What changed in this filing

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Item 1. Financial Statements

2022-07-28 compared with 2022-05-02 · 307 added, 119 removed, 504 unchanged (46% of the section changed)

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(Dollars in millions, except per share data)

7 unchanged sentences

Interest income 1.0 0.7 1.6 1.2

Non-service pension and other postretirement income 1.3 4.0

Other income, net 0.2 1.0

Non-service pension and other postretirement (expense) income ( 7.9 ) 1.4 ( 6.6 ) 5.4

Other expense, net ( 1.1 ) ( 2.2 ) ( 0.9 ) ( 1.2 )

Income Before Income Taxes 149.6 136.6 309.7 277.9

3 unchanged sentences

Net Income Attributable to The Timken Company $ 105.0 $ 104.8 $ 223.2 $ 218.1

Net Income per Common Share Attributable to The Timken Company

Common Shareholders

Net Income per Common Share Attributable to The Timken

Company Common Shareholders

Basic earnings per share $ 1.43 $ 1.38 $ 3.01 $ 2.87

3 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(Dollars in millions)

Net Income $ 105.6 $ 107.2 $ 227.5 $ 223.2

Other comprehensive loss, net of tax:

Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustments ( 113.1 ) 23.2 ( 135.7 ) ( 21.2 )

1 unchanged sentence

Change in fair value of derivative financial instruments 2.2 ( 0.2 ) 4.2 2.0

Other comprehensive loss, net of tax ( 22.1 ) ( 43.8 )

Comprehensive Income, net of tax 99.8 72.2

Other comprehensive (loss) income, net of tax ( 112.3 ) 21.3 ( 134.4 ) ( 22.5 )

Comprehensive (loss) income, net of tax ( 6.7 ) 128.5 93.1 200.7

comprehensive income attributable to noncontrolling interest 1.7 1.8 2.8 4.1

Comprehensive Income Attributable to The Timken Company $ 98.7 $ 69.9

Comprehensive (loss) income attributable to

The Timken Company $ ( 8.4 ) $ 126.7 $ 90.3 $ 196.6

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Balance Sheets

(Dollars in millions) March 31,

(Dollars in millions) June 30,

2022 December 31,

53 unchanged sentences

Consolidated Statements of Cash Flows

Three Months Ended

Six Months Ended

(Dollars in millions)

9 unchanged sentences

Stock-based compensation expense 15.6 12.5

Pension and other postretirement benefit expense (income) 1.0 ( 1.0 )

Pension and other postretirement expense 11.2 0.5

Pension and other postretirement benefit contributions and payments ( 8.1 ) ( 15.0 )

7 unchanged sentences

Other, net ( 6.8 ) —

Net Cash (Used in) Provided by Operating Activities ( 1.2 ) 31.7

Net Cash Provided by Operating Activities 77.1 178.8

Investing Activities

Capital expenditures ( 75.2 ) ( 60.5 )

Acquisitions, net of cash acquired of $ 0.2 million

( 152.3 ) 0.1

Proceeds from disposal of property, plant and equipment 3.1 —

Investments in short-term marketable securities, net 23.4 ( 13.8 )

42 unchanged sentences

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.

Note 3 - Acquisitions

On May 31, 2022, the Company completed the acquisition of Spinea, s.r.o.

("Spinea"), a European technology leader and manufacturer of highly engineered cycloidal reduction gears and actuators, with estimated 2022 full year sales of approximately $ 40.0 million.

Spinea’s solutions primarily serve high-precision automation and robotics applications in the factory automation sector.

Spinea is located in Presov, Slovakia.

The purchase price for this acquisition was $ 152.3 million, net of cash acquired of $ 0.2 million, subject to customary post closing adjustments.

Based on markets and customers served, results for Spinea are reported in the Process Industries segment.

The following table presents the purchase price allocation at fair value, for the Spinea acquisition as of June 30, 2022.

Initial Purchase

Price Allocation

Accounts receivable $ 2.1

Inventories 20.9

Other current assets 2.9

Property, plant and equipment 82.6

Goodwill 39.0

Other intangible assets 31.7

Total assets acquired $ 179.2

Accounts payable, trade $ 7.4

Salaries, wages and benefits 1.4

Other current liabilities 1.2

Short-term debt 0.1

Long-term debt 0.2

Deferred income taxes 1.0

Other non-current liabilities 15.6

Total liabilities assumed $ 26.9

Net assets acquired $ 152.3

The following table summarizes the preliminary purchase price allocation for identifiable intangible assets acquired in 2022:

Preliminary Purchase Price Allocation

Weighted - Average Life

Trade names $ 8.2 20 years

Technology and know-how 6.1 6 years

Customer relationships 17.2 17 years

Capitalized software 0.2 2 years

Total intangible assets $ 31.7

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 judgement 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.

Note 3 - Acquisitions (continued)

The amounts in the table above represent the preliminary purchase price allocation for Spinea.

This purchase price allocation, including the residual amount allocated to goodwill, is based on preliminary information and is subject to change as additional information concerning final asset and liability valuations are obtained.

As of June 30, 2022, no elements of the purchase price allocation have been finalized.

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 has been completed on the acquisition date.

On August 20, 2021, the Company completed the acquisition of the assets of Intelligent Machine Solutions ("iMS"), a manufacturer of industrial robotics and automation solutions, with annual sales of approximately $ 6.0 million.

iMS is headquartered in Norton Shores, Michigan.

The total purchase price for this acquisition was $ 7.7 million, including post-closing adjustments.

In addition, the seller has the opportunity to earn $ 3.0 million of contingent performance-based consideration between January 1, 2022 and June 30, 2024.

This additional component will be accounted for as compensation expense over that period.

Based on markets and customers served, results for iMS are primarily reported in the Process Industries segment.

The following table presents the final purchase price allocation at fair value for the iMS acquisition:

Final Purchase Price Allocation

Total assets acquired $ 9.8

Total liabilities assumed 2.1

Net assets acquired $ 7.7

Note 4 - Revenue

The following table presents details deemed most relevant to the users of the financial statements about total revenue for the three months ended March 31, 2022 and 2021, respectively:

The following table presents details deemed most relevant to the users of the financial statements about total revenue for the three and six months ended June 30, 2022 and 2021, respectively:

Three Months Ended Three Months Ended

March 31, 2022 March 31, 2021

June 30, 2022 June 30, 2021

Mobile Process Total Mobile Process Total

5 unchanged sentences

Net sales $ 543.6 $ 610.1 $ 1,153.7 $ 494.2 $ 568.7 $ 1,062.9

Six Months Ended Six Months Ended

June 30, 2022 June 30, 2021

Mobile Process Total Mobile Process Total

United States $ 532.5 $ 456.5 $ 989.0 $ 480.3 $ 387.8 $ 868.1

Americas excluding the United States 121.8 119.7 241.5 101.1 92.3 193.4

Europe / Middle East / Africa 247.5 277.4 524.9 251.4 264.4 515.8

China 61.9 244.4 306.3 66.6 262.7 329.3

Asia-Pacific excluding China 120.3 96.3 216.6 99.3 82.4 181.7

Net sales $ 1,084.0 $ 1,194.3 $ 2,278.3 $ 998.7 $ 1,089.6 $ 2,088.3

Note 4 - Revenue (continued)

When reviewing revenue by sales channel, the Company separates net sales to original equipment manufacturers ("OEMs") from sales to distributors and end users.

The following table presents the percent of revenue by sales channel for the three months ended March 31, 2022 and 2021, respectively:

Three Months Ended Three Months Ended

Revenue by sales channel March 31, 2022 March 31, 2021

The following table presents the percent of revenue by sales channel for the six months ended June 30, 2022 and 2021, respectively:

Six Months Ended Six Months Ended

Revenue by sales channel June 30, 2022 June 30, 2021

Original equipment manufacturers 60 % 61 %

1 unchanged sentence

In addition to disaggregating revenue by segment, 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 three months ended March 31, 2022 and March 31, 2021, approximately 9 % 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 % and 4 % of total net sales represented service revenue during each of the three months ended March 31, 2022 and March 31, 2021, respectively.

Finally, business with the United States ("U.S.") government or its contractors represented approximately 7 % of total net sales during the three months ended March 31, 2022 and March 31, 2021.

During the six months ended June 30, 2022 and June 30, 2021, approximately 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.

Approximately 4 % of t otal net sales represented service revenue during the six months ended June 30, 2022 and June 30, 2021, respectively.

Finally, business with the United States ("U.S.") government or its contractors represented approximately 6 % and 7 % of total net sales during the six months ended June 30, 2022 and June 30, 2021, respectively.

Remaining Performance Obligations:

2 unchanged sentences

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 $ 213.1 million a t March 31, 2022.

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 $ 245.5 million a t June 30, 2022.

Unbilled Receivables:

The following table contains a rollforward of unbilled receivables for the three months ended March 31, 2022:

The following table contains a rollforward of unbilled receivables for the six months ended June 30, 2022 and the twelve months ended December 31, 2021:

2022 December 31,

Beginning balance, January 1 $ 104.5 $ 110.9

2 unchanged sentences

Ending balance $ 107.3 $ 104.5

There were no impairment losses recorded on unbilled receivables for the three months ended March 31, 2022 .

There were no impairment losses recorded on unbilled receivables for the six months ended June 30, 2022 and June 30, 2021.

Note 5 - Segment Information

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Mobile Industries $ 543.6 $ 494.2 $ 1,084.0 $ 998.7

19 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Provision for income taxes $ 44.0 $ 29.4 $ 82.2 $ 54.7

Effective tax rate 29.4 % 21.5 % 26.5 % 19.7 %

Income tax expense for the three months ended March 31, 2022 was calculated using forecasted multi-jurisdictional annual effective tax rates to determine a blended annual effective tax rate.

Income tax expense for the three and six months ended June 30, 2022 was 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.

The effective tax rate of 23.9 % for the three months ended March 31, 2022 was higher than the rate for the three months ended March 31, 2021 primarily due to higher pre-tax earnings and a higher discrete tax benefit in the prior year due to the release of accruals for uncertain tax positions from the settlement of the 2017 and 2018 U.S.

federal tax years during the three months ended March 31, 2021.

The effective tax rate of 29.4 % for the three months ended June 30, 2022 was higher than the rate for the three months ended June 30, 2021 primarily due to an unfavorable mix of earnings in higher tax rate jurisdictions, the net unfavorable impact of discrete tax items, and lower deductions for stock-based compensation.

The effective tax rate of 26.5 % for the six months ended June 30, 2022 was higher than the rate for the six months ended June 30, 2021 primarily due to an unfavorable mix of earnings in higher tax rate jurisdictions, the net unfavorable impact of discrete tax items, including a discrete tax benefit in the prior year in connection with the settlement of the 2017 and 2018 U.S.

federal tax years during the six months ended June 30, 2021, and lower deductions for stock-based compensation.

Note 7 - 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 months ended March 31, 2022 and 2021, respectively:

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 six months ended June 30, 2022 and 2021, respectively:

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

Net income attributable to The Timken Company $ 105.0 $ 104.8 $ 223.2 $ 218.1

12 unchanged sentences

Stock options are antidilutive when the exercise price exceeds the average market price of the Company’s common shares during the periods presented.

There were no antidilutive stock options outstanding during the three months ended March 31, 2022 and 2021.

There were no antidilutive stock options outstanding during the three and six months ended June 30, 2022 and 2021.

Note 8 - Inventories

The components of inventories at March 31, 2022 and December 31, 2021 were as follows:

The components of inventories at June 30, 2022 and December 31, 2021 were as follows:

2022 December 31,

8 unchanged sentences

The majority of the Company's domestic inventories are valued on the LIFO method, and all the Company's international inventories are valued on the FIFO method.

The LIFO reserve at March 31, 2022 and December 31, 2021 was $ 211.7 million and $ 199.4 million, respectively.

The LIFO reserve at June 30, 2022 and December 31, 2021 was $ 216.7 million and $ 199.4 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.

2 unchanged sentences

Note 9 - Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the three months ended March 31, 2022 were as follows:

The changes in the carrying amount of goodwill for the six months ended June 30, 2022 were as follows:

Industries Process

1 unchanged sentence

Beginning balance $ 371.7 $ 651.0 $ 1,022.7

Acquisitions — 39.0 39.0

Foreign currency translation adjustments and other changes ( 19.4 ) ( 27.2 ) ( 46.6 )

Ending balance $ 352.3 $ 662.8 $ 1,015.1

The following table displays intangible assets as of March 31, 2022 and December 31, 2021:

Balance at March 31, 2022 Balance at December 31, 2021

The acquisition of Spinea added $ 39.0 million of goodwill.

The goodwill is expected to be 100 % tax deductible.

The following table displays intangible assets as of June 30, 2022 and December 31, 2021:

Balance at June 30, 2022 Balance at December 31, 2021

Amount Accumulated

15 unchanged sentences

Total intangible assets $ 1,213.0 $ ( 564.9 ) $ 648.1 $ 1,219.2 $ ( 550.4 ) $ 668.8

Amortization expense for intangible assets was $ 12.7 million and $ 14.1 million for the three months ended March 31, 2022 and 2021, respectively.

Amortization expense included $ 10.9 million and $ 12.1 million related to intangible assets acquired as part of a business combination for the three months ended March 31, 2022 and 2021, respectively.

Amortization expense for intangible assets is projected to b e $ 50.9 million in 2022 ;

Amortization expense for intangible assets was $ 25.3 million and $ 28.2 million for the six months ended June 30, 2022 and 2021, respectively.

Amortization expense included $ 21.5 million and $ 24.3 million related to intangible assets acquired as part of a business combination for the six months ended June 30, 2022 and 2021, respectively.

Amortization expense for intangible assets is projected to be $ 55.3 million in 2022;

$ 46.6 million in 2023;

4 unchanged sentences

Note 10 - Other Current Liabilities

The following table displays other current liabilities as of March 31, 2022 and December 31, 2021:

March 31, December 31,

The following table displays other current liabilities as of June 30, 2022 and December 31, 2021:

June 30, December 31,

(Dollars in millions) 2022 2021

Sales rebates $ 56.1 $ 70.3

Product warranty 13.0 11.7

Freight and duties 25.5 25.5

Operating lease liabilities 24.2 26.2

Product warranty 17.2 11.7

Professional fees 12.6 10.8

5 unchanged sentences

Note 11 - Financing Arrangements

Short-term debt at March 31, 2022 and December 31, 2021 was as follows:

Short-term debt at June 30, 2022 and December 31, 2021 was as follows:

2022 December 31,

Borrowings under lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 0.50 % to 2.10 % at March 31, 2022 and 0.50 % to 2.00 % at December 31, 2021

Borrowings under lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 0.50 % to 2.10 % at June 30, 2022 and 0.50 % to 2.00 % at December 31, 2021

$ 70.3 $ 42.6

2 unchanged sentences

Most of these lines of credit are uncommitted.

At March 31, 2022, the Company’s foreign subsidiaries had borrowings outstanding of $ 29.9 million and bank guarantees of $ 0.3 million, which reduced the aggregate availability under these facilities to $ 238.2 million.

Long-term debt at March 31, 2022 and December 31, 2021 was as follows:

At June 30, 2022, the Company’s foreign subsidiaries had borrowings outstanding of $ 70.3 million and bank guarantees of $ 0.2 million, which reduced the aggregate availability under these facilities to $ 183.9 million.

Long-term debt at June 30, 2022 and December 31, 2021 was as follows:

2022 December 31,

Variable-rate Senior Credit Facility with an average interest rate on U.S.

Dollar of 1.17 % and Euro of 1.00 % at March 31, 2022 and U.S.

Variable-rate Senior Credit Facility with an average interest rate on Euro of 1.00 % at June 30, 2022 and U.S.

Dollar of 1.09 % and Euro of 1.00 % at December 31, 2021

Variable-rate Term Loan (1) , maturing on September 11, 2023, with an interest rate of 1.58 % at March 31, 2022 and 1.23 % at December 31, 2021

Variable-rate Term Loan (1) , maturing on September 11, 2023, with an interest rate of 2.79 % at June 30, 2022 and 1.23 % at December 31, 2021

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

12 unchanged sentences

Borrowings under the Accounts Receivable Facility may be limited to certain borrowing base limitations;

however, availability under the Accounts Receivable Facility was not reduced by any such borrowing base limitations at March 31, 2022.

As of March 31, 2022, there were no outstanding borrowings under the Accounts Receivable Facility.

however, availability under the Accounts Receivable Facility was not reduced by any such borrowing base limitations at June 30, 2022.

As of June 30, 2022, there were no outstanding borrowings under the Accounts Receivable Facility, and the entire $ 100 million was available .

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.

2 unchanged sentences

The Senior Credit Facility is a $ 650.0 million unsecured revolving credit facility, which matures on June 25, 2024.

At March 31, 2022, the Company had $ 8.8 million of outstanding borrowings under the Senior Credit Facility, which reduced the availability under this facility to $ 641.2 million.

At June 30, 2022, the Company had $ 8.3 million of outstanding borrowings under the Senior Credit Facility, which reduced the availability under this facility to $ 641.7 million.

The Senior Credit Facility has two financial covenants:

1 unchanged sentence

On March 28, 2022, the Company issued fixed-rate unsecured senior notes ("2032 Notes") in the aggregate principal amount of $ 350 million with an interest rate of 4.125 %, maturing on April 1, 2032 .

Proceeds from the notes were used to repay borrowings under the Senior Credit Facility and the Accounts Receivable Facility outstanding at the time of issuance, and for general corporate purposes.

Proceeds from the notes were used to for general corporate purposes, which included repayment of borrowings under the Senior Credit Facility and the Accounts Receivable Facility outstanding at the time of issuance.

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").

1 unchanged sentence

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.

At March 31, 2022, the Company was in full compliance with all applicable covenants on its outstanding debt.

At June 30, 2022, 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 March 31, 2022, outstanding letters of credit totaled $ 42.8 million, most with expiration dates within 12 months.

The maturities of long-term debt (including $ 3.8 million of finance leases) subsequent to March 31, 2022 are as follows:

At June 30, 2022, outstanding letters of credit totaled $ 43.7 million, most with expiration dates within 12 months.

The maturities of long-term debt (including $ 3.4 million of finance leases) subsequent to June 30, 2022 are as follows:

Thereafter 864.6

10 unchanged sentences

All previously pending property damage and personal injury lawsuits against Lovejoy related to the Site were settled or dismissed prior to our acquisition of Lovejoy.

The Company had total environmental accruals of $ 6.4 million and $ 6.0 million for various known environmental matters that are probable and reasonably estimable at March 31, 2022 and December 31, 2021, respectively, which includes the Lovejoy matter described above.

The Company had total environmental accruals of $ 5.5 million and $ 6.0 million for various known environmental matters that are probable and reasonably estimable at June 30, 2022 and December 31, 2021, respectively, which includes the Lovejoy matter described 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.

1 unchanged sentence

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 $ 13.0 million and $ 11.7 million at March 31, 2022 and December 31, 2021, respectively.

The increase in the liability 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.

The following is a rollforward of the consolidated product warranty accrual for the three months ended March 31, 2022 and twelve months ended December 31, 2021:

The product warranty liability included in "Other current liabilities" on the Consolidated Balance Sheets was $ 17.2 million and $ 11.7 million at June 30, 2022 and December 31, 2021, respectively.

The balances at the end of each respective period represent the best estimates of costs for future claims for products that are still under warranty.

The increase in the liability for the first six months of 2022 primarily relates to additional accruals for product sold into the automotive and renewable energy sectors.

Accrual estimates are based on actual 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 such change occurs.

The following is a rollforward of the consolidated product warranty accrual for the six months ended June 30, 2022 and twelve months ended December 31, 2021:

2022 December 31,

4 unchanged sentences

Note 13 - Equity

The following tables present the changes in the components of equity for the three months ended March 31, 2022 and 2021, respectively:

The following tables present the changes in the components of equity for the three and six months ended June 30, 2022 and 2021, respectively:

The Timken Company Shareholders

2 unchanged sentences

Comprehensive

Income (Loss) Treasury

Loss Treasury

Balance at March 31, 2022 $ 2,355.0 $ 40.7 $ 795.4 $ 1,711.1 $ ( 42.5 ) $ ( 233.6 ) $ 83.9

Net income 105.6 105.0 0.6

Foreign currency translation adjustment ( 113.1 ) ( 114.2 ) 1.1

Pension and other postretirement liability

adjustments (net of income tax benefit

of $ 0.5 million)

( 1.4 ) ( 1.4 )

Change in fair value of derivative financial

instruments, net of reclassifications 2.2 2.2

Dividends – $ 0.31 per share

( 22.9 ) ( 22.9 )

Stock-based compensation expense 8.5 8.5

Stock purchased at fair market value ( 44.3 ) ( 44.3 )

Stock option exercise activity 0.2 0.2

Payments related to tax withholding for

stock-based compensation ( 0.6 ) ( 0.6 )

Balance at June 30, 2022 $ 2,289.2 $ 40.7 $ 804.1 $ 1,793.2 $ ( 155.9 ) $ ( 278.5 ) $ 85.6

The Timken Company Shareholders

Capital Other

Capital Retained Earnings Accumulated

Comprehensive

Loss Treasury

Balance at December 31, 2021 $ 2,377.7 $ 40.7 $ 786.9 $ 1,616.4 $ ( 23.0 ) $ ( 126.1 ) $ 82.8

14 unchanged sentences

stock-based compensation ( 8.1 ) ( 8.1 )

Balance at March 31, 2022 $ 2,355.0 $ 40.7 $ 795.4 $ 1,711.1 $ ( 42.5 ) $ ( 233.6 ) $ 83.9

Balance at June 30, 2022 $ 2,289.2 $ 40.7 $ 804.1 $ 1,793.2 $ ( 155.9 ) $ ( 278.5 ) $ 85.6

Note 13 - Equity (continued)

The Timken Company Shareholders

3 unchanged sentences

Income (Loss) Treasury

Balance at March 31, 2021 $ 2,250.1 $ 40.7 $ 761.3 $ 1,429.0 $ ( 2.1 ) $ ( 53.4 ) $ 74.6

Net income 107.2 104.8 2.4

Foreign currency translation adjustment 23.2 23.8 ( 0.6 )

Pension and other postretirement liability

adjustments (net of income tax benefit of

$ 0.5 million)

( 1.7 ) ( 1.7 )

Change in fair value of derivative financial

instruments, net of reclassifications ( 0.2 ) ( 0.2 )

Dividends - $ 0.30 per share

( 22.9 ) ( 22.9 )

Stock-based compensation expense 6.0 6.0

Stock option exercise activity 11.3 11.3

Payments related to tax withholding for

stock-based compensation ( 5.7 ) ( 5.7 )

Balance at June 30, 2021 $ 2,367.3 $ 40.7 $ 778.6 $ 1,510.9 $ 19.8 $ ( 59.1 ) $ 76.4

The Timken Company Shareholders

Capital Other

Capital Retained Earnings Accumulated

Comprehensive

Income Treasury

Balance at December 31, 2020 $ 2,225.2 $ 40.7 $ 740.7 $ 1,339.5 $ 41.3 $ ( 9.3 ) $ 72.3

14 unchanged sentences

stock-based compensation ( 23.5 ) ( 23.5 )

Balance at March 31, 2021 $ 2,250.1 $ 40.7 $ 761.3 $ 1,429.0 $ ( 2.1 ) $ ( 53.4 ) $ 74.6

Balance at June 30, 2021 $ 2,367.3 $ 40.7 $ 778.6 $ 1,510.9 $ 19.8 $ ( 59.1 ) $ 76.4

Note 14 - Impairment and Restructuring Charges

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

For the three months ended March 31, 2022:

For the three months ended June 30, 2022:

Mobile Industries Process Industries Total

Impairment charges $ 8.8 $ — $ 8.8

Severance and related benefit costs 0.7 0.4 1.1

1 unchanged sentence

Total $ 9.6 $ 0.4 $ 10.0

For the three months ended March 31, 2021:

For the six months ended June 30, 2022:

Mobile Industries Process Industries Total

3 unchanged sentences

Total $ 10.7 $ 0.3 $ 11.0

For the three months ended June 30, 2021:

Mobile Industries Process Industries Total

Impairment charges $ 1.0 $ 0.1 $ 1.1

Severance and related benefit costs — 0.1 0.1

Exit costs 0.1 — 0.1

Total $ 1.1 $ 0.2 $ 1.3

For the six months ended June 30, 2021:

Mobile Industries Process Industries Total

Impairment charges $ 1.1 $ 3.4 $ 4.5

Severance and related benefit costs — 0.6 0.6

Exit costs 0.2 — 0.2

Total $ 1.3 $ 4.0 $ 5.3

The following discussion explains the impairment and restructuring charges recorded for the periods presented;

1 unchanged sentence

Mobile Industries:

During the three months ended June 30, 2022, the Company recorded impairment charges of $ 8.8 million related to certain assets of its joint venture in Russia.

As a result of Russia's invasion of Ukraine (and associated sanctions), the Company suspended its operations in Russia.

Refer to Russia Operations in Management's Discussion and Analysis for additional information.

Note 14 - Impairment and Restructuring Charges (continued)

On July 19, 2021, the Company announced the closure of its bearing manufacturing facility in Villa Carcina, Italy.

The Company will be transferring the man ufacturing of its single-row tapered roller bearing production to other bearing facilities in Europe, Asia and the United States.

The Company expects to complete the closure by June of 2022 and is expected to affect approximately 110 employees.

The Company will be transferring the manufacturing of its single-row tapered roller bearing production to other bearing facilities in Europe, Asia and the United States.

The Company expects to complete the closure of the facility by October of 2022 and is expected to affect approximately 110 employees.

The Company expects to incur approximately $ 9 million to $ 11 million of expenses related to this closure.

During the t hree months ended March 31, 2022, the Company recorded severance and related benefits of $ 0.4 million and exit costs of $ 0.6 million related to this closure.

The Company has incurred cumulative pretax costs related to this closure of $ 7.5 million as of March 31, 2022, including rationalization costs recorded in cost of products sold.

During the three months ended June 30, 2022, the Company recorded severance and related benefits of $ 0.4 million and exit costs of $ 0.4 million associated with this closure.

During the six months ended June 30, 2022, the Company recorded severance and related benefits of $ 0.8 million and exit costs of $ 1.0 million associated with this closure.

During the three months ended June 30, 2021, the Company recorded impairment charges of $ 1.0 million.

T he Company has incurred cumulative pretax costs related to this closure of $ 8.3 million as of June 30, 2022, including rationalization costs recorded in cost of products sold.

On January 31, 2022, the Company entered into an agreement to sell this facility with the sale expected to close in the fourth quarter of 2022.

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The Company expects to hire approximately 130 full-time positions in Fulton, Illinois and expects to incur approximately $ 11 million to $ 14 million of expenses related to this closure.

During the three months ended March 31, 2021, the Company recorded severance and related benefit costs of $ 0.3 million, respectively, related to this closure.

The Company has incurred cumulative pretax costs related to this closure of $ 11.1 million as of March 31, 2022, including rationalization costs recorded in cost of products sold.

In addition, the Company recorded impairment charges of $ 3.3 million related to certain engineering-related assets used in the business during the three months ended March 31, 2021 .

During the three months and six months ended June 30, 2021, the Company recorded severance and related benefit costs of $ 0.3 million and $ 0.6 million, respectively, related to this closure.

The Company has incurred cumulative pretax costs related to this closure of $ 12.0 million as of June 30, 2022, including rationalization costs recorded in cost of products sold.

In addition, the Company recorded impairment charges of $ 3.3 million related to certain engineering-related assets used in the business during the six months ended June 30, 2021 .

Management concluded no further investment would be made in these assets and as a result, reduced the value to zero.

Note 13 - Impairment and Restructuring Charges (continued)

Consolid ated Restructuring Accrual:

The following is a rollforward of the consolidated restructuring accrual for the three months ended March 31, 2022 and twelve months ended December 31, 2021:

The following is a rollforward of the consolidated restructuring accrual for the six months ended June 30, 2022 and twelve months ended December 31, 2021:

2022 December 31,

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Ending balance $ 5.5 $ 7.0

The restructuring accrual at March 31, 2022 and December 31, 2021 was included in other current liabilities on the Consolidated Balance Sheets.

The restructuring accrual at June 30, 2022 and December 31, 2021 was included in other current liabilities on the Consolidated Balance Sheets.

Note 15 - 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 months ended March 31, 2022 are based on calculations prepared by the Company's actuaries and represent the Company’s best estimate of that period’s proportionate share of the amounts to be recorded for the year ending December 31, 2022.

The amounts for the three and six months ended June 30, 2022 are based on calculations prepared by the Company's actuaries and represent the Company’s best estimate of that period’s proportionate share of the amounts to be recorded for the year ending December 31, 2022.

Plans International Plans Total

Three Months Ended

March 31, Three Months Ended

June 30, Three Months Ended

2022 2021 2022 2021 2022 2021

Components of net periodic benefit

cost (credit):

Components of net periodic benefit cost (credit):

Service cost $ 1.8 $ 2.3 $ 0.4 $ 0.5 $ 2.2 $ 2.8

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Net periodic benefit cost (credit) $ 12.8 $ 4.5 $ ( 0.5 ) $ ( 0.9 ) $ 12.3 $ 3.6

The Company expects full year 2022 lump sum payments for one of its U.S.

defined benefit pension plans to exceed annual interest and service costs.

This expectation triggered a remeasurement of assets and obligations for the plan.

As a result of this remeasurement, the Company recognized net actuarial losses ("Mark-to-Market Charges") of $ 2.6 million during the three months ended March 31, 2022.

For the three months ended March 31, 2021, the Company expected to make lump sum payments related to new retirees in excess of annual interest and service costs for three of the Company's U.S.

Plans International Plans Total

Six Months Ended

June 30, Six Months Ended

2022 2021 2022 2021 2022 2021

Components of net periodic benefit cost (credit):

Service cost $ 3.7 $ 4.8 $ 0.8 $ 1.0 $ 4.5 $ 5.8

Interest cost 8.2 8.9 2.9 2.2 11.1 11.1

Expected return on plan assets ( 10.2 ) ( 12.2 ) ( 4.9 ) ( 5.1 ) ( 15.1 ) ( 17.3 )

Amortization of prior service cost 0.6 0.6 0.1 0.1 0.7 0.7

Recognition of net actuarial losses 14.2 4.4 — — 14.2 4.4

Net periodic benefit cost (credit) $ 16.5 $ 6.5 $ ( 1.1 ) $ ( 1.8 ) $ 15.4 $ 4.7

The Company expects full year 2022 lump sum payments related to new retirees to exceed annual interest and service costs for two of the Company's U.S.

defined benefit pension plans in 2022.

This expectation triggered a remeasurement of assets and obligations for these plans.

As a result of this remeasurement, the Company recognized net actuarial losses of $ 0.9 million during the three months ended March 31, 2021.

This expectation triggered a remeasurement of assets and obligations for both plans.

During the three months ended March 31, 2022, the Company only expected to make lump sum payments related to new retirees in excess of annual interest and service costs for one of its U.S.

defined benefit pension plans resulting in only one plan being remeasured.

As a result of these remeasurements, the Company recognized net actuarial losses ("mark-to-market charges") of $ 11.6 million and $ 14.2 million during the three and six months ended June 30, 2022, respectively.

For the three and six months ended June 30, 2021, the Company expected to make lump sum payments related to new retirees in excess of annual interest and service costs for three of the Company's U.S.

defined benefit pension plans in 2021.

This expectation, along with the payout of deferred compensation to a former executive officer of the Company in June 2021, triggered a remeasurement of assets and obligations for these plans.

As a result of this remeasurement, the Company recognized net actuarial losses of $ 3.5 million and $ 4.4 million during the three and six months ended June 30, 2021, respectively.

Note 16 - Other Postretirement Benefit Plans

The following table sets forth the net periodic benefit cost for the Company’s other postretirement benefit plans.

Three Months Ended

Components of net periodic benefit credit:

June 30, Six Months Ended

2022 2021 2022 2021

Net periodic benefit credit:

Service cost $ 0.1 $ 0.1 $ 0.1 $ 0.1

Interest cost 0.3 0.3 0.7 0.7

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Note 17 - Accumulated Other Comprehensive Income (Loss)

The following tables present details about components of accumulated other comprehensive income (loss) for the three months ended March 31, 2022 and 2021, respectively:

The following tables present details about components of accumulated other comprehensive (loss) income for the three and six months ended June 30, 2022 and 2021, respectively:

Foreign currency translation adjustments Pension and other postretirement liability adjustments Change in fair value of derivative financial instruments Total

Balance at December 31, 2021 $ ( 80.3 ) $ 56.6 $ 0.7 $ ( 23.0 )

Balance at March 31, 2022 $ ( 100.3 ) $ 55.1 $ 2.7 $ ( 42.5 )

Other comprehensive (loss) income before

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taxes — ( 2.1 ) ( 0.7 ) ( 2.8 )

Income tax benefit (expense) — 0.5 ( 0.3 ) 0.2

Income tax (expense) benefit — 0.5 ( 1.0 ) ( 0.5 )

Net current period other comprehensive (loss)

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Noncontrolling interest ( 1.1 ) — — ( 1.1 )

Net current period comprehensive (loss) income,

net of income taxes and noncontrolling

Net current period other comprehensive (loss)

income, net of income taxes and noncontrolling

interest ( 114.2 ) ( 1.4 ) 2.2 ( 113.4 )

Balance at March 31, 2022 $ ( 100.3 ) $ 55.1 $ 2.7 $ ( 42.5 )

Balance at June 30, 2022 $ ( 214.5 ) $ 53.7 $ 4.9 $ ( 155.9 )

Foreign currency translation adjustments Pension and other postretirement liability adjustments Change in fair value of derivative financial instruments Total

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Income tax (expense) benefit — 1.0 ( 1.3 ) ( 0.3 )

Net current period other comprehensive

(loss) income, net of income taxes ( 44.4 ) ( 1.6 ) 2.2 ( 43.8 )

Net current period other comprehensive (loss)

income, net of income taxes ( 135.7 ) ( 2.9 ) 4.2 ( 134.4 )

Noncontrolling interest 1.5 — — 1.5

Net current period comprehensive (loss) income,

net of income taxes and noncontrolling

Net current period other comprehensive (loss)

income, net of income taxes and noncontrolling

interest ( 134.2 ) ( 2.9 ) 4.2 ( 132.9 )

Balance at June 30, 2022 $ ( 214.5 ) $ 53.7 $ 4.9 $ ( 155.9 )

Note 17 - 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 March 31, 2021 $ ( 62.0 ) $ 61.8 $ ( 1.9 ) $ ( 2.1 )

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

Other comprehensive income (loss) before

reclassifications and income taxes 23.2 ( 0.1 ) ( 2.1 ) 21.0

Amounts reclassified from accumulated other

comprehensive (loss) income before income

taxes — ( 2.1 ) 1.7 ( 0.4 )

Income tax benefit — 0.5 0.2 0.7

Net current period other comprehensive income

(loss), net of income taxes 23.2 ( 1.7 ) ( 0.2 ) 21.3

Noncontrolling interest 0.6 — — 0.6

Net current period comprehensive income (loss),

net of income taxes and noncontrolling interest 23.8 ( 1.7 ) ( 0.2 ) 21.9

Balance at June 30, 2021 $ ( 38.2 ) $ 60.1 $ ( 2.1 ) $ 19.8

Foreign currency translation adjustments Pension and other postretirement liability adjustments Change in fair value of derivative financial instruments Total

Balance at December 31, 2020 $ ( 18.0 ) $ 63.4 $ ( 4.1 ) $ 41.3

Other comprehensive (loss) income before

reclassifications and income taxes ( 21.2 ) ( 0.1 ) ( 0.7 ) ( 22.0 )

Amounts reclassified from accumulated other

comprehensive (loss) income before income

taxes — ( 4.3 ) 3.4 ( 0.9 )

Income tax benefit (expense) — 1.1 ( 0.7 ) 0.4

Net current period other comprehensive (loss)

income, net of income taxes ( 21.2 ) ( 3.3 ) 2.0 ( 22.5 )

Noncontrolling interest 1.0 — — 1.0

Net current period comprehensive (loss) income,

net of income taxes and noncontrolling interest ( 20.2 ) ( 3.3 ) 2.0 ( 21.5 )

Balance at June 30, 2021 $ ( 38.2 ) $ 60.1 $ ( 2.1 ) $ 19.8

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

Note 18 - Fair Value

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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 March 31, 2022 and December 31, 2021:

March 31, 2022

The following tables present the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021:

June 30, 2022

Total Level 1 Level 2 Level 3

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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.

No other material assets were measured at fair value on a nonrecurring basis during the three months ended March 31, 2022 and 2021, respectively.

During the three months ended June 30, 2022, property, plant and equipment at the Company's joint venture in Russia, with a carrying value of $ 15.9 million, were written down to their fair value of $ 7.1 million, resulting in an impairment charge of $ 8.8 million.

The fair value for these assets was determined based on the best price that would be received in a current transaction to sell the assets to a third party.

No other material assets w ere measured at fair value on a nonrecurring basis during the six months ended June 30, 2022 and 2021, respectively.

Financial Instruments:

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Due to the nature of fair value calculati ons for variable-rate debt, the carrying value of the Company's long-term variable-rate debt is a reasonable estima te of its fair value.

The fair value of the Company’s long-term fixed-rate debt, based on quoted market prices, was $ 1,468.0 million and $ 1,171.1 million at March 31, 2022 and December 31, 2021, respectively.

The carrying value of this debt was $ 1,424.5 million and $ 1,087.5 million at March 31, 2022 and December 31, 2021, respectively.

The fair value of the Company’s long-term fixed-rate debt, based on quoted market prices, was $ 1,386.6 million and $ 1,171.1 million at June 30, 2022 and December 31, 2021, respectively.

The carrying value of this debt was $ 1,414.1 million and $ 1,087.5 million at June 30, 2022 and December 31, 2021, respectively.

The fair value of long-term fixed-rate debt was measured using Level 2 inputs.

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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 7, 2027 (the "2027 Notes"), as a hedge against its net investment in one of its European subsidiaries.

On September 15, 2020, the Company designated € 54.5 million of its € 150.0 million fixed-rate senior unsecured notes, maturing on September 7, 2027 (th e "2027 Notes"), as a hedge against its net investment in one of its European subsidiaries.

The objective of the hedge transaction is to protect the net investment in the foreign operations against changes in the exchange rate between the U.S.

dollar and the Euro.

The net impact for the three months ended March 31, 2022, respectively, was a gain of $ 1.7 million to accumulated comprehensive (loss) income with a corresponding offset to other income, which partially offsets the impact of the foreign currency adjustment on the 2027 Notes.

The Company entered into $ 350 million floating-to-fixed 10-year Treasury rate locks during the first quarter of 2022, prior to issuing the 2032 Notes.

The net impact for the three and six months ended June 30, 2022, respectively, was a gain of $ 3.2 million and a gain of $ 4.8 million to accumulated comprehensive (loss) income with a corresponding offset to other expense, which partially offsets the impact of the foreign currency adjustment on the 2027 Notes.

The Company entered into $ 350 million of floating-to-fixed 10-year Treasury rate locks during the first quarter of 2022, prior to issuing the 2032 Notes.

This fixed the 10-year Treasury yield and settled at pricing of the 2032 Notes, resulting in $ 6.5 million of cash proceeds received by the Company.

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The Company does not purchase or hold any derivativ e financial instruments for trading purposes.

As of March 31, 2022 and December 31, 2021, the Company had $ 291.4 million and $ 300.8 million, respectively, of outstanding foreign currency forward contracts at notional value.

As of June 30, 2022 and December 31, 2021, the Company had $ 434.4 million and $ 300.8 million, respectively, of outstanding foreign currency forward contracts at notional value.

Refer to Note 18 - Fair Value for the fair value disclosure of derivative financial instruments.

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Co nverse ly, 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 March 31, 2022 and December 31, 2021, the Company had $ 83.5 million and $ 80.0 million, respectively, of outstanding foreign currency forward contracts at notional value that were classified as cash flow hedges.

As of June 30, 2022 and December 31, 2021, the Company had $ 76.7 million and $ 80.0 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.

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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 March 31, 2022 and December 31, 2021, the Company had $ 207.9 million and $ 220.8 million, respectively, of outstanding foreign currency forward contracts at notional value that were not d esignated as hedging instruments.

The following table presents the impact of derivative instruments not designated as hedging instruments for the three months ended March 31, 2022 and 2021, respectively, and the related location within the Consolidated Statements of Income:

As of June 30, 2022 and December 31, 2021, the Company had $ 357.7 million and $ 220.8 million, respectively, of outstanding foreign currency forward contracts at notional value that were not d esignated as hedging instruments.

The following table presents the impact of derivative instruments not designated as hedging instruments for the three and six months ended June 30, 2022 and 2021, respectively, and the related location within the Consolidated Statements of Income:

Amount of gain or (loss) recognized in income

Three Months Ended

June 30, Six Months Ended

Derivatives not designated as hedging instruments:

Location of gain or (loss) recognized in income 2022 2021 2022 2021

Foreign currency forward contracts Other income (expense), net $ ( 1.0 ) $ 0.2

Note 19 - Subsequent Events

On April 29, 2022, the Company reached an agreement to acquire Spinea, s.r.o.

(Spinea), a European technology leader and manufacturer of highly engineered cycloidal reduction gears and actuators.

Spinea’s solutions primarily serve high-precision automation and robotics applications in the factory automation sector.

Spinea is located in Presov, Slovakia, and is expected to have sales around $ 40 million for the full year of 2022.

The transaction, which is subject to customary closing conditions, is expected to close in the second quarter and will be funded with cash and borrowings from existing credit facilities.

Foreign currency forward contracts Other expense, net $ ( 6.0 ) $ ( 0.9 ) $ ( 7.0 ) $ ( 0.7 )

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements