2018		2017		$ Change			% Change
Severance and related benefit costs	$	0.2	$	1.2	$	(1.0	)	(83.3	)%
Exit costs	—		0.5		(0.5		)	(100.0	)%
Total	$	0.2	$	1.7	$	(1.5	)	(88.2	)%

Interest Income and Expense:

Three Months Ended
September 30,
2017 2016 $ Change % Change
Interest expense $ (10.1 ) $ (8.0 ) $ (2.1 ) 26.3 %
Interest income $ 0.7
$ 0.4
$ 0.3
75.0 %


	Nine Months Ended September 30,											Three Months Ended March 31,
	2017			2016			$ Change			% Change		2018			2017			$ Change			% Change
Interest expense	$	(26.5	)	$	(25.1	)	$	(1.4	)	5.6	%	$	(10.0	)	$	(7.9	)	$	(2.1	)	26.6	%
Interest income	$	2.0		$	1.1		$	0.9		81.8	%	$	0.4		$	0.6		$	(0.2	)	(33.3	)%

~~Interest~~The increase in interest expense ~~increased for~~in the ~~third~~first quarter ~~and~~of 2018 compared with the first ~~nine months~~ quarter of 2017 ~~compared to the~~ ~~third~~ ~~quarter and the first nine months of 2016,~~was primarily due to ~~borrowings associated with~~an increase in outstanding debt to fund the Groeneveld ~~acquisition. Refer to~~ ~~Note 8 - Financing Arrangements~~ toacquisition in the ~~Consolidated Financial Statements for further discussion.~~second half of 2017 and other cash needs.

Other Income (Expense):

Three Months Ended
September 30,
2017 2016 $ Change % Change
CDSOA expense $ —
$ (0.2 ) $ 0.2
(100.0 )%
Other income (expense), net 2.9
(0.1 ) 3.0
NM
Total other income (expense) $ 2.9
$ (0.3 ) $ 3.2
NM

Nine Months Ended
September 30,
2017 2016 $ Change % Change
CDSOA income $ —
$ 53.6
$ (53.6 ) (100.0 )%
Other income (expense), net 9.1
(1.8 ) 10.9
NM
Total other income $ 9.1
$ 51.8
$ (42.7 ) (82.4 )%

~~CDSOA income in the first~~ ~~nine~~ ~~months of 2016 represents income recorded in connection with funds distributed to the Company from monies collected by U.S. Customs from antidumping cases. Refer to~~ ~~Note 20 - Continued Dumping and Subsidy Offset Act~~ ~~to the Consolidated Financial Statements for further discussion.~~



	Three Months Ended March 31,
	2018		2017			$ Change		% Change
Other income (expense), net	$	2.3	$	(2.0	)	$	4.3	(215.0	)%

The increase in other income (expense)~~, net~~ for the ~~third~~first quarter of 2018 compared to the first quarter of 2017 was primarily due to the ~~gain on~~impact of mark-to-market charges in the ~~sale of the former manufacturing facility in Altavista and lower foreign currency exchange losses. The increase in other income (expense), net for the~~ first~~nine~~ ~~months of 2017 was primarily due to lower foreign currency exchange losses and the gain on the sale of former manufacturing facilities in Benoni and Altavista during the second and third~~ quarter of 2017 ~~respectively.~~that did not reoccur in 2018. The mark-to-market charges were required in the first quarter of 2017 as a result of lump sum payments to new retirees exceeding service and interest costs for one of the Company's U.S. defined benefit pension plans.

Income Tax Expense:


	Three Months Ended September 30,										Three Months Ended March 31,
	2017			2016			$ Change		Change		2018			2017			$ Change		Change
Income tax expense	$	21.1		$	15.2		$	5.9	38.8	%	$	28.3		$	15.5		$	12.8	82.6%
Effective tax rate	28.1		%	30.9		%	—		NM		26.0		%	28.9		%	—		(290) bps

Nine Months Ended
September 30,
2017 2016 $ Change Change
Income tax expense $ 28.5
$ 65.8
$ (37.3 ) (56.7 )%
Effective tax rate 14.1 % 30.8 % —
NM

~~The effective~~Income tax ~~rate~~expense increased $12.8 million for the ~~three~~first ~~months ended September 30, 2017 is 28.1%. The income tax expense increase from~~quarter of 2018 compared with the ~~three~~first ~~months ended September 30, 2016 is driven~~quarter of 2017 primarily due to a 19.3 million increase in pre-tax earnings, partially offset by ~~$9.1 million~~the net benefits of ~~additional expense at~~U.S. Tax Reform, which reduced the U.S. statutory rate ~~as a result of~~from 35% to 21% beginning in 2018 and made other changes to the ~~increase in income before income taxes and additional expense related to losses in jurisdictions with no tax benefit. These increases are partially offset by favorable~~ U.S. ~~tax deductions and tax credits, and discrete tax amounts.~~

~~The effective tax rate for the~~ ~~nine~~ ~~months ended September 30, 2017 is 14.1%. The decrease in~~federal income tax ~~expense when compared to the first~~ laws affecting both domestic and foreign income~~nine~~ months ended September 30, 2016 was primarily due to the net reversal of accruals for prior year uncertain tax positions (including interest) of $33.9 million in the second quarter of 2017 and favorable U.S. tax deductions and tax credits..

Refer to Note 1714 - Income Taxes to the Notes to the Consolidated Financial Statements for more information on the computation of the income tax expense in interim periods.

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 1311 - 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 completed in ~~2016~~2017 by segment based on the customers and ~~the first~~ ~~nine~~ ~~months of 2017.~~underlying markets served:

The Company acquired Groeneveld during the third quarter of 2017. ~~Based on markets and customer served, substantially~~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. ~~Based on markets and customers served, substantially~~Substantially all of the results for ~~both businesses~~Torsion Control Products are reported in the Mobile Industries segment.

~~The Company acquired EDT during the fourth quarter of 2016. Based on markets and customers served, substantially all of the results~~ Results for ~~EDT~~PT Tech are reported in the Mobile Industries and Process Industries ~~segment.~~

The Company acquired Lovejoy during the third quarter of 2016. Based on markets and customers served, substantially all of the results for Lovejoy are primarily reported in the Process Industries segment.segments.

Mobile Industries Segment:


	Three Months Ended September 30,									Three Months Ended March 31,
	2017			2016			$ Change		Change	2018			2017			$ Change		Change
Net sales	$	422.8		$	353.1		$	69.7	19.7%	$	488.5		$	383.0		$	105.5	27.5	%
EBIT	$	34.9		$	25.9		$	9.0	34.7%	$	51.1		$	32.6		$	18.5	56.7	%
EBIT margin	8.3		%	7.3		%	—		100 bps	10.5		%	8.5		%	—		200	bps

Three Months Ended
September 30,
2017 2016 $ Change % Change
Net sales $ 422.8
$ 353.1
$ 69.7
19.7%
Less: Acquisitions 42.2
—
42.2
NM
Currency 4.5
—
4.5
NM
Net sales, excluding the impact of acquisitions and currency $ 376.1
$ 353.1
$ 23.0
6.5%

Nine Months Ended
September 30,
2017 2016 $ Change Change
Net sales $ 1,214.2
$ 1,104.1
$ 110.1
10.0%
EBIT $ 100.1
$ 95.3
$ 4.8
5.0%
EBIT margin 8.2 % 8.6 % —
(40) bps


	Nine Months Ended September 30,							Three Months Ended March 31,
	2017		2016		$ Change		% Change	2018		2017		$ Change		% Change
Net sales	$	1,214.2	$	1,104.1	$	110.1	10.0%	$	488.5	$	383.0	$	105.5	27.5	%
Less: Acquisitions	54.2		—		54.2		NM	43.1		—		43.1		NM
Currency	3.7		—		3.7		NM	11.2		—		11.2		NM
Net sales, excluding the impact of acquisitions and currency	$	1,156.3	$	1,104.1	$	52.2	4.7%	$	434.2	$	383.0	$	51.2	13.4	%

The Mobile Industries segment's net sales, excluding the effects of acquisitions and foreign currency exchange rate changes, increased ~~$23.0~~$51.2 million or ~~6.5%~~13.4% in the ~~third~~first quarter of 2018 compared with the first quarter of 2017, ~~compared with the~~ ~~third~~ ~~quarter of 2016,~~ reflecting organic growth in the off-highway, ~~and~~ heavy truck ~~sectors, partially offset by lower demand in the automotive sector.~~and rail sectors. EBIT increased by ~~$9.0~~$18.5 million or ~~34.7%~~56.7% in the ~~third~~first quarter of 2018 compared with the first quarter of 2017, ~~compared with the~~ ~~third~~ ~~quarter of 2016,~~ primarily due to ~~the impact of~~ higher volume of ~~$9 million, favorable manufacturing performance of $7~~$17 million, the benefit of acquisitions of $6$7 million, favorable price/mix and manufacturing performance and lower restructuring ~~charges and the favorable impact of foreign currency exchange rate changes.~~charges. These factors were offset partially ~~offset~~ by ~~higher~~increased SG&A ~~expense~~expenses of $9$7 million and higher material and logistics ~~costs of $6 million and unfavorable price/mix.~~

~~The Mobile Industries segment's net sales, excluding the effects of acquisitions and foreign currency exchange rate changes, increased$52.2 million or4.7% in the first~~ ~~nine~~ ~~months of 2017 compared with the first~~ ~~nine~~ months of 2016, reflecting organic growth in the off-highway and heavy truck sectors, partially offset by decreased demand in the rail and automotive sectors. EBIT increased by $4.8 million or 5.0% in the first ~~nine~~ ~~months of 2017 compared with the first~~ ~~nine~~ months of 2016 primarily due to higher volume of $19 million, the benefit of acquisitions of $9 million, favorable manufacturing performance of $8 million, lower restructuring charges of $6 million and the impact of foreign currency exchange rate changes of $6 million. These factors were partially offset by higher material and logistics costs of $17 million, increased SG&A expense of $14 million and unfavorable price/mix of $12 million.costs.

Full-year sales for the Mobile Industries segment are expected to be up approximately ~~13%~~17% in ~~2017~~2018 compared with ~~2016.~~2017. This reflects ~~improved demand in the~~expected growth across most end-market sectors, led by off-highway, ~~and~~ heavy truck, rail and automotive sectors, as well as the benefit of acquisitions and the favorable impact of foreign currency exchange rate ~~changes, partially offset by lower demand in the rail sector.~~changes. EBIT for the Mobile Industries segment is expected to increase in ~~2017~~2018 compared with ~~2016~~2017 primarily due to the impact of higher volume, ~~and~~improved manufacturing performance, the impact of acquisitions ~~mostly~~and favorable price/mix, partially offset by ~~unfavorable price/mix~~higher SG&A expenses and higher ~~SG&A expense. The results for 2016 include the impacts of pension~~material and ~~other postretirement benefit mark-to-market remeasurement charges, which are not accounted for in the 2017 outlook because the amount will not be known until the fourth quarter.~~logistics costs.

Process Industries Segment:


	Three Months Ended September 30,									Three Months Ended March 31,
	2017			2016			$ Change		Change	2018			2017			$ Change		Change
Net sales	$	348.6		$	304.3		$	44.3	14.6%	$	394.6		$	320.8		$	73.8	23.0	%
EBIT	$	61.7		$	42.0		$	19.7	46.9%	$	81.6		$	44.1		$	37.5	85.0	%
EBIT margin	17.7		%	13.8		%	—		390 bps	20.7		%	13.7		%	—		700	bps

Three Months Ended
September 30,
2017 2016 $ Change % Change
Net sales $ 348.6
$ 304.3
$ 44.3
14.6%
Less: Acquisitions 2.2
—
2.2
NM
Currency 4.4
—
4.4
NM
Net sales, excluding the impact of acquisitions and currency $ 342.0
$ 304.3
$ 37.7
12.4%

Nine Months Ended
September 30,
2017 2016 $ Change Change
Net sales $ 1,011.6
$ 910.9
$ 100.7
11.1%
EBIT $ 164.9
$ 123.7
$ 41.2
33.3%
EBIT margin 16.3 % 13.6 % 270 bps


	Nine Months Ended September 30,							Three Months Ended March 31,
	2017		2016		$ Change		% Change	2018		2017		$ Change		% Change
Net sales	$	1,011.6	$	910.9	$	100.7	11.1%	$	394.6	$	320.8	$	73.8	23.0	%
Less: Acquisitions	32.3		—		32.3		NM	4.0		—		4.0		NM
Currency	0.2		—		0.2		NM	13.3		—		13.3		NM
Net sales, excluding the impact of acquisitions and currency	$	979.1	$	910.9	$	68.2	7.5%	$	377.3	$	320.8	$	56.5	17.6	%

The Process Industries segment's net sales, excluding the effects of acquisitions and foreign currency exchange rate changes, increased ~~$37.7~~$56.5 million or ~~12.4%~~17.6% in the ~~third~~first quarter of ~~2017~~2018 compared with the ~~same period in 2016.~~first quarter of 2017. The increase was primarily driven by ~~organic growth in~~increased demand across the industrial sectors, including distribution, ~~heavy industries~~original equipment and ~~wind market sectors.~~services. EBIT increased ~~$19.7~~$37.5 million or ~~46.9%~~85.0% in the ~~third~~first quarter of 2018 compared with the first quarter of 2017 ~~compared with the~~ ~~third~~ ~~quarter of 2016~~ primarily due to the impact of higher volume of ~~$18~~$21 million, favorable price/mix of $17 million and ~~favorable~~improved manufacturing performance of $7 ~~million,~~million. These factors were partially offset by higher SG&A ~~expense and higher material and logistics costs.~~

~~The Process Industries segment's net sales, excluding the effects~~expenses of ~~acquisitions and foreign currency exchange rate changes, increased $68.2 million or 7.5% in the first~~ ~~nine~~ ~~months of 2017 compared with the first~~ ~~nine~~ ~~months of 2016. The increase was primarily driven by organic growth in industrial distribution and heavy industries market sector. EBIT increased $41.2 million or 33.3% in the first~~ ~~nine~~ ~~months of 2017 compared with the first~~ ~~nine~~ months of 2016 primarily due to the impact of higher volume of $34 million, favorable manufacturing performance of $21 million, lower restructuring charges of $5 million and the benefit of acquisitions, partially offset by unfavorable price/mix of $20$6 million and higher ~~SG&A expense.~~logistics costs.

Full-year sales for the Process Industries segment are expected to be up approximately ~~11%~~17% in ~~2017~~2018 compared with ~~2016.~~2017. This reflects expected growth across most ~~end market~~industrial sectors, ~~led by industrial~~including distribution, original equipment and ~~the benefit of acquisitions and~~services, as well as the favorable impact of foreign currency exchange rate changes. EBIT for the Process Industries segment is expected to increase in ~~2017~~2018 compared with ~~2016~~2017 primarily due to the impact of higher volume, favorable price/mix and manufacturing performance, and the ~~benefit~~favorable impact of ~~acquisitions and lower restructuring charges,~~foreign currency exchange rate changes, partially offset by ~~unfavorable price/mix~~higher SG&A expenses and higher ~~SG&A expense. The results for 2016 include the impacts of pension~~material and ~~other postretirement benefit mark-to-market remeasurement charges, which are not accounted for in the 2017 outlook because the amount will not be known until the fourth quarter.~~logistics costs.

Corporate:

Three Months Ended
September 30,
2017 2016 $ Change Change
Corporate expenses $ 12.0
$ 10.9
$ 1.1
10.1%
Corporate expenses % to net sales 1.6 % 1.7 % —
(10) bps


	Nine Months Ended September 30,									Three Months Ended March 31,
	2017			2016			$ Change		Change	2018			2017			$ Change			Change
Corporate expenses	$	37.8		$	34.8		$	3.0	8.6%	$	14.3		$	15.8		$	(1.5	)	(9.5%)
Corporate expenses % to net sales	1.7		%	1.7		%	—		—	1.6		%	2.2		%	—			(60) bps

The Balance Sheet

The following discussion is a comparison of the Consolidated Balance Sheets at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017.

Current Assets:


	September 30, 2017		December 31, 2016		$ Change			% Change		March 31, 2018		December 31, 2017		$ Change			% Change
Cash and cash equivalents	$	137.2	$	148.8	$	(11.6	)	(7.8	)%	$	116.4	$	121.6	$	(5.2	)	(4.3	)%
Restricted cash	3.3		2.7		0.6			22.2	%	3.9		3.8		0.1			2.6	%
Accounts receivable, net	542.2		438.0		104.2			23.8	%	535.1		524.9		10.2			1.9	%
Contract assets										111.4		—		111.4			NM
Inventories, net	687.5		553.7		133.8			24.2	%	776.8		738.9		37.9			5.1	%
Deferred charges and prepaid expenses	39.9		20.3		19.6			96.6	%	29.2		29.7		(0.5		)	(1.7	)%
Other current assets	64.2		48.4		15.8			32.6	%	73.0		81.2		(8.2		)	(10.1	)%
Total current assets	$	1,474.3	$	1,211.9	$	262.4		21.7	%	$	1,645.8	$	1,500.1	$	145.7		9.7	%

Refer to the "Cash Flows" section for discussion on the change in ~~cash~~Cash and cash equivalents. Accounts receivable ~~net~~ increased primarily due to higher sales in ~~September 2017~~March 2018 compared to December ~~2016, current-year acquisitions~~2017 and the impact of foreign currency exchange rate ~~changes.~~changes, partially offset by the reclassification of revenue recognized in excess of billings to contract assets under the new revenue standard.

~~Inventories, net~~Contract assets increased due to the adoption of the new revenue standard, including the reclassification of revenue recognized in excess of billings of $67.3 million at December 31, 2017 from accounts receivable. Refer to Note 2 - Significant Accounting Policies for additional information. Inventories increased to meet higher demand ~~current-year acquisitions~~ and the impact of foreign currency exchange rate changes. ~~Deferred charges and prepaid expenses at September 30, 2017 included a prepayment of U.S. income taxes for 2017.~~ Other current assets decreased primarily ~~increased~~ due to ~~an increase~~a decrease in ~~short-term investments and current-year acquisitions.~~receivables for income taxes in the U.S.

Property, Plant and Equipment, Net:


	September 30, 2017			December 31, 2016			$ Change			% Change		March 31, 2018			December 31, 2017			$ Change			% Change
Property, plant and equipment	$	2,360.6		$	2,233.0		$	127.6		5.7	%	$	2,432.9		$	2,405.6		$	27.3		1.1	%
Accumulated depreciation	(1,518.4		)	(1,428.6		)	(89.8		)	6.3	%
Less: accumulated depreciation												(1,567.5		)	(1,541.4		)	(26.1		)	1.7	%
Property, plant and equipment, net	$	842.2		$	804.4		$	37.8		4.7	%	$	865.4		$	864.2		$	1.2		0.1	%

The increase in net property, plant and equipment ~~net~~ in the first ~~nine~~three months of ~~2017~~2018 was primarily due to capital expenditures of ~~$56 million, current-year acquisitions of $32~~$17 million and the impact of foreign currency exchange rate changes of ~~$27~~$10 million, partially offset by current-year depreciation of ~~$73~~$25 million.

Other Assets:


	September 30, 2017		December 31, 2016		$ Change			% Change		March 31, 2018		December 31, 2017		$ Change			% Change
Goodwill	$	510.3	$	357.5	$	152.8		42.7	%	$	515.9	$	511.8	$	4.1		0.8	%
Non-current pension assets	31.6		32.1		(0.5		)	(1.6	)%	23.9		19.7		4.2			21.3	%
Other intangible assets	428.9		271.0		157.9			58.3	%	414.6		420.6		(6.0		)	(1.4	)%
Deferred income taxes	47.9		51.4		(3.5		)	(6.8	)%	58.0		61.0		(3.0		)	(4.9	)%
Other non-current assets	28.4		34.9		(6.5		)	(18.6	)%	25.9		25.0		0.9			3.6	%
Total other assets	$	1,047.1	$	746.9	$	300.2		40.2	%	$	1,038.3	$	1,038.1	$	0.2		—	%

The ~~increase in goodwill was primarily due to $148 million of goodwill acquired from current-year acquisitions. The increase~~decrease in other intangible assets was primarily due to ~~$175 million~~current-year amortization of ~~intangible assets acquired from the current-year acquisitions and current-year expenditures for software of $6~~$11 million, partially offset by ~~current-year amortization~~the impact of ~~$29 million.~~

foreign currency exchange rate changes.

Current Liabilities:


	September 30, 2017		December 31, 2016		$ Change			% Change		March 31, 2018		December 31, 2017		$ Change			% Change
Short-term debt	$	41.1	$	19.2	$	21.9		114.1	%	$	167.1	$	105.4	$	61.7		58.5	%
Current portion of long-term debt	5.0		5.0		—			—	%	2.7		2.7		—			—	%
Accounts payable	248.1		176.2		71.9			40.8	%	266.6		265.2		1.4			0.5	%
Salaries, wages and benefits	112.2		85.9		26.3			30.6	%	96.8		127.9		(31.1		)	(24.3	)%
Income taxes payable	7.4		16.9		(9.5		)	(56.2	)%	12.2		9.8		2.4			24.5	%
Other current liabilities	154.9		149.5		5.4			3.6	%	156.9		160.7		(3.8		)	(2.4	)%
Total current liabilities	$	568.7	$	452.7	$	116.0		25.6	%	$	702.3	$	671.7	$	30.6		4.6	%

The increase in short-term debt was primarily due to higher borrowings of ~~$16~~$36 million under the Company's Accounts Receivable Facility and higher borrowings of $26 million under foreign lines of ~~credit.~~credit to fund operating and other cash needs. The ~~increase in accounts payable was primarily due to increased purchasing activity, as well as higher days outstanding driven by the Company's initiative to extend payment terms with its suppliers.~~

~~The increase~~decrease in accrued salaries, wages and benefits was primarily due to ~~higher~~payments for 2017 performance-based compensation exceeding accruals for ~~incentive~~2018 performance-based compensation expense as well as current-year acquisitions. The decrease in income taxes was primarily due to the Company being in a prepaid position with respect to U.S. income taxes at September 30, 2017 as reflected on the balance sheet; at December 31, 2016, the Company had a current income tax payable balance that included $13.7 million payable for U.S. income taxes.by $31 million.

Non-Current Liabilities:


	September 30, 2017		December 31, 2016		$ Change			% Change		March 31, 2018		December 31, 2017		$ Change			% Change
Long-term debt	$	959.8	$	635.0	$	324.8		51.1	%	$	896.5	$	854.2	$	42.3		5.0	%
Accrued pension cost	160.3		154.7		5.6			3.6	%	168.5		167.3		1.2			0.7	%
Accrued postretirement benefits cost	126.7		131.5		(4.8		)	(3.7	)%	122.5		122.6		(0.1		)	(0.1	)%
Deferred income taxes	44.9		3.9		41.0			NM		44.0		44.0		—			—	%
Other non-current liabilities	47.3		74.5		(27.2		)	(36.5	)%	72.9		67.7		5.2			7.7	%
Total non-current liabilities	$	1,339.0	$	999.6	$	339.4		34.0	%	$	1,304.4	$	1,255.8	$	48.6		3.9	%

The increase in long-term debt was primarily due to ~~additional~~increased borrowings of $176.5 million under the 2027 Notes and $117.8 million under the 2020 Term Loan to finance the Groeneveld acquisition, as well as additional borrowings of $20 million classified as long-term under the Accounts Receivable Facility and additional borrowings of $8$34 million under the Company's Senior Credit ~~Facility.~~Facility to fund operating and other cash needs and the impact of foreign currency exchange rate changes.

The increase in deferred income taxes was primarily due to current-year acquisitions of $42 million. The decrease in other non-current liabilities was primarily driven by the reversal of accruals for uncertain tax positions of $34 million due to the expiration of statutes of limitation in various jurisdictions.

Shareholders’ Equity:


	September 30, 2017			December 31, 2016			$ Change			% Change		March 31, 2018			December 31, 2017			$ Change			% Change
Common stock	$	951.3		$	960.0		$	(8.7	)	(0.9	)%
Common shares												$	954.6		$	956.9		$	(2.3	)	(0.2	)%
Earnings invested in the business	1,400.2			1,289.3			110.9			8.6	%	1,475.9			1,408.4			67.5			4.8	%
Accumulated other comprehensive loss	(41.0		)	(77.9		)	36.9			(47.4	)%	(29.2		)	(38.3		)	9.1			(23.8	)%
Treasury shares	(887.5		)	(891.7		)	4.2			(0.5	)%	(890.4		)	(884.3		)	(6.1		)	0.7	%
Noncontrolling interest	32.9			31.2			1.7			5.4	%	31.9			32.2			(0.3		)	(0.9	)%
Total shareholders’ equity	$	1,455.9		$	1,310.9		$	145.0		11.1	%	$	1,542.8		$	1,474.9		$	67.9		4.6	%

Earnings invested in the business in the first ~~nine~~three months of ~~2017~~2018 increased by net income attributable to the Company of ~~$174.2~~$80.2 million and the impact of the adoption of the new revenue standard of $7.7 million, partially offset by dividends declared of ~~$62.4~~$21.1 million.

The decrease in accumulated other comprehensive loss was primarily due to foreign currency adjustments of ~~$40.9~~$9.0 million. ~~The foreign currency translation adjustments were due to the weakening of the U.S. dollar relative to other foreign currencies, including the Romanian Leu, Chinese Yuan, Indian Rupee and Polish Zloty.~~ See "Other Matters - Foreign Currency" for further discussion regarding the impact of foreign currency translation.

The increase in treasury shares was primarily due the Company's purchase of 501,703 of its common shares for $23 million, partially offset by $17 million of net shares issued for stock compensation plans during the first three months of 2018.

Cash Flows


	Nine Months Ended September 30,									Three Months Ended March 31,
	2017			2016			$ Change			2018			2017			$ Change
Net cash provided by operating activities	$	142.9		$	278.7		$	(135.8	)
Net cash (used in) provided by operating activities										$	(44.3	)	$	46.7		$	(91.0	)
Net cash used in investing activities	(407.4		)	(143.3		)	(264.1		)	(14.0		)	(26.9		)	12.9
Net cash provided by (used in) financing activities	236.3			(139.7		)	376.0			52.3			(42.9		)	95.2
Effect of exchange rate changes on cash	16.6			3.7			12.9			0.9			3.9			(3.0		)
Decrease in cash and cash equivalents	$	(11.6	)	$	(0.6	)	$	(11.0	)
Decrease in cash, cash equivalents and restricted cash										$	(5.1	)	$	(19.2	)	$	14.1

Operating Activities:

Operating activities ~~provided~~used net cash of ~~$142.9~~$44.3 million in the first ~~nine~~three months of ~~2017,~~2018, compared with $46.7 million of net cash ~~of $278.7 million~~ provided in the first ~~nine~~three months of ~~2016.~~2017. The decrease was primarily due to ~~the unfavorable impact of income taxes of $79.6 million and a net unfavorable change~~an increase in cash used for working capital items of ~~$71.5~~$141.8 million, partially offset by higher net income of ~~$26.2~~$42 million. Refer to the ~~tables~~table below for additional detail of the impact of each line on net cash provided by (used in) operating activities.

The following table displays the impact of working capital items on cash during the first ~~nine~~three months of ~~2017~~2018 and ~~2016,~~2017, respectively:


	Nine Months Ended September 30,									Three Months Ended March 31,
	2017			2016			$ Change			2018			2017			$ Change
Cash Provided (Used):
Accounts receivable	$	(61.6	)	$	12.2		$	(73.8	)	$	(72.1	)	$	(50.3	)	$	(21.8	)
Contact assets										(11.5		)	—			(11.5		)
Inventories	(85.4		)	(13.6		)	(71.8		)	(53.8		)	(6.5		)	(47.3		)
Trade accounts payable	55.7			15.0			40.7			(2.3		)	48.6			(50.9		)
Other accrued expenses	15.9			(17.5		)	33.4			(38.7		)	(28.4		)	(10.3		)
Cash used by working capital items	$	(75.4	)	$	(3.9	)	$	(71.5	)
Cash used in working capital items										$	(178.4	)	$	(36.6	)	$	(141.8	)

~~The following table displays the impact of income taxes on cash during the first~~ ~~nine~~ ~~months of 2017 and 2016, respectively:~~

Nine Months Ended
September 30,
2017 2016 $ Change
Accrued income tax expense $ 28.5
$ 65.8
$ (37.3 )
Income tax payments (77.2 ) (32.5 ) (44.7 )
Other miscellaneous items (3.4 ) (5.8 ) 2.4
Change in income taxes $ (52.1 ) $ 27.5
$ (79.6 )

Investing Activities:

Net cash used in investing activities of ~~$407.4~~$14.0 million in the first ~~nine~~three months of ~~2017 increased $264.1~~2018 decreased $12.9 million from the same period in ~~2016~~2017 primarily due to ana net increase of ~~$284.4~~$10.5 million for investments in ~~cash used for acquisitions, partially offset by a $21.9 million reduction in capital expenditures.~~short-term marketable securities.

Financing Activities:

Net cash provided by financing activities was ~~$236.3~~$52.3 million in the first ~~nine~~three months of ~~2017~~2018 compared with $42.9 million of net cash ~~of $139.7 million~~ used in financing activities in the first ~~nine~~three months of ~~2016.~~2017. The increase in cash provided by financing activities was primarily due to an increase in net borrowings of ~~$323.1~~$116.1 million, primarily ~~needed~~required to fund ~~the Groeneveld acquisition that closed on July 3, 2017, and less~~working capital requirements, partially offset by an increase in cash used in share repurchases of ~~$42~~$14.6 million and a reduction in proceeds from stock option activity of $8.2 million during the first ~~nine~~three months of ~~2017~~2018 compared with the first ~~nine~~three months of ~~2016.~~2017.

Liquidity and Capital Resources:

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

Net Debt:


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
Short-term debt	$	41.1	$	19.2	$	167.1	$	105.4
Current portion of long-term debt	5.0		5.0		2.7		2.7
Long-term debt	959.8		635.0		896.5		854.2
Total debt	$	1,005.9	$	659.2	$	1,066.3	$	962.3
Less: Cash and cash equivalents	137.2		148.8		116.4		121.6
Restricted cash	3.3		2.7		3.9		3.8
Net debt	$	865.4	$	507.7	$	946.0	$	836.9

Ratio of Net Debt to Capital:


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
Net debt	$	865.4		$	507.7		$	946.0		$	836.9
Shareholders’ equity	1,455.9			1,310.9
Net debt plus shareholders’ equity (capital)	$	2,321.3		$	1,818.6
Total equity							1,542.8			1,474.9
Net debt plus total equity (capital)							$	2,488.8		$	2,311.8
Ratio of net debt to capital	37.3		%	27.9		%	38.0		%	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 ~~September 30, 2017~~March 31, 2018, ~~$137.0~~$111.1 million of the Company's ~~$137.2~~$116.4 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 Senior Credit Facility or Accounts Receivable Facility in order to minimize total interest expense. Repatriation of non-U.S. cash could be subject to ~~domestic and foreign~~ 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 has a $100 million Accounts Receivable Facility, which matures on November 30, 2018. The Accounts Receivable Facility is subject to certain borrowing base limitations and is secured by certain domestic accounts receivable of the Company. Certain borrowing base limitations reduced the availability of the Accounts Receivable Facility to $80.3 million at September 30, 2017. As of September 30, 2017, the Company had $74.8 million in outstanding borrowings, which reduced the availability under the facility to $5.5 million. The interest rate on the Accounts Receivable Facility is variable and was 2.07% as of September 30, 2017, which reflects the prevailing commercial paper rate plus facility fees.

The Company has a $500 million Senior Credit Facility, which matures on June 19, 2020. At September 30, 2017, the Senior Credit Facility had outstanding borrowings of $91.2 million, which reduced the availability to $408.8 million. The Senior Credit Facility has two financial covenants: a consolidated leverage ratio and a consolidated interest coverage ratio. At ~~September 30, 2017~~, the Company was in full compliance with the covenants under the Senior Credit Facility and its other debt agreements. 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 September 30, 2017, the Company's consolidated leverage ratio was 2.23 to 1.0. The minimum consolidated interest coverage ratio permitted under the Senior Credit Facility is 3.5 to 1.0. As of September 30, 2017, the Company's consolidated interest coverage ratio was 13.57 to 1.0.

The interest rate under the Senior Credit Facility is variable and represents a blended U.S. Dollar and Euro rate with a spread based on the Company's debt rating. This rate was 1.59% as of September 30, 2017. 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 of up to approximately $250.0 million in the aggregate. Most of these credit lines are uncommitted. At September 30, 2017, the Company had borrowings outstanding of $35.5 million and bank guarantees of $2.0 million, which reduced the aggregate availability under these facilities to $212.5 million.

~~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 the Senior Credit Facility. Management believes it has sufficient liquidity to meet its obligations through at least the term of the Senior Credit Facility.

The Company has a $100 million Accounts Receivable Facility, which matures on November 30, 2018. The Company currently expects to refinance the facility prior to its maturity. 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 was not reduced by any such borrowing base limitations at March 31, 2018. As of March 31, 2018, the Company had $98.9 million in outstanding borrowings, which reduced the availability under the facility to $1.1 million. The interest rate on the Accounts Receivable Facility is variable and was 2.47% as of March 31, 2018, which reflects the prevailing commercial paper rate plus facility fees.

The Company has a $500 million Senior Credit Facility, which matures on June 19, 2020. At March 31, 2018, the Senior Credit Facility had outstanding borrowings of $86.3 million, which reduced the availability to $413.7 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. As of March 31, 2018, the Company's consolidated leverage ratio was 1.97 to 1.0. The minimum consolidated interest coverage ratio permitted under the Senior Credit Facility is 3.5 to 1.0. As of March 31, 2018, the Company's consolidated interest coverage ratio was 14.53 to 1.0.

The interest rate under the Senior Credit Facility is variable and represents a blended U.S. Dollar and Euro rate with a spread based on the Company's debt rating and outstanding borrowings. This blended rate was 1.65% as of March 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 of up to approximately $310.8 million. Most of these credit lines are uncommitted. At March 31, 2018, the Company had borrowings outstanding of $68.2 million and bank guarantees of $0.1 million, which reduced the aggregate availability under these facilities to $242.5 million.

On September 7, 2017, the Company issued the 2027 Notes in the aggregate principal amount of €150 million. On September 18, 2017, the Company entered into a €100 million 2020 Term Loan. 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. Refer to Note 5 - Financing Arrangements for additional information.

At March 31, 2018, the Company was in full compliance with the covenants under the Senior Credit Facility and its other debt agreements. The Company expects to remain in compliance with its debt covenants. However, the Company may need to limit its borrowings under the Senior Credit Facility or other facilities in order to remain in compliance. As of ~~September 30, 2017~~March 31, 2018, the Company could have borrowed the full amounts available under the Senior Credit Facility and Accounts Receivable Facility and still would have been in compliance with its debt covenants.

The Company issued €150 million of 2027 Notes, which mature on September 7, 2027. On September 18, 2017, the Company entered into a €100 million 2020 Term Loan, which matures on September 18, 2020. Refer to ~~Note 8 - Financing Arrangements~~ ~~for additional information.~~

The Company expects cash from operations of approximately ~~$280~~$370 million in ~~2017, a decrease~~2018, an increase from ~~2016~~2017 of approximately ~~$124~~$133 million or ~~31%, driven by the absence of CDSOA receipts, higher tax payments and unfavorable working capital, partially offset by higher operating income.~~56%. The Company expects capital expenditures to be ~~between 3% and~~approximately 3.5% of net sales in ~~2017, compared with 5% of net sales~~2018, which is consistent actual results in ~~2016.~~2017.

Financing Obligations and Other Commitments:

During the first ~~nine~~three months of ~~2017,~~2018, the Company made cash contributions of ~~$8.8~~$5 million to its global defined benefit pension plans and $1 million to its other postretirement benefit plans. The Company currently expects to make contributions to its global defined benefit pension plans ~~in 2017~~ totaling approximately $10 ~~million. Returns for the Company's U.S. defined benefit plan pension assets for the first~~ ~~nine~~ ~~months of 2017 were approximately 10.1%. Returns for the Company's global defined benefit pension plan assets~~million in ~~2016 were 8.5%, which was above the weighted-average expected rate of return of 5.78% predominantly due to both strong returns in equity and fixed-income markets.~~2018. The Company also expects to ~~record pension expense~~make payments of approximately ~~$15~~$5 million to its other postretirement benefit plans in ~~2017, including~~2018. Excluding mark-to-market charges, the ~~mark-to-market remeasurement losses of approximately $4 million recorded during the first quarter, compared with~~Company expects slightly lower pension ~~expense of $73.4 million in 2016, which included approximately $60 million of mark-to-market remeasurement losses. The amount~~expense. Mark-to-market charges are not accounted for ~~2017 does not include actuarial gains and losses that will be recognized immediately through earnings as a result of the remeasurement of pension plan assets and obligations~~ in the ~~fourth quarter of 2017.~~2018 outlook because the amount will not be known until incurred.

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

Critical Accounting Policies and Estimates:

The Company's financial statements are prepared in accordance with accounting principles generally accepted in the U.S. 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 Company reviews its critical accounting policies throughout the year. The Company has concluded that there have been no significant changes to its critical accounting policies or estimates, as described in its Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017, during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 other than the change in accounting principles described below.

~~Benefit Plans:~~

Effective January 1, ~~2017,~~2018, the Company voluntarily changed its accounting principles for recognizing actuarial gains and losses and expected returns on plan assets for its defined benefit pension and other postretirement benefit plans, with retrospective application to prior periods.adopted the new revenue standard. Prior to ~~2017,~~the adoption of the new revenue standard, the Company ~~amortized, as a component of pension~~generally recognized revenue when title passed to the customer. This occurred at the shipping point except for goods sold by certain foreign entities and ~~other postretirement expense, unrecognized actuarial gains and losses (included within Accumulated other comprehensive income (loss)) over~~certain exported goods, where title passed when the average remaining service period of active plan participants expected to receive benefits under the plan, or average remaining life expectancy of inactive plan participants when all or almost all of individual plan participants were inactive.goods reached their destination. The Company also ~~historically calculated~~recognized a portion of its revenues on the ~~market-related value of plan assets based~~percentage-of-completion method measured on ~~a five-year market adjustment.~~ the cost-to-cost basis.

Under the new ~~principles, actuarial gains and losses will be immediately~~revenue standard, the Company recognizes revenue when performance obligations are satisfied under the terms of a contract with the customer. Approximately 9% of 2018 net sales is recognized ~~through net periodic benefit cost in the Statement of Income, upon the annual remeasurement in the fourth quarter, or~~ on an ~~interim~~over-time basis ~~if specific events trigger~~because of the continuous transfer of control to the customer, with the remainder recognized as of a ~~remeasurement. In addition,~~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. As a result of control transferring over time for these products and services, revenue is recognized based on progress towards 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 ~~changed~~elected to use the cost-to-cost input measure of progress for its ~~accounting policy for measuring~~contracts because it best depicts the ~~market-related value~~transfer of ~~plan assets from a calculated amount (based~~goods or services to the customer based on a five-year smoothing of asset returns) to fair value. The Company believes these changes are preferable as they result in an accelerated recognition of actuarial gains and losses and changes in fair value of plan assets in its Consolidated Statement of Income, which provides greater transparency and better aligns with fair value principles by fully reflecting the impact of interest rate and economic changesincurring costs on the ~~Company's pension and other postretirement benefit liabilities and assets in~~contracts. Under the ~~Company's operating results in~~cost-to-cost measure of progress, the ~~year in which~~extent of progress towards completion is measured based on the ~~gains and losses~~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 amount of consideration that the Company expects to be entitled in exchange for its 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 its estimate of revenue at the earlier of when the amount of consideration the Company expects to receive changes or when the consideration becomes fixed.

Other Matters

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 ~~each month~~ during the ~~quarter.~~reporting period. Related translation adjustments are reflected as a separate component of accumulated other comprehensive ~~income (loss).~~loss. Foreign currency gains and losses resulting from transactions are included in the Consolidated ~~Statement~~Statements of Income.

For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2018, the Company recorded positive foreign currency translation adjustments of ~~$40.9~~$9.0 million that increased shareholders' equity, compared with a positive foreign currency translation adjustments of ~~$3.3~~$17.8 million that increased shareholders' equity for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017. The foreign currency translation adjustments for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 were positively impacted by the weakening of the U.S. dollar relative to other foreign currencies, including the Chinese Yuan, Romanian Leu ~~Chinese Yuan, Indian Rupee~~ and ~~Polish Zloty.~~British Pound.

Foreign currency exchange losses resulting from transactions included in the Company's operating results for the ~~third~~first quarter of ~~2017~~2018 were $1.2 million, compared with losses of ~~$2.8~~$0.4 million during the ~~third~~first quarter of ~~2016. Foreign currency exchange losses resulting from transactions included in the Company's operating results for the first~~ ~~nine~~ ~~months of 2017 were $2.6 million, compared with losses of $5.8 million during the first~~ ~~nine~~ ~~months of 2016.~~2017.

Forward-Looking Statements

Certain statements set forth in this Form 10-Q and in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 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 Form 10-Q. 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:

deterioration in world economic conditions, or in economic conditions in any of the geographic regions in which the Company conducts business, including additional adverse effects from the 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 conduct business and changes in currency valuations;

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 bankruptcies or liquidations, the impact of changes in industrial business cycles and whether conditions of fair trade continue in the U.S. markets;

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 sold or distributed;

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, cost reduction initiatives and different levels of customer demands; the effects of unplanned plant shutdowns; and changes in the cost of labor and benefits;

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

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

unanticipated litigation, claims, or assessments. This includes: claims or problems related to intellectual property, product liability or warranty, environmental issues and taxes;

changes in worldwide financial markets, including availability of financing and interest rates, 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;

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

the actual impact of U.S. Tax Reform on the full-year 2018 global effective tax rate;

retention of CDSOA distributions; and


•	~~those items identified under Item 1A. Risk Factors in the Company's Annual Report on Form 10-K for the year ended~~ ~~December 31, 2016~~. those items identified under Item 1A. Risk Factors in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Refer to information appearing under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q. Furthermore, a discussion of market risk exposures is included in Part II, Item 7A. Quantitative and Qualitative Disclosure about Market Risk, of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017. There have been no material changes in reported market risk since the inclusion of this discussion in the Company’s Annual Report on Form 10-K referenced above.

ITEM 4. CONTROLS AND PROCEDURES


(a)	Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including 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 report.


(b)	Changes in Internal Control Over Financial Reporting

During the Company’s most recent fiscal quarter, there have been no changes 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.

PART II. OTHER INFORMATION

Item 1. 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.

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2017, included a detailed discussion of our risk factors. There have been no material changes to the risk factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Common Shares

The following table provides information about purchases by the Company of its common shares during the quarter ended ~~September 30, 2017~~March 31, 2018.

Period
Total number
of shares
purchased ⁽¹⁾

Average
price paid
per share ⁽²⁾

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⁾

7/1/17 - 7/31/17 66,761
$ 46.96
64,000
9,368,000
8/1/17 - 8/31/17 233,321
44.31
206,000
9,162,000
9/1/17 - 9/30/17 43,397
46.36
42,000
9,120,000
Total 343,479
$ 45.09
312,000
9,120,000



Period	Total number of shares purchased ⁽¹⁾	Average price paid per share ⁽²⁾		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⁾
1/1/18 - 1/31/18	17,380	$	52.53	1,703	9,070,297
2/1/18 - 2/28/18	288,906	45.52		210,000	8,860,297
3/1/18 - 3/31/18	290,587	44.93		290,000	8,570,297
Total	596,873	$	45.44	501,703


(1)	Of the shares purchased in ~~July, August~~January, February and ~~September, 2,761, 27,321~~March, 15,677, 78,906 and ~~1,397,~~587, 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 stock price at the time the options are exercised.

(3)

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

Item 6. Exhibits



10.1	Form of Nonqualifed Stock Option Agreement, as adopted February 8, 2018.

10.2	Form of Time-Based Restricted Stock Unit Agreement, as adopted February 8, 2018.

10.3	Form of Performance-Based Restricted Stock Unit Agreement, as adopted February 8, 2018.

10.4	Form of Deferred Shares Agreement (three year cliff vesting), as adopted February 8, 2018.

10.5	Form of Deferred Shares Agreement (five year cliff vesting), as adopted February 8, 2018.

10.6	Form of Time-Based Restricted Stock Unit Agreement for Nonemployee Directors (annual grant), as adopted February 8, 2018.

10.7	Form of Time-Based Restricted Stock Unit Agreement for Nonemployee Directors (new member grant), as adopted February 8, 2018.

12	Computation of Ratio of Earnings to Fixed Charges.

31.1	Certification of Richard G. Kyle, President and Chief Executive Officer (principal executive officer) of The Timken Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Philip D. Fracassa, Executive Vice President and Chief Financial Officer (principal financial officer) of The Timken Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32	Certifications of Richard G. Kyle, President and Chief Executive Officer (principal executive officer) and Philip D. Fracassa, Executive Vice President and Chief Financial Officer (principal financial officer) of The Timken Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101	Financial statements from the quarterly report on Form 10-Q of The Timken Company for the quarter ended ~~September 30, 2017,~~March 31, 2018, filed on ~~October 25, 2017,~~May 1, 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 and (v) the Notes to the Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		THE TIMKEN COMPANY
Date: ~~October 25, 2017~~May 1, 2018		By: /s/ Richard G. Kyle
		Richard G. Kyle President and Chief Executive Officer (Principal Executive Officer)

Date: ~~October 25, 2017~~May 1, 2018		By: /s/ Philip D. Fracassa
		Philip D. Fracassa Executive Vice President and Chief Financial Officer (Principal Financial Officer)

5141



	Three Months Ended
	September 30, 2017							September 30, 2016
	Previous Accounting Method		As Reported		Effect of Accounting Change			As Previously Reported		Revised		Effect of Accounting Change
Cost of products sold	$	556.7	$	554.4	$	(2.3	)	$	489.9	$	487.7	$	(2.2	)
Gross profit	214.7		217.0		2.3			167.5		169.7		2.2
Selling, general and administrative expense	136.8		134.0		(2.8		)	109.5		107.2		(2.3		)
Pension settlement expenses	3.9		—		(3.9		)	10.3		0.1		(10.2		)
Operating income	72.7		81.7		9.0			42.4		57.1		14.7
Income before income taxes	66.2		75.2		9.0			34.5		49.2		14.7
Provision for income taxes	18.0		21.1		3.1			13.5		15.2		1.7
Net income	48.2		54.1		5.9			21.0		34.0		13.0
Net income attributable to The Timken Company	$	47.6	$	53.5	$	5.9		$	20.6	$	33.6	$	13.0
Basic earnings per share	$	0.61	$	0.69	$	0.08		$	0.26	$	0.43	$	0.17
Diluted earnings per share	$	0.60	$	0.68	$	0.08		$	0.26	$	0.43	$	0.17



	Nine Months Ended
	September 30, 2017							September 30, 2016
	Previous Accounting Method		As Reported		Effect of Accounting Change			As Previously Reported		Revised		Effect of Accounting Change
Cost of products sold	$	1,630.9	$	1,626.5	$	(4.4	)	$	1,484.3	$	1,477.7	$	(6.6	)
Gross profit	594.9		599.3		4.4			530.7		537.3		6.6
Selling, general and administrative expense	383.8		377.4		(6.4		)	338.0		331.3		(6.7		)
Pension settlement expenses	15.7		—		(15.7		)	11.9		1.3		(10.6		)
Operating income	191.6		218.1		26.5			162.1		186.0		23.9
Income before income taxes	176.2		202.7		26.5			189.9		213.8		23.9
Provision for income taxes	19.3		28.5		9.2			61.1		65.8		4.7
Net income	156.9		174.2		17.3			128.8		148.0		19.2
Net income attributable to The Timken Company	$	156.9	$	174.2	$	17.3		$	128.5	$	147.7	$	19.2
Basic earnings per share	$	2.02	$	2.24	$	0.22		$	1.63	$	1.87	$	0.24
Diluted earnings per share	$	1.99	$	2.21	$	0.22		$	1.62	$	1.86	$	0.24



	Initial Purchase Price Allocation
Assets:
Accounts receivable, net	$	27.6
Inventories, net	29.1
Other current assets	4.7
Property, plant and equipment, net	31.6
Goodwill	147.6
Other intangible assets	175.3
Other non-current assets	1.9
Total assets acquired	$	417.8
Liabilities:
Accounts payable, trade	$	9.5
Salaries, wages and benefits	5.8
Other current liabilities	8.2
Short-term debt	1.0
Long-term debt	2.0
Deferred income taxes	42.4
Other non-current liabilities	2.3
Total liabilities assumed	$	71.2
Net assets acquired	$	346.6



	Initial Purchase Price Allocation
			Weighted - Average Life
Trade names (indefinite life)	$	33.4	Indefinite
Trade names (finite life)	2.2		13 years
Technology and know-how	29.9		16 years
Customer relationships	108.2		17 years
Other	0.2		5 years
Capitalized software	1.4		3 years
Total intangible assets	$	175.3



	Initial Purchase Price Allocation		Adjustment			Final Purchase Price Allocation
Assets:
Accounts receivable, net	$	8.4				$	8.4
Inventories, net	17.8					17.8
Other current assets	5.3		(0.2		)	5.1
Property, plant and equipment, net	16.5					16.5
Goodwill	29.9		(1.1		)	28.8
Other intangible assets	27.9					27.9
Other non-current assets	0.1					0.1
Total assets acquired	$	105.9	$	(1.3	)	$	104.6
Liabilities:
Accounts payable, trade	$	8.1				$	8.1
Salaries, wages and benefits	1.3					1.3
Other current liabilities	4.4		(0.6		)	3.8
Long-term debt	2.2					2.2
Deferred taxes	10.4					10.4
Other non-current liabilities	7.6		(1.3		)	6.3
Total liabilities assumed	$	34.0	$	(1.9	)	$	32.1
Net assets acquired	$	71.9	$	0.6		$	72.5



	September 30, 2017			December 31, 2016
Land and buildings	$	478.2		$	425.4
Machinery and equipment	1,882.4			1,807.6
Subtotal	$	2,360.6		$	2,233.0
Accumulated depreciation	(1,518.4		)	(1,428.6		)
Property, plant and equipment, net	$	842.2		$	804.4



	Mobile Industries		Process Industries		Corporate		Total
Severance and related benefit costs	$	1.3	$	—	$	—	$	1.3
Total	$	1.3	$	—	$	—	$	1.3



	September 30, 2017
Beginning balance, January 1	$	39.1
Tax positions related to the prior years:
Additions	5.6
Reductions	(1.3		)
Lapses in statutes of limitation	(28.6		)
Ending Balance	$	14.8



	Carrying Value		Fair Value Adjustment			Fair Value
Long-lived assets held for sale:
Land	$	0.2	$	(0.2	)	$	—
Total long-lived assets held for sale	$	0.2	$	(0.2	)	$	—

Long-lived assets held and used:
Altavista bearing plant	$	5.6	$	(3.1	)	$	2.5
Equipment at Benoni bearing plant	0.5		(0.5		)	—
Total long-lived assets held and used	$	6.1	$	(3.6	)	$	2.5

Amount of loss recognized in Other Comprehensive Loss

Three Months Ended
March 31,

Derivatives in cash flow hedging relationships:

Foreign currency forward contracts