SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

~~(State or other jurisdiction of~~

~~incorporation or organization)~~

~~(I.R.S. Employer~~

~~Identification No.)~~

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Shares, without par value

TKR

The New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer

☒

Accelerated filer

☐

~~Large accelerated filer~~

☒

~~Accelerated filer~~

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

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

INDEX TO FORM 10-Q REPORT

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE TIMKEN COMPANY AND SUBSIDIARIES

Consolidated Statements of Income

Net Income per Common Share Attributable to The Timken Company

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Balance Sheets

(Unaudited)
September 30,
2019 December 31,
2018
(Dollars in millions)
ASSETS
Current Assets
Cash and cash equivalents $ 181.4
$ 132.5
Restricted cash 0.5
0.6
Accounts receivable, less allowances (2019 – $17.8 million; 2018 – $21.9 million) 548.3
546.6
Unbilled receivables 151.6
116.6
Inventories, net 805.3
835.7
Deferred charges and prepaid expenses 30.1
28.2
Other current assets 90.2
77.0
Total Current Assets 1,807.4
1,737.2
Property, Plant and Equipment, net 906.8
912.1
Operating Lease Assets 115.0
—
Other Assets
Goodwill 954.7
960.5
Other intangible assets 702.8
733.2
Non-current pension assets 11.8
6.2
Non-current other postretirement benefit assets 23.5
—
Deferred income taxes 27.3
59.0
Other non-current assets 16.0
37.0
Total Other Assets 1,736.1
1,795.9
Total Assets $ 4,565.3
$ 4,445.2
LIABILITIES AND EQUITY
Current Liabilities
Short-term debt $ 34.8
$ 33.6
Current portion of long-term debt 61.8
9.4
Short-term operating lease liabilities 28.0
—
Accounts payable, trade 265.2
273.2
Salaries, wages and benefits 116.9
174.9
Income taxes payable 23.2
23.5
Other current liabilities 174.7
171.0
Total Current Liabilities 704.6
685.6
Non-Current Liabilities
Long-term debt 1,553.5
1,638.6
Accrued pension benefits 167.8
161.3
Accrued postretirement benefits 36.9
108.7
Long-term operating lease liabilities 72.3
—
Deferred income taxes 131.7
138.0
Other non-current liabilities 81.0
70.3
Total Non-Current Liabilities 2,043.2
2,116.9
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) (2019 – 98,375,135 shares;
2018 – 98,375,135 shares)
Stated capital 53.1
53.1
Other paid-in capital 945.5
951.9
Earnings invested in the business 1,815.0
1,630.2
Accumulated other comprehensive loss (80.1 ) (95.3 )
Treasury shares at cost (2019 – 23,050,946 shares; 2018 – 22,421,213 shares) (988.7 ) (960.3 )
Total Shareholders’ Equity 1,744.8
1,579.6
Noncontrolling Interest 72.7
63.1
Total Equity 1,817.5
1,642.7
Total Liabilities and Equity $ 4,565.3
$ 4,445.2

~~See accompanying Notes to the Consolidated Financial Statements.~~

~~Consolidated Statements of Cash Flows~~

Issued (including shares in treasury) (2020 – 98,375,135 shares;

2019 – 98,375,135 shares)

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Statements of Cash Flows

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" or "Timken") 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, ~~2018~~2019.

Note 2 - Significant Accounting Policies

The Company's significant accounting policies are detailed in ~~"Note~~"Note 1 - Significant Accounting Policies" of the Annual Report on Form 10-K for the year ended December 31, ~~2018.~~ 2019.

Recent Accounting Pronouncements:

New Accounting Guidance Adopted:

In ~~February~~June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, "Leases (Topic 842)", which was adopted by the Company on January 1, 2019. In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities", which was adopted by the Company on January 1, 2019. Updates to the Company's accounting policies as a result of adopting ASU 2016-02 and ASU 2017-12 are discussed below.

~~Recent Accounting Pronouncements:~~

~~New Accounting Guidance Adopted:~~

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. The Company adopted the new leasing standard on January 1, 2019 using the cumulative-effect adjustment transition method. The Company also elected several practical expedients to not asses the following as part of adoption: (1) whether any expired or existing contracts contain leases; (2) the lease classification between finance and operating leases for any expired or existing leases; and (3) the recognition of initial direct costs for existing leases. The Company also elected to not recognize leases with a term of 12 months or less on the Consolidated Balance Sheets. The adoption of the lease standard had no impact to the Company's consolidated results of operations or the captions on the consolidated statements of cash flows. The cumulative effect of the changes made to the balance sheet as of January 1, 2019 for the adoption of the new lease standard was as follows:

Balance at December 31, 2018 Effect of Accounting Change
Balance at
January 1, 2019
Operating lease assets $ —
$ 114.1
$ 114.1
Other intangible assets 733.2
0.7
733.9
Other non-current assets ⁽¹⁾
37.0
(15.3 ) 21.7
Total Assets 4,445.2
99.5
4,544.7

Short-term operating lease liability —
29.8
29.8
Long-term operating lease liability —
69.7
69.7
Total Liabilities $ 2,802.5
$ 99.5
$ 2,902.0

⁽¹⁾Due to the adoption of the new leasing standard, the Company recognized operating lease assets and corresponding operating lease liabilities on the Consolidated Balance Sheet. In conjunction with the adoption of the new leasing standard, the Company reclassified $15.3 million of lease assets related to purchase accounting adjustments from the ABC Bearings Limited ("ABC Bearings") acquisition from Other assets to Operating lease assets. These assets do not have material corresponding lease liabilities.

The Company determines if any arrangement is a lease at the inception of a contract. For leases where the Company is the lessee, it recognizes lease assets and related lease liabilities at the lease commencement date based on the present value of lease payments over the lease term. Most of the Company’s leases do not provide an implicit interest rate. As a result, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The lease assets also consist of amounts for favorable or unfavorable lease terms related to acquisitions. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized as depreciation expense and interest expense using the accelerated interest method of recognition. A lease asset and lease liability are not recorded for leases with an initial term of less than 12 months or less and the lease expenses related to these leases is recognized as incurred over the lease term.

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities", which impacts both designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. ASU 2017-12 amends and clarifies the requirements to qualify for hedge accounting, removes the requirement to recognize changes in fair value from certain hedges in current earnings, and specifies the presentation of changes in fair value in the income statement for all hedging instruments. ASU 2017-12 is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted ASU 2017-12 effective January 1, 2019, and the impact of adoption was not material to the Company's results of operations and financial condition.

~~New Accounting Guidance Issued and Not Yet Adopted:~~

~~In June 2016, the FASB issued ASU~~ 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Instruments.~~Instruments," which was subsequently updated with ASU ~~2016-13 changes~~2019-04 in April 2019. These ASUs change 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~~applies 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~~requires 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 continuing to advance its analysis and evaluating the effect that the adoption of~~adopted ASU 2016-13 ~~will have on~~effective January 1, 2020, and the impact of adoption was not material to the Company's results of operations and financial condition.

Refer to Note 12 - Equity for the cumulative effect of initially applying ASU 2016-13.

New Accounting Guidance Issued and Not Yet Adopted:

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This guidance is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022. The Company is currently assessing which of its various contracts will require an update for a new reference rate, and will determine the timing for implementation of this guidance after completing that analysis.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (ASC 740) – Simplifying the Accounting for Income Taxes,” which is intended to reduce complexity in the accounting for income taxes while maintaining or improving the usefulness of information provided to financial statement users. The guidance amends certain existing provisions under ASC 740 to address a number of distinct items. This standard is effective for public companies in fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective or prospective basis. The Company is currently assessing the impact of this standard on its results of operations and financial conditions.

Note 3 - Acquisitions

During 2019, the Company completed two acquisitions. On ~~April~~November 1, 2019,, the Company completed the acquisition of ~~The~~BEKA Lubrication ("BEKA"), a leading global supplier of automatic lubrication systems. BEKA serves a diverse range of industrial sectors, including wind, food and beverage, rail, on- and off-highway and other process industries. Headquartered in Pegnitz, Germany, BEKA has manufacturing and research and development facilities in Germany, and assembly facilities and sales offices around the world. On April 1, 2019, the Company completed the acquisition of Diamond Chain Company ("Diamond Chain"), a leading supplier of high-performance roller chains for industrial markets. Diamond Chain serves a diverse range of market sectors, including industrial distribution, material handling, food and beverage, agriculture, construction and other process industries. Diamond Chain ~~located in Indianapolis, Indiana,~~ operates primarily in the United States and ~~China and had sales of approximately $60 million for~~China. These acquisitions are collectively referred to hereafter as the twelve months ended March 31, 2019. The purchase price for this acquisition was $84.6 million, excluding $1.9 million for cash acquired. During the nine months ended September 30, 2019, the Company incurred acquisition-related costs of $1.4 million to complete this acquisition. Based on markets and customers served, the results for Diamond Chain are reported in the Process Industries segment. The following table presents the preliminary purchase price allocation at fair value, net of cash acquired, for the Diamond Chain acquisition:"2019 Acquisitions."

Purchase
Price Allocation
Assets:
Accounts receivable, net $ 6.7
Inventories, net 23.6
Other current assets 2.4
Property, plant and equipment, net 17.2
Operating lease assets 2.8
Goodwill 18.6
Other intangible assets 28.1
Other non-current assets 0.5
Total assets acquired $ 99.9
Liabilities:
Accounts payable, trade $ 5.7
Other current liabilities 4.8
Long-term operating lease liabilities 2.1
Other non-current liabilities 0.9
Total liabilities assumed $ 13.5
Noncontrolling interest acquired 1.8
Net assets and noncontrolling interest acquired $ 84.6

~~The following table summarizes the preliminary purchase price allocation for intangible assets acquired in 2019:~~

Purchase
Price Allocation
Weighted -
Average Life
Trade names (indefinite life) $ 12.3
Indefinite
Technology and know-how 5.2
14 years
Customer relationships 10.6
17 years
Total intangible assets $ 28.1

The above preliminary purchase price allocation for Diamond Chain, including the residual amount allocated to goodwill, is based on preliminary information and is subject to change as additional information concerning final asset and liability valuations is obtained. This purchase price allocation is preliminary as a result of the continued evaluation of working capital accounts and contingent liabilities, as well as the finalization of the Company's review pertaining to a limited set of valuation calculations and inputs. The primary areas of the Diamond Chain preliminary purchase price allocation that have not been finalized relate to the fair value of net property, plant, and equipment and other intangible assets, and the related impacts on deferred income taxes and goodwill. During the applicable measurement period, the Company will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments had been completed on the acquisition date.

~~Note 3 - Acquisitions (continued)~~

~~During 2018, the Company completed three acquisitions. On~~ ~~September 18, 2018~~, the Company completed the acquisition of Rollon S.p.A. ("Rollon"), a leader in engineered linear motion products, specializing in the design and manufacture of linear guides, telescopic rails and linear actuators used in a wide range of industries such as passenger rail, aerospace, packaging and logistics, medical and automation. On ~~September 1, 2018~~, the Company completed the acquisition of Apiary Investments Holdings Limited ("Cone Drive"), a leader in precision drives used in diverse markets including solar, automation, aerial platforms, and food and beverage. On ~~August 30, 2018~~, the Company's majority-owned subsidiary, Timken India Limited ("Timken India"), completed the acquisition of ABC Bearings. Timken India issued its shares as consideration for the acquisition of ABC Bearings. ABC Bearings is a manufacturer of tapered, cylindrical and spherical roller bearings and slewing rings in India. Hereafter, the ABC Bearings, Cone Drive, and Rollon acquisitions will be referred to collectively as the "2018 Acquisitions".

In January 2019, the Company paid a working capital adjustment of $2.9 million in connection with the Cone Drive acquisition, which was accrued and reflected in the purchase price in 2018. In May 2019, the Company received a $4.8 million payment from escrow related to an indemnification settlement for the Cone Drive acquisition, which is reflected as a purchase price adjustment. This adjustment, as well as other measurement period adjustments recorded in 2019, resulted in a $1.8 million increase to goodwill. The following table presents the purchase price allocation at fair value, net of cash acquired, for the ~~2018 Acquisitions:~~2019 Acquisitions as of September 30, 2020:


	Initial Purchase Price Allocation		Adjustments		Purchase Price Allocation
Assets:

Accounts receivable, net	$	26.3	$	(0.1)	$	26.2
Inventories, net	62.9		(0.4)		62.5
Other current assets	4.9		0.2		5.1
Property, plant and equipment, net	57.4		(0.1)		57.3
Operating lease assets	4.7		(0.1)		4.6
Goodwill	44.2		6.6		50.8
Other intangible assets	84.4		0		84.4
Other non-current assets	0.7		0		0.7
Total assets acquired	$	285.5	$	6.1	$	291.6
Liabilities:
Accounts payable, trade	$	10.8	$	(0.2)	$	10.6
Salaries, wages and benefits	6.8		0		6.8
Income taxes payable	2.1		0		2.1
Other current liabilities	6.7		0.4		7.1
Short-term debt	0.8		0		0.8
Long-term debt	17.2		0		17.2
Accrued pension benefits	0.5		0		0.5
Accrued postretirement benefits	0.1		0		0.1
Long-term operating lease liabilities	4.1		(0.1)		4.0
Deferred income taxes	5.1		(0.7)		4.4
Other non-current liabilities	1.1		0		1.1
Total liabilities assumed	$	55.3	$	(0.6)	$	54.7
Noncontrolling interest acquired	1.8		0		1.8
Net assets acquired	$	228.4	$	6.7	$	235.1

Initial Purchase
Price Allocation Adjustments
Purchase
Price Allocation
Assets:
Accounts receivable, net $ 42.5

$ 42.5
Inventories, net 61.6
(0.1 ) 61.5
Other current assets 8.5
1.0
9.5
Property, plant and equipment, net 71.7
(6.3 ) 65.4
Goodwill 468.2
1.8
470.0
Other intangible assets 372.6
2.8
375.4
Other non-current assets 20.2
(4.1 ) 16.1
Total assets acquired $ 1,045.3
$ (4.9 ) $ 1,040.4
Liabilities:
Accounts payable, trade $ 35.2

$ 35.2
Salaries, wages and benefits 9.1

9.1
Income taxes payable 2.5
0.4
2.9
Other current liabilities 8.2
0.2
8.4
Short-term debt 2.5
(0.6 ) 1.9
Long-term debt 3.0
(2.9 ) 0.1
Accrued pension benefits 5.7

5.7
Accrued postretirement benefits 11.7

11.7
Deferred income taxes 116.2
(0.6 ) 115.6
Other non-current liabilities 16.9
3.4
20.3
Total liabilities assumed $ 211.0
$ (0.1 ) $ 210.9
Net assets acquired $ 834.3
$ (4.8 ) $ 829.5

In March 2020, the Company accrued $6.6 million for a working capital adjustment to the purchase price for BEKA in accordance with the purchase agreement, which was paid during the second quarter of 2020 in the amount of $6.7 million. This adjustment, as well as other measurement period adjustments recorded in 2020, resulted in a $6.6 million increase to goodwill.

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

Table of Contents

Note 3 - Acquisitions (continued)

On ~~September 16, 2019~~,The above purchase price allocation, including the ~~Company announced it had reached an agreement~~residual amount allocated to acquire BEKA Lubrication ("BEKA"), a leading global supplier of automatic lubrication systems, for approximately $165 million. With expected 2019 annual sales of approximately $135 million, BEKA serves a diverse range of industrial sectors, including wind, foodgoodwill, is based on preliminary information and beverage, rail, on- and off-highway and other process industries. Headquartered in Pegnitz, Germany, BEKA has manufacturing and research and development based in Germany, and assembly facilities and sales offices around the world. This transaction is subject to ~~customary closing conditions~~change as additional information concerning final asset and liability valuations is ~~expected~~obtained. The purchase price allocation for BEKA is preliminary as a result of the continued evaluation of working capital accounts and contingent liabilities, as well as the finalization of the Company's review pertaining to ~~close during~~a limited set of valuation calculations and inputs. The primary areas of the ~~fourth quarter~~BEKA purchase price allocation that have not been finalized relate to the fair value of ~~this year.~~inventory, net property, plant, and equipment and other intangible assets, and the related impacts on deferred income taxes and goodwill. During the measurement period, the Company will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments had been completed on the acquisition date.

Note 4 - ~~Inventories~~Revenue

The ~~components of inventories at September 30, 2019 and December 31, 2018 were as follows:~~

September 30,
2019 December 31,
2018
Manufacturing supplies $ 31.9
$ 32.4
Raw materials 102.4
102.4
Work in process 289.0
287.7
Finished products 426.5
452.7
Subtotal 849.8
875.2
Allowance for obsolete and surplus inventory (44.5 ) (39.5 )
Total Inventories, net $ 805.3
$ 835.7

~~Inventories are valued at net realizable value, with approximately 56% valued on~~following table presents details deemed most relevant to the ~~first-in, first-out ("FIFO") method and the remaining 44% valued on the last-in, first-out ("LIFO") method. The majority~~users of the ~~Company's domestic inventories are valued on~~financial statements about total revenue for the ~~LIFO method~~three and ~~all of the Company's international inventories are valued on the FIFO method.~~

~~The LIFO reserve at~~ ~~September 30, 2019~~ ~~and~~ ~~December 31, 2018~~ was $173.3 million and $173.9 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.

~~Note 5 - Goodwill and Other Intangible Assets~~

~~The changes in the carrying amount of goodwill for the~~ nine months ended September 30, 2020 and 2019, respectively:


	Three Months Ended						Three Months Ended
	September 30, 2020						September 30, 2019
	Mobile		Process		Total		Mobile		Process		Total
United States	$	220.7	$	163.2	$	383.9	$	245.8	$	196.0	$	441.8
Americas excluding United States	45.1		36.0		81.1		54.7		41.1		95.8
Europe / Middle East / Africa	92.7		114.3		207.0		85.3		120.2		205.5
Asia-Pacific	70.1		152.5		222.6		69.3		101.6		170.9
Net sales	$	428.6	$	466.0	$	894.6	$	455.1	$	458.9	$	914.0


	Nine Months Ended						Nine Months Ended
	September 30, 2020						September 30, 2019
	Mobile		Process		Total		Mobile		Process		Total
United States	$	645.5	$	529.5	$	1,175.0	$	778.1	$	632.6	$	1,410.7
Americas excluding United States	120.7		100.3		221.0		160.4		125.5		285.9
Europe / Middle East / Africa	280.2		342.8		623.0		288.2		374.3		662.5
Asia-Pacific	191.5		411.0		602.5		222.1		312.5		534.6
Net sales	$	1,237.9	$	1,383.6	$	2,621.5	$	1,448.8	$	1,444.9	$	2,893.7

~~were as follows:~~

Mobile
Industries
Process
Industries
Total
Beginning balance $ 349.7
$ 610.8
$ 960.5
Acquisitions 0.7
19.7
20.4
Foreign currency translation adjustments and other changes (10.9 ) (15.3 ) (26.2 )
Ending balance $ 339.5
$ 615.2
$ 954.7

~~The $20.4 million addition of goodwill~~When reviewing revenue by sales channel, the Company separates net sales to original equipment manufacturers from acquisitions includes $18.6 million of goodwill recognized in the Process Industries segment for the Diamond Chain acquisition, as well as certain measurement period adjustments recorded in 2019 relatedsales to ~~the 2018 Acquisitions.~~

distributors and end users. The following table ~~displays intangible assets as~~presents the percent of ~~September 30, 2019 and December 31, 2018:~~

Balance at September 30, 2019 Balance at December 31, 2018

Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Intangible assets
subject to amortization:

Customer relationships $ 481.7
$ 120.6
$ 361.1
$ 481.5
$ 99.8
$ 381.7
Technology and know-how 244.9
50.7
194.2
245.0
40.4
204.6
Trade names 11.9
5.6
6.3
11.3
4.8
6.5
Capitalized software 268.6
243.6
25.0
266.4
236.5
29.9
Other 41.1
37.2
3.9
40.8
35.2
5.6
$ 1,048.2
$ 457.7
$ 590.5
$ 1,045.0
$ 416.7
$ 628.3
Intangible assets not subject to amortization:
Trade names $ 103.6
$ 103.6
$ 96.2
$ 96.2
FAA air agency certificates 8.7
8.7
8.7
8.7
$ 112.3

$ 112.3
$ 104.9

$ 104.9
Total intangible assets $ 1,160.5
$ 457.7
$ 702.8
$ 1,149.9
$ 416.7
$ 733.2

~~Amortization expense for intangible assets was $43.3 million and $32.4 million~~revenue by sales channel for the nine months ended September 30, 2020 and 2019, and 2018, respectively. Amortization expense for intangible assets is projected to be $55.8 million in 2019; $52.2 million in 2020; $48.3 million in 2021; $43.7 million in 2022; and $40.8 million in 2023.respectively:


	Nine Months Ended	Nine Months Ended
Revenue by sales channel	September 30, 2020	September 30, 2019
Original equipment manufacturers	60%	56%
Distribution/end users	40%	44%

In addition to disaggregating revenue by segment and geography and by sales channel as shown above, the Company believes information about the timing of transfer of goods or services, type of customer and distinguishing service revenue from product sales is also relevant. During the nine months ended September 30, 2020 and September 30, 2019, approximately 12% and 11%, respectively, of total net sales were recognized on an over-time basis because of the continuous transfer of control to the customer, with the remainder recognized as of a point in time. Approximately 5% of total net sales represented service revenue during the nine months ended September 30, 2020 and September 30, 2019, respectively. Finally, the United States ("U.S.") government or its contractors represented approximately 9% and 8% of total net sales during the nine months ended September 30, 2020 and September 30, 2019, respectively.

Table of Contents

Note 4 - Revenue (continued)

Remaining Performance Obligations:

Remaining performance obligations represent the transaction price of orders meeting the definition of a contract 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 $246 million at September 30, 2020.

Unbilled Receivables:

The following table contains a rollforward of unbilled receivables for the nine months ended September 30, 2020:


	September 30, 2020
Beginning balance, January 1	$	129.2
Additional unbilled revenue recognized	310.0
Less: amounts billed to customers	(298.1)

Ending balance	$	141.1

There were no impairment losses recorded on unbilled receivables for the nine months ended September 30, 2020.

Note 5 - Segment Information

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net sales:
Mobile Industries	$	428.6	$	455.1	$	1,237.9	$	1,448.8
Process Industries	466.0		458.9		1,383.6		1,444.9
Net sales	$	894.6	$	914.0	$	2,621.5	$	2,893.7
Segment EBITDA:
Mobile Industries	$	64.0	$	70.1	$	177.9	$	227.4
Process Industries	109.2		116.5		343.0		369.8
Total EBITDA, for reportable segments	$	173.2	$	186.6	$	520.9	$	597.2
Corporate EBITDA	(10.6)		(11.2)		(28.2)		(40.6)


Corporate pension and other postretirement benefit related income (expense) (1)	11.9		(16.9)		3.1		(16.9)
Depreciation and amortization	(41.2)		(39.2)		(125.2)		(120.4)
Interest expense	(16.3)		(18.2)		(52.3)		(55.5)
Interest income	0.9		1.1		3.0		3.5
Income before income taxes	$	117.9	$	102.2	$	321.3	$	367.3

(1) Corporate pension and other postretirement benefit related income (expense) represents actuarial gains and (losses) that resulted from the remeasurement of pension and other postretirement plan assets and obligations as a result of changes in assumptions.

Table of Contents

Note 6 - ~~Leasing~~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,
	2020			2019			2020			2019
Provision for income taxes	$	26.6		$	35.5		$	84.2		$	110.4
Effective tax rate	22.6		%	34.7		%	26.2		%	30.1		%

~~The Company enters into operating and finance leases for manufacturing facilities, warehouses, sales offices, information technology equipment, plant equipment, vehicles and certain other equipment.~~

~~Lease~~Income tax expense for the three and nine months ended September 30, ~~2019~~2020 was ~~as follows:~~calculated using 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 21% primarily due to the projected mix of earnings in international jurisdictions with relatively higher tax rates and unfavorable U.S. permanent differences.

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2019
Operating lease expense $ 9.0
$ 27.7
Amortization of right-of-use assets on finance leases 0.3
0.9
Total lease expense $ 9.3
$ 28.6

The ~~following tables present~~effective tax rate of 22.6% for the ~~impact of leasing on~~three months ended September 30, 2020 was lower than the ~~Consolidated Balance Sheet.~~

Operating Leases September 30, 2019
Lease assets:
   Operating lease assets $ 115.0
Lease liabilities:
   Short-term operating lease liabilities $ 28.0
   Long-term operating lease liabilities 72.3
      Total operating lease liabilities $ 100.3

Finance Leases September 30, 2019
Lease assets:
   Property, plant and equipment, net $ 3.6
Lease liabilities:
   Current portion of long-term debt $ 0.3
   Long-term debt 2.5
      Total finance lease liabilities $ 2.8

~~Future minimum lease payments under non-cancellable leases at~~rate for the three months ended September 30, 2019 ~~were as follows:~~primarily due to the projected decrease in the mix of earnings in international jurisdictions with relatively higher tax rates. Income tax expense also decreased due to discrete tax benefit in the current year compared to discrete tax expense in the prior year.

Operating Leases Finance Leases
Year Ending December 31,
2019 $ 8.5
$ 0.3
2020 29.3
0.9
2021 20.5
0.9
2022 15.0
0.7
2023 11.2
0.2
Thereafter 26.6
—
Total future minimum lease payments 111.1
3.0
Less: imputed interest (10.8 ) (0.2 )
Total $ 100.3
$ 2.8

The ~~following tables present other information~~effective tax rate of 26.2% for the nine months ended September 30, 2020 was lower than the rate for the nine months ended September 30, 2019. Income tax expense was lower due to the projected decrease in the mix of earnings in international jurisdictions with relatively higher tax rates. In addition, income tax expense decreased due to additional accruals recorded discretely for uncertain tax positions in the prior year related to ~~leases:~~the U.S. Tax Cuts and Jobs Act of 2017 ("U.S. Tax Reform").

Three Months Ended Nine Months Ended
September 30, 2019 September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
   Operating cash flows from operating leases $ 9.1
$ 26.8
   Financing cash flows from finance leases 0.2
1.3
Lease assets added in the period:
   Operating leases $ 14.6
$ 54.0
   Finance leases 0.3
1.1



	~~September 30, 2019~~
~~Weighted-average remaining lease term:~~
~~Operating leases~~	~~5.4 years~~
~~Finance leases~~	~~3.4 years~~
~~Weighted-average discount rate:~~
~~Operating leases~~	~~3.90~~	%
~~Finance leases~~	~~2.70~~	%

Note 7 ~~- Financing Arrangements~~

~~Short-term debt at~~ ~~September 30, 2019~~ ~~and~~ ~~December 31, 2018~~ ~~was as follows:~~

September 30,
2019 December 31,
2018
Variable-rate Accounts Receivable Facility with an interest rate of 3.09% at September 30, 2019 $ 12.8
$ —
Borrowings under variable-rate lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 0.23% to 2.28% at September 30, 2019 and 0.29% to 1.00% at December 31, 2018 22.0
33.6
Short-term debt $ 34.8
$ 33.6

The lines of credit for certain of the Company’s foreign subsidiaries provide for short-term borrowings up to $261.9 million in the aggregate. Most of these lines of credit are uncommitted. At September 30, 2019, the Company’s foreign subsidiaries had borrowings outstanding of $22.0 million and bank guarantees of $0.3 million, which reduced the aggregate availability under these facilities to $239.6 million.

~~Long-term debt at September 30, 2019 and~~ ~~December 31, 2018~~ ~~was as follows:~~

September 30,
2019 December 31,
2018
Variable-rate Senior Credit Facility with an average interest rate on U.S. Dollar of 3.26% and Euro of 1.00% at September 30, 2019 and 3.40% and 1.10%, respectively, at December 31, 2018 $ 69.3
$ 43.9
Variable-rate Euro Term Loan⁽¹⁾, maturing on September 18, 2020, with an interest rate of 1.13% at September 30, 2019 and December 31, 2018
52.8
107.1
Variable-rate Accounts Receivable Facility, with an interest rate of 3.09% at September 30, 2019 and 3.22% at December 31, 2018 87.2
75.0
Variable-rate Term Loan⁽¹⁾, maturing on September 11, 2023, with an interest rate of 3.17% at September 30, 2019 and 3.77% at December 31, 2018
340.7
347.1
Fixed-rate Senior Unsecured Notes⁽¹⁾, maturing on September 1, 2024, with an interest rate of 3.875%
348.3
347.7
Fixed-rate Euro Senior Unsecured Notes⁽¹⁾, maturing on September 7, 2027, with an interest rate of 2.02%
163.0
171.4
Fixed-rate Senior Unsecured Notes⁽¹⁾, maturing on December 15, 2028, with an interest rate of 4.50%
396.1
395.8
Fixed-rate Medium-Term Notes, Series A⁽¹⁾, maturing at various dates through May 2028, with interest rates ranging from 6.74% to 7.76%
154.6
154.6
Other 3.3
5.4
1,615.3
1,648.0
Less: Current maturities 61.8
9.4
Long-term debt $ 1,553.5
$ 1,638.6

⁽¹⁾~~Net of discounts and fees~~

~~The Company has a $100 million Amended and Restated Asset Securitization Agreement (the "Accounts Receivable Facility"), which matures on~~ ~~November 30, 2021~~. Under the terms of the Accounts Receivable Facility, the Company sells, on an ongoing basis, certain domestic trade receivables to Timken Receivables Corporation, a wholly-owned consolidated subsidiary that, in turn, uses the trade receivables to secure borrowings that are funded through a vehicle that issues commercial paper in the short-term market. Borrowings under the Accounts Receivable Facility may be limited by certain borrowing base limitations; however, availability under the Accounts Receivable Facility was not reduced by any such borrowing base limitations at September 30, 2019. As of September 30, 2019, there were outstanding borrowings of $100.0 million under the Accounts Receivable Facility, which reduced the availability under this facility to 0. $12.8 million of the outstanding borrowings under the Accounts Receivable Facility was classified as short-term and reflects the Company's expectations over the next 12 months relative to the minimum borrowing base. The cost of this facility, which is the prevailing commercial paper rate plus facility fees, is considered a financing cost and is included in "Interest expense" in the Consolidated Statements of Income.

On ~~June 25, 2019~~, the Company entered into a Fourth Amended and Restated Credit Agreement ("Senior Credit Facility"). The Senior Credit Facility amends and restates the Company's previous credit agreement, dated as of June 19, 2015. The Senior Credit Facility is a $650.0 million unsecured revolving credit facility, which matures on ~~June 25, 2024~~. At September 30, 2019, the Company had $69.3 million of outstanding borrowings under the Senior Credit Facility, which reduced the availability under this facility to $580.7 million. The Senior Credit Facility has two financial covenants: a consolidated leverage ratio and a consolidated interest coverage ratio.

On ~~September 6, 2018, the Company issued $400 million aggregate principal amount of fixed-rate 4.50% senior unsecured notes that mature on~~ ~~December 15, 2028~~ ~~(the "2028 Notes"). On~~ ~~September 11, 2018, the Company entered into a $350 million variable-rate term loan that matures on~~ ~~September 11, 2023~~ ~~(the "2023 Term Loan"). Proceeds from the 2028 Notes and the 2023 Term Loan were used to fund the acquisitions of Cone Drive and Rollon, which closed on~~ ~~September 1, 2018~~ ~~and~~ ~~September 18, 2018, respectively. On~~ ~~July 12, 2019, the Company amended the 2023 Term Loan agreement to, among other things, align covenants and other terms with the Senior Credit Facility.~~

On ~~September 7, 2017, the Company issued €150 million aggregate principal amount of fixed-rate 2.02% senior unsecured notes that mature on~~ ~~September 7, 2027~~ ~~(the "2027 Notes"). On~~ ~~September 18, 2017, the Company entered into a €100 million variable-rate term loan that matures on~~ ~~September 18, 2020~~ (the "2020 Term Loan"). During the third quarter, the Company repaid €23.5 million under the 2020 Term Loan bringing the total paid to-date to €51.5 million, which reduced the principal balance to €48.5 million as of September 30, 2019. The 2020 Term Loan was classified as current portion of long-term debt at September 30, 2019.

~~At September 30, 2019, the Company was in full compliance with all applicable covenants on its outstanding debt.~~

~~Note 8 - Contingencies~~

The Company and certain of its subsidiaries have been identified as potentially responsible parties for investigation and remediation under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), known as the Superfund, or similar state laws with respect to certain sites. Claims for investigation and remediation have been asserted against numerous other entities, which are believed to be financially solvent and are expected to fulfill their proportionate share of the obligation.

On December 28, 2004, the United States Environmental Protection Agency (“USEPA”) sent Lovejoy, Inc. ("Lovejoy") a Special Notice Letter that identified Lovejoy as a potentially responsible party, together with at least 14 other companies, at the Ellsworth Industrial Park Site, Downers Grove, DuPage County, Illinois (the “Site”). The Company acquired Lovejoy in 2016. Lovejoy’s Downers Grove property is situated within the Ellsworth Industrial Complex. The USEPA and the Illinois Environmental Protection Agency (“IEPA”) allege there have been one or more releases or threatened releases of hazardous substances, allegedly including, but not limited to, a release or threatened release on or from Lovejoy's property, at the Site. The relief sought by the USEPA and IEPA includes further investigation and potential remediation of the Site and reimbursement of response costs. Lovejoy’s allocated share of past and future costs related to the Site, including for investigation and/or remediation, could be significant. All previously pending property damage and personal injury lawsuits against Lovejoy related to the Site have been settled or dismissed.

~~The Company had total environmental accruals of $5.3 million and $5.5 million for various known environmental matters that are probable and reasonably estimable at September 30, 2019and~~December 31, 2018, 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 October 2014, the Brazilian government antitrust agency, Administrative Council for Economic Defense, or CADE, 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. ("Timken do Brasil"), was included in the investigation. In ~~May 2019~~, the investigation division of CADE issued a report on the alleged antitrust violations and recommended that Timken do Brasil, among others, be found to have violated certain provisions of the Brazil Competition Law. The case has now moved to the tribunal level of CADE. The Company is continuing to advance its interests in this case. Based on management's evaluation of the findings contained in the CADE investigation report, the Company recorded expense in the second quarter of 2019to establish a liability that represents management’s best estimate of the probable loss. While no assurance can be given as to the ultimate outcome of this case, the Company does not believe that the final resolution will have a material effect on the Company's consolidated financial position or liquidity, however, the effect of any such future 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.

The Company is a defendant in a 2017 lawsuit filed in the U.S. by a former employee asserting workplace-related negligence by the Company's medical personnel. The Company’s defense is ongoing and, while the incurrence of a liability is not considered probable at this point, management believes the low end of the range of the reasonably possible outcomes would be immaterial to the Company.

In addition, the Company is subject to various other 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.

~~Product Warranties:~~

In addition to the contingencies above, the Company provides limited warranties on certain of its products. The product warranty liability included in "Other current liabilities" on the Consolidated Balance Sheets was $5.6 million and $7.1 million at September 30, 2019 and December 31, 2018, respectively. The Company continues to evaluate claims raised by certain customers with respect to the performance of bearings sold into the wind energy sector. Management believes that the outcome of these claims will not have a material effect on the Company’s consolidated financial position; however, the effect of any such outcome may be material to the results of operations of any particular period in which costs in excess of amounts provided, if any, are recognized.

~~Note 9 - Equity~~

~~The following tables present the changes in the components of equity for the three and nine months ended~~ ~~September 30, 2019~~ ~~and 2018, respectively:~~

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
Balance at June 30, 2019 $ 1,783.6
$ 53.1
$ 941.3
$ 1,772.0
$ (97.5 ) $ (957.6 ) $ 72.3
Net income 66.7
64.2
2.5
Foreign currency translation adjustment (63.0 ) (61.2 ) (1.8 )
Pension and other postretirement liability
adjustments (net of income tax expense
of $25.4 million) 76.7
76.7

Change in fair value of derivative financial
instruments, net of reclassifications 1.9
1.9

Dividends paid to noncontrolling interest (0.3 ) (0.3 )
Dividends – $0.28 per share (21.2 ) (21.2 )
Stock-based compensation expense 5.8
5.8

Stock purchased at fair market value (32.5 )
(32.5 )
Stock option exercise activity 1.0
(1.0 ) 2.0

Restricted share activity —
(0.6 ) 0.6

Payments related to tax withholding for
stock-based compensation (1.2 )
(1.2 )
Balance at September 30, 2019 $ 1,817.5
$ 53.1
$ 945.5
$ 1,815.0
$ (80.1 ) $ (988.7 ) $ 72.7

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
Balance at December 31, 2018 $ 1,642.7
$ 53.1
$ 951.9
$ 1,630.2
$ (95.3 ) $ (960.3 ) $ 63.1
Net income 256.9
248.6
8.3
Foreign currency translation adjustment (62.1 ) (61.9 ) (0.2 )
Pension and other postretirement liability
adjustments (net of income tax expense
of $25.3 million) 76.6
76.6

Change in fair value of derivative financial
instruments, net of reclassifications 0.5
0.5

Dividends paid to noncontrolling interest (0.3 ) (0.3 )
Noncontrolling interest acquired 1.8
1.8
Dividends – $0.84 per share (63.8 ) (63.8 )
Stock-based compensation expense 20.7
20.7

Stock purchased at fair market value (56.1 ) (56.1 )
Stock option exercise activity 9.9
(4.4 ) 14.3

Restricted share activity —
(22.7 ) 22.7

Payments related to tax withholding for
stock-based compensation (9.3 ) (9.3 )
Balance at September 30, 2019 $ 1,817.5
$ 53.1
$ 945.5
$ 1,815.0
$ (80.1 ) $ (988.7 ) $ 72.7

~~For further discussion of the pretax pension and other postretirement liability adjustments, see Note 14 - Retirement Benefit Plans and Note 15 - Other Postretirement Benefit Plans.~~

~~Note 9 - Equity (continued)~~

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
Balance at June 30, 2018 $ 1,552.3
$ 53.1
$ 907.2
$ 1,545.3
$ (69.9 ) $ (913.9 ) $ 30.5
Net income 72.3
71.6
0.7
Foreign currency translation adjustment (24.3 ) (18.5 ) (5.8 )
Change in fair value of derivative financial
instruments, net of reclassifications (0.4 ) (0.4 )
Shares issued for the acquisition of ABC
Bearings 66.0
30.9
35.1
Dividends – $0.28 per share (21.5 ) (21.5 )
Stock-based compensation expense 7.7
7.7

Stock purchased at fair market value (13.4 ) (13.4 )
Stock option exercise activity 2.1
(0.6 ) 2.7

Restricted share activity —
(0.1 ) 0.1

Payments related to tax withholding for
stock-based compensation (0.4 ) (0.4 )
Balance at September 30, 2018 $ 1,640.4
$ 53.1
$ 945.1
$ 1,595.4
$ (88.8 ) $ (924.9 ) $ 60.5

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
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)⁽¹⁾
7.7
—
7.7

Cumulative effect of ASU 2018-02 —
0.7
(0.7 )
Net income 244.7
242.8
1.9
Foreign currency translation adjustment (62.5 ) (53.8 ) (8.7 )
Change in fair value of derivative financial
instruments, net of reclassifications 4.0
4.0

Shares issued for the acquisition of ABC Bearings 66.0
30.9
35.1
Dividends – $0.83 per share (64.2 ) (64.2 )
Stock-based compensation expense 25.5
25.5

Stock purchased at fair market value (63.0 ) (63.0 )
Stock option exercise activity 12.7
(3.7 ) 16.4

Restricted share activity —
(11.4 ) 11.4

Payments related to tax withholding for
stock-based compensation
(5.4 ) (5.4 )
Balance at September 30, 2018 $ 1,640.4
$ 53.1
$ 945.1
$ 1,595.4
$ (88.8 ) $ (924.9 ) $ 60.5

⁽¹⁾On January 1, 2018, the Company recognized the cumulative effect of adopting the revenue recognition guidance in ASU 2014-09 and related amendments as an adjustment to the opening balance of earnings invested in the business for the year ended December 31, 2018. Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2018 for further information.

~~Note 10 - Accumulated Other Comprehensive Income (Loss)~~

~~The following tables present details about components of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2019 and 2018, respectively:~~

Foreign currency translation adjustments Pension and other postretirement liability adjustments Change in fair value of derivative financial instruments Total
Balance at June 30, 2019 $ (96.3 ) $ (0.1 ) $ (1.1 ) $ (97.5 )
Other comprehensive income (loss) before
reclassifications and income taxes (63.0 ) 103.7
3.2
43.9
Amounts reclassified from accumulated other
comprehensive (loss) income before income taxes —
(1.6 ) (1.0 ) (2.6 )
Income tax expense —
(25.4 ) (0.3 ) (25.7 )
Net current period other comprehensive
income (loss), net of income taxes
(63.0 ) 76.7
1.9
15.6
Noncontrolling interest 1.8
—
—
1.8
Net current period comprehensive (loss) income,
net of income taxes and noncontrolling interest
(61.2 ) 76.7
1.9
17.4
Balance at September 30, 2019 $ (157.5 ) $ 76.6
$ 0.8
$ (80.1 )

Foreign currency translation adjustments Pension and other postretirement liability adjustments Change in fair value of derivative financial instruments Total
Balance at December 31, 2018 $ (95.6 ) $ —
$ 0.3
$ (95.3 )
Other comprehensive income (loss) before
reclassifications and income tax (62.1 ) 103.7
3.4
45.0
Amounts reclassified from accumulated other
comprehensive (loss) income before income taxes —
(1.8 ) (2.9 ) (4.7 )
Income tax expense —
(25.3 ) —
(25.3 )
Net current period other comprehensive income
(loss), net of income taxes (62.1 ) 76.6
0.5
15.0
Noncontrolling interest 0.2
—
—
0.2
Net current period comprehensive (loss) income, net
of income taxes and noncontrolling interest
(61.9 ) 76.6
0.5
15.2
Balance at September 30, 2019 $ (157.5 ) $ 76.6
$ 0.8
$ (80.1 )

~~For further discussion of pension and other postretirement liability adjustments, see Note 14 - Retirement Benefit Plans and Note 15 - Other Postretirement Benefit Plans.~~

~~Note 10 - Accumulated Other Comprehensive Income (Loss)(continued)~~

Foreign currency translation adjustments Pension and other postretirement liability adjustments Change in fair value of derivative financial instruments Total
Balance at June 30, 2018 $ (70.4 ) $ (0.4 ) $ 0.9
$ (69.9 )
Other comprehensive (loss) income before
reclassifications and income taxes (24.3 ) —
1.0
(23.3 )
Amounts reclassified from accumulated other
comprehensive (loss) income before income taxes —
—
(1.5 ) (1.5 )
Income tax benefit —
—
0.1
0.1
Net current period other comprehensive
loss, net of income taxes (24.3 ) —
(0.4 ) (24.7 )
Noncontrolling interest 5.8
—
—
5.8
Net current period comprehensive loss,
net of income taxes and noncontrolling interest
(18.5 ) —
(0.4 ) (18.9 )
Balance at September 30, 2018 $ (88.9 ) $ (0.4 ) $ 0.5
$ (88.8 )

Foreign currency translation adjustments Pension and other 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 (loss) income before
reclassifications and income taxes (62.5 ) —
5.0
(57.5 )
Amounts reclassified from accumulated other
comprehensive (loss) income before income taxes —
—
0.3
0.3
Income tax expense —
—
(1.3 ) (1.3 )
Net current period other comprehensive
(loss) income, net of income taxes (62.5 ) —
4.0
(58.5 )
Noncontrolling interest 8.7
—
—
8.7
Net current period comprehensive (loss) income,
net of income taxes and noncontrolling interest
(53.8 ) (0.1 ) 3.4
(50.5 )
Balance at September 30, 2018 $ (88.9 ) $ (0.4 ) $ 0.5
$ (88.8 )

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

~~Note 11~~ - 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, 2020 and 2019, respectively:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Numerator:
Net income attributable to The Timken Company	$	88.8	$	64.2	$	231.4	$	248.6
Less: undistributed earnings allocated to nonvested stock	0		0		0		0
Net income available to common shareholders for basic and diluted earnings per share	$	88.8	$	64.2	$	231.4	$	248.6
Denominator:
Weighted average number of shares outstanding - basic	75,223,462		75,628,410		75,288,567		75,864,544
Effect of dilutive securities:
Stock options and awards - based on the treasury stock method	1,062,674		964,284		843,353		1,037,882
Weighted average number of shares outstanding assuming dilution of stock options and awards	76,286,136		76,592,694		76,131,920		76,902,426
Basic earnings per share	$	1.18	$	0.85	$	3.07	$	3.28
Diluted earnings per share	$	1.16	$	0.84	$	3.04	$	3.23

~~and~~ ~~2018, respectively:~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Numerator:
Net income attributable to The Timken Company $ 64.2
$ 71.6
$ 248.6
$ 242.8
Less: undistributed earnings allocated to nonvested
stock —
—
—
—
Net income available to common shareholders for basic
and diluted earnings per share
$ 64.2
$ 71.6
$ 248.6
$ 242.8
Denominator:
Weighted average number of shares outstanding - basic 75,628,410
76,903,395
75,864,544
77,332,209
Effect of dilutive securities:
Stock options and awards - based on the treasury stock
method 964,284
1,524,710
1,037,882
1,313,294
Weighted average number of shares outstanding
assuming dilution of stock options and awards 76,592,694
78,428,105
76,902,426
78,645,503
Basic earnings per share $ 0.85
$ 0.93
$ 3.28
$ 3.14
Diluted earnings per share $ 0.84
$ 0.91
$ 3.23
$ 3.09

The exercise prices for certain stock options that the Company has awarded exceeded the average market price of the Company’s common shares during ~~each period~~certain periods presented. 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, 2020 and 2019 ~~and 2018~~ were 0 and1,445,986, ~~and 923,588,~~ respectively. The antidilutive stock options outstanding during the nine months ended September 30, 2020 and 2019 ~~and 2018~~ were 902,169 and 1,355,247, ~~and 852,318,~~ respectively.

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Note 128 - ~~Revenue~~Inventories

The components of inventories at September 30, 2020 and December 31, 2019 were as follows:


	September 30, 2020		December 31, 2019
Manufacturing supplies	$	34.7	$	34.2
Raw materials	98.3		100.0
Work in process	304.2		308.9
Finished products	401.6		439.0
Subtotal	838.8		882.1
Allowance for obsolete and surplus inventory	(48.9)		(40.1)
Total Inventories, net	$	789.9	$	842.0

Inventories are valued at net realizable value, with approximately 60% valued on the first-in, first-out ("FIFO") method and the remaining 40% valued on the last-in, first-out ("LIFO") method. The ~~following table presents details deemed most relevant to the users~~majority of the ~~financial statements about total revenue for~~Company's domestic inventories are valued on the ~~three~~LIFO method, and ~~nine months ended September 30, 2019 and 2018, respectively:~~all the Company's international inventories are valued on the FIFO method.

Three Months Ended Three Months Ended
September 30, 2019 September 30, 2018
Mobile Process Total Mobile Process Total
United States $ 245.8
$ 196.0
$ 441.8
$ 255.3
$ 192.9
$ 448.2
Americas excluding United States 54.7
41.1
95.8
51.6
42.9
94.5
Europe / Middle East / Africa 85.3
120.2
205.5
89.3
86.0
175.3
Asia-Pacific 69.3
101.6
170.9
68.0
95.3
163.3
Net sales $ 455.1
$ 458.9
$ 914.0
$ 464.2
$ 417.1
$ 881.3

Nine Months Ended Nine Months Ended
September 30, 2019 September 30, 2018
Mobile Process Total Mobile Process Total
United States $ 778.1
$ 632.6
$ 1,410.7
$ 774.4
$ 561.5
$ 1,335.9
Americas excluding United States 160.4
125.5
285.9
160.3
132.0
292.3
Europe / Middle East / Africa 288.2
374.3
662.5
292.5
266.4
558.9
Asia-Pacific 222.1
312.5
534.6
214.6
269.0
483.6
Net sales $ 1,448.8
$ 1,444.9
$ 2,893.7
$ 1,441.8
$ 1,228.9
$ 2,670.7

The LIFO reserve at September 30, 2020 and December 31, 2019 was $161.8 million and $164.6 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 prior year balances have been revised to align to the current year classification of the LIFO reserve and the allowance for obsolete and surplus inventory.

~~When reviewing revenue by sales channel,~~

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Note 9 - Goodwill and Other Intangible Assets

The changes in the ~~Company separates net sales to original equipment manufacturers from sales to distributors and end users. The following table presents the percent~~carrying amount of ~~revenue by sales channel~~goodwill for the nine months ended September 30, 2020 were as follows:


	Mobile Industries		Process Industries		Total
Beginning balance	$	361.3	$	632.4	$	993.7
Acquisitions	4.4		2.2		6.6

Foreign currency translation adjustments and other changes	7.8		13.0		20.8
Ending balance	$	373.5	$	647.6	$	1,021.1

The addition of $6.6 million of goodwill from acquisitions represents measurement period adjustments recorded in 2020 primarily for the 2019 ~~and 2018, respectively:~~acquisition of BEKA.

Nine Months Ended Nine Months Ended
Revenue by sales channel September 30, 2019 September 30, 2018
Original equipment manufacturers 56% 58%
Distribution/end users 44% 42%

In addition to disaggregating revenue by segment and geography and by sales channel as shown above, the Company believes information about the timing of transfer of goods or services, type of customer and distinguishing service revenue from product sales is also relevant. During the nine months ended September 30, 2019 and September 30, 2018, approximately 11% and 9%, respectively, of total net sales were recognized on an over-time basis because of the continuous transfer of control to the customer, with the remainder recognized as of a point in time. The payment terms with the U.S. government or its contractors, which represented approximately 8% and 7% of total net sales during the nine months ended September 30, 2019 and September 30, 2018, respectively, differ from those of non-government customers. Finally, approximately 5% and 6% of total net sales represented service revenue during the nine months ended September 30, 2019 and September 30, 2018, respectively.

~~Remaining Performance Obligations:~~

~~Unbilled Receivables:~~

The following table ~~contains a rollforward~~displays intangible assets as of ~~unbilled receivables~~September 30, 2020 and December 31, 2019:


	Balance at September 30, 2020						Balance at December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible assets subject to amortization:
Customer relationships	$	519.8	$	(152.3)	$	367.5	$	510.9	$	(128.8)	$	382.1
Technology and know-how	270.2		(66.7)		203.5		265.1		(54.7)		210.4
Trade names	12.7		(6.7)		6.0		12.7		(6.1)		6.6
Capitalized software	274.0		(252.0)		22.0		270.3		(245.8)		24.5
Other	14.0		(9.8)		4.2		13.8		(9.1)		4.7
	$	1,090.7	$	(487.5)	$	603.2	$	1,072.8	$	(444.5)	$	628.3
Intangible assets not subject to amortization:
Trade names	$	125.3			$	125.3	$	121.5			$	121.5
FAA air agency certificates	8.7				8.7		8.7				8.7
	$	134.0			$	134.0	$	130.2			$	130.2
Total intangible assets	$	1,224.7	$	(487.5)	$	737.2	$	1,203.0	$	(444.5)	$	758.5

Amortization expense for intangible assets was $42.1 million and $43.3 million for the nine months ended September 30, ~~2019:~~2020 and 2019, respectively. Amortization expense for intangible assets is projected to be $55.4 million in 2020; $53.0 million in 2021; $48.1 million in 2022; $45.1 million in 2023; and $43.3 million in 2024.

September 30, 2019
Beginning balance, January 1 $ 116.6
Additional unbilled revenue recognized 320.0
Less: amounts billed to customers (285.0 )
Ending balance $ 151.6

Table of Contents

~~There were no impairment losses recorded on unbilled receivables for the nine months ended September 30, 2019.~~

Note 10 - Financing Arrangements

Short-term debt at September 30, 2020 and December 31, 2019 was as follows:


	September 30, 2020		December 31, 2019
Variable-rate Accounts Receivable Facility with an interest rate of 2.77% at December 31, 2019	$	0	$	1.8
Borrowings under lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 0.15% to 1.75% at September 30, 2020 and 0.27%to 1.75% at December 31, 2019	64.8		15.5
Short-term debt	$	64.8	$	17.3

The Company has a $100 million Amended and Restated Asset Securitization Agreement (the "Accounts Receivable Facility"), which matures on November 30, 2021. Under the terms of the Accounts Receivable Facility, the Company sells, on an ongoing basis, certain domestic trade receivables to Timken Receivables Corporation, a wholly-owned consolidated subsidiary that, in turn, uses the trade receivables to secure borrowings that are funded through a vehicle that issues commercial paper in the short-term market. Borrowings under the Accounts Receivable Facility may be limited by certain borrowing base limitations. As of September 30, 2020, there were no outstanding borrowings under the Accounts Receivable Facility and the availability under the Accounts Receivable Facility was at $100.0 million. The cost of this facility, which is the prevailing commercial paper rate plus facility fees, is considered a financing cost and is included in "Interest expense" in the Consolidated Statements of Income.

The Company also maintains uncommitted lines of credit at certain foreign subsidiaries, which provide for short-term borrowings up to $278.3 million in the aggregate. At September 30, 2020, the Company’s foreign subsidiaries had borrowings outstanding of $64.8 million and bank guarantees of $0.7 million, which reduced the aggregate availability under these facilities to $212.8 million.

Long-term debt at September 30, 2020 and December 31, 2019 was as follows:


	September 30, 2020		December 31, 2019
Variable-rate Senior Credit Facility with an average interest rate on U.S. Dollar of 2.29% and Euro of 1.10% at September 30, 2020 and 2.85% and Euro of 1.00% at December 31, 2019	$	114.3	$	132.7
Variable-rate Euro Term Loan(1), matured on September 18, 2020, with an interest of 1.13% at December 31, 2019	0		54.4
Variable-rate Accounts Receivable Facility with an interest rate of 2.77% at December 31, 2019	0		98.2
Variable-rate Term Loan(1), maturing on September 11, 2023, with an interest rate of 2.11% at September 30, 2020 and 2.92% at December 31, 2019	331.7		338.5
Fixed-rate Senior Unsecured Notes(1), maturing on September 01, 2024, with an interest rate of 3.875%	348.9		348.5
Fixed-rate Euro Senior Unsecured Notes(1), maturing on September 07, 2027, with an interest rate of 2.02%	175.4		167.7
Fixed-rate Senior Unsecured Notes(1), maturing on December 15, 2028, with an interest rate of 4.50%	396.4		396.1
Fixed-rate Medium-Term Notes, Series A(1), maturing at various dates through May 2028, with interest rates ranging from 6.74% to 7.76%	154.6		154.6
Fixed-rate Bank Loan, maturing on June 30, 2033, with an interest rate of 2.15%	18.4		18.0
Other	4.1		4.1
	1,543.8		1,712.8
Less: Current maturities	10.8		64.7
Long-term debt	$	1,533.0	$	1,648.1

(1) Net of discounts and fees

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Note 10 - Financing Arrangements (continued)

On June 25, 2019, the Company entered into a Fourth Amended and Restated Credit Agreement ("Senior Credit Facility"). The Senior Credit Facility is a $650.0 million unsecured revolving credit facility, which matures on June 25, 2024. At September 30, 2020, the Company had $114.3 million of outstanding borrowings under the Senior Credit Facility, which reduced the availability to $535.7 million. The Senior Credit Facility has two financial covenants: a consolidated leverage ratio and a consolidated interest coverage ratio. On May 27, 2020, the Senior Credit Facility was amended to, among other things, effectively increase the limit with respect to the consolidated leverage ratio. As amended, the consolidated leverage ratio is calculated using a net debt construct, netting unrestricted cash in excess of $25 million, instead of total debt. This change to the consolidated leverage ratio calculation is effective through June 30, 2021, after which the calculation of the consolidated leverage ratio under the Senior Credit Facility will revert back to using a total debt construct.

On November 1, 2019, the Company assumed certain fixed-rate debt of €16 million associated with the BEKA acquisition that matures on June 30, 2033.

On September 11, 2018, the Company entered into a $350 million variable-rate term loan that matures on September 11, 2023 (the "2023 Term Loan"). Proceeds from the 2023 Term Loan were used to fund the acquisitions of Apiary Investments Holding Limited ("Cone Drive") and Rollon S.p.A. ("Rollon"), which closed on September 1, 2018 and September 18, 2018, respectively. On July 12, 2019, the Company amended the 2023 Term Loan agreement to, among other things, align covenants and other terms with the Senior Credit Facility. On May 27, 2020, the 2023 Term Loan agreement was further amended to align the calculation of the consolidated leverage ratio and other terms with the Senior Credit Facility.

On September 18, 2017, the Company entered into a €100 million variable-rate term loan that matured on September 18, 2020 (the "2020 Term Loan"). Upon the final payment during the third quarter of 2020, the Company fully repaid the 2020 Term Loan.

At September 30, 2020, the Company was in full compliance with all applicable covenants on its outstanding debt.

In the ordinary course of business, the Company utilizes standby letters of credit issued by financial institutions to guarantee certain obligations, most of which relate to insurance contracts. At September 30, 2020, outstanding letters of credit totaled $40.0 million, most with expiration dates within 12 months.

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Note 11 - Contingencies

The Company had total environmental accruals of $5.1 million and $5.2 million for various known environmental matters that are probable and reasonably estimable at September 30, 2020andDecember 31, 2019, 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.

Product Warranties:

In addition to the contingencies above, the Company provides limited warranties on certain of its products. The product warranty liability included in "Other current liabilities" on the Consolidated Balance Sheets was $9.7 million and $7.5 million at September 30, 2020 and December 31, 2019, respectively. The increase in the liability since year end primarily relates to accruals that are based on the best estimate of costs for future claims based on products sold that are still under warranty. The estimate of these accruals is based on historical claims and expected trends that continue to mature. Any significant change to these assumptions may be material to the results of operations in any particular period in which that change occurs.

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Note 12 - Equity

The following tables present the changes in the components of equity for the three and nine months ended September 30, 2020 and 2019, respectively:


			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
Balance at June 30, 2020	$	1,967.6	$	53.1	$	924.4	$	2,005.7	$	(99.2)	$	(1,000.4)	$	84.0

Net income	91.3						88.8						2.5
Foreign currency translation adjustment	63.5								63.0				0.5
Pension and other postretirement liability adjustments (net of income tax benefit of $0.4 million)	(1.2)								(1.2)
Unrealized gain on marketable securities	(0.1)								(0.1)
Change in fair value of derivative financial instruments, net of reclassifications	(1.8)								(1.8)




Dividends declared to noncontrolling interest	(16.1)												(16.1)
Dividends – $0.28 per share	(21.1)						(21.1)


Stock-based compensation expense	7.8				7.8

Stock option exercise activity	10.7				(1.5)						12.2
Restricted share activity	0				(0.1)						0.1
Payments related to tax withholding for stock-based compensation	(1.6)										(1.6)
Balance at September 30, 2020	$	2,099.0	$	53.1	$	930.6	$	2,073.4	$	(39.3)	$	(989.7)	$	70.9


			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
Balance at December 31, 2019	$	1,954.8	$	53.1	$	937.6	$	1,907.4	$	(50.1)	$	(979.8)	$	86.6
Cumulative effect of ASU 2016-13 (net of income tax benefit of $0.2 million)	(0.4)						(0.4)
Net income	237.1						231.4						5.7
Foreign currency translation adjustment	9.2								15.0				(5.8)
Pension and other postretirement liability adjustments (net of income tax benefit of $1.4 million)	(4.0)								(4.0)

Change in fair value of derivative financial instruments, net of reclassifications	(0.2)								(0.2)
Change in ownership of noncontrolling interest	0.5												0.5
Dividends declared to noncontrolling interest	(16.1)												(16.1)
Dividends – $0.84 per share	(65.0)						(65.0)
Stock-based compensation expense	19.2				19.2
Stock purchased at fair market value	(42.3)										(42.3)
Stock option exercise activity	18.2				(2.4)						20.6
Restricted share activity	0				(23.8)						23.8
Payments related to tax withholding for stock-based compensation	(12.0)										(12.0)

Balance at September 30, 2020	$	2,099.0	$	53.1	$	930.6	$	2,073.4	$	(39.3)	$	(989.7)	$	70.9

Table of Contents

Note 12 - Equity (continued)


			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
Balance at June 30, 2019	$	1,783.6	$	53.1	$	941.3	$	1,772.0	$	(97.5)	$	(957.6)	$	72.3
Net income	66.7						64.2						2.5
Foreign currency translation adjustment	(63.0)								(61.2)				(1.8)
Pension and other postretirement liability adjustments (net of income tax expense of $25.4 million)	76.7								76.7
Change in fair value of derivative financial instruments, net of reclassifications	1.9								1.9
Dividends paid to noncontrolling interest	(0.3)												(0.3)
Dividends – $0.28 per share	(21.2)						(21.2)
Stock-based compensation expense	5.8				5.8
Stock purchased at fair market value	(32.5)										(32.5)
Stock option exercise activity	1.0				(1.0)						2.0
Restricted share activity	0				(0.6)						0.6
Payments related to tax withholding for stock-based compensation	(1.2)										(1.2)

Balance at September 30, 2019	$	1,817.5	$	53.1	$	945.5	$	1,815.0	$	(80.1)	$	(988.7)	$	72.7


			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
Balance at December 31, 2018	$	1,642.7	$	53.1	$	951.9	$	1,630.2	$	(95.3)	$	(960.3)	$	63.1


Net income	256.9						248.6						8.3
Foreign currency translation adjustment	(62.1)								(61.9)				(0.2)
Pension and postretirement liability adjustments (net of income tax expense of $25.3 million)	76.6								76.6
Change in fair value of derivative financial instruments, net of reclassifications	0.5								0.5
Dividends paid to noncontrolling interest	(0.3)												(0.3)
Noncontrolling interest acquired	1.8												1.8
Dividends – $0.84 per share	(63.8)						(63.8)

Stock-based compensation	20.7				20.7
Stock purchased at fair market value	(56.1)										(56.1)
Stock option exercise activity	9.9				(4.4)						14.3

Restricted share activity	0				(22.7)						22.7
Payments related to tax withholding for stock-based compensation	(9.3)										(9.3)

Balance at September 30, 2019	$	1,817.5	$	53.1	$	945.5	$	1,815.0	$	(80.1)	$	(988.7)	$	72.7

Table of Contents

Note 13 - ~~Segment Information~~Impairment and Restructuring Charges

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

For the three months ended September 30, 2020:


	Mobile Industries		Process Industries		Corporate		Total

Severance and related benefit costs	$	5.9	$	5.6	$	0.4	$	11.9
Exit costs	0.1		0		0		0.1
Total	$	6.0	$	5.6	$	0.4	$	12.0

For the nine months ended September 30, 2020:


	Mobile Industries		Process Industries		Corporate		Total
Impairment charges	$	0	$	0.1	$	0	$	0.1
Severance and related benefit costs	7.5		9.8		0.5		17.8
Exit costs	0.4		0.4		0		0.8
Total	$	7.9	$	10.3	$	0.5	$	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.

Coronavirus ("COVID-19") Pandemic Cost Reduction Initiatives:

During the three months and nine months ended September 30, 2020, the Company recorded $9.5 million and $11.5 million in severance and related benefit costs to eliminate approximately 200 salaried positions to align current employment levels with customer demand. Of the $9.5 million charge, $4.9 million related to the Mobile Industries segment, $4.2 million related to the Process Industries segment and $0.4 million related to Corporate. Of the $11.5 million charge, $5.5 million related to the Mobile Industries segment, $5.6 million related to the Process Industries segment and $0.4 million related to Corporate.

Mobile Industries:

On October 16, 2019, the Company announced the reorganization of its bearing plant in Gaffney, South Carolina. The Company transferred its high-volume bearing production and roller production to other Timken manufacturing facilities in the U.S. The transfer of these operations was substantially completed by the end of the third quarter of 2020 and is expected to affect approximately 150 employees. The Company expected to incur approximately $8 million to $10 million of pretax costs in total related to this reorganization. During the nine months ended September 30, 2020, the Company recognized severance and related benefits of $0.3 million and exit costs of $0.4 million related to this reorganization. The Company has incurred cumulative pretax costs related to this reorganization of $7.2 million as of September 30, 2020, including rationalization costs recorded in cost of products sold.

Process Industries:

On February 4, 2020, the Company announced the closure of its chain plant in Indianapolis, Indiana. This plant was part of the Diamond Chain acquisition completed on April 1, 2019. The Company will be transferring the manufacturing of its Diamond Chain product line to its chain facility in Fulton, Illinois. The chain plant is expected to close by the end of the fourth quarter of 2021 and is expected to affect approximately 240 employees. The Company expects to hire approximately 130 full-time positions in Fulton, Illinois and expects to incur approximately $10 million to $12 million of expenses related to this closure. During the three and nine months ended September 30, 2020, the Company recorded severance and related benefit costs of $0.4 million and $2.6 million, respectively, related to this closure. The Company has incurred cumulative pretax costs related to this closure of $4.3 million as of September 30, 2020, including rationalization costs recorded in cost of products sold.

Table of Contents

Note 13 - Impairment and Restructuring Charges (continued)

On September 3, 2020, the Company announced the reorganization of its bearing plant in Canton, Ohio. The Company will be transferring production for certain product lines to other Timken locations in order to streamline resources and better align capacity with demand. The transfer of these operations is expected to occur by early 2021 and is expected to affect approximately 40 employees. The Company expects to incur approximately $2.0 million to $2.5 million of pretax costs related to this reorganization. During the three months ended September 30, 2020, the Company recognized severance and related benefits of $0.6 million related to this reorganization. The Company has incurred cumulative pretax costs related to this reorganization of $0.6 million as of September 30, 2020, including rationalization costs recorded in cost of products sold.

Consolidated Restructuring Accrual:

The following is a rollforward of the consolidated restructuring accrual for the nine months ended September 30, 2020:


	September 30, 2020
Beginning balance, January 1	$	2.7
Expense	18.6
Payments	(13.5)
Ending balance	$	7.8

The restructuring accrual at September 30, 2020 was included in other current liabilities on the Consolidated Balance Sheets.

~~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,
2019 2018 2019 2018
Net sales:
Mobile Industries $ 455.1
$ 464.2
$ 1,448.8
$ 1,441.8
Process Industries 458.9
417.1
1,444.9
1,228.9
Net sales $ 914.0
$ 881.3
$ 2,893.7
$ 2,670.7
Segment EBIT:
Mobile Industries $ 52.0
$ 50.6
$ 172.5
$ 156.2
Process Industries 95.6
81.8
304.8
254.0
Total EBIT, for reportable segments $ 147.6
$ 132.4
$ 477.3
$ 410.2
Corporate expenses (11.4 ) (17.9 ) (41.1 ) (47.2 )
Corporate pension and other postretirement
benefit related charges
(16.9 ) (5.3 ) (16.9 ) (3.1 )
Interest expense (18.2 ) (12.5 ) (55.5 ) (33.2 )
Interest income 1.1
0.6
3.5
1.5
Income before income taxes $ 102.2
$ 97.3
$ 367.3
$ 328.2

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Note 14 - 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, ~~2019~~2020 are based on calculations prepared by the Company's actuaries and represent the Company’s best estimate of ~~the respective~~that period’s proportionate share of the amounts to be recorded for the year ending December 31, ~~2019~~.2020.


	U.S. Plans						International Plans						Total							U.S. Plans				International Plans				Total
	Three Months Ended September 30,																			Three Months Ended September 30,
	2019			2018			2019			2018			2019			2018				2020		2019		2020		2019		2020		2019
Components of net periodic benefit cost:																			Components of net periodic benefit cost:
Service cost	$	2.6		$	3.3		$	0.4		$	0.4		$	3.0		$	3.7		Service cost	$	2.7	$	2.6	$	0.5	$	0.4	$	3.2	$	3.0
Interest cost	5.7			6.0			1.8			1.8			7.5			7.8			Interest cost	5.2		5.7		1.4		1.8		6.6		7.5
Expected return on plan assets	(6.4		)	(7.6		)	(2.4		)	(2.9		)	(8.8		)	(10.5		)	Expected return on plan assets	(6.3)		(6.4)		(2.2)		(2.4)		(8.5)		(8.8)
Amortization of prior service cost	0.4			0.4			—			0.1			0.4			0.5			Amortization of prior service cost	0.4		0.4		0		0		0.4		0.4
Recognition of actuarial losses	7.0			4.8			—			—			7.0			4.8
Net periodic benefit cost	$	9.3		$	6.9		$	(0.2	)	$	(0.6	)	$	9.1		$	6.3
Recognition of net actuarial (gains) losses																			Recognition of net actuarial (gains) losses	(12.8)		7.0		0		0		(12.8)		7.0
Curtailment loss																			Curtailment loss	0.9		0		0		0		0.9		0
Net periodic benefit (credit) cost																			Net periodic benefit (credit) cost	$	(9.9)	$	9.3	$	(0.3)	$	(0.2)	$	(10.2)	$	9.1


	U.S. Plans						International Plans						Total							U.S. Plans				International Plans				Total
	Nine Months Ended September 30,																			Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018				2020		2019		2020		2019		2020		2019
Components of net periodic benefit cost:																			Components of net periodic benefit cost:
Service cost	$	7.8		$	9.7		$	1.2		$	1.2		$	9.0		$	10.9		Service cost	$	8.1	$	7.8	$	1.3	$	1.2	$	9.4	$	9.0
Interest cost	17.7			17.7			5.5			5.5			23.2			23.2			Interest cost	15.7		17.7		4.2		5.5		19.9		23.2
Expected return on plan assets	(19.2		)	(22.2		)	(7.6		)	(8.8		)	(26.8		)	(31.0		)	Expected return on plan assets	(19.0)		(19.2)		(6.5)		(7.6)		(25.5)		(26.8)
Amortization of prior service cost	1.2			1.2			0.1			0.1			1.3			1.3			Amortization of prior service cost	1.2		1.2		0.1		0.1		1.3		1.3
Recognition of actuarial losses	7.0			2.4			—			—			7.0			2.4
Net periodic benefit cost	$	14.5		$	8.8		$	(0.8	)	$	(2.0	)	$	13.7		$	6.8
Recognition of net actuarial (gains) losses																			Recognition of net actuarial (gains) losses	(4.0)		7.0		0		0		(4.0)		7.0
Curtailment loss																			Curtailment loss	0.9		0		0		0		0.9		0
Net periodic benefit cost (credit)																			Net periodic benefit cost (credit)	$	2.9	$	14.5	$	(0.9)	$	(0.8)	$	2.0	$	13.7

In September 2020, the Company announced the reorganization of its bearing plant in Canton, Ohio, which is expected to affect approximately 40 employees. The ~~Company currently expects to make contributions and payments related to its global~~announcement of the reorganization triggered a curtailment of one of the Company's U.S. defined benefit pension ~~plans totaling~~plans. The Company recognized a curtailment loss of $0.9 million and an actuarial gain of $0.7 million during the three months ended September 30, 2020.

The Company's lump sum payments to new retirees in 2020 exceeded annual interest and service costs for one of the Company's U.S. defined benefit pension plans. This triggered a remeasurement of assets and obligations for this plan at June 30, 2020 and September 30, 2020. As a result of this remeasurement, the Company recognized actuarial gains of $12.1 million and $3.3 million during the three and nine months ended September 30, 2020, respectively.

In July 2019, the Company made a payment of approximately ~~$34.0 million in 2019. Approximately~~ $24.0 million of ~~this amount related to the 2019 payout of~~ deferred compensation in ~~July 2019~~ to a former executive officer of the Company. The payment triggered a pension remeasurement for one of the Company’s U.S. defined benefit pension plans during the third quarter of 2019. As a result of this remeasurement, the Company recognized an actuarial loss of $7.0 million during the three months ended September 30, 2019.

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During the three and nine months ended September 30, 2018, the Company recognized actuarial losses of $4.8 million and $2.4 million, respectively. The remeasurement was required during the period 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 plans.

Note 15 - 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, ~~2019~~2020 are based on calculations prepared by the Company's actuaries and represent the Company’s best estimate of ~~the respective~~that period’s proportionate share of the amounts to be recorded for the year ending December 31, ~~2019.~~2020.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Components of net periodic benefit (credit) cost:
Service cost	$	0	$	0	$	0.1	$	0.1
Interest cost	0.6		1.2		1.6		5.0
Expected return on plan assets	(0.1)		(0.8)		(0.3)		(2.4)
Amortization of prior service credit	(2.4)		(2.0)		(7.3)		(3.1)
Recognition of net actuarial losses	0		9.9		0		9.9


Net periodic benefit (credit) cost	$	(1.9)	$	8.3	$	(5.9)	$	9.5

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Components of net periodic benefit cost:
Service cost $ —
$ —
$ 0.1
$ 0.1
Interest cost 1.2
1.9
5.0
5.6
Expected return on plan assets (0.8 ) (0.9 ) (2.4 ) (2.8 )
Amortization of prior service credit (2.0 ) (0.4 ) (3.1 ) (1.2 )
Recognition of net actuarial losses 9.9
—
9.9
—
Net periodic benefit cost $ 8.3
$ 0.6
$ 9.5
$ 1.7
In January 2020, the Company established a second Voluntary Employee Beneficiary Association ("VEBA") trust for certain active employees’ medical benefits. The Company transferred $50 million from an existing VEBA trust to fund this new VEBA trust. The $50 million that was transferred was primarily classified as other current assets based on the portfolio of the assets in the trust. The Company expects to fully utilize the assets of the trust in 2020 for the payment of certain active employees’ medical benefits. As of September 30, 2020, the Company had utilized $38 million of the new VEBA trust.

~~During~~ In July 2019,, the Company announced changes to the medical plan offerings ~~for~~of certain of its postretirement benefit plans, effective January 1, 2020, which ~~will impact~~impacted the benefits provided to certain retirees. ~~This~~The plan ~~amendment~~amendment: (1) resulted in a ~~$103.5~~$92.8 million reduction in the postretirement benefit obligation and a corresponding pretax adjustment to accumulated other comprehensive loss; and (2) triggered a remeasurement of the postretirement ~~benefit~~ obligation, and as a result, the Company recognized an actuarial loss of $9.9 million during the three months ended September 30, 2019. ~~Starting with~~Beginning in third quarter of 2019, the ~~three months ended September 30, 2019,~~Company began amortizing the pretax adjustment of ~~$103.5~~$92.8 million ~~will be amortized~~ from accumulated other comprehensive loss into net periodic benefit cost (as a benefit) over the next twelve years.

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Note 16 - Accumulated Other Comprehensive Income ~~Taxes~~(Loss)

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Provision for income taxes $ 35.5
$ 25.0
$ 110.4
$ 83.5
Effective tax rate 34.7 % 25.7 % 30.1 % 25.4 %

The following tables present details about components of accumulated other comprehensive income ~~tax expense~~(loss) for the three and nine months ended September 30, 2020 and 2019, 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 21%respectively:


	Foreign currency translation adjustments		Pension and other postretirement liability adjustments		Unrealized gain (loss) on marketable securities		Change in fair value of derivative financial instruments		Total
Balance at June 30, 2020	$	(163.3)	$	64.1	$	0.1	$	(0.1)	$	(99.2)
Other comprehensive income (loss) before reclassifications and income taxes	63.5		(0.2)		0		(1.9)		61.4
Amounts reclassified from accumulated other comprehensive (loss) income before income taxes			(1.4)		(0.2)		(0.7)		(2.3)
Income tax benefit			0.4		0.1		0.8		1.3
Net current period other comprehensive income (loss), net of income taxes	63.5		(1.2)		(0.1)		(1.8)		60.4
Noncontrolling interest	(0.5)								(0.5)
Net current period comprehensive income (loss), net of income taxes and noncontrolling interest	63.0		(1.2)		(0.1)		(1.8)		59.9
Balance at September 30, 2020	$	(100.3)	$	62.9	$	0	$	(1.9)	$	(39.3)

primarily due to the projected mix of earnings in international jurisdictions with relatively higher tax rates and U.S. state and local income taxes. It was further impacted by additional discrete accruals recorded primarily for uncertain tax positions related to the Tax Cuts and Jobs Act of 2017 ("U.S. Tax Reform").

The effective tax rate of 34.7% for the three months ended September 30, 2019 is higher than the three months ended September 30, 2018 primarily due to a projected increase in the mix of earnings in international jurisdictions with relatively higher tax rates. The effective tax rate also increased due to higher discrete tax benefits recorded in the prior year period.

The effective tax rate of 30.1% for the first nine months of 2019 is higher than the first nine months of 2018 primarily due to higher discrete tax expense in the current year for uncertain tax positions related to U.S. Tax Reform, as well as due to higher discrete tax benefits recorded in the prior year period.


	Foreign currency translation adjustments		Pension and other postretirement liability adjustments		Unrealized gain (loss) on marketable securities		Change in fair value of derivative financial instruments		Total
Balance at December 31, 2019	$	(115.3)	$	66.9	$	0	$	(1.7)	$	(50.1)
Other comprehensive (loss) income before reclassifications and income taxes	9.2		0		0.5		2.3		12.0
Amounts reclassified from accumulated other comprehensive (loss) income before income taxes			(5.4)		(0.5)		(2.6)		(8.5)
Income tax benefit			1.4		0		0.1		1.5
Net current period other comprehensive (loss) income, net of income taxes	9.2		(4.0)		0		(0.2)		5.0
Noncontrolling interest	5.8								5.8
Net current period comprehensive (loss) income, net of income taxes and noncontrolling interest	15.0		(4.0)		0		(0.2)		10.8
Balance at September 30, 2020	$	(100.3)	$	62.9	$	0	$	(1.9)	$	(39.3)

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Note 16 - Accumulated Other Comprehensive Income (Loss) (continued)


	Foreign currency translation adjustments		Pension and other postretirement liability adjustments		Unrealized gain (loss) on marketable securities		Change in fair value of derivative financial instruments		Total
Balance at June 30, 2019	$	(96.3)	$	(0.1)	$	0	$	(1.1)	$	(97.5)
Other comprehensive income (loss) before reclassifications and income taxes	(63.0)		103.7		0		3.2		43.9
Amounts reclassified from accumulated other comprehensive (loss) income before income taxes	0		(1.6)		0		(1.0)		(2.6)
Income tax expense	0		(25.4)		0		(0.3)		(25.7)
Net current period other comprehensive income (loss), net of income taxes	(63.0)		76.7		0		1.9		15.6
Noncontrolling interest	1.8		0		0		0		1.8
Net current period comprehensive income (loss), net of income taxes and noncontrolling interest	(61.2)		76.7		0		1.9		17.4
Balance at September 30, 2019	$	(157.5)	$	76.6	$	0	$	0.8	$	(80.1)


	Foreign currency translation adjustments		Pension and other postretirement liability adjustments		Unrealized gain (loss) on marketable securities		Change in fair value of derivative financial instruments		Total
Balance at December 31, 2018	$	(95.6)	$	0	$	0	$	0.3	$	(95.3)
Other comprehensive income before reclassifications and income taxes	(62.1)		103.7		0		3.4		45.0
Amounts reclassified from accumulated other comprehensive (loss) income before income taxes	0		(1.8)		0		(2.9)		(4.7)
Income tax expense	0		(25.3)		0		0		(25.3)
Net current period other comprehensive (loss) income, net of income taxes	(62.1)		76.6		0		0.5		15.0
Noncontrolling interest	0.2		0		0		0		0.2
Net current period comprehensive loss, net of income taxes and noncontrolling interest	(61.9)		76.6		0		0.5		15.2
Balance at September 30, 2019	$	(157.5)	$	76.6	$	0	$	0.8	$	(80.1)

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

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Note 17 - 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, ~~2019~~2020 and December 31, ~~2018:~~2019:


	September 30, 2020
	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	313.0	$	310.2	$	2.8	$	0
Cash and cash equivalents measured at net asset value	0.1
Restricted cash	0.9		0.9		0		0
Short-term investments	48.6		11.6		37.0		0

Foreign currency forward contracts	1.1		0		1.1		0
Total Assets	$	363.7	$	322.7	$	40.9	$	0
Liabilities:
Foreign currency forward contracts	$	4.9	$	0	$	4.9	$	0

Total Liabilities	$	4.9	$	0	$	4.9	$	0

September 30, 2019
Total Level 1 Level 2 Level 3
Assets:
Cash and cash equivalents $ 134.6
$ 133.2
$ 1.4
$ —
Cash and cash equivalents measured at net asset value 46.8

Restricted cash 0.5
0.5
—
—
Short-term investments 20.8
—
20.8
—
Short-term investments measured at net asset value 0.1

Foreign currency hedges 11.7
—
11.7
—
Total Assets $ 214.5
$ 133.7
$ 33.9
$ —
Liabilities:
Foreign currency hedges $ 0.3
$ —
$ 0.3
$ —
Total Liabilities $ 0.3
$ —
$ 0.3
$ —


	December 31, 2019
	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	160.7	$	158.2	$	2.5	$	0
Cash and cash equivalents measured at net asset value	48.8
Restricted cash	6.7		6.7		0		0
Short-term investments	25.7		0		25.7		0
Short-term investments measured at net asset value	0.1
Foreign currency forward contracts	7.6		0		7.6		0
Total Assets	$	249.6	$	164.9	$	35.8	$	0
Liabilities:
Foreign currency forward contracts	$	1.4	$	0	$	1.4	$	0
Total Liabilities	$	1.4	$	0	$	1.4	$	0

December 31, 2018
Total Level 1 Level 2 Level 3
Assets:
Cash and cash equivalents $ 105.9
$ 104.4
$ 1.5
$ —
Cash and cash equivalents measured at net asset value 26.6

Restricted cash 0.6
0.6
—
—
Short-term investments 21.8
—
21.8
—
Foreign currency hedges 4.6
—
4.6
—
Total Assets $ 159.5
$ 105.0
$ 27.9
$ —
Liabilities:
Foreign currency hedges $ 0.7
$ —
$ 0.7
$ —
Total Liabilities $ 0.7
$ —
$ 0.7
$ —

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~~include $37.0 million of held-to-maturity debt securities valued at amortized cost ~~which approximates~~as well as available-for-sale equity securities having an amortized cost of $11.5 million and a fair ~~value.~~value of $11.6 million. 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.

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Note 17 - Fair Value (continued)

~~Additionally,~~In addition, the Company remeasures certain assets at fair value, using Level 3 inputs, as a result of the occurrence of triggering events such as purchase accounting for acquisitions. See Note 3 - Acquisitions for further discussion.

No other material assets were measured at fair value on a nonrecurring basis during the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Financial Instruments:

The Company’s financial instruments consist primarily of cash and cash equivalents, short-term investments, accounts receivable, trade accounts payable, short-term borrowings and long-term debt. Due to their short-term nature, the carrying value of cash and cash equivalents, short-term investments, accounts receivable, trade accounts payable and short-term borrowings are a reasonable estimate of their fair value. Due to the nature of fair value calculations for variable-rate debt, the carrying value of the Company's long-term variable-rate debt is a reasonable estimate of its fair value. The fair value of the Company’s long-term fixed-rate debt, based on quoted market prices, was ~~$1,157.2~~$1,193.6 million and ~~$1,077.5~~$1,185.8 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The carrying value of this debt was ~~$1,062.6~~$1,096.8 million and ~~$1,070.7~~$1,086.5 million at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The fair value of long-term fixed-rate debt was measured using Level 2 inputs.

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

Note 18 - Derivative Instruments and Hedging Activities

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

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

On September 8, 2020, the Company entered into a $100 million floating-to-fixed rate swap on the 2023 Term Loan, which hedges the change in the 1-month LIBOR rate October 30, 2020 through September 11, 2023 to a fixed rate. The Company’s risk management objective is to hedge the risk of changes in the monthly interest expense attributable to changes in the benchmark interest rate.

On September 15, 2020, the Company designated €54.5 million of its €150.0 million fixed-rate senior unsecured notes, maturing on September 07, 2027 (2027 Notes) as a hedge against its net investment in one of its European affiliates. The objective of the hedge transaction is to protect the net investment in the foreign operations against changes in the exchange rate between the US dollar and the Euro. The net impact for the three months ended September 30, 2020 was to record a gain of $0.7 million to accumulated comprehensive loss with a corresponding offset to other (expense) income, which partially offsets the impact of the foreign currency adjustment on the 2027 Notes.

The Company does not purchase or hold any derivative financial instruments for trading purposes. As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company had ~~$230.9~~$155.3 million and ~~$218.8~~$295.7 million, respectively, of outstanding foreign currency forward contracts at notional value. Refer to Note 17 - Fair Value for the fair value disclosure of derivative financial instruments.

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Note 18 - Derivative Instruments and Hedging Activities (continued)

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 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.

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

As of September 30, 2020 and December 31, 2019, the Company had $81.1 million and $87.9 million, respectively, of outstanding foreign currency forward contracts at notional value that were classified as cash flow hedges.

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

Purpose for Derivative Instruments not designated as Hedging Instruments:

For derivative instruments that are not designated as hedging instruments, the instruments are typically forward contracts. In general, the practice is to reduce volatility by selectively hedging transaction exposures including intercompany loans, accounts payable and accounts receivable. Intercompany loans between entities with different functional currencies typically are hedged with a forward contract at the inception of the loan with a maturity date corresponding 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.

As of September 30, 2020 and December 31, 2019, the Company had $74.2 million and $207.8 million, respectively, of outstanding foreign currency forward contracts at notional value that were not designated as hedging instruments. The following table presents the impact of derivative instruments not designated as hedging instruments for the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~their~~the related location within the Consolidated Statements of Income:


		Amount of gain or (loss) recognized in income
		Three Months Ended September 30,				Nine Months Ended September 30,
Derivatives not designated as hedging instruments:	Location of gain or (loss) recognized in income	2020		2019		2020		2019

Foreign currency forward contracts	Other income (expense), net	$	(2.9)	$	6.3	$	(1.1)	$	9.0

Amount of gain or (loss) recognized in income
Three Months Ended
September 30, Nine Months Ended
September 30,
Derivatives not designated as hedging instruments: Location of gain or (loss) recognized in income 2019 2018 2019 2018
Foreign currency forward contracts Other income (expense), net $ 6.3
$ (0.8 ) $ 9.0
$ 6.4

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

(Dollars in millions, except per share data)

The Timken Company designs and manages a growing portfolio of engineered bearings and power transmission products. With more than a century of innovation and increasing knowledge, the Company continuously improves the reliability and efficiency of global machinery and equipment to move the world forward. The Company’s growing product and services portfolio features many strong industrial brands, such as Timken®, ~~Fafnir®,~~ Philadelphia Gear®, Drives®, Cone Drive®, ~~Diamond Chain®, Drives®,~~ Rollon®, Lovejoy®, Diamond®, BEKA® and Groeneveld®. Timken employs more than ~~18,000~~17,000 people globally in 3542 countries. The Company operates under two reportable segments: (1) Mobile Industries and (2) Process Industries. The following further describes these business segments:

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

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

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

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

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

The Company's strategy has three primary elements:

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

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


	Three Months Ended September 30,										Three Months Ended September 30,
	2019		2018		$ Change			% Change			2020		2019		$ Change		% Change
Net sales	$	914.0	$	881.3	$	32.7		3.7	%	Net sales	$	894.6	$	914.0	$	(19.4)	(2.1)	%
Net income	66.7		72.3		(5.6		)	(7.7	)%	Net income	91.3		66.7		24.6		36.9	%

Net income attributable to noncontrolling interest	2.5		0.7		1.8			257.1	%	Net income attributable to noncontrolling interest	2.5		2.5		—		—	%
Net income attributable to The Timken Company	$	64.2	$	71.6	$	(7.4	)	(10.3	)%	Net income attributable to The Timken Company	$	88.8	$	64.2	$	24.6	38.3	%

Diluted earnings per share	$	0.84	$	0.91	$	(0.07	)	(7.7	)%	Diluted earnings per share	$	1.16	$	0.84	$	0.32	38.1	%
Average number of shares – diluted	76,592,694		78,428,105		—			(2.3	)%	Average number of shares – diluted	76,286,136		76,592,694		—		(0.4)	%

The ~~increase~~decrease in net sales for the three months ended September 30, ~~2019~~2020 compared with the three months ended September 30, ~~2018~~2019 was primarily driven by lower organic revenue, partially offset by the benefit of ~~acquisitions partially offset by lower organic revenue mainly in the Mobile Industries segment and the unfavorable impact of foreign currency exchange rate changes.~~ acquisitions. The ~~decrease~~increase in net income for the three months ended September 30, ~~2019~~2020 compared with the three months ended September 30, ~~2018~~2019 was primarily due to ~~higher net actuarial losses for defined benefit~~ pension and other postretirement ~~plans,~~plan remeasurement income (versus expense in the same period a year ago), lower ~~volume, and a higher tax rate, partially offset by~~operating expenses reflecting the impact of cost reduction initiatives, favorable ~~price/mix, the net benefit of acquisitions,~~manufacturing utilization and a lower ~~material costs (including tariffs).~~

The increase in net sales for the first nine months of 2019 compared with the first nine months of 2018 was primarily driven by the benefit of acquisitions and the impact of higher pricing and higher organic revenue in the Process Industries segment,income tax rate, partially offset by the unfavorable impact of ~~foreign~~lower volume, price/mix, currency exchange rate ~~changes.~~ changes, and higher restructuring charges. Refer to Note 14 – Retirement Benefit Plans and Note 15 – Other Postretirement Benefit Plans in the Notes to the Consolidated Financial Statements for additional information on pension and other postretirement plan remeasurement income/expense in 2020 and 2019.

The ~~increase~~decrease in net ~~income~~sales for the ~~first~~ nine months ~~of 2019~~ended September 30, 2020 compared with the ~~first~~ nine months ~~of 2018~~ended September 30, 2019 was primarily ~~due to the net benefit of acquisitions, the impact of favorable price/mix,~~driven by lower organic revenue and ~~improved manufacturing utilization, partially offset by higher interest expense, a higher tax rate, and higher net actuarial gains and losses.~~

The Company expects 2019 full-year sales to increase approximately 5% to 6% compared with 2018 primarily due to the benefit of acquisitions, partially offset by the unfavorable impact of foreign currency exchange rate changes. The Company's earnings are expected to be higher in 2019 compared with 2018, primarily due to favorable price/mix, the benefit of acquisitions, lower material costs, partially offset by the unfavorable impact of foreign currency exchange rate changes, ~~as well as~~partially offset by the benefit of acquisitions. The decrease in net income for the nine months ended September 30, 2020 compared with the nine months ended September 30, 2019 was primarily due to the impact of lower volume and related manufacturing utilization, the unfavorable impact of foreign currency exchange rate changes and higher ~~income tax and interest expenses.~~restructuring charges. The ~~2019 outlook does not account for~~decrease was partially offset by lower operating expenses, reflecting cost reduction initiatives, pension and other ~~post retirement mark-to-market charges after~~postretirement plan remeasurement income (versus expense in the same period a year ago), lower material and logistics costs and favorable price/mix. Results for the nine months ended September 30, ~~2019, because such amounts will not~~2020 also benefited from favorable discrete tax adjustments and favorable property losses and related recoveries.

The world continues to be ~~known until triggered or until~~impacted by the ~~annual remeasurement~~COVID-19 pandemic. Throughout the pandemic, the Company has been adhering to mandates and other guidance from local governments and health authorities, including the World Health Organization and the Centers for Disease Control and Prevention. The Company has implemented risk mitigation plans across the enterprise to protect employees and reduce the risk of spreading the virus, while continuing to operate where permitted and to the extent practicable. Timken’s main priority is the health of its employees and others in the ~~fourth~~communities where it does business.

Throughout the COVID-19 pandemic, Timken has continued to operate and fill customer orders, and has adjusted production as required by local government directives and to reflect changes in global demand. For most of the second quarter, the Company's operations were adversely impacted by lower global demand caused by the ongoing spread of COVID-19 around the world, which included various customer shut-downs and government imposed operating restrictions in places like India and Italy. Government restrictions on Timken's operations were mostly lifted by the end of the second quarter. During the third quarter, Timken was able to operate with no major restrictions, and production levels improved from the second quarter.

During the second quarter, the Company took steps to reduce costs by implementing temporary salary reductions, work furloughs and other actions to align its costs with near-term demand expectations. During the third quarter, Timken continued certain temporary cost reduction actions and expanded and accelerated certain structural cost reduction initiatives to align its costs with near-term demand expectations and to improve the profitability of the Company longer term. Timken expects these structural cost reduction actions, in aggregate, to generate approximately $55 million to $60 million of total year-on-year savings in the second half of 2020.

Given the continued uncertainty surrounding the COVID-19 pandemic, the Company is not providing detailed sales and earnings guidance at this time. Timken expects fourth quarter 2020 revenue to be below the third quarter due to seasonality and below the fourth quarter of 2019 due to reduced demand, mainly due to COVID-19. The Company expects to generate positive cash flow during the fourth quarter of 2020 and improve operating ~~cash~~margins compared to the fourth quarter of ~~approximately $525 million in~~ 2019 an increase from 2018 of approximately $193 million or 58%, as the Company anticipates higher net income and lower working capital requirements. The Company expects capital expenditures of approximately $150 million in 2019, compared with $113 million in 2018.due to better cost performance.

The Statement of Income

Three Months Ended
September 30,
2019 2018 $ Change % Change
Net Sales $ 914.0
$ 881.3
$ 32.7
3.7 %


	Three Months Ended September 30,
	2020		2019		$ Change		% Change
Net Sales	$	894.6	$	914.0	$	(19.4)	(2.1)	%

Nine Months Ended
September 30,
2019 2018 $ Change % Change
Net Sales $ 2,893.7
$ 2,670.7
$ 223.0
8.3 %


	Nine Months Ended September 30,
	2020		2019		$ Change		% Change
Net Sales	$	2,621.5	$	2,893.7	$	(272.2)	(9.4)	%

Net sales ~~increased~~decreased for the three months ended September 30, ~~2019~~2020 compared with the three months ended September 30, ~~2018,~~ 2019. The decrease was primarily due to lower organic revenue of $47 million, partially offset by the benefit of acquisitions of ~~$70 million,~~$29 million. The lower organic revenue was driven by lower demand across most end markets, partially offset by significant growth in renewable energy.

Net sales decreased for the nine months ended September 30, 2020 compared with the nine months ended September 30, 2019. The decrease was primarily due to lower organic revenue of ~~$26~~$336 million and the unfavorable impact of foreign currency exchange rate changes of ~~$12 million. The decrease in organic revenue was primarily driven by reduced demand mainly in the Mobile Industries segment,~~$44 million, partially offset by ~~improved pricing.~~

~~Net sales increased for the first nine months of 2019 compared with the first nine months of 2018, primarily due to~~ the benefit of acquisitions of ~~$239 million and higher~~$107 million. The lower organic revenue was primarily due to the impact of ~~$46 million,~~the COVID-19 pandemic that impacted most end markets, partially offset by growth in renewable energy.


	Nine Months Ended September 30,
	2020			2019			$ Change		Change
Gross profit	$	772.9		$	885.8		$	(112.9)	(12.7	%)
Gross profit % to net sales	29.5		%	30.6		%			(110)	bps

Gross profit decreased for the three months ended September 30, 2020 compared with the three months ended September 30, 2019, primarily due to the impact of lower volume of $24 million and the unfavorable impact of foreign currency exchange rate changes of ~~$65~~$6 million, partially offset by favorable manufacturing performance of $10 million, and the net benefit of acquisitions of $8 million. ~~The increase in organic revenue was driven primarily by improved demand in the Process Industries segment, as well as the impact of improved pricing.~~

Three Months Ended
September 30,
2019 2018 $ Change Change
Gross profit $ 277.5
$ 253.3
$ 24.2
9.6 %
Gross profit % to net sales 30.4 % 28.7 %

170 bps

Nine Months Ended
September 30,
2019 2018 $ Change Change
Gross profit $ 885.8
$ 785.6
$ 100.2
12.8 %
Gross profit % to net sales 30.6 % 29.4 % 120 bps

Gross profit ~~increased in~~decreased for the ~~three~~nine months ended September 30, 2020 compared with the nine months ended September 30, 2019, ~~compared with the three months ended September 30, 2018,~~ primarily due to ~~the benefit of acquisitions of $23 million and favorable price/mix of $15 million, partially offset by~~ the impact of lower volume of ~~$16 million.~~

~~Gross profit increased in the first nine months of 2019 compared with the first nine months of 2018, primarily due to the benefit of acquisitions of $77~~$152 million, ~~favorable price/mix of $40 million, and lower logistics costs of $9 million. These factors were partially offset by~~ the unfavorable impact of foreign currency exchange rate changes of ~~$11 million, higher material costs (including tariffs) of $10~~$25 million, and the related manufacturing utilization of $14 million. These items were partially offset by the net benefit of acquisitions of $29 million, lower material and logistics costs of $25 million, and favorable price/mix of $16 million. In addition, the Company recognized net insurance proceeds of $4 million for the first nine months of 2020 after incurring property ~~loss~~losses of ~~$7 million.~~$6 million in the first nine months of 2019.

Selling, General and Administrative Expenses:


	Three Months Ended September 30,											Three Months Ended September 30,
	2019			2018			$ Change		Change			2020			2019			$ Change		Change
Selling, general and administrative expenses	$	148.0		$	142.0		$	6.0	4.2	%	Selling, general and administrative expenses	$	132.7		$	148.0		$	(15.3)	(10.3	%)
Selling, general and administrative expenses % to net sales	16.2		%	16.1		%			10	bps	Selling, general and administrative expenses % to net sales	14.8		%	16.2		%			(140)	bps

SG&A expenses decreased in the three months ended September 30, 2020 compared with the three months ended September 30, 2019, primarily due to lower employee costs and related benefits, including temporary salary reductions and permanent headcount reductions, and lower discretionary spending. Performance-based compensation was also lower in the third quarter of 2020.

SG&A expenses decreased in the nine months ended September 30, 2020 compared with the nine months ended September 30, 2019, primarily due to lower employee costs and related benefits and lower discretionary spending as the Company implemented cost reduction initiatives, including temporary salary reductions, work furloughs and permanent headcount reductions, to reduce costs to combat the impact of the COVID-19 pandemic and lower demand. Performance-based compensation was also lower for the nine months ended September 30, 2020.

~~The increase in selling, general~~

Impairment and ~~administrative ("SG&A") expenses when comparing~~Restructuring:


	Three Months Ended September 30,
	2020		2019		$ Change		% Change
Impairment charges	$	—	$	0.1	$	(0.1)	(100.0)	%
Severance and related benefit costs	11.9		0.8		11.1		1,387.5	%
Exit costs	0.1		0.7		(0.6)		(85.7)	%
Total	$	12.0	$	1.6	$	10.4	650.0	%


	Nine Months Ended September 30,
	2020		2019		$ Change		% Change
Impairment charges	$	0.1	$	0.8	$	(0.7)	(87.5)	%
Severance and related benefit costs	17.8		1.6		16.2		1,012.5	%
Exit costs	0.8		1.1		(0.3)		(27.3)	%
Total	$	18.7	$	3.5	$	15.2	434.3

Impairment and restructuring charges of $1.6 million and ~~$38.1~~$3.5 million ~~impact of acquisitions, partially offset by lower compensation expense of $5.3 and $10.2 million, respectively.~~

~~Interest Income and Expense:~~

Three Months Ended
September 30,
2019 2018 $ Change % Change
Interest expense $ (18.2 ) $ (12.5 ) $ (5.7 ) 45.6 %
Interest income $ 1.1
$ 0.6
$ 0.5
83.3 %

Nine Months Ended
September 30,
2019 2018 $ Change % Change
Interest (expense) $ (55.5 ) $ (33.2 ) $ (22.3 ) 67.2 %
Interest income $ 3.5
$ 1.5
$ 2.0
133.3 %

~~The increase in interest expense for~~during the three and nine months ended September 30, 2019 ~~compared~~were primarily due to severance and related benefits associated with a variety of initiatives to reduce headcount.

The Company expects to generate approximately $55 million to $60 million in year-over-year cost savings during the second half of 2020 as a result of company-wide cost reduction initiatives, including the above mentioned actions.

Refer to Note 13 - Impairment and Restructuring Charges inthe Notes to the Consolidated Financial Statements for additional information.

Other Income (Expense):


	Nine Months Ended September 30,
	2020		2019		$ Change		% Change

Non-service pension and other postretirement income (expense)	$	13.4	$	(14.1)	$	27.5	(195.0)	%
Other income, net	1.1		10.5		(9.4)		(89.5)	%
Total other income (expense), net	$	14.5	$	(3.6)	$	18.1	(502.8)	%

The Company recognized non-service pension and other postretirement income in the three and nine months ended September 30, ~~2018 was primarily due~~2020 compared to ~~an increase in outstanding debt to fund acquisitions.~~

~~Other Income (Expense):~~

Three Months Ended
September 30,
2019 2018 $ Change % Change
Non-service pension and other postretirement
expense
$ (14.4 ) $ (3.2 ) $ (11.2 ) 350.0 %
Other income, net 5.8
3.7
2.1
56.8 %
Total other (expense) income, net $ (8.6 ) $ 0.5
$ (9.1 ) NM

Nine Months Ended
September 30,
2019 2018 $ Change % Change
Non-service pension and other postretirement
(expense) income
$ (14.1 ) $ 2.5
$ (16.6 ) (664.0 )%
Other income, net 10.5
7.3
3.2
43.8 %
Total other (expense) income, net $ (3.6 ) $ 9.8
$ (13.4 ) (136.7 )%

~~Non-service~~ pension and other postretirement expense ~~increased~~ in the three and nine months ended September 30, 2019, ~~compared with the three and nine months ended September 30, 2018,~~ primarily due to ~~higher~~pension actuarial gains in 2020 compared to pension and other postretirement plan actuarial losses ~~of $12 million and $14 million, respectively.~~in 2019. The actuarial gains in 2020 were primarily due to a pension plan remeasurement triggered by lump sum payments to new retirees exceeding annual service and interest costs for one the Company’s U.S. defined benefit pension plans, and actuarial losses in 2019 were due to a pension ~~and~~plan remeasurement triggered by the payment of deferred compensation to a former executive officer, as well as the remeasurement triggered by a plan amendment of the Company’s other postretirement benefit ~~remeasurement. See~~ plans. In addition, there was higher amortization of prior service credit in the current year due to a plan amendment for the Company's postretirement benefit plans in the second half of 2019. Refer to Note 14 - Retirement Benefit Plans and Note 15 - Other Postretirement Benefit Plansinthe Notes to the Consolidated Financial Statements for ~~further discussion.~~additional information.

Other (expense) income, net decreased in the three months ended September 30, 2020 compared with the three months ended September 30, 2019, primarily due to higher foreign currency exchange losses and lower royalty income. Other income, net decreased in the nine months ended September 30, 2020 compared with the nine months ended September 30, 2019, primarily due to higher losses on the disposal of fixed assets, lower foreign currency gains, and lower royalty income.

Income tax expense ~~increased $26.9~~decreased $26.2 million for the ~~first~~ nine months ~~of 2019~~ended September 30, 2020 compared with the ~~first~~ nine months ~~of 2018~~ended September 30, 2019 primarily due to ~~higher~~lower pre-tax earnings. Income tax expense was also lower due to the projected ~~pretax~~decrease in the mix of earnings in the international jurisdictions with relatively higher tax ~~rates. Income tax expense also increased due to higher discrete tax expense in the current year period primarily related to~~rates and additional accruals recorded discretely for uncertain tax positions in the prior year related to U.S. Tax ~~Reform, as well as higher discrete tax benefits recorded in the prior year.~~

Refer to Note 166 - Income Taxesfor more information on the computation of the income tax expense in interim periods.

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), enacted by the U.S. on March 27, 2020, did not have a material impact on the Company's provision for income taxes for the nine months ended September 30, 2020. The Company is continuing to analyze the ongoing impact of the CARES Act.

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. Beginning in the fourth quarter of 2019, the main operating income metric used by management to measure the financial performance of each segment was EBITDA. The Company made this change because recent acquisitions have resulted in an increased amount of purchase accounting amortization expense that affects comparability of results across periods and versus other companies. The primary measurement used by management to measure the financial performance of each segment ~~is EBIT.~~prior to the fourth quarter of 2019 was earnings before interest and taxes ("EBIT"). Segment results have been revised for all periods presented to be consistent with the new measure of segment performance. Refer to Note 135 - Segment Information in the Notes to the Consolidated Financial Statements for the reconciliation of ~~EBIT~~EBITDA 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 ~~and divestitures~~ completed in ~~2019~~2020 and ~~2018~~2019 and foreign currency exchange rate changes. The effects of acquisitions ~~divestitures~~ and foreign currency exchange rate changes on net sales are removed to allow investors and the Company to meaningfully evaluate the percentage change in net sales on a comparable basis from period to period.

The following items highlight the Company's acquisitions ~~and divestitures~~ completed in 2019~~and 2018~~ by segment based on the customers and underlying markets served:

•The Company acquired BEKA during the fourth quarter of 2019. The majority of the results for BEKA are reported in the Mobile Industries segment.

•The Company acquired Diamond Chain during the second quarter of 2019. ~~Substantially all~~The majority of the results for Diamond Chain are reported in the Process Industries segment.

~~The Company acquired Rollon, Cone Drive and ABC Bearings during the third quarter~~

Table of 2018. Substantially all of the results for Cone Drive and Rollon are reported in the Process Industries segment. Substantially all of the results for ABC Bearings are reported in the Mobile Industries segment.Contents

~~The Company divested Groeneveld Information Technology Holding B.V. (the "ICT Business") on September 19, 2018. Results for the ICT Business were reported in the Mobile Industries segment.~~

Mobile Industries Segment:


	Three Months Ended September 30,
	2020			2019			$ Change		Change
Net sales	$	428.6		$	455.1		$	(26.5)	(5.8	%)
EBITDA	$	64.0		$	70.1		$	(6.1)	(8.7	%)
EBITDA margin	14.9		%	15.4		%			(50)	bps

Three Months Ended
September 30,
2019 2018 $ Change Change
Net sales $ 455.1
$ 464.2
$ (9.1 ) (2.0 %)
EBIT $ 52.0
$ 50.6
$ 1.4
2.8 %
EBIT margin 11.4 % 10.9 % 50 bps


	Three Months Ended September 30,
	2020		2019		$ Change		% Change
Net sales	$	428.6	$	455.1	$	(26.5)	(5.8	%)
Less: Acquisitions	19.8		—		19.8		NM

Currency	(2.6)		—		(2.6)		NM
Net sales, excluding the impact of acquisitions and currency	$	411.4	$	455.1	$	(43.7)	(9.6	%)

Three Months Ended
September 30,
2019 2018 $ Change % Change
Net sales $ 455.1
$ 464.2
$ (9.1 ) (2.0 %)
Less: Acquisitions 20.2
—
20.2
NM
Divestitures (2.0 ) —
(2.0 ) NM
Currency (5.2 ) —
(5.2 ) NM
Net sales, excluding the impact of acquisitions, divestitures and currency $ 442.1
$ 464.2
$ (22.1 ) (4.8 %)


	Nine Months Ended September 30,
	2020			2019			$ Change		Change
Net sales	$	1,237.9		$	1,448.8		$	(210.9)	(14.6	%)
EBITDA	$	177.9		$	227.4		$	(49.5)	(21.8	%)
EBITDA margin	14.4		%	15.7		%			(130)	bps

Nine Months Ended
September 30,
2019 2018 $ Change % Change
Net sales $ 1,448.8
$ 1,441.8
$ 7.0
0.5 %
EBIT $ 172.5
$ 156.2
$ 16.3
10.4 %
EBIT margin 11.9 % 10.8 % —
110 bps


	Nine Months Ended September 30,
	2020		2019		$ Change		% Change
Net sales	$	1,237.9	$	1,448.8	$	(210.9)	(14.6	%)
Less: Acquisitions	67.5		—		67.5		NM

Currency	(24.0)		—		(24.0)		NM
Net sales, excluding the impact of acquisitions and currency	$	1,194.4	$	1,448.8	$	(254.4)	(17.6	%)

Nine Months Ended
September 30,
2019 2018 $ Change % Change
Net sales $ 1,448.8
$ 1,441.8
$ 7.0
0.5 %
Less: Acquisitions 67.0
—
67.0
NM
Divestitures (8.5 ) —
(8.5 ) NM
Currency (32.7 ) —
(32.7 ) NM
Net sales, excluding the impact of acquisitions, divestitures and currency $ 1,423.0
$ 1,441.8
$ (18.8 ) (1.3 %)

The Mobile Industries segment's net sales, excluding the effects of acquisitions ~~divestitures~~ and foreign currency exchange rate changes, decreased ~~$22.1~~$43.7 million or ~~4.8%~~9.6% in the three months ended September 30, ~~2019~~2020 compared with the three months ended September 30, ~~2018,~~2019, reflecting lower shipments ~~in the off highway and heavy truck sectors, partially offset~~across most market sectors. EBITDA decreased by ~~organic growth in the rail and automotive sectors, as well as higher pricing. EBIT increased by $1.4~~$6.1 million or ~~2.8%~~8.7% in the three months ended September 30, ~~2019~~2020 compared with the three months ended September 30, ~~2018,~~2019, primarily due to ~~favorable price/mix, lower material and logistics costs, the benefit of acquisitions, net of divestitures, partially offset by~~ the impact of lower volume and ~~related~~higher restructuring charges. The decrease was partially offset by the favorable impact of cost-reductions, improved manufacturing ~~utilization.~~performance, lower material and logistics costs and the favorable impact of acquisitions.

The Mobile Industries segment's net sales, excluding the effects of acquisitions ~~divestitures~~ and foreign currency exchange rate changes, decreased ~~$18.8~~$254.4 million or ~~1.3%~~17.6% in the ~~first~~ nine months ~~of 2019~~ended September 30, 2020 compared with the ~~first~~ nine months ~~of 2018,~~ ended September 30, 2019, reflecting lower shipments ~~in the off highway and heavy truck~~across most market sectors, partially offset by ~~organic growth~~higher pricing. EBITDA decreased by $49.5 million or 21.8% in the ~~aerospace, automotive and rail sectors, as well as higher pricing. EBIT increased by $16.3 million or 10.4% in the first~~ nine months ~~of 2019~~ended September 30, 2020 compared with the ~~first~~ nine months ~~of 2018,~~ended September 30, 2019, primarily due to ~~the net benefit of acquisitions, lower logistics costs, lower SG&A and favorable price/mix. These factors were partially offset by~~ the impact of lower volume and related manufacturing performance, as well as ~~property losses and related expenses from flood damage at a Company facility in Tennessee and fire damage at its facility in China.~~

Full-year sales for the Mobile Industries segment are expected to be approximately flat to down 1% in 2019 compared with 2018. This reflects slightly lower organic revenue in off-highway and heavy truck and the unfavorable impact of foreign currency exchange rate ~~changes,~~changes. These decreases were partially offset by the growth in the aerospace and rail sectors, as well as benefit of acquisitions net of divestitures. EBIT for the Mobile Industries segment is expected to increase in 2019 compared with 2018 primarily due to thefavorable impact of ~~favorable~~cost reductions and price/mix, lower ~~logistics~~material and ~~SG&A~~logistics costs, and the favorable impact of ~~acquisitions, partially offset by the impact~~acquisitions.

Table of ~~lower volume and unfavorable foreign currency exchange rate changes.~~Contents

Process Industries Segment:


	Three Months Ended September 30,
	2020			2019			$ Change		Change
Net sales	$	466.0		$	458.9		$	7.1	1.5	%
EBITDA	$	109.2		$	116.5		$	(7.3)	(6.3	%)
EBITDA margin	23.4		%	25.4		%			(200) bps

Three Months Ended
September 30,
2019 2018 $ Change Change
Net sales $ 458.9
$ 417.1
$ 41.8
10.0 %
EBIT $ 95.6
$ 81.8
$ 13.8
16.9 %
EBIT margin 20.8 % 19.6 % 120 bps


	Three Months Ended September 30,
	2020		2019		$ Change		% Change
Net sales	$	466.0	$	458.9	$	7.1	1.5	%
Less: Acquisitions	8.9		—		8.9		NM
Currency	1.1		—		1.1		NM
Net sales, excluding the impact of acquisitions and currency	$	456.0	$	458.9	$	(2.9)	(0.6)	%


	Nine Months Ended September 30,
	2020			2019			$ Change		Change
Net sales	$	1,383.6		$	1,444.9		$	(61.3)	(4.2	%)
EBITDA	$	343.0		$	369.8		$	(26.8)	(7.2	%)
EBITDA margin	24.8		%	25.6		%			(80) bps


	Three Months Ended September 30,											Nine Months Ended September 30,
	2019			2018		$ Change			% Change			2020		2019		$ Change		% Change
Net sales	$	458.9		$	417.1	$	41.8		10.0	%	Net sales	$	1,383.6	$	1,444.9	$	(61.3)	(4.2	%)
Less: Acquisitions	52.1			—		52.1			NM		Less: Acquisitions	39.7		—		39.7		NM
Currency	(6.5		)	—		(6.5		)	NM		Currency	(19.9)		—		(19.9)		NM
Net sales, excluding the impact of acquisitions and currency	$	413.3		$	417.1	$	(3.8	)	(0.9	)%	Net sales, excluding the impact of acquisitions and currency	$	1,363.8	$	1,444.9	$	(81.1)	(5.6)	%

Nine Months Ended
September 30,
2019 2018 $ Change Change
Net sales $ 1,444.9
$ 1,228.9
$ 216.0
17.6 %
EBIT $ 304.8
$ 254.0
$ 50.8
20.0 %
EBIT margin 21.1 % 20.7 % 40 bps

Nine Months Ended
September 30,
2019 2018 $ Change % Change
Net sales $ 1,444.9
$ 1,228.9
$ 216.0
17.6 %
Less: Acquisitions 181.0
—
181.0
NM
Currency (32.0 ) —
(32.0 ) NM
Net sales, excluding the impact of acquisitions and currency $ 1,295.9
$ 1,228.9
$ 67.0
5.5 %

The Process Industries segment's net sales, excluding the effects of acquisitions and foreign currency exchange rate changes, decreased ~~$3.8~~$2.9 million or ~~0.9%~~0.6% in the three months ended September 30, ~~2019~~2020 compared with the three months ended September 30, ~~2018.~~2019. The decrease was primarily driven by lower demand across most ~~sectors, including~~ industrial ~~services and general industrial,~~sectors, partially offset by increased demand in the ~~wind~~renewable energy sector and ~~marine sectors, as well as positive~~higher pricing. ~~EBIT increased $13.8~~EBITDA decreased $7.3 million or ~~16.9%~~6.3% in the three months ended September 30, ~~2019~~2020 compared with the three months ended September 30, ~~2018~~2019 primarily due to ~~favorable~~lower volume and the unfavorable impact of price/mix ~~the net benefit of acquisitions,~~ and ~~lower tariff costs. These factors were~~foreign currency exchange rate changes, as well as higher restructuring charges, partially offset by the favorable impact of ~~lower volume.~~cost reductions and improved manufacturing performance.

~~The~~The Process Industries segment's net sales, excluding the effects of acquisitions and foreign currency exchange rate changes, ~~increased $67.0~~decreased $81.1 million or ~~5.5%~~5.6% in the ~~first~~ nine months ~~of 2019~~ended September 30, 2020 compared with the ~~first~~ nine months ~~of 2018.~~ended September 30, 2019. The ~~increase~~decrease was primarily driven by ~~increased~~lower demand across most ~~sectors, led by wind energy, heavy industries, marine, and~~ industrial distribution, as well as positive pricing. EBIT increased $50.8 million or 20.0% in the first nine months of 2019 compared with the first nine months of 2018 primarily due to the net benefit of acquisitions, favorable price/mix, and higher volume. These factors weresectors, partially offset by ~~higher material costs (including tariffs), higher SG&A costs, and the negative impact of foreign currency exchange rate changes.~~

Full-year sales for the Process Industries segment are expected to be up approximately 12% to 13% in 2019 compared with 2018. This reflects the expected benefit of acquisitions, as well as organic growthincreased demand in the renewable energy ~~and marine market sectors, partially offset by a decline~~sector, as well as higher pricing. EBITDA decreased $26.8 million or 7.2% in ~~industrial services and~~ the ~~unfavorable impact of foreign currency exchange rate changes. EBIT for the Process Industries segment is expected to increase in 2019~~nine months ended September 30, 2020 compared with ~~2018 primarily due to favorable price/mix,~~ the benefit of acquisitions, the impact of higher volume, and related improved manufacturing utilization, partially offset by higher SG&A expense, the negative impact of foreign currency exchange rate changes, and higher material costs (including tariffs).

~~Corporate:~~

Three Months Ended
September 30,
2019 2018 $ Change Change
Corporate expenses $ 11.4
$ 17.9
$ (6.5 ) (36.3%)
Corporate expenses % to net sales 1.2 % 2.0 % (80) bps

Nine Months Ended
September 30,
2019 2018 $ Change Change
Corporate expenses $ 41.1
$ 47.2
$ (6.1 ) (12.9%)
Corporate expenses % to net sales 1.4 % 1.8 % (40) bps

~~Corporate expenses decreased in the three and~~ nine months ended September 30, 2019 primarily due to the impact of lower demand and the impact of unfavorable foreign currency exchange rate changes, partially offset by the favorable impact of cost reductions, lower material and logistics costs and the favorable impact of acquisitions.

Table of Contents

Corporate:


	Three Months Ended September 30,
	2020			2019			$ Change		Change
Corporate EBITDA	$	(10.6)		$	(11.2)		$	0.6	(5.4%)
Corporate EBTIDA % to net sales	(1.2)		%	(1.2)		%			— bps


	Nine Months Ended September 30,
	2020			2019			$ Change		Change
Corporate EBITDA	$	(28.2)		$	(40.6)		$	12.4	(30.5%)
Corporate EBTIDA % to net sales	(1.1)		%	(1.4)		%			30 bps

Corporate EBITDA increased in the three months ended September 30, 2020 compared with the three ~~and~~months ended September 30, 2019, primarily due to the favorable impact of cost reductions.

Corporate EBITDA increased in the nine months ended September 30, ~~2018,~~2020 compared with the nine months ended September 30, 2019, primarily due to ~~higher~~the favorable impact of cost reductions, lower performance-based compensation and lower transaction costs related to ~~acquisitions in 2018.~~acquisitions.

Table of Contents

The Balance Sheet

The following discussion is a comparison of the Consolidated Balance Sheets at September 30, ~~2019~~2020 and December 31, ~~2018~~2019.

Current Assets:


	September 30, 2020		December 31, 2019		$ Change		% Change
Cash and cash equivalents	$	313.1	$	209.5	$	103.6	49.5	%
Restricted cash	0.9		6.7		(5.8)		(86.6)	%
Accounts receivable, net	571.5		545.1		26.4		4.8	%
Unbilled receivables	141.1		129.2		11.9		9.2	%
Inventories, net	789.9		842.0		(52.1)		(6.2)	%

Deferred charges and prepaid expenses	32.7		36.7		(4.0)		(10.9)	%

Other current assets	115.3		105.4		9.9		9.4	%
Total current assets	$	1,964.5	$	1,874.6	$	89.9	4.8	%

September 30,
2019 December 31,
2018 $ Change % Change
Cash and cash equivalents $ 181.4
$ 132.5
$ 48.9
36.9 %
Restricted cash 0.5
0.6
(0.1 ) (16.7 )%
Accounts receivable, net 548.3
546.6
1.7
0.3 %
Unbilled receivables 151.6
116.6
35.0
30.0 %
Inventories, net 805.3
835.7
(30.4 ) (3.6 )%
Deferred charges and prepaid expenses 30.1
28.2
1.9
6.7 %
Other current assets 90.2
77.0
13.2
17.1 %
Total current assets $ 1,807.4
$ 1,737.2
$ 70.2
4.0 %

Refer to the "Cash Flows" section for a discussion on the change in Cash and cash equivalents. ~~Unbilled receivables~~Accounts receivable increased primarily due to higher ~~marine production~~net sales in August and ~~related~~September 2020 as compared to net sales in November and December 2019. The increase in unbilled receivables was primarily due to an increase of revenue recognized ~~over time~~for marine contracts in ~~September 2019 compared to December 2018.~~ 2020.

Inventories, net decreased primarily ~~decreased~~ due to a decrease in finished goods inventory as a result of higher sales volume for the ~~Company's~~last two months of third quarter of 2020, compared with the last two months of fourth quarter of 2019, as well as inventory management efforts to reduce inventory to meet current demand and the impact of foreign currency exchange rate changes, partially offset by inventory related to recent acquisitions. The increase in other current assets was primarily due to the increase in the fair value of derivative instruments outstanding.levels.

Property, Plant and Equipment, Net:


	September 30, 2020		December 31, 2019		$ Change		% Change


Property, plant and equipment, net	$	980.2	$	989.2	$	(9.0)	(0.9)	%

September 30,
2019 December 31,
2018 $ Change % Change
Property, plant and equipment, net $ 906.8
$ 912.1
$ (5.3 ) (0.6 )%

The decrease in net property, plant and equipment ~~("PP&E")~~ for the ~~first~~ nine months of ~~2019~~2020 was primarily due to depreciation of $83 millionin ~~2019 of $77 million~~ 2020 and the ~~net impact~~designation of certain assets totaling $4 million as held for sale, partially offset by capital expenditures of $82 million.

Other Assets:


	September 30, 2020		December 31, 2019		$ Change		% Change
Goodwill	$	1,021.1	$	993.7	$	27.4	2.8	%
Other intangible assets	737.2		758.5		(21.3)		(2.8)	%
Operating lease assets	105.4		114.1		(8.7)		(7.6)	%
Non-current pension assets	9.0		3.4		5.6		164.7	%
Non-current other postretirement benefit assets	—		36.6		(36.6)		(100.0)	%
Deferred income taxes	72.9		71.8		1.1		1.5	%

Other non-current assets	18.8		18.0		0.8		4.4	%
Total other assets	$	1,964.4	$	1,996.1	$	(31.7)	(1.6)	%

The increase in goodwill was primarily due to foreign currency exchange rate changes of ~~$19 million, partially offset by capital expenditures of $81 million and the addition of PP&E related to recent acquisitions of $11~~$21 million.

~~Operating Lease Assets~~

September 30,
2019 December 31,
2018 $ Change % Change
Operating lease assets $ 115.0
$ —
$ 115.0
NM

The increase in operating lease assets in the first nine months of 2019 was primarily due to the adoption of the new lease accounting standard. The increase also includes the reclassification of $15.3 million of lease assets from non-current assets to operating lease assets related to purchase accounting adjustments from the ABC Bearings acquisition. These assets do not have corresponding lease liabilities. Refer to ~~Note 2 - Significant Accounting Policies~~ ~~in the Notes to the Consolidated Financial Statements for further discussion.~~

~~Other Assets:~~

September 30,
2019 December 31,
2018 $ Change % Change
Goodwill $ 954.7
$ 960.5
$ (5.8 ) (0.6 )%
Other intangible assets 702.8
733.2
(30.4 ) (4.1 )%
Non-current pension assets 11.8
6.2
5.6
90.3 %
Non-current other postretirement benefit assets 23.5
—
23.5
NM
Deferred income taxes 27.3
59.0
(31.7 ) (53.7 )%
Other non-current assets 16.0
37.0
(21.0 ) (56.8 )%
Total other assets $ 1,736.1
$ 1,795.9
$ (59.8 ) (3.3 )%

The decrease in other intangible assets was primarily due to current-year ~~amortization~~amortization of ~~$43~~$42 million, ~~and~~partially offset by the ~~unfavorable~~ impact of foreign currency exchange rate changes of ~~$21 million, partially offset by current-year acquisitions~~$16 million.

Table of $31 million. During the third quarter, the Company made changes to the medical plan offerings for certain Company postretirement benefit plans, effective January 1, 2020, which will impact the benefits provided to certain retirees. The plan amendment triggered a remeasurement, which resulted in a reduction in the postretirement benefit obligation and a corresponding pretax adjustment to accumulated other comprehensive loss. In addition,Contents

At December 31, 2019, as a result of a plan amendment, one of the ~~remeasurement, certain~~Company's postretirement benefit plans ~~became~~was overfunded. The decrease in non-current other postretirement benefit assets was due to the creation of a new VEBA trust in January 2020. The Company transferred $50 million from an existing VEBA trust under the overfunded ~~by $23.5 million.~~plan to fund the new VEBA trust to pay certain active employees' medical benefits, which caused the postretirement plan to become underfunded. The ~~remeasurement also resulted in a reduction in deferred income taxes~~remaining balance of ~~$25~~this plan, after the transfer of the $50 million, ~~for~~was reclassified to accrued postretirement benefits on the ~~first nine months~~Consolidated Balance sheet as of ~~2019. See~~ September 30, 2020. Refer to Note 15 - Other Postretirement Benefit Plans inthe Notes to the Consolidated Financial Statements for ~~further discussion.~~ additional information.

Current Liabilities:


	September 30, 2020		December 31, 2019		$ Change		% Change
Short-term debt	$	64.8	$	17.3	$	47.5	274.6	%
Current portion of long-term debt	10.8		64.7		(53.9)		(83.3)	%
Short-term operating lease liabilities	26.6		28.3		(1.7)		(6.0)	%
Accounts payable	306.7		301.7		5.0		1.7	%
Salaries, wages and benefits	116.7		134.5		(17.8)		(13.2)	%
Income taxes payable	23.3		17.8		5.5		30.9	%

Other current liabilities	191.5		172.3		19.2		11.1	%

Total current liabilities	$	740.4	$	736.6	$	3.8	0.5	%

The ~~decrease~~increase in ~~other non-current assets~~short-term debt was primarily due to the ~~reclassification~~increase in borrowings under variable-rate lines of ~~$15.3 million of lease assets from non-current assets to operating lease assets related to~~credit for the ~~ABC Bearings acquisition.~~

~~Current Liabilities:~~

September 30,
2019 December 31,
2018 $ Change % Change
Short-term debt $ 34.8
$ 33.6
$ 1.2
3.6 %
Current portion of long-term debt 61.8
9.4
52.4
557.4 %
Short-term operating lease liabilities 28.0
—
28.0
NM
Accounts payable 265.2
273.2
(8.0 ) (2.9 )%
Salaries, wages and benefits 116.9
174.9
(58.0 ) (33.2 )%
Income taxes payable 23.2
23.5
(0.3 ) (1.3 )%
Other current liabilities 174.7
171.0
3.7
2.2 %
Total current liabilities $ 704.6
$ 685.6
$ 19.0
2.8 %

Company's foreign subsidiaries. The ~~increase~~decrease in the current portion of long-term debt was primarily due to the payment of $47 million on the Company's 2020 Term Loan ~~being reclassified to current portion of long-term debt as it matures on~~that matured in September ~~18,~~ 2020.

~~The increase in short-term operating lease liabilities was primarily due to the adoption of the new lease accounting standard. Refer to~~ ~~Note 2 - Significant Accounting Policies~~ ~~in the Notes to the Consolidated Financial Statements for further discussion.~~

~~The~~

The decrease in accrued salaries, wages and benefits was primarily due to ~~timing as~~ the ~~payments for 2018 performance-based compensation exceeded accruals for~~ 2019 performance-based compensation ~~expense during the first nine months of the year. In addition, the current pension liability decreased due to the payout of deferred compensation to a former executive of the Company.~~accruals exceeding similar accruals for 2020.

~~Non-Current Liabilities:~~

September 30,
2019 December 31,
2018 $ Change % Change
Long-term debt $ 1,553.5
$ 1,638.6
$ (85.1 ) (5.2 )%
Accrued pension benefits 167.8
161.3
6.5
4.0 %
Accrued postretirement benefits 36.9
108.7
(71.8 ) (66.1 )%
Long-term operating lease liabilities 72.3
—
72.3
NM
Deferred income taxes 131.7
138.0
(6.3 ) (4.6 )%
Other non-current liabilities 81.0
70.3
10.7
15.2 %
Total non-current liabilities $ 2,043.2
$ 2,116.9
$ (73.7 ) (3.5 )%

The decrease in long-term debt was primarily due to the 2020 Term Loan being reclassified to current portion of long- term debt as it matures on September 18, 2020. In addition, $13 million of the outstanding borrowings under the Accounts Receivable Facility was classified as short-term and reflects the Company's expectations relative to the minimum borrowing base at September 30, 2019.

The decrease in accrued postretirement benefits was primarily due to changes to the medical plan offerings for certain of the Company's postretirement benefit plans, effective January 1, 2020, which will impact the benefits provided to certain retirees. The plan amendment triggered a remeasurement, which resulted in a $103.5 million reduction in the postretirement benefit obligation and a corresponding pretax adjustment to accumulated other comprehensive loss. This reduction was partially offset by a reclassification of $22.6 million to a non-current postretirement benefit asset as one of the Company’s plans became over-funded, as well as the recognition of actuarial losses of $9.9 million due to the remeasurement of plan assets and obligations.

The increase in ~~long-term operating lease~~other current liabilities was primarily due to an increase in accrued taxes of $8 million, mostly related to higher value-added tax corresponding to higher net sales in August and September 2020 as compared to net sales in November and December 2019. In addition, accrued restructuring increased $5 million as compared to the ~~adoption of the new lease accounting standard.~~prior year end. Refer toNote 213 - ~~Significant Accounting Policies~~ Impairment and Restructuring Chargesin the Notes to the Consolidated Financial Statements for ~~further discussion.~~additional information.

Table of Contents

Non-Current Liabilities:


	September 30, 2020		December 31, 2019		$ Change		% Change
Long-term debt	$	1,533.0	$	1,648.1	$	(115.1)	(7.0)	%
Accrued pension benefits	161.5		165.1		(3.6)		(2.2)	%
Accrued postretirement benefits	44.8		31.8		13.0		40.9	%
Long-term operating lease liabilities	66.0		71.3		(5.3)		(7.4)	%
Deferred income taxes	162.3		168.2		(5.9)		(3.5)	%

Other non-current liabilities	102.1		84.0		18.1		21.5	%
Total non-current liabilities	$	2,069.7	$	2,168.5	$	(98.8)	(4.6)	%

The decrease in long-term debt was due to the reduction in borrowings under the Accounts Receivable facility as the Company fully paid the outstanding balance of $98.2 million that was classified as long-term at December 31, 2019 while also reducing its borrowing under the Senior Credit Facility.

The increase in accrued postretirement benefits was primarily due to the creation of the new VEBA trust. In January 2020, the Company transferred $50 million from an existing VEBA trust under the Company's postretirement benefit plans to fund the new VEBA trust to pay certain active employees' medical benefits. The creation of the new VEBA trust shifted the balance from overfunded as of December 31, 2019 to a liability position as of September 30, 2020. Refer to Note 15 - Other Postretirement Benefit Plans inthe Notes to the Consolidated Financial Statements for additional information.

The increase in other non-current liabilities was primarily due to $10.5 million of payroll taxes that are deferred for more than 12 months under the CARES Act, as well as an increase in uncertain tax positions of approximately $4 million.

Shareholders’ Equity:


	September 30, 2020		December 31, 2019		$ Change		% Change
Common shares	$	983.7	$	990.7	$	(7.0)	(0.7)	%
Earnings invested in the business	2,073.4		1,907.4		166.0		8.7	%
Accumulated other comprehensive loss	(39.3)		(50.1)		10.8		(21.6)	%
Treasury shares	(989.7)		(979.8)		(9.9)		1.0	%
Noncontrolling interest	70.9		86.6		(15.7)		(18.1)	%
Total shareholders’ equity	$	2,099.0	$	1,954.8	$	144.2	7.4	%

September 30,
2019 December 31,
2018 $ Change % Change
Common shares $ 998.6
$ 1,005.0
$ (6.4 ) (0.6 )%
Earnings invested in the business 1,815.0
1,630.2
184.8
11.3 %
Accumulated other comprehensive loss (80.1 ) (95.3 ) 15.2
(15.9 )%
Treasury shares (988.7 ) (960.3 ) (28.4 ) 3.0 %
Noncontrolling interest 72.7
63.1
9.6
15.2 %
Total shareholders’ equity $ 1,817.5
$ 1,642.7
$ 174.8
10.6 %

Earnings invested in the business in the ~~first~~ nine months of ~~2019~~2020 increased by net income attributable to the Company of ~~$248.6~~$231.4 million, partially offset by dividends declared of ~~$63.8~~$65.0 million.

The ~~decrease~~increase in accumulated other comprehensive loss was primarily due to a reduction in the postretirement benefit obligation due to a plan amendment that had a corresponding after-tax impact of $78 million ($103.5 million pretax) to accumulated other comprehensive loss, partially offset by foreign currency translation adjustments of ~~$61~~$15.0 million. See Other Disclosures - Foreign Currency for further discussion regarding the impact of foreign currency translation.

The increase in treasury shares was primarily due to the Company's purchase of ~~1.3~~one million of its common shares for ~~$56.1~~$42.3 million in the first quarter of 2020, partially offset by ~~$35~~$32.5 million of new shares issued, net of shares surrendered, for stock compensation plans ~~for 2019.~~in 2020. The decrease in noncontrolling interest was due to a dividend declared by Timken India Limited that resulted in payment to the noncontrolling interest parties in the third quarter of 2020.

Table of Contents

Cash Flows


	Nine Months Ended September 30,
	2020		2019		$ Change


Net cash provided by operating activities	$	457.2	$	354.8	$	102.4


Net cash used in investing activities	(101.4)		(162.2)		60.8


Net cash used in financing activities	(257.7)		(137.4)		(120.3)
Effect of exchange rate changes on cash	(0.3)		(6.4)		6.1
Increase in cash, cash equivalents and restricted cash	$	97.8	$	48.8	$	49.0

Nine Months Ended
September 30,
2019 2018 $ Change
Net cash provided by operating activities $ 354.8
$ 195.0
$ 159.8
Net cash used in investing activities (162.2 ) (810.3 ) 648.1
Net cash (used in) provided by financing activities (137.4 ) 657.3
(794.7 )
Effect of exchange rate changes on cash (6.4 ) (12.4 ) 6.0
Increase in cash, cash equivalents and restricted cash $ 48.8
$ 29.6
$ 19.2

Operating Activities:

The increase in net cash provided by operating activities for the first nine months of ~~2019~~2020 compared with the first nine months of ~~2018~~2019 was primarily due to a ~~decrease~~reduction in cash used for working capital items of ~~$157.6~~$100.3 million, ~~higher net income~~which includes a reduction in cash spent on active medical claims due to the use of $12.2 million, and the favorable impact of income taxes on cash of $9.0 million. These favorable items were partially offset by an increase in pension and other postretirement benefit contributions and payments of $24.7 million.VEBA funds discussed previously. Refer to the tables below for additional detail of the impact of each line item on net cash provided by operating activities.

The following table displays the impact of working capital items on cash during the ~~first~~ nine months of ~~2019~~2020 and ~~2018,~~2019, respectively:


	Nine Months Ended September 30,
	2020		2019		$ Change
Cash Provided (Used):
Accounts receivable	$	(27.6)	$	(6.4)	$	(21.2)
Unbilled receivables	(11.9)		(35.0)		23.1
Inventories	47.9		37.8		10.1
Trade accounts payable	2.8		(7.4)		10.2
Other accrued expenses	49.4		(28.7)		78.1
Cash provided by (used in) working capital items	$	60.6	$	(39.7)	$	100.3

Nine Months Ended
September 30,
2019 2018 $ Change
Cash (Used) Provided:
Accounts receivable $ (6.4 ) $ (65.7 ) $ 59.3
Unbilled receivables (35.0 ) (37.6 ) 2.6
Inventories 37.8
(94.3 ) 132.1
Trade accounts payable (7.4 ) (9.9 ) 2.5
Other accrued expenses (28.7 ) 10.2
(38.9 )
Cash used in working capital items $ (39.7 ) $ (197.3 ) $ 157.6

The following table displays the impact of income taxes on cash during the ~~first~~ nine months of ~~2019~~2020 and ~~2018,~~2019, respectively:


	Nine Months Ended September 30,										Nine Months Ended September 30,
	2019			2018			$ Change				2020		2019		$ Change
Accrued income tax expense	$	110.4		$	83.5		$	26.9		Accrued income tax expense	$	84.2	$	110.4	$	(26.2)
Income tax payments	(97.5		)	(82.0		)	(15.5		)	Income tax payments	(78.6)		(97.5)		18.9
Other miscellaneous items	(2.2		)	0.2			(2.4		)	Other miscellaneous items	0.1		(2.2)		2.3
Change in income taxes	$	10.7		$	1.7		$	9.0		Change in income taxes	$	5.7	$	10.7	$	(5.0)

The increase in net cash used byin financing activities for the ~~first~~nine months of 2020 compared with the nine months of 2019 ~~compared with the cash provided in the first nine months of 2018~~ was primarily due to a decrease in net borrowings of ~~$795.3 million. Net borrowings decreased $15.9~~$123.3 million ~~for the first nine months~~due to an increase of ~~2019. Net borrowings increased $779.4 million for the same period~~debt payments in ~~2018 to fund the Cone Drive and Rollon acquisitions.~~2020.

Liquidity and Capital Resources:

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


	September 30, 2020		December 31, 2019
Short-term debt	$	64.8	$	17.3
Current portion of long-term debt	10.8		64.7
Long-term debt	1,533.0		1,648.1
Total debt	$	1,608.6	$	1,730.1
Less: Cash and cash equivalents	313.1		209.5
Net debt	$	1,295.5	$	1,520.6

September 30,
2019 December 31,
2018
Short-term debt $ 34.8
$ 33.6
Current portion of long-term debt 61.8
9.4
Long-term debt 1,553.5
1,638.6
Total debt $ 1,650.1
$ 1,681.6
Less: Cash and cash equivalents 181.4
132.5
Restricted cash 0.5
0.6
Net debt $ 1,468.2
$ 1,548.5

Ratio of Net Debt to Capital:


	September 30, 2020			December 31, 2019
Net debt	$	1,295.5		$	1,520.6
Total equity	2,099.0			1,954.8
Net debt plus total equity (capital)	$	3,394.5		$	3,475.4
Ratio of net debt to capital	38.2		%	43.8		%

September 30,
2019 December 31,
2018
Net debt $ 1,468.2
$ 1,548.5
Total equity 1,817.5
1,642.7
Net debt plus total equity (capital) $ 3,285.7
$ 3,191.2
Ratio of net debt to capital 44.7 % 48.5 %

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 and the ability to utilize such cash and cash equivalents to reduce debt if needed.

The Company has a $100 million Accounts Receivable Facility, which matures on November 30, 2021. The Accounts Receivable Facility is subject to certain borrowing base limitations and is secured by certain domestic accounts receivable of the Company. Borrowings under the Accounts Receivable Facility were not reduced by any such borrowing base limitations atAt September 30, ~~2019. As of September 30, 2019,~~2020, the Company had ~~$100.0~~strong liquidity with $313.1 million ~~in outstanding borrowings, which reduced the availability under the facility to zero. The interest rate~~of cash and cash equivalents on the ~~Accounts Receivable Facility is variable and was 3.09% as~~Consolidated Balance Sheet. $260.7 million of ~~September 30, 2019, which reflects the prevailing commercial paper rate plus facility fees.~~

On June 25, 2019, the Company entered into the Senior Credit Facility, which is a $650.0 million unsecured revolving credit facility that matures on June 25, 2024. At September 30, 2019, the Senior Credit Facility had outstanding borrowings of $69.3 million, which reduced the availability to $580.7 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 (increasing for a limited time period following qualifying acquisitions). As of September 30, 2019, the Company's consolidated leverage ratio was 2.3 to 1.0. The minimum consolidated interest coverage ratio permitted under the Senior Credit Facility is 3.0 to 1.0. As of September 30, 2019, the Company's consolidated interest coverage ratio was 10.4 to 1.0.

The interest rate under the Senior Credit Facility is variable and with a spread based on the Company's debt rating. This average rate on outstanding U.S. Dollar borrowings was 3.26% and the average rate on outstanding Euro borrowings was 1.00% as of September 30, 2019. 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 $261.9 million. Most of these credit lines are uncommitted. At September 30, 2019, the Company had borrowings outstanding of $22.0 million and bank guarantees of $0.3 million, which reduced the aggregate availability under these facilities to approximately $239.6 million.

On September 6, 2018, the Company issued the 2028 Notes in the aggregate principal amount of $400 million. On September 11, 2018, the Company entered into the 2023 Term Loan and borrowed $350 million. Proceeds from the 2028 Notes and 2023 Term Loan were used to fund the acquisitions of Cone Drive and Rollon, which closed on September 1, 2018 and September 18, 2018, respectively. On July 12, 2019, the Company amended the terms of the 2023 Term Loan to among other things, align covenants and other terms with the Company’s Senior Credit Facility. Refer to ~~Note 7 - Financing Arrangements~~ ~~to the Notes to the Consolidated Financial Statements for additional information.~~

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 the 2020 Term Loan and borrowed €100 million. During the second quarter of 2019, the Company repaid €23.5 million under the 2020 Term Loan bringing the total paid to-date to €52 million, which reduced the principal balance to €49 million as of September 30, 2019. Refer to ~~Note 7 - Financing Arrangements~~ ~~to the Notes to the Consolidated Financial Statements for additional information.~~

~~At September 30, 2019, $172.2 million of the Company's $181.4~~its $313.1 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 interest expense.~~ Repatriation of non-U.S. cash could be subject to taxes and some portion may be subject to governmental restrictions. Part of the Company's strategy is to grow in attractive market sectors, many of which are outside the U.S. This strategy includes making investments in facilities, equipment and potential new acquisitions. The Company plans to fund these investments, as well as meet working capital requirements, with cash and cash equivalents and unused lines of credit within the geographic location of these investments where feasible.

On June 25, 2019, the Company entered into the Senior Credit Facility, which is a $650.0 million unsecured revolving credit facility that matures on June 25, 2024. At September 30, 2020, the Senior Credit Facility had outstanding borrowings of $114.3 million, which reduced the availability to $535.7 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 September 30, 2020, the Company's consolidated leverage ratio was 2.03 to 1.0 (based on the new net debt construct discussed further below). The minimum consolidated interest coverage ratio permitted under the Senior Credit Facility is 3.0 to 1.0. As of September 30, 2020, the Company's consolidated interest coverage ratio was 9.74 to 1.0.

On May 27, 2020, both the Senior Credit Facility and the 2023 Term Loan were amended to, among other things, effectively increase the limit with respect to the consolidated leverage ratio. As amended, the consolidated leverage ratio under both the Senior Credit Facility and the 2023 Term Loan is calculated using a net debt construct, netting unrestricted cash in excess of $25 million, instead of total debt. This change to the consolidated leverage ratio calculation will be effective through June 30, 2021, after which the calculation of the consolidated leverage ratio under the Senior Credit Facility and the 2023 Term Loan will revert back to a total debt construct.

The interest rate under the Senior Credit Facility is variable with a spread based on the Company's debt rating. The average rate on outstanding U.S. dollar borrowings was 2.29% and the average rate on outstanding Euro borrowings was 1.10% as of September 30, 2020. In addition, the Company pays a facility fee based on the applicable rate, which is variable with a spread based on the Company's debt rating, multiplied by the aggregate commitments of all of the lenders under the Senior Credit Facility. The Company currently carries investment-grade credit ratings with Standard and Poor's (BBB-), Moody's (Baa3) and Fitch (BBB-).

The Company ~~expects that any cash requirements in excess~~has a $100 million Accounts Receivable Facility, which matures on November 30, 2021. The Accounts Receivable Facility is subject to certain borrowing base limitations and is secured by certain domestic trade accounts receivable of ~~cash on hand and cash generated from operating activities will be met by~~ the ~~committed funds available~~Company. As of September 30, 2020, the Company had no outstanding borrowings under ~~its~~the Accounts Receivable Facility and ~~Senior Credit Facility. Management believes it has sufficient~~the availability under the Accounts Receivable Facility was at $100.0 million at September 30, 2020.

Other sources of liquidity ~~to meet its obligations through the term~~include uncommitted short-term lines of credit for certain of the ~~Senior Credit Facility.~~

Company's foreign subsidiaries, which provide for borrowings of up to approximately $278.3 million. At September 30, ~~2019,~~2020, the Company had borrowings outstanding of $64.8 million and bank guarantees of $0.7 million, which reduced the aggregate availability under these facilities to approximately $212.8 million.

At September 30, 2020, the Company was in full compliance with all applicable covenants on its outstanding debt, and ~~the Company~~ expects to remain in full compliance with its debt covenants. ~~However,~~

The Company believes that it is in a strong financial position with over $300 million of cash and cash equivalents on the balance sheet as of September 30, 2020. Additionally, as of September 30, 2020 the Company ~~may need to limit~~had total availability under its ~~borrowings under the Senior Credit Facility or other facilities from time to time in order to remain in compliance. As of~~ ~~September 30, 2019, 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.~~

of over $600 million that may be used for general corporate purposes. The Company expects to continue to generate positive cash flow from ~~operations~~operating activities over the remainder of ~~approximately $525 million in 2019, an increase from 2018~~2020 and has no significant long-term debt maturities before September 2023. These sources of ~~approximately $193 million or 58%, as~~cash are expected to provide sufficient liquidity to allow the Company ~~anticipates higher net income and lower working capital~~to meet its future cash requirements. ~~The Company expects capital expenditures of approximately $150 million in 2019, compared with $113 million in 2018.~~

Financing Obligations and Other Commitments:

During the first nine months of ~~2019,~~2020, the Company made cash contributions and payments of ~~$33.3~~$11.1 million to its global defined benefit pension plans and ~~$3.8~~$1.7 million to its other postretirement benefit plans. ~~Approximately $24 million of the total~~The Company expects to make contributions ~~and payments for the Company's~~to its global defined benefit ~~pension plans related to the 2019 payout~~plans of ~~deferred compensation to a former executive officer of the Company, which triggered a pension remeasurement during the third quarter of 2019.~~approximately $15 million in 2020. The Company expects to make additional payments of approximately $5$3 million to its other postretirement benefit plans in the fourth quarter of 2019. During July 2019, the Company announced changes to the medical plan offerings for certain of its postretirement benefit plans, effective January 1, 2020, which will impact the benefits provided to certain retirees. These plan amendments triggered a remeasurement during the third quarter of 2019.2020. Excluding mark-to-market charges, the Company expects ~~slightly~~ lower pension and other postretirement benefits ~~expense. Future pension and other postretirement mark-to-market charges are not accounted for~~expense in ~~the 2019 outlook because such amounts will not be known until the fourth quarter of 2019.~~2020.

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 ~~United States.~~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, ~~2018~~,2019, during the nine months ended September 30, ~~2019~~2020.

The Company tests goodwill and indefinite-lived intangible assets for impairment at least annually, performing its annual impairment test as of October 1. In each interim period, the Company assesses whether or not an indicator of impairment is present that would necessitate a goodwill and indefinite-lived intangible assets impairment analysis be performed in an interim period other than during the fourth quarter. While the Company currently expects the COVID-19 pandemic will have a near-term negative impact on the financial results of the Company, as evidenced by the customer demand in 2020, the duration and magnitude of the impact is currently not determinable. While the Company took a number of actions to align to the overall global short-term decrease in demand, those actions in the second quarter of 2020 were mainly short term in nature. The Company has also initiated other longer term cost reduction initiatives primarily in the third quarter of 2020, but there have been no current adjustments or expectations of adjusting any significant long term strategic plans or forecasts at this time. The Company is in the process of finalizing long term forecasts beyond 2020, including our internal review procedures with senior leadership and our board of directors. The Company notes that reporting units with goodwill and indefinite-lived intangibles primarily driven by recent acquisitions are likely to have fair values that are closer to the current carrying value of the reporting unit, primarily due to the shorter period of time for fair value from the recent acquisition to have changed. Generally, goodwill and indefinite-lived intangibles recorded in business combinations are more susceptible to risk of impairment soon after the acquisition primarily because the business combination is recorded at fair value based on operating plans and economic conditions present at the time of the acquisition.

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

For the nine months ended September 30, ~~2019,~~2020, the Company recorded positive foreign currency translation adjustments of $15.0 million that increased shareholders' equity, compared with negative foreign currency translation adjustments of $61.9 million that decreased shareholders' equity ~~compared with negative foreign currency translation adjustments of $35.3 million that decreased shareholders' equity~~ for the ~~first~~ nine months ended September 30, ~~2018.~~2019. The foreign currency translation adjustments for the ~~first~~ nine months ended September 30, ~~2019~~2020 were ~~negatively~~favorably impacted by the ~~strengthening~~weakening of the U.S. dollar relative to other foreign currencies, including the Euro and Chinese ~~Renminbi (Yuan),~~Yuan Renminbi.

Foreign currency exchange gains and ~~Romanian Leu.~~

losses, net of hedging activity, resulting from transactions included in the Company's operating results for the three months ended September 30, 2020 totaled $4.6 million of net losses, compared with $2.2 million of net gains during the three months ended September 30, 2019. Foreign currency exchange gains and losses, net of hedging activity, resulting from transactions included in the Company's operating results for the ~~three~~nine months ended September 30, ~~2019~~2020 totaled ~~$2.2~~ $3.9 million of net ~~gains,~~losses, compared with ~~$3.0~~$5.3 million of net gains during the ~~three~~nine months ended September 30, ~~2018. Foreign currency exchange gains and losses, net~~2019.

Table of hedging activity, resulting from transactions included in the Company's operating results for the first nine months of 2019 totaled $5.3 million of net gains, compared with $1.7 million of net gains during the first nine months of 2018.Contents

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, ~~2018~~2019 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. Statements regarding expectations for full-year performance are based on the assumption that the second quarter of 2020 is the low point for the Company's sales revenue and markets gradually improve the balance of the year. 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 or its customers or suppliers conduct business, including adverse effects from a global economic slowdown, terrorism, or hostilities. This includes: political risks associated with the potential instability of governments and legal systems in countries in which the Company or its customers or suppliers conduct business, changes in currency valuations and recent world events that have increased the risks posed by international trade disputes, tariffs and sanctions;

•negative impacts to the Company's business, results of operations, financial position or liquidity, disruption to the Company's supply chains, negative impacts to customer demand or operations, and availability and health of employees, as a result of COVID-19 or other pandemics and associated governmental measures such as restrictions on travel and manufacturing operations;

•the effects of fluctuations in customer demand on sales, product mix and prices in the industries in which the Company operates. This includes: the ability of the Company to respond to rapid changes in customer demand, the effects of customer or supplier bankruptcies or liquidations, the impact of changes in industrial business cycles, the effects of distributor inventory corrections reflecting de-stocking of the supply chain and whether conditions of fair trade continue in the Company'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 or services by existing and new competitors, and new technology that may impact the way the Company’s products are produced, 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 and cost reduction initiatives; 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 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 or works councils that represent Company associates in certain locations in order to avoid disruptions of ~~business;~~business and to maintain the continued service of our management and other key employees;

•unanticipated litigation, claims, investigations or assessments. This includes: claims, investigations or problems related to intellectual property, product liability or warranty, foreign export and trade laws, competition and anti-bribery laws, environmental or health and safety issues, data privacy and taxes;

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

•the Company's ability to satisfy its obligations and comply with covenants under its debt agreements, ~~as well as~~maintain favorable credit ratings and its ability to renew or refinance borrowings on favorable terms;

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

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•those items identified under Item 1A. ~~Risk Factors~~"Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 or this Form 10-Q.

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, ~~2018~~.2019. 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~~

(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~~

(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.

~~In the second quarter of the fiscal year~~On November 1, 2019, the Company ~~acquired Diamond Chain. The scope~~completed the acquisition of the Company's assessment of the effectiveness of internal control over financial reporting will not include this acquisition. This exclusion is in accordance with the SEC's general guidance that an assessment of a recently acquired business may be omitted from the Company's scope in the year of the acquisition.

~~During the third quarter of 2018, the Company acquired ABC Bearings, Cone Drive and Rollon.~~BEKA. The results of ~~these acquisitions~~this acquisition are included in the Company’s consolidated financial statements for the first nine months of ~~2019.~~2020. The ~~combined~~ total and net assets of ~~ABC Bearings, Cone Drive,~~BEKA represent 4% and ~~Rollon represent 23% and 45%~~ 8% of the Company’s total and net assets, respectively, as of September 30, ~~2019.~~2020. The ~~combined~~ net sales and net income of ~~ABC Bearings, Cone Drive, and Rollon~~BEKA represented 8%4% of the Company’s consolidated net sales and ~~10% of~~less than 1% of the Company’s consolidated net income for the first nine months of ~~2019~~.2020. The Company is currently integrating ~~these acquisitions~~this acquisition into its internal control framework and processes, and as prescribed by U.S Securities and Exchange Commission rules and regulations, the Company will include ~~ABC Bearings, Cone Drive, and Rollon~~BEKA in the internal control over financial reporting assessment as of December 31, ~~2019.~~2020.

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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~~The information set forth in this Form 10-Q, including, without limitation, the risk factors presented below, updates and should be read in conjunction with, the risk factors disclosed in Part 1, Item 1A, "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018, included a detailed discussion~~2019.

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

A work stoppage at one or more of our ~~risk factors. There~~facilities, whether caused by fire, flooding, epidemics, pandemic, including the COVID-19 outbreak, other natural disaster or otherwise, could have a material adverse effect on our business, financial condition and results of operations. In addition, some of our employees are represented by labor unions or works councils under collective bargaining agreements with varying durations and terms. We have experienced work stoppages recently at certain of our facilities as a result of measures meant to combat the spread of COVID-19. While these stoppages have been short-term in nature, no assurances can be made that we will not experience additional work stoppages due to government directives, employee health concerns, or conflicts with labor unions, works councils, and other similar groups in the future.

A work stoppage at one of our suppliers, whether caused by COVID-19 or otherwise, could also materially and adversely affect our operations if an alternative source of supply is not readily available. In addition, if one or more of our customers were to experience a work stoppage, whether due to COVID-19 or otherwise, that customer could halt or limit purchases of our products, which could have a material ~~changes~~adverse effect on our business, financial condition and results of operations. In addition, the credit and default risk or bankruptcy of customers or suppliers as a result of work stoppages could also materially and adversely affect our operations and results.

If government imposed restrictions continue, are reimposed, or are expanded or the COVID-19 pandemic worsens, our business could be further adversely impacted in a material way.

The global outbreak of COVID-19 continues to create uncertainty with respect to economic demand and operations. We have global operations and customers and suppliers, in countries most impacted by COVID-19. The COVID-19 outbreak has resulted in significant governmental measures being implemented to control the spread of COVID-19, including, among others, restrictions on travel and manufacturing operations in many regions of the world that are changing frequently as the pandemic evolves. In addition, we have implemented risk mitigation plans across the enterprise (including work-from-home policies, "social distancing," and use of personal protective equipment) to reduce the risk of spreading the virus in many of our global locations. To the extent that governments implement more restrictive mandates to combat the spread of COVID-19, or reimpose restrictions that have now lapsed, or to the ~~risk factors included in~~extent that the COVID-19 outbreak intensifies, we could experience additional material impacts on our short-term and long-term operations and related results of operations, including revenue, gross margins, operating margins and cash flows.

The full magnitude of the COVID-19 pandemic, including the extent of the total impact on the Company’s ~~Annual Report~~business, financial position, results of operations or liquidity, which could be material, cannot be reasonably estimated at this time due to the fluidity of the situation. The full impact of the COVID-19 pandemic will be determined by its duration, its geographic spread, the rate and intensity of individual spread, the extent and length of business disruptions due to government mandates and health authority guidance and the overall impact on ~~Form 10-K for~~ the ~~year ended December 31, 2018.~~global economy, among other factors.

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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, ~~2019.~~2020.

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⁾

7/1/19 - 7/31/19 250,328
$ 48.54
250,000
6,010,710
8/1/19 - 8/31/19 456,649
40.90
452,500
5,558,210
9/1/19 - 9/30/19 47,500
39.85
47,500
5,510,710
Total 754,477
$ 43.37
750,000


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)
7/1/2020 - 7/31/2020	63	$	47.93	—	4,357,042
8/1/2020 - 8/31/2020	26,472	54.84		—	4,357,042
9/1/2020 - 9/30/2020	2,104	55.53		—	4,357,042
Total	28,639	$	54.88	—


~~(1)~~	Of the shares purchased in July and August, 328 and 4,149, 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 or 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 Company announced that its Board of Directors 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.

(1)Of the shares purchased in July, August and September, 63, 26,472 and 2,104, 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 or 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 Company announced that its Board of Directors 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










































































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, ~~2019,~~2020 filed on October ~~31, 2019,~~29, 2020, formatted in Inline 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.

104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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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 29, 2020			By: /s/ Richard G. Kyle
			Richard G. Kyle President and Chief Executive Officer (Principal Executive Officer)

		~~THE TIMKEN COMPANY~~
Date: October ~~31, 2019~~29, 2020		~~By: /s/ Richard G. Kyle~~
	~~Richard G. Kyle~~ ~~President and Chief Executive Officer~~ ~~(Principal Executive Officer)~~

~~Date: October 31, 2019~~	By: /s/ Philip D. Fracassa
			Philip D. Fracassa Executive Vice President and Chief Financial Officer (Principal Financial Officer)

4746


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

~~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)



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



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


					PAGE
I.			PART I.		~~PAGE~~
I.			Item 1.	~~PART I.~~
	~~Item 1.~~	Financial Statements	1
			Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2725
			Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4443
			Item 4.	Controls and Procedures	4443
II.			PART II.
			Item 1.	Legal Proceedings	4544
			Item1A.	Risk Factors	4544
			Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
			Item 6.	Exhibits	4645



	(Unaudited)
	September 30, 2019			December 31, 2018
(Dollars in millions)
ASSETS
Current Assets
Cash and cash equivalents	$	181.4		$	132.5
Restricted cash	0.5			0.6
Accounts receivable, less allowances (2019 – $17.8 million; 2018 – $21.9 million)	548.3			546.6
Unbilled receivables	151.6			116.6
Inventories, net	805.3			835.7
Deferred charges and prepaid expenses	30.1			28.2
Other current assets	90.2			77.0
Total Current Assets	1,807.4			1,737.2
Property, Plant and Equipment, net	906.8			912.1
Operating Lease Assets	115.0			—
Other Assets
Goodwill	954.7			960.5
Other intangible assets	702.8			733.2
Non-current pension assets	11.8			6.2
Non-current other postretirement benefit assets	23.5			—
Deferred income taxes	27.3			59.0
Other non-current assets	16.0			37.0
Total Other Assets	1,736.1			1,795.9
Total Assets	$	4,565.3		$	4,445.2
LIABILITIES AND EQUITY
Current Liabilities
Short-term debt	$	34.8		$	33.6
Current portion of long-term debt	61.8			9.4
Short-term operating lease liabilities	28.0			—
Accounts payable, trade	265.2			273.2
Salaries, wages and benefits	116.9			174.9
Income taxes payable	23.2			23.5
Other current liabilities	174.7			171.0
Total Current Liabilities	704.6			685.6
Non-Current Liabilities
Long-term debt	1,553.5			1,638.6
Accrued pension benefits	167.8			161.3
Accrued postretirement benefits	36.9			108.7
Long-term operating lease liabilities	72.3			—
Deferred income taxes	131.7			138.0
Other non-current liabilities	81.0			70.3
Total Non-Current Liabilities	2,043.2			2,116.9
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) (2019 – 98,375,135 shares; 2018 – 98,375,135 shares)
Stated capital	53.1			53.1
Other paid-in capital	945.5			951.9
Earnings invested in the business	1,815.0			1,630.2
Accumulated other comprehensive loss	(80.1		)	(95.3		)
Treasury shares at cost (2019 – 23,050,946 shares; 2018 – 22,421,213 shares)	(988.7		)	(960.3		)
Total Shareholders’ Equity	1,744.8			1,579.6
Noncontrolling Interest	72.7			63.1
Total Equity	1,817.5			1,642.7
Total Liabilities and Equity	$	4,565.3		$	4,445.2



	Balance at December 31, 2018		Effect of Accounting Change			Balance at January 1, 2019
Operating lease assets	$	—	$	114.1		$	114.1
Other intangible assets	733.2		0.7			733.9
Other non-current assets ⁽¹⁾	37.0		(15.3		)	21.7
Total Assets	4,445.2		99.5			4,544.7

Short-term operating lease liability	—		29.8			29.8
Long-term operating lease liability	—		69.7			69.7
Total Liabilities	$	2,802.5	$	99.5		$	2,902.0



	Purchase Price Allocation
			Weighted - Average Life
Trade names (indefinite life)	$	12.3	Indefinite
Technology and know-how	5.2		14 years
Customer relationships	10.6		17 years
Total intangible assets	$	28.1



Operating Leases	September 30, 2019
Lease assets:
Operating lease assets	$	115.0
Lease liabilities:
Short-term operating lease liabilities	$	28.0
Long-term operating lease liabilities	72.3
Total operating lease liabilities	$	100.3



Finance Leases	September 30, 2019
Lease assets:
Property, plant and equipment, net	$	3.6
Lease liabilities:
Current portion of long-term debt	$	0.3
Long-term debt	2.5
Total finance lease liabilities	$	2.8



	Operating Leases			Finance Leases
Year Ending December 31,
2019	$	8.5		$	0.3
2020	29.3			0.9
2021	20.5			0.9
2022	15.0			0.7
2023	11.2			0.2
Thereafter	26.6			—
Total future minimum lease payments	111.1			3.0
Less: imputed interest	(10.8		)	(0.2		)
Total	$	100.3		$	2.8



	December 31, 2018
	Total		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	105.9	$	104.4	$	1.5	$	—
Cash and cash equivalents measured at net asset value	26.6
Restricted cash	0.6		0.6		—		—
Short-term investments	21.8		—		21.8		—
Foreign currency hedges	4.6		—		4.6		—
Total Assets	$	159.5	$	105.0	$	27.9	$	—
Liabilities:
Foreign currency hedges	$	0.7	$	—	$	0.7	$	—
Total Liabilities	$	0.7	$	—	$	0.7	$	—



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⁾
7/1/19 - 7/31/19	250,328	$	48.54	250,000	6,010,710
8/1/19 - 8/31/19	456,649	40.90		452,500	5,558,210
9/1/19 - 9/30/19	47,500	39.85		47,500	5,510,710
Total	754,477	$	43.37	750,000