Document
false--12-31Q2201900000983620.01000.03500.00290.003415744000001609800000P0Y21900000197000000.280.550.280.560020000000020000000098375135983751350.07760.06740.02020.038752019-06-252028-12-152023-09-112027-09-072020-09-182024-09-012028-05-0199200000026000000.03220.03770.01130.03320.03650.01130.01100.03400.01090.035720024000002039600000001000000010000000100000001000000000248650000025218000004841000004822000002019-04-012242121322333622<div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;color:#000000;font-style:italic;text-decoration:none;">Note - Property, Plant and Equipment</font><font style="font-family:Arial;font-size:10pt;font-style:italic;"> </font></div><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">The components of property, plant and equipment at </font><font style="font-family:Arial;font-size:10pt;">June&#160;30, 2019</font><font style="font-family:Arial;font-size:10pt;"> and </font><font style="font-family:Arial;font-size:10pt;">December&#160;31, 2018</font><font style="font-family:Arial;font-size:10pt;"> were as follows:</font></div><div style="line-height:120%;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;width:100%;border-collapse:collapse;text-align:left;"><tr><td colspan="7" rowspan="1"></td></tr><tr><td style="width:72%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:12%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:12%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:Arial;font-size:9pt;font-weight:bold;">June&#160;30, <br clear="none"/>2019</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:Arial;font-size:9pt;">December&#160;31, <br clear="none"/>2018</font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Land and buildings</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">482.2</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">484.1</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Machinery and equipment</font></div></td><td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">2,039.6</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">2,002.4</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Subtotal</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">2,521.8</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">2,486.5</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Accumulated depreciation</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">(1,609.8</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-right:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">)</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">(1,574.4</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-right:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">)</font></div></td></tr><tr><td style="vertical-align:top;border-bottom:2px solid #000000;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Property, plant and equipment, net</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">$</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">912.0</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">912.1</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr></table></div><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Total depreciation expense for the </font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">six</font><font style="font-family:Arial;font-size:10pt;"> months ended </font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">June&#160;30, 2019</font><font style="font-family:Arial;font-size:10pt;"> and </font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">2018</font><font style="font-family:Arial;font-size:10pt;"> was </font><font style="font-family:Arial;font-size:10pt;">$0.0 million</font><font style="font-family:Arial;font-size:10pt;"> and </font><font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">$99.2 million</font><font style="font-family:Arial;font-size:10pt;">, respectively.</font></div></div><div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;padding-top:8px;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">The components of property, plant and equipment at </font><font style="font-family:Arial;font-size:10pt;">June&#160;30, 2019</font><font style="font-family:Arial;font-size:10pt;"> and </font><font style="font-family:Arial;font-size:10pt;">December&#160;31, 2018</font><font style="font-family:Arial;font-size:10pt;"> were as follows:</font></div><div style="line-height:120%;font-size:10pt;"><div style="padding-left:0px;text-indent:0px;line-height:normal;padding-top:10px;"><table cellpadding="0" cellspacing="0" style="font-family:Times New Roman;font-size:10pt;width:100%;border-collapse:collapse;text-align:left;"><tr><td colspan="7" rowspan="1"></td></tr><tr><td style="width:72%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:12%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td><td style="width:12%;" rowspan="1" colspan="1"></td><td style="width:1%;" rowspan="1" colspan="1"></td></tr><tr><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="overflow:hidden;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;">&#160;</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:Arial;font-size:9pt;font-weight:bold;">June&#160;30, <br clear="none"/>2019</font></div></td><td colspan="3" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:center;font-size:9pt;"><font style="font-family:Arial;font-size:9pt;">December&#160;31, <br clear="none"/>2018</font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Land and buildings</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">482.2</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">484.1</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Machinery and equipment</font></div></td><td colspan="2" style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">2,039.6</font></div></td><td style="vertical-align:bottom;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">2,002.4</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Subtotal</font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">2,521.8</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">2,486.5</font></div></td><td style="vertical-align:bottom;background-color:#cceeff;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr><tr><td style="vertical-align:top;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Accumulated depreciation</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">(1,609.8</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-right:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">)</font></div></td><td colspan="2" style="vertical-align:bottom;border-bottom:1px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">(1,574.4</font></div></td><td style="vertical-align:bottom;border-bottom:1px solid #000000;padding-right:2px;padding-top:2px;padding-bottom:2px;border-top:1px solid #000000;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">)</font></div></td></tr><tr><td style="vertical-align:top;border-bottom:2px solid #000000;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">Property, plant and equipment, net</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">$</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-weight:bold;">912.0</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;padding-left:2px;padding-top:2px;padding-bottom:2px;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">$</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;background-color:#cceeff;padding-top:2px;padding-bottom:2px;" rowspan="1" colspan="1"><div style="text-align:right;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">912.1</font></div></td><td style="vertical-align:bottom;border-bottom:2px solid #000000;background-color:#cceeff;" rowspan="1" colspan="1"><div style="text-align:left;font-size:10pt;"><font style="font-family:inherit;font-size:10pt;"><br clear="none"/></font></div></td></tr></table></div></div></div><div style="font-family:Times New Roman;font-size:10pt;"><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;font-style:italic;">Note 19 - Subsequent Events</font><font style="font-family:Arial;font-size:10pt;font-style:italic;"> </font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;"><br clear="none"/></font></div><div style="line-height:120%;text-align:justify;font-size:10pt;"><font style="font-family:Arial;font-size:10pt;">On </font><font style="font-family:Arial;font-size:10pt;">April&#160;1, 2019</font><font style="font-family:Arial;font-size:10pt;">, the Company completed the acquisition of The 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 annual sales of approximately </font><font style="font-family:Arial;font-size:10pt;">$60 million</font><font style="font-family:Arial;font-size:10pt;"> for the twelve months ended </font><font style="font-family:Arial;font-size:10pt;">June&#160;30, 2019</font><font style="font-family:Arial;font-size:10pt;">.</font></div></div>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
timkenlogoa32.jpg
 
FORM 10-Q
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to                          
Commission file number: 1-1169
 
THE TIMKEN COMPANY
(Exact name of registrant as specified in its charter)
 
 
Ohio
 
34-0577130
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
4500 Mount Pleasant Street NW
 
 
North Canton
Ohio
 
44720-5450
(Address of principal executive offices)
 
(Zip Code)
234.262.3000
(Registrant’s telephone number, including area code)
 
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
 
 
 
 
 
 
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).   
 Yes      No  
Indicate the number of shares outstanding of each of the issuer's classes of common shares, as of the latest practicable date.
 
Class
 
Outstanding at June 30, 2019
 
 
Common Shares, without par value
 
76,041,513 shares
 


Table of Contents

THE TIMKEN COMPANY
INDEX TO FORM 10-Q REPORT

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



Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
THE TIMKEN COMPANY AND SUBSIDIARIES

Consolidated Statements of Income
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
(Dollars in millions, except per share data)
 
 
 
 
 
 
 
Net sales
$
1,000.0

 
$
906.3

 
$
1,979.7

 
$
1,789.4

Cost of products sold
694.3

 
638.9

 
1,371.4

 
1,257.1

Gross Profit
305.7

 
267.4

 
608.3

 
532.3

Selling, general and administrative expenses
158.7

 
141.8

 
311.4

 
290.4

Impairment and restructuring charges
1.9

 
0.3

 
1.9

 
0.5

Operating Income
145.1

 
125.3

 
295.0

 
241.4

Interest expense
(19.3
)
 
(10.7
)
 
(37.3
)
 
(20.7
)
Interest income
1.1

 
0.5

 
2.4

 
0.9

Non-service pension and other postretirement income
0.2

 
4.1

 
0.3

 
5.7

Other income, net
1.4

 
2.9

 
4.7

 
3.6

Income Before Income Taxes
128.5

 
122.1

 
265.1

 
230.9

Provision for income taxes
33.6

 
30.2

 
74.9

 
58.5

Net Income
94.9

 
91.9

 
190.2

 
172.4

Less: Net income attributable to noncontrolling interest
2.4

 
0.9

 
5.8

 
1.2

Net Income Attributable to The Timken Company
$
92.5

 
$
91.0

 
$
184.4

 
$
171.2

 
 
 
 
 
 
 
 
Net Income per Common Share Attributable to The Timken Company
  Common Shareholders
 
 
 
 
 
 
 
Basic earnings per share
$
1.22

 
$
1.18

 
$
2.43


$
2.21

 
 
 
 
 
 
 
 
Diluted earnings per share
$
1.20

 
$
1.16

 
$
2.39

 
$
2.17

See accompanying Notes to the Consolidated Financial Statements.


Consolidated Statements of Comprehensive Income
(Unaudited) 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
(Dollars in millions)
 
 
 
 
 
 
 
Net Income
$
94.9

 
$
91.9

 
$
190.2

 
$
172.4

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
5.1

 
(46.6
)
 
0.9

 
(38.2
)
Pension and postretirement liability adjustment

 

 
(0.1
)
 

Change in fair value of derivative financial instruments
(0.8
)
 
3.6

 
(1.4
)
 
4.4

Other comprehensive income (loss), net of tax
4.3

 
(43.0
)
 
(0.6
)
 
(33.8
)
Comprehensive Income, net of tax
99.2

 
48.9

 
189.6

 
138.6

Less: comprehensive income (loss) attributable to noncontrolling interest
3.1

 
(1.4
)
 
7.4

 
(1.7
)
Comprehensive Income Attributable to The Timken Company
$
96.1

 
$
50.3

 
$
182.2

 
$
140.3

See accompanying Notes to the Consolidated Financial Statements.

1

Table of Contents

Consolidated Balance Sheets
 
(Unaudited)
 
 
 
June 30,
2019
 
December 31,
2018
(Dollars in millions)
 
 
 
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
166.8

 
$
132.5

Restricted cash
0.6

 
0.6

Accounts receivable, less allowances (2019 – $19.7 million; 2018 – $21.9 million)
589.9

 
546.6

Unbilled receivables
153.3

 
116.6

Inventories, net
843.8

 
835.7

Deferred charges and prepaid expenses
29.3

 
28.2

Other current assets
83.0

 
77.0

Total Current Assets
1,866.7

 
1,737.2

Property, Plant and Equipment, net
912.0

 
912.1

Operating Lease Assets
117.3

 

Other Assets
 
 
 
Goodwill
969.4

 
960.5

Other intangible assets
731.5

 
733.2

Non-current pension assets
10.9

 
6.2

Deferred income taxes
49.4

 
59.0

Other non-current assets
17.0

 
37.0

Total Other Assets
1,778.2

 
1,795.9

Total Assets
$
4,674.2

 
$
4,445.2

LIABILITIES AND EQUITY
 
 
 
Current Liabilities
 
 
 
Short-term debt
$
37.3

 
$
33.6

Current portion of long-term debt
9.0

 
9.4

Short-term operating lease liabilities
29.5

 

Accounts payable, trade
291.6

 
273.2

Salaries, wages and benefits
134.3

 
174.9

Income taxes payable
26.4

 
23.5

Other current liabilities
168.2

 
171.0

Total Current Liabilities
696.3

 
685.6

Non-Current Liabilities
 
 
 
Long-term debt
1,642.6

 
1,638.6

Accrued pension cost
162.6

 
161.3

Accrued postretirement benefits cost
109.3

 
108.7

Long-term operating lease liabilities
73.0

 

Deferred income taxes
128.7

 
138.0

Other non-current liabilities
78.1

 
70.3

Total Non-Current Liabilities
2,194.3

 
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
941.3

 
951.9

Earnings invested in the business
1,772.0

 
1,630.2

Accumulated other comprehensive loss
(97.5
)
 
(95.3
)
Treasury shares at cost (2019 – 22,333,622 shares; 2018 – 22,421,213 shares)
(957.6
)
 
(960.3
)
Total Shareholders’ Equity
1,711.3

 
1,579.6

Noncontrolling Interest
72.3

 
63.1

Total Equity
1,783.6

 
1,642.7

Total Liabilities and Equity
$
4,674.2

 
$
4,445.2

See accompanying Notes to the Consolidated Financial Statements.

2

Table of Contents

Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended
June 30,
 
2019
 
2018
(Dollars in millions)
 
 
 
CASH PROVIDED (USED)
 
 
 
Operating Activities
 
 
 
Net income
$
190.2

 
$
172.4

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
81.2

 
70.8

Impairment charges
0.7

 

(Gain) loss on sale of assets
(1.6
)
 
0.9

Deferred income tax provision
1.8

 
0.1

Stock-based compensation expense
14.9

 
17.8

Pension and other postretirement expense
5.8

 
1.6

Pension and other postretirement benefit contributions and payments
(8.9
)
 
(8.8
)
Operating lease expense
18.7

 

Operating lease payments
(17.7
)
 

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(35.9
)
 
(86.4
)
Unbilled receivables
(36.6
)
 
(27.8
)
Inventories
16.6

 
(79.9
)
Accounts payable, trade
13.4

 
(8.4
)
Other accrued expenses
(45.1
)
 
(2.4
)
Income taxes
0.6

 
(3.8
)
Other, net
11.8

 
11.7

Net Cash Provided by Operating Activities
209.9

 
57.8

Investing Activities
 
 
 
Capital expenditures
(39.2
)
 
(39.6
)
Acquisitions, net of cash received
(83.0
)
 

Other
2.4

 
3.6

Net Cash Used in Investing Activities
(119.8
)
 
(36.0
)
Financing Activities
 
 
 
Cash dividends paid to shareholders
(42.6
)
 
(42.7
)
Purchase of treasury shares
(23.6
)
 
(49.6
)
Proceeds from exercise of stock options
8.9

 
10.6

Payments related to tax withholding for stock-based compensation
(8.1
)
 
(5.0
)
Accounts receivable facility borrowings
25.0

 
52.1

Accounts receivable facility payments

 
(18.6
)
Proceeds from long-term debt
292.0

 
130.0

Payments on long-term debt
(310.4
)
 
(94.2
)
Deferred financing costs
(1.9
)
 

Short-term debt activity, net
3.8

 
26.3

Other

 
(1.0
)
Net Cash (Used in) Provided by Financing Activities
(56.9
)
 
7.9

Effect of exchange rate changes on cash
1.1

 
(8.5
)
Increase in Cash, Cash Equivalents and Restricted Cash
34.3

 
21.2

Cash, cash equivalents and restricted cash at beginning of year
133.1

 
125.4

Cash, Cash Equivalents and Restricted Cash at End of Period
$
167.4

 
$
146.6

See accompanying Notes to the Consolidated Financial Statements.

3

Table of Contents

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

Note 1 - Basis of Presentation
The accompanying Consolidated Financial Statements (unaudited) for The Timken Company (the "Company") have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by the accounting principles generally accepted in the United States ("U.S. GAAP") for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to the Consolidated Financial Statements and accompanying Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Note 2 - Significant Accounting Policies

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


4

Table of Contents

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




5

Table of Contents

Note 3 - Acquisitions
On April 1, 2019, the Company completed the acquisition of The 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 the twelve months ended March 31, 2019. The purchase price for this acquisition was $84.9 million, excluding $1.8 million for cash acquired. During the six months ended June 30, 2019, the Company incurred acquisition-related costs of $1.3 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 purchase price allocation at fair value, net of cash acquired, for the Diamond Chain acquisition:
 
Initial Purchase
Price Allocation
Assets:
 
Accounts receivable, net
$
6.7

Inventories, net
24.1

Other current assets
2.4

Property, plant and equipment, net
19.4

Operating lease assets
2.1

Goodwill
17.7

Other intangible assets
26.7

Other non-current assets
0.5

Total assets acquired
$
99.6

Liabilities:
 
Accounts payable, trade
$
5.6

Other current liabilities
4.1

Long-term operating lease liabilities
2.1

Other non-current liabilities
1.1

Total liabilities assumed
$
12.9

Noncontrolling interest acquired
1.8

Net assets and noncontrolling interest acquired
$
84.9



The following table summarizes the preliminary purchase price allocation for identifiable intangible assets acquired in 2019:
 
Preliminary Purchase
Price Allocation
 
 
Weighted -
Average Life
Trade names (indefinite life)
$
12.3

Indefinite
Technology and know-how
5.2

14 years
Customer relationships
9.2

16 years
Total intangible assets
$
26.7

 


6

Table of Contents

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 $5.0 million decrease to goodwill. The following table presents the purchase price allocation at fair value, net of cash acquired, for the 2018 Acquisitions: 
 
Initial Purchase
Price Allocation
Adjustments
Preliminary 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

(5.0
)
463.2

Other intangible assets
372.6

2.7

375.3

Other non-current assets
20.2

(3.7
)
16.5

Total assets acquired
$
1,045.3

$
(11.4
)
$
1,033.9

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 cost
5.7



5.7

Accrued postretirement benefits cost
11.7



11.7

Deferred income taxes
116.2

(3.7
)
112.5

Other non-current liabilities
16.9



16.9

Total liabilities assumed
$
211.0

$
(6.6
)
$
204.4

Net assets acquired
$
834.3

$
(4.8
)
$
829.5



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.


7

Table of Contents

The above purchase price allocations for Diamond Chain and the 2018 Acquisitions, including the residual amount allocated to goodwill, are based on preliminary information and is subject to change as additional information concerning final asset and liability valuations is obtained. The Diamond Chain purchase price allocation is preliminary as a result of the proximity of the acquisition date to June 30, 2019. The primary areas of the preliminary purchase price allocation for the 2018 Acquisitions 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 periods, we will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments had been completed on the acquisition date.

Note 4 - Inventories
The components of inventories at June 30, 2019 and December 31, 2018 were as follows:
 
June 30,
2019
December 31,
2018
Manufacturing supplies
$
33.5

$
32.4

Raw materials
107.3

102.4

Work in process
294.9

287.7

Finished products
451.6

452.7

     Subtotal
887.3

875.2

Allowance for obsolete and surplus inventory
(43.5
)
(39.5
)
     Total Inventories, net
$
843.8

$
835.7



Inventories are valued at net realizable value, with approximately 57% valued on the first-in, first-out ("FIFO") method and the remaining 43% valued on the last-in, first-out ("LIFO") method. The majority of the Company's domestic inventories are valued on the LIFO method and all of the Company's international inventories are valued on the FIFO method.

The LIFO reserve at June 30, 2019 and December 31, 2018 was $174.4 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.


8

Table of Contents

Note 5 - Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the six months ended June 30, 2019 were as follows:
 
Mobile
Industries
Process
Industries
Total
Beginning balance
$
349.7

$
610.8

$
960.5

Acquisitions
(1.1
)
13.8

12.7

Foreign currency translation adjustments and other changes
(1.4
)
(2.4
)
(3.8
)
Ending balance
$
347.2

$
622.2

$
969.4



The $12.7 million addition of goodwill from acquisitions includes $17.7 million of goodwill recognized in the Process Industries segment for the Diamond Chain acquisition, partially offset by certain measurement period adjustments recorded in 2019 related to the 2018 Acquisitions.

The following table displays intangible assets as of June 30, 2019 and December 31, 2018:
 
Balance at June 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
$
490.9

$
114.3

$
376.6

$
481.5

$
99.8

$
381.7

Technology and know-how
250.1

47.6

202.5

245.0

40.4

204.6

Trade names
12.0

5.3

6.7

11.3

4.8

6.5

Capitalized software
268.4

241.4

27.0

266.4

236.5

29.9

Other
40.8

37.2

3.6

40.8

35.2

5.6

 
$
1,062.2

$
445.8

$
616.4

$
1,045.0

$
416.7

$
628.3

Intangible assets not subject to amortization:
 
 
 
 
 
 
Trade names
$
106.4

 
$
106.4

$
96.2

 
$
96.2

FAA air agency certificates
8.7

 
8.7

8.7

 
8.7

 
$
115.1



$
115.1

$
104.9



$
104.9

Total intangible assets
$
1,177.3

$
445.8

$
731.5

$
1,149.9

$
416.7

$
733.2



Amortization expense for intangible assets was $29.3 million and $21.2 million for the six months ended June 30, 2019 and 2018, respectively. Amortization expense for intangible assets is projected to be $56.8 million in 2019; $52.2 million in 2020; $48.2 million in 2021; $43.7 million in 2022; and $40.7 million in 2023.

9

Table of Contents

Note 6 - Leasing

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 expense for the three and six months ended June 30, 2019 was as follows:
 
Three Months Ended
Six Months Ended
 
June 30, 2019
June 30, 2019
Operating lease expense
$
8.3

$
18.7

Amortization of right-of-use assets on finance leases
0.2

0.6

   Total lease expense
$
8.5

$
19.3



The following tables present the impact of leasing on the Consolidated Balance Sheet.
Operating Leases
June 30, 2019
Lease assets:
 
   Operating lease assets
$
117.3

Lease liabilities:
 
   Short-term operating lease liabilities
$
29.5

   Long-term operating lease liabilities
73.0

      Total operating lease liabilities
$
102.5

Finance Leases
June 30, 2019
Lease assets:
 
   Property, plant and equipment, net
$
3.6

Lease liabilities:
 
   Current portion of long-term debt
$
0.4

   Long-term debt
2.5

      Total finance lease liabilities
$
2.9


Future minimum lease payments under non-cancellable leases at June 30, 2019 were as follows:
 
Operating Leases
Finance Leases
Year Ending December 31,
 
 
2019
$
17.6

$
0.4

2020
29.4

0.9

2021
19.4

0.8

2022
13.7

0.7

2023
10.1

0.2

Thereafter
24.1


   Total future minimum lease payments
114.3

3.0

Less: imputed interest
(11.8
)
(0.1
)
   Total
$
102.5

$
2.9



10

Table of Contents

The following tables present other information related to leases:
 
Three Months Ended
Six Months Ended
 
June 30, 2019
June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
   Operating cash flows from operating leases
$
8.8

$
17.7

   Financing cash flows from finance leases
0.1

1.1

Lease assets added in the period:
 

   Operating leases
$
23.7

$
39.4

   Finance leases
0.2

0.8


 
June 30, 2019
Weighted-average remaining lease term:
 
   Operating leases
5.3 years

   Finance leases
3.6 years

Weighted-average discount rate:
 
   Operating leases
4.10
%
   Finance leases
2.58
%




11

Table of Contents

Note 7 - Financing Arrangements
Short-term debt at June 30, 2019 and December 31, 2018 was as follows:
 
June 30,
2019
December 31,
2018
Borrowings under variable-rate lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 0.34% to 3.50% at June 30, 2019 and 0.29% to 1.00% at December 31, 2018
$
37.3

$
33.6

Short-term debt
$
37.3

$
33.6


The lines of credit for certain of the Company’s foreign subsidiaries provide for short-term borrowings up to $272.6 million in the aggregate. Most of these lines of credit are uncommitted. At June 30, 2019, the Company’s foreign subsidiaries had borrowings outstanding of $37.3 million and bank guarantees of $0.4 million, which reduced the aggregate availability under these facilities to $234.9 million.

Long-term debt at June 30, 2019 and December 31, 2018 was as follows:
 
June 30,
2019
December 31,
2018
Variable-rate Senior Credit Facility with an average interest rate on U.S. Dollar of 3.57% and Euro of 1.09% at June 30, 2019 and 3.40% and 1.10%, respectively, at December 31, 2018
$
54.6

$
43.9

Variable-rate Euro Term Loan(1), maturing on September 18, 2020, with an interest rate of 1.13% at June 30, 2019 and December 31, 2018
81.8

107.1

Variable-rate Accounts Receivable Facility, with an interest rate of 3.32% at June 30, 2019 and 3.22% at December 31, 2018
100.0

75.0

Variable-rate Term Loan(1), maturing on September 11, 2023, with an interest rate of 3.65% at June 30, 2019 and 3.77% at December 31, 2018
342.8

347.1

Fixed-rate Senior Unsecured Notes(1), maturing on September 1, 2024, with an interest rate of 3.875%
348.1

347.7

Fixed-rate Euro Senior Unsecured Notes(1), maturing on September 7, 2027, with an interest rate of 2.02%
170.1

171.4

Fixed-rate Senior Unsecured Notes(1), maturing on December 15, 2028, with an interest rate of 4.50%
395.9

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
3.7

5.4

 
1,651.6

1,648.0

Less: Current maturities
9.0

9.4

Long-term debt
$
1,642.6

$
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 June 30, 2019. As of June 30, 2019, there were outstanding borrowings of $100.0 million under the Accounts Receivable Facility, which reduced the availability under this facility to zero. 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.

12

Table of Contents

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 June 30, 2019, the Company had $54.6 million of outstanding borrowings under the Senior Credit Facility, which reduced the availability under this facility to $595.4 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 and restated the 2023 Term Loan.  The Amendment modifies the original agreement to, among other things, align covenants and other terms with the Company’s 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 second quarter, the Company repaid 17.0 million under the 2020 Term Loan bringing the total paid to-date to 28.0 million, which reduced the principal balance to 72.0 million as of June 30, 2019.
 
At June 30, 2019, the Company was in full compliance with all applicable covenants on its outstanding debt.


13

Table of Contents

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 $5.4 million and $5.5 million for various known environmental matters that are probable and reasonably estimable at June 30, 2019 and 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 three months ended June 30, 2019 to 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 Company 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 $6.4 million and $7.1 million at June 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.

14

Table of Contents



15

Table of Contents

Note 9 - Equity

The following tables present the changes in the components of equity for the three and six months ended June 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 March 31, 2019
$
1,705.9

$
53.1

$
938.2

$
1,700.8

$
(101.1
)
$
(952.5
)
$
67.4

Net income
94.9

 
 
92.5

 
 
2.4

Foreign currency translation adjustment
5.1

 
 
 
4.4

 
0.7

Change in fair value of derivative financial
instruments, net of reclassifications
(0.8
)
 
 
 
(0.8
)
 
 
Noncontrolling interest acquired
1.8

 
 
 
 
 
1.8

Dividends – $0.28 per share
(21.3
)
 
 
(21.3
)
 
 
 
Stock-based compensation expense
7.1

 
7.1

 
 
 
 
Stock purchased at fair market value
(15.3
)
 

 
 
(15.3
)
 
Stock option exercise activity
7.9

 
(2.8
)
 
 
10.7

 
Restricted share activity

 
(1.2
)
 
 
1.2

 
Payments related to tax withholding for
stock-based compensation
(1.7
)
 

 
 
(1.7
)
 
Balance at June 30, 2019
$
1,783.6

$
53.1

$
941.3

$
1,772.0

$
(97.5
)
$
(957.6
)
$
72.3

 
 
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
190.2

 
 
184.4

 
 
5.8

Foreign currency translation adjustment
0.9

 
 
 
(0.7
)
 
1.6

Pension and postretirement liability
adjustments
(0.1
)
 
 
 
(0.1
)
 
 
Change in fair value of derivative financial
instruments, net of reclassifications
(1.4
)
 
 
 
(1.4
)
 
 
Noncontrolling interest acquired
1.8

 
 
 
 
 
1.8

Dividends – $0.56 per share
(42.6
)
 
 
(42.6
)
 
 
 
Stock-based compensation expense
14.9

 
14.9

 
 
 
 
Stock purchased at fair market value
(23.6
)
 
 
 
 
(23.6
)
 
Stock option exercise activity
8.9

 
(3.4
)
 
 
12.3

 
Restricted share activity

 
(22.1
)
 
 
22.1

 
Payments related to tax withholding for
stock-based compensation
(8.1
)
 
 
 
 
(8.1
)
 
Balance at June 30, 2019
$
1,783.6

$
53.1

$
941.3

$
1,772.0

$
(97.5
)
$
(957.6
)
$
72.3


16

Table of Contents

 
 
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 March 31, 2018
$
1,542.8

$
53.1

$
901.5

$
1,475.9

$
(29.2
)
$
(890.4
)
$
31.9

Net income
91.9

 
 
91.0

 
 
0.9

Foreign currency translation adjustment
(46.6
)
 
 
 
(44.3
)
 
(2.3
)
Change in fair value of derivative financial
instruments, net of reclassifications
3.6

 
 
 
3.6

 
 
Dividends – $0.28 per share
(21.6
)
 
 
(21.6
)
 
 
 
Stock-based compensation expense
7.5

 
7.5

 
 
 
 
Stock purchased at fair market value
(26.9
)
 
 
 
 
(26.9
)
 
Stock option exercise activity
2.2

 
(1.7
)
 
 
3.9

 
Restricted share activity

 
(0.1
)
 
 
0.1

 
Payments related to tax withholding for
stock-based compensation
(0.6
)
 


 
 
(0.6
)
 
Balance at June 30, 2018
$
1,552.3

$
53.1

$
907.2

$
1,545.3

$
(69.9
)
$
(913.9
)
$
30.5


 
 
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 adopting ASU 2014-09
   (net of income tax benefit of $2.6 million)(1)
7.7

 
 
7.7

 
 
 
Cumulative effect of adopting ASU 2018-02

 
 
0.7

(0.7
)
 
 
Net income
172.4

 
 
171.2

 
 
1.2

Foreign currency translation adjustment
(38.2
)
 
 
 
(35.3
)
 
(2.9
)
Change in fair value of derivative financial
   instruments, net of reclassifications
4.4

 
 
 
4.4

 
 
Dividends – $0.55 per share
(42.7
)
 
 
(42.7
)
 
 
 
Stock-based compensation expense
17.8

 
17.8

 
 
 
 
Stock purchased at fair market value
(49.6
)
 
 
 
 
(49.6
)
 
Stock option exercise activity
10.6

 
(3.1
)
 
 
13.7

 
Restricted share activity

 
(11.3
)
 
 
11.3

 
Payments related to tax withholding for
   stock-based compensation
(5.0
)
 


 
 
(5.0
)
 
Balance at June 30, 2018
$
1,552.3

$
53.1

$
907.2

$
1,545.3

$
(69.9
)
$
(913.9
)
$
30.5

(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 loss for the three and six months ended June 30, 2019 and 2018, respectively:
 
Foreign currency translation adjustments
Pension and postretirement liability adjustments
Change in fair value of derivative financial instruments
Total
Balance at March 31, 2019
$
(100.7
)
$
(0.1
)
$
(0.3
)
$
(101.1
)
Other comprehensive income (loss) before
reclassifications and income taxes
5.1


(0.2
)
4.9

Amounts reclassified from accumulated other
comprehensive (loss) income before income taxes

(0.1
)
(0.7
)
(0.8
)
Income tax expense

0.1

0.1

0.2

Net current period other comprehensive
   income (loss), net of income taxes
5.1


(0.8
)
4.3

Noncontrolling interest
(0.7
)


(0.7
)
Net current period comprehensive income (loss),
   net of income taxes and noncontrolling interest
4.4


(0.8
)
3.6

Balance at June 30, 2019
$
(96.3
)
$
(0.1
)
$
(1.1
)
$
(97.5
)
 
Foreign currency translation adjustments
Pension and 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 before
reclassifications and income tax
0.9


0.2

1.1

Amounts reclassified from accumulated other
comprehensive (loss) income before income taxes

(0.2
)
(1.9
)
(2.1
)
Income tax expense

0.1

0.3

0.4

Net current period other comprehensive (loss)
income, net of income taxes
0.9

(0.1
)
(1.4
)
(0.6
)
Noncontrolling interest
(1.6