What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-16 compared with 2022-02-15 · 326 added, 252 removed, 1264 unchanged (31% of the section changed)

Financial Statements and Supplementary Data

The Timken Company and Subsidiaries

Financial Statements Page

Consolidated Statement s of Income

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

90 unchanged sentences

Retained earnings 1,932.1 1,616.4

Accumulated other comprehensive (loss) income ( 23.0 ) 41.3

Accumulated other comprehensive loss ( 181.9 ) ( 23.0 )

Treasury shares at cost (2022 – 5,188,257 shares;

16 unchanged sentences

Impairment charges 38.3 4.5 0.4

Loss (gain) on sale of assets 1.3 0.9 ( 4.0 )

(Gain) loss on sale of assets ( 1.9 ) 1.3 0.9

Acquisition-related gain — ( 0.9 ) ( 11.1 )

Loss on divestitures 3.5 — —

Deferred income tax benefit ( 3.6 ) ( 15.1 ) ( 23.2 )

16 unchanged sentences

Proceeds from disposals of property, plant and equipment 9.6 0.6 1.5

Proceeds from divestitures, net of cash divested of $ 5.3 million in 2022

Investments in short-term marketable securities, net 14.6 ( 18.0 ) ( 9.4 )

13 unchanged sentences

Noncontrolling interest dividends paid ( 0.5 ) ( 0.5 ) ( 16.9 )

Net Cash Used in Financing Activities ( 269.3 ) ( 331.1 ) ( 100.7 )

Other 6.5 — —

Net Cash Provided by (Used in) Financing Activities 206.8 ( 269.3 ) ( 331.1 )

Effect of exchange rate changes on cash ( 14.5 ) ( 7.4 ) 11.9

(Decrease) Increase In Cash, Cash Equivalents and Restricted Cash ( 63.2 ) 104.9 83.1

Increase (Decrease) In Cash, Cash Equivalents and Restricted Cash 82.8 ( 63.2 ) 104.9

Cash, cash equivalents and restricted cash at beginning of year 257.9 321.1 216.2

10 unchanged sentences

Balance at January 1, 2020 $ 1,954.8 $ 53.1 $ 937.6 $ 1,907.4 $ ( 50.1 ) $ ( 979.8 ) $ 86.6

Cumulative effect of ASU 2016-13 (net of $ 0.2 million

income tax benefit)

( 0.5 ) ( 0.5 )

Net income 292.4 284.5 7.9

1 unchanged sentence

Pension and other postretirement liability adjustments

(net of $ 22.2 million income tax expense)

(net of $ 1.1 million income tax benefit)

( 3.5 ) ( 3.5 )

Change in fair value of derivative financial

3 unchanged sentences

Dividends declared to noncontrolling interest ( 16.1 ) ( 16.1 )

Treasury stock retirement — ( 12.4 ) ( 213.3 ) ( 764.9 ) 990.6

Dividends – $ 1.13 per share

8 unchanged sentences

Year Ended December 31, 2021

Cumulative effect of ASU 2016-13 (net of $ 0.2 million

income tax benefit)

( 0.5 ) ( 0.5 )

Net income 381.5 369.1 12.4

5 unchanged sentences

instruments, net of reclassifications 4.8 4.8

Change in ownership of noncontrolling interest 0.5 0.5

Noncontrolling interest acquired ( 1.0 ) 1.0 ( 2.0 )

Dividends declared to noncontrolling interest ( 0.5 ) ( 0.5 )

Treasury stock retirement — ( 12.4 ) ( 213.3 ) ( 764.9 ) 990.6

Dividends – $ 1.19 per share

3 unchanged sentences

Stock option exercise activity 26.0 26.0

Restricted share activity — ( 23.9 ) 23.9

Payments related to tax withholding for stock-based

15 unchanged sentences

Stock option exercise activity 8.5 8.5

Shares surrendered for stock option activity — 3.8 ( 3.8 )

Payments related to tax withholding for stock-based

52 unchanged sentences

Restricted Cash:

Cash of $ 0.8 million at December 31, 2021 and 2020, respectively, was restricted for contractually specified uses.

Cash and cash equivalents of $ 9.1 million and $ 0.8 million were restricted at December 31, 2022 and 2021, respectively.

$ 8.5 million of this amount at December 31, 2022 is in Russia under the Company's Rail JV, and the Company is presently unable to repatriate these funds to one of its subsidiaries outside of Russia.

Accounts Receivable, Less Allowances:

14 unchanged sentences

The majority of the Company’s domestic inventories are valued by the LIFO method, while all of the Company’s international inventories are valued by the FIFO method.

Short-term investments are investments with maturities between three months and one year and are valued at amortized cost, which approximates fair value.

The Company held short-term investments as of December 31, 2021 and 2020 with a fair value and cost basis of $ 56.9 million and $ 37.6 million, respectively, which were included in "Other current assets" on the Consolidated Balance Sheets.

Short-term investments are investments with maturities between four months and one year and are valued at amortized cost, which approximates fair value.

The Company held short-term investments as of December 31, 2022 and 2021 with a fair value and cost ba sis of $ 39.2 million an d $ 56.9 million, respectively, which were included in "Other current assets" on the Consolidated Balance Sheets.

Property, Plant and Equipment:

41 unchanged sentences

Foreign currency gains and losses resulting from transactions are included in the Consolidated Statements of Income.

Net of related derivative activity, the Company recognized foreign currency exchange losses resulting from transactions of $ 9.4 million and $ 10.0 million for the years ended December 31, 2021 and 2020, respectively, and a gain of $ 6.1 million for the year ended December 31, 2019.

Net of related derivative activity, the Company recognized a foreign currency exchange gain resulting from transactions of $ 15.4 million for the year ended December 31, 2022 and recognized losses of $ 9.4 million and $ 10.0 million for the years ended December 31, 2021 and 2020, respectively.

Pension and Other Postretirement Benefits:

16 unchanged sentences

Diluted earnings per share are computed by dividing net income less undistributed earnings allocated to unvested restricted shares by the weighted-average number of common shares outstanding, adjusted for the dilutive impact of outstanding stock-based awards.

As of December 31, 2022, there are no participating securities outstanding.

Note 1 - Significant Accounting Policies (continued)

4 unchanged sentences

The Company’s holdings of forward foreign currency exchange contracts qualify as derivatives pursuant to the criteria established in derivative accounting guidance, and the Company has designated certain of those derivatives as hedges.

Government Assistance:

From time to time, the Company receives government assistance in the form of grants and other incentives from various governments to support capital projects and other business development.

The amount received is typically based on the amount of qualifying capital expenditures or business development costs in the countries providing the government assistance.

The Company typically has to meet certain requirements, such as adding a specified number of qualifying positions, to retain the government assistance or the funds can be clawed back by the government.

Once the Company determines that it will meet the requirements of the government assistance, the funds are recognized over the life of the related assets or as the costs are incurred.

For amounts that are expected to be paid back, the Company recognizes interest expense on those funds.

As of December 31, 2022, the Company has $ 0.9 million and $ 33.8 million of government assistance in other current liabilities and other non-current liabilities , respectively.

In addition, the Company cumulatively recorded $ 3.3 million and $ 0.2 million of government assistance as a reduction to cost of products sold and SG&A , respectively.

The Company also cumulatively recognized interest expense of $ 0.9 million related to the expected shortfall of incentive obligations.

The following paragraphs discuss the Company's most significant government assistance programs.

In 2022, the Company acquired Spinea.

Prior to the acquisition, Spinea received incentives totaling $ 18.0 million from the Slovakian Government to invest in a new production facility and related machinery and equipment.

As a result, Spinea is required to create 450 new jobs.

If Spinea is unable to meet these commitments, a portion of the incentive and related interest will be paid back in October 2024.

The Company is currently accounting for a potential shortfall of $ 14.7 million, including interest.

The remaining amount is being amortized over the period the costs are being incurred.

In 2022, the Company recorded amortization expense of $ 0.2 million as a reduction to cost of products sold .

In addition, the Company recorded total interest expense of $ 0.1 million due to the expectation of having to pay a portion of the incentive back.

In 2017 and 2018, the Company received grants from the Romanian Government for the reimbursement of capital investments for its new production facility, totaling $ 16.5 million.

While the original grants were based on capital investments, the Company needs to pay various taxes, including corporate income tax, payroll taxes and building tax, totaling $ 16.5 million between 2019 through 2024.

If the total tax obligation is not met, any shortfall will require that the grant and related interest will be paid back in December 2024.

The Company is currently accounting for a potential shortfall of $ 8.4 million, including interest.

The incentive is being amortized over the useful life of the assets.

Cumulatively as of December 31, 2022, the Company recorded amortization expense of $ 1.2 million as a reduction to cost of products sold .

In addition, the Company recorded total interest expense of $ 0.8 million due to the expectation of having to pay a portion of the grant back.

The Company may receive other government assistance that is not described above;

however, the total amount of the government assistance is immaterial to the Company’s Consolidated Financial Statements.

Use of Estimates:

2 unchanged sentences

Because actual results could differ from these estimates, the Company reviews and updates these estimates and assumptions regularly to reflect recent experience.

Note 1 - Significant Accounting Policies (continued)

Recent Accounting Pronouncements:

New Accounting Guidance Adopted:

In December 2019, the FASB issued Accounting Standards Update ("ASU") 2019-12, “Income Taxes (ASC 740) – Simplifying the Accounting for Income Taxes,” which is intended to reduce complexity in the accounting for income taxes while maintaining or improving the usefulness of information provided to financial statement users.

In November 2021, the FASB issued Accounting Standards Update ("ASU") 2021-10, "Government Assistance (Topic 832)." ASU 2021-10 is intended to increase transparency of government assistance by requiring entities to disclose the types of government assistance, the entity's accounting for government assistance, and the effect of the government assistance on an entity's financial statements.

This new guidance is effective for all entities for annual reporting periods beginning after December 15, 2021.

Refer to the section above "Government Assistance" for further discussion.

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." ASU 2021-08 requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with ASC Topic 606 as if the acquirer had originated the contracts.

This new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted.

The Company adopted ASU 2021-08 effective January 1, 2022, and the impact of the adoption was not material to the Company's results of operations and financial condition.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (ASC 740) – Simplifying the Accounting for Income Taxes,” which is intended to reduce complexity in the accounting for income taxes while maintaining or improving the usefulness of information provided to financial statement users.

The guidance amends certain existing provisions under ASC 740 to address a number of distinct items.

2 unchanged sentences

New Accounting Guidance Issued and Not Yet Adopted:

In November 2021, the FASB issued ASU 2021-10, "Government Assistance (Topic 832)." ASU 2021-10 is intended to increase transparency of government assistance by requiring entities to disclose the types of government assistance, the entity's accounting for government assistance, and the effect of the government assistance on an entity's financial statements.

This new guidance is effective for all entities for annual reporting periods beginning after December 15, 2021.

The Company is currently evaluating the impact of the new guidance on its disclosures.

This new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

In September 2022, the FASB issued ASU 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50)." ASU 2022-04 is intended to establish disclosures that enhance the transparency of a supplier finance program used by an entity in connection with the purchase of goods and services.

Supplier finance programs, which also may be referred to as reverse factoring, payables finance or structured payables arrangements, allow a buyer to offer its suppliers the option for access to payment in advance of an invoice due date, which is paid by a third-party finance provider or intermediary.

Under the guidance, a buyer in a supplier finance program would disclose qualitative and quantitative information about its supplier finance programs.

The new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023.

Early adoption is permitted.

The Company expects to early adopt this guidance in the first quarter of 2022.

The impact of the new guidance on the Company's Consolidated Financial Statements and related disclosures will depend on the magnitude of future acquisitions.

The Company is currently evaluating the impact of the new guidance.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848):

1 unchanged sentence

GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates.

In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848.” ASU 2022-06 extends the period of time financial statement preparers can utilize the reference rate reform relief guidance.

The amendments in ASU 2022-06 defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2024.

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 2 - Acquisitions

On December 5, 2022, the Company entered into the Senior Credit Facility.

The Credit Agreement amended and restated the Company's previous revolving credit agreement, including replacing interest rates based on LIBOR to SOFR.

The Company's remaining activity with LIBOR is intercompany based which eliminates in total for the Company and will be transitioned during 2023.

Note 2 - Acquisitions and Divestitures

Acquisitions:

The Company completed two acquisitions in 2022.

On November 4, 2022, the Company completed the acquisition of GGB, a global technology and market leader of premium engineered metal-polymer plain bearings for $ 302.5 million, net of cash acquired of $ 19.2 million, subject to customary post-closing adjustments.

GGB's revenue was estimated to be approximately $ 200 million for the full year 2022.

GGB's products are used mainly in industrial applications, including pumps and compressors, HVAC, off-highway, energy, material handling and aerospace.

With manufacturing facilities across the United States, Europe and China, GGB employs approximately 900 people and has a global engineering, distribution and sales footprint.

On May 31, 2022, the Company completed the acquisition of 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 $ 151.2 million, net of cash acquired of $ 0.2 million.

The Company incurred acquisition-related costs of $ 3.6 million in 2022 to complete these acquisitions.

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

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

1 unchanged sentence

The purchase price for this acquisition was $ 7.7 million.

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 because the payment is contingent in part upon the continued employment of a former owner of the business.

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

On November 30, 2020, the Company completed the acquisition of the assets of Aurora.

With annual sales of approximately $ 30 million, Aurora serves a diverse range of industrial sectors, including aerospace and defense, racing, off-highway equipment and packaging.

Aurora is headquartered in Montgomery, Illinois.

The total purchase price for this acquisition was $ 17.1 million, including a post-closing net working capital adjustment.

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

Note 2 - Acquisitions and Divestitures (continued)

The purchase price allocations at fair value, net of cash acquired, for 2022 and 2021 acquisitions as of December 31, 2022 and 2021 are presented below:

3 unchanged sentences

Property, plant and equipment 153.6 0.6

Operating lease assets 0.2 —

Goodwill 106.9 5.4

Other intangible assets 182.6 2.2

Other non-current assets 12.1 0.2

Total assets acquired $ 545.7 $ 9.7

Accounts payable, trade $ 16.8 $ 0.3

Salaries, wages and benefits 11.8 —

Income taxes payable 3.2 —

Other current liabilities 7.0 1.5

Accrued postretirement liability 1.5 —

Long-term operating lease liabilities 0.2 —

Deferred income taxes 30.0 —

Other non-current liabilities 23.2 0.2

Total liabilities assumed $ 92.0 $ 2.0

2 unchanged sentences

Working capital adjustment related to 2020 acquisitions paid in 2021 — ( 0.2 )

Working capital adjustment related to 2020 acquisition received in 2021 ( 0.2 ) —

Bargain purchase price gain — ( 12.0 )

Cash paid for acquisitions, net of cash acquired $ 453.7 $ 7.5

As a result of applying the accounting rules on business combinations, the Company recognized a bargain purchase price gain of $ 11.1 million in 2020 on the acquisition of Aurora.

In April 2021, the Company received $ 0.2 million for a working capital adjustment to the purchase price for Aurora in accordance with the purchase agreement.

This adjustment, as well as other measurement period adjustments recorded in 2021, resulted in an additional purchase price gain of $ 0.9 million recognized in 2021.

The Company believes it was able to negotiate a bargain purchase price for the business due to some historic operational performance challenges, as well as the seller’s desire to exit the business in an expedited manner in an exclusive process with the Company.

In April 2020, the Company paid $ 6.7 million for a working capital adjustment to the purchase price for BEKA Lubrication ("BEKA") in accordance with the purchase agreement.

This adjustment, as well as other measurement period adjustments recorded in 2020, resulted in an $ 8.4 million increase to goodwill.

Note 2 - Acquisitions (continued)

The amounts for 2021 in the table above represent the preliminary purchase price allocations for iMS.

The 2022 acquisitions presented above includes goodwill of $ 63.6 million and intangible assets of $ 152.0 million for GGB, and $ 43.3 million of goodwill and $ 30.6 million of intangible assets for Spinea.

The amounts for 2022 in the table above represent the preliminary purchase price allocations for GGB and Spinea.

These purchase price allocations, 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 December 31, 2021, the purchase price allocation for iMS is preliminary as it relates to certain working capital items, including the valuation of inventory and deferred revenue.

During the measurement period for this acquisition, 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 purchase price allocation for GGB is preliminary as a result of the proximity of the acquisition date to December 31, 2022, and as a result, no elements of the purchase price allocation has been finalized.

The purchase price allocation for Spinea is preliminary with respect to certain working capital items, specifically inventory, and certain income tax adjustments.

During the measurement period for each acquisition, the Company will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date.

The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments had been completed on the acquisition date.

No intangible assets were acquired in 2020.

The following table summarizes the purchase price allocation at fair value for identifiable intangible assets acquired in 2021:

Technology and know-how $ 1.5 19 years

Customer Relationships 0.5 2 years

Note 2 - Acquisitions and Divestitures (continued)

The following table summarizes the preliminary purchase price allocation at fair value for identifiable intangible assets acquired in 2022 and 2021:

Average Life Weighted-

Trade names (indefinite life) $ 35.2 Indefinite $ — —

Trade names (finite life) 6.2 20 years — —

Technology and know-how 38.7 15 years 1.5 19 years

Customer relationships 100.2 16 years 0.5 2 years

Non-competes — — 0.2 5 years

Capitalized software 2.3 2 years — —

Total intangible assets $ 182.6 $ 2.2

Divestitures:

During the third quarter of 2022, the Company made the decision to sell its ADS business, located in Manchester, Connecticut.

The business met the held for sale criteria, and the Company reclassified its assets and liabilities accordingly.

As a result of the carrying value of the business exceeding the estimated sales price less costs to sell, the Company recorded an impairment charge of $ 29.3 million.

On November 1, 2022, the Company completed the divestiture of the ADS business.

ADS had net sales of $ 39.7 million and $ 48.8 million in 2022 and 2021, respectively.

The results of operations of ADS were reported in the Mobile Industries segment based on customers and underlying market sectors served.

The Company recorded proceeds of $ 33.0 million on the sale of the business.

On September 1, 2022, the Company completed the divestiture of Timken Russia, one of its two subsidiaries in Russia.

Timken Russia had net sales of $ 4.8 million and $ 19.6 million in 2022 and 2021, respectively.

The results of operations of Timken Russia were reported in the Mobile Industries and Process Industries segments based on customers and underlying market sectors served.

The Company recorded proceeds of $ 1.0 million, net of cash divested of $ 5.3 million, and recognized a loss of $ 2.7 million on the sale of the business.

The loss was reflected in other income (expense), net in the Consolidated Statement of Income.

Note 3 - Revenue

25 unchanged sentences

When reviewing revenues by sales channel, the Company separates net sales to OEMs from sales to distributors and end users.

The following table presents the percent of revenues by sales channel for the years ended December 31, 2021 and December 31, 2020:

Revenue by sales channel December 31, 2021 December 31, 2020

The following table presents the percent of revenues by sales channel for the years ended December 31, 2022, 2021 and 2020:

Revenue by sales channel 2022 2021 2020

Original equipment manufacturers 60 % 60 % 60 %

1 unchanged sentence

In addition to disaggregating revenue by segment and geography and by sales channel as shown above, the Company believes information about the timing of transfer of goods or services, type of customer and distinguishing service revenue from product sales is also relevant.

During the years ended December 31, 2021 and December 31, 2020, approximatel y 9 % and 11 % , respectively, of total net sales were recognized on an over-time basis because of the continuous transfer of control to the customer, with the remainder recognized as of a point in time.

Approximately 4 % of total net sales represented service revenue in 2021 and 2020, respectively.

During the years ended December 31, 2022 and December 31, 2021, approximately 9 % of total net sales were recognized on an over-time basis, compared to 11 % in 2020.These sales were recognized over-time due to the continuous transfer of control to the customer, with the remainder recognized as of a point in time.

Approximately 4 % of total net sales represented service revenue in 2022, 2021 and 2020.

Finally, business with the U.S.

government or its contractors represented approximat ely 7 % o f total net sales for 2021 and 2020, respectively.

government or its contractors represented approximately 7 % of total net sales for 2022, 2021 and 2020.

Note 3 - Revenue (continued)

Remaining Performance Obligations:

Remaining performance obligations represent the transaction price of orders meeting the definition of a contract in the new revenue standard for which work has not been performed and excludes unexercised contract options.

Remaining performance obligations represent the transaction price of orders meeting the definition of a contract for which work has not been performed and excludes unexercised contract options.

Performance obligations having a duration of more than one year are concentrated in contracts for certain products and services provided to the U.S.

1 unchanged sentence

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 $ 171 million at December 31, 2022.

The decrease in the remaining performance obligations compared to December 31, 2021 was due to the divestiture of ADS in the fourth quarter of 2022.

Refer to Note 2 - Acquisitions and Divestitures for further information regarding the divestiture.

Unbilled Receivables:

The following table contains a rollforward of unbilled receivables for the year ended December 31, 2021:

The following table contains a rollforward of unbilled receivables for the years ended December 31, 2022 and 2021:

Beginning balance, January 1 $ 104.5 $ 110.9

1 unchanged sentence

amounts billed to customers ( 370.5 ) ( 389.4 )

unbilled receivables divested ( 26.3 ) —

Ending balance $ 103.9 $ 104.5

There were no impairment losses recorded on unbilled receivables for the year ended December 31, 2021.

There were no impairment losses recorded on unbilled receivables for the years ended December 31, 2022 and 2021.

Note 4 - Segment Information

The Company operates under two reportable segments:

The Company has historically operated under two reportable segments:

(1) Mobile Industries and (2) Process Industries.

2 unchanged sentences

While the segments often operate using a shared infrastructure, each reportable segment is managed to address specific customer needs in these diverse market segments.

Mobile Industries offers an extensive portfolio of bearings, seals, lubrication devices and systems, as well as power transmission components, engineered chain, augers, belts, couplings, clutches, brakes and related products and maintenance services, to OEMs and end users of:

Mobile Industries offers an extensive portfolio of bearings, seals, lubrication devices and systems, as well as industrial motion components, engineered chain, augers, belts, couplings, clutches, brakes and related products and maintenance services, to OEMs and end users of:

off-highway equipment for the agricultural, construction, mining, outdoor power equipment and powersports markets;

2 unchanged sentences

Beyond service parts sold to OEMs, aftermarket sales and services to individual end users, equipment owners, operators and maintenance shops are handled directly or through the Company's extensive network of authorized automotive and heavy-truck distributors, and include hub units, specialty kits and more.

Mobile Industries also provides power transmission systems and flight-critical components for civil and military aircraft, which include bearings, helicopter transmission systems, rotor-head assemblies, turbine engine components, gears and housings.

Process Industries supplies industrial bearings and assemblies, power transmission components such as gears and gearboxes, linear motion products, couplings, seals, lubricants, chains, belts and related products and services to OEMs and end users in industries that place heavy demands on operating equipment they make or use.

Mobile Industries also provides power transmission systems and flight-critical components for civil and military aircraft, which include bearings, turbine engine components, gears and housings.

Process Industries supplies industrial bearings and assemblies, industrial motion components such as gears and gearboxes, linear motion products, couplings, seals, lubricants, chains, belts and related products and services to OEMs and end users in industries that place heavy demands on operating equipment they make or use.

This includes:

7 unchanged sentences

In addition, the Company’s industrial services group offers end users a broad portfolio of maintenance support and capabilities that include repair and service for bearings and gearboxes as well as electric motor rewind, repair and services.

Note 4 - Segment Information (continued)

Measurement of segment profit or loss and segment assets:

9 unchanged sentences

laws and regulations, including the FCPA.

Note 4 - Segment Information (continued)

Business Segment Information:

17 unchanged sentences

Income before income taxes $ 550.9 $ 476.6 $ 396.3

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

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

(2) The acquisition-related gain represents a bargain purchase price gain on the acquisition of Aurora, acquired on November 30, 2020.

See Note 2 - Acquisitions for additional information.

See Note 2 - Acquisitions and Divestitures for additional information.

Assets employed at year-end:

4 unchanged sentences

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

Note 4 - Segment Information (continued)

2022 2021 2020

9 unchanged sentences

$ 164.0 $ 167.8 $ 167.1

Note 4 - Segment Information (continued)

Geographic Financial Information:

30 unchanged sentences

The following table is the reconciliation between the provision for income taxes and the amount computed by applying the U.S.

federal income tax rat e of 21% to income before taxes:

federal income tax rate of 21% to income before taxes:

2022 2021 2020

10 unchanged sentences

Valuation allowance changes ( 0.9 ) ( 7.8 ) ( 0.7 )

Deferred taxes related to branch operations — — 5.3

Stock based compensation ( 1.2 ) ( 8.1 ) ( 3.1 )

Other tax rate change ( 1.7 ) 0.8 ( 5.0 )

Other items, net ( 2.8 ) ( 7.4 ) ( 6.1 )

2 unchanged sentences

Note 5 - Income Taxes (continued)

The Company released $ 7.8 million of foreign valuation allowance for the year ended December 31, 2021, which relates to a valuation allowance that was recorded against Chinese net operating loss carryforwards.

Once established, the valuation allowance is released when, based on the weight of all available evidence, management concludes that related deferred tax assets are more likely than not to be realized.

The Company released $ 7.8 million of foreign valuation allowance for the year ended December 31, 2021, which was related to a valuation allowance that was recorded against certain net operating loss carryforwards in China.

Once established, a valuation allowance is released when, based on the weight of all available evidence, management concludes that related deferred tax assets are more likely than not to be realized.

Management concluded in the fourth quarter of 2021 that there was sufficient evidence to release the valuation allowance.

For the year ended December 31, 2019, the Company released $ 44.5 million of foreign valuation allowances, $ 40.7 million of which relates to the valuation allowance that was recorded against German indefinite-lived loss carryforwards and pension deferred tax assets.

As a result of the execution of a tax planning strategy in the fourth quarter of 2019, management reached this conclusion and accordingly released the valuation allowance.

Because the local German entity is treated as a branch under U.S.

tax law, the valuation allowance release was partially offset by income tax expense of $ 5.3 million related to a U.S.

deferred tax liability.

There are no changes to the Company’s assertion about its permanent reinvestment in undistributed foreign earnings.

The Company recorded $ 0.1 million of income tax expense related to foreign withholding taxes on planned one-time distribution for the years ended December 31, 2021 and 2020, respectively .

The Company recorded $ 1.0 million and $ 0.1 million of income tax expense related to foreign withholding taxes on planned one-time distributions for the years ended December 31, 2022 and 2021, respectively.

No additional deferred taxes have been recorded for any other outside basis differences as these amounts continue to be indefinitely reinvested in foreign operations.

16 unchanged sentences

jurisdictions with tax benefits totaling $ 70.9 million, portions of which will expire in 2023 while others will be carried forward indefinitely.

The Company has provided valuation allowances of $ 31.0 million against certain of these carryforwards.

The Company has provided valuation allowances of $ 30.6 million against certain of these carryforwards and $ 0.7 million against other deferred tax assets.

A majority of the non-U.S.

1 unchanged sentence

tax law for which deferred taxes have been recorded.

Note 5 - Income Taxes (continued)

As of December 31, 2022, the Company had $ 26.0 million of total gross unrecognized tax benefits, $ 23.3 million of which would favorably impact the Company’s effective income tax rate in any future period if such benefits were recognized.

5 unchanged sentences

As of December 31, 2021, the Company had accrued $ 8.9 million of interest and penalties related to uncertain tax positions.

The Company records interest and penalties related to uncertain tax positions as a component of income tax expense.

As of December 31, 2020, the Company had $ 45.6 million of total gross unrecognized tax benefits, $ 39.2 million of which would favorably impact the Company’s effective income tax rate in any future period if such benefits were recognized.

As of December 31, 2020, the Company had accrued $ 8.6 million of interest and penalties related to uncertain tax positions.

Note 5 - Income Taxes (continued)

The following table reconciles the Company’s total gross unrecognized tax benefits for the years ended December 31, 2022, 2021 and 2020:

9 unchanged sentences

Ending balance, December 31 $ 26.0 $ 36.1 $ 45.6

During 2022 , gross unrecognized tax benefits decreased primarily for releases of accruals related to lapses in statute of limitations and reductions related to foreign currency for non-U.S.

These decreases were partially offset by accruals for uncertain tax positions related to prior year tax matters in multiple jurisdictions related to acquisitions.

During 2021, gross unrecognized tax benefits decreased primarily for releases of accruals related to closing agreements and lapses in statute of limitations for the U.S.

6 unchanged sentences

These increases were partially offset by releases of accrual for lapses in statutes of limitations.

During 2019, gross unrecognized tax benefits increased primarily for additional accruals for uncertain tax positions related to The Tax Cut and Jobs Act of 2017 along with prior year tax matters in multiple jurisdictions related to acquisitions.

These increases were partially offset by settlements with the tax authorities for prior year tax matters related to the Company’s foreign operations.

As of December 31, 2022, the Company is subject to examination by the IRS for tax years 2017 to the present.

The Company also is subject to tax examination in various U.S.

state and local tax jurisdictions for tax years 2014 to the present, as well as various foreign tax jurisdictions, including Mexico, China, Poland, France, Germany and India for tax years as early as 1999 to the present .

state and local tax jurisdictions for tax years 2015 to the present, as well as various foreign tax jurisdictions, including Mexico, China, Poland, France, Germany, India, Romania and Slovakia for tax years as early as 2003 to the present .

The Company’s unrecognized tax benefits are presented on the Consolidated Balance Sheets as a component of other non-current liabilities, or in certain instances, as a reduction to deferred income taxes.

13 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.

The antidilutive stock options outstanding were zero , 676,627 and 1,016,435 during 2021, 2020 and 2019, respectively.

The antidilutive stock options outstanding were zero during 2022 and 2021, and 676,627 during 2020.

Note 7 - Inventories

10 unchanged sentences

The Company recognized an increase in its LIFO reserve of $ 36.0 million during 2022, compared to an increase in its LIFO reserve of $ 27.3 million during 2021.

The increase in inventories from 2020 was primarily due to higher demand levels and longer supply chain lead times.

The increase in inventories from 2021 was primarily due to higher demand levels .

Note 8 - Property, Plant and Equipment

10 unchanged sentences

The Company reviews goodwill for impairment at the reporting unit level.

The Mobile Industries segment has four reporting units and the Process Industries segment has two reporting units.

The Mobile Industries segment has three reporting units and the Process Industries segment has two reporting units.

Changes in the carrying value of goodwill were as follows:

6 unchanged sentences

Ending Balance $ 390.6 $ 707.7 $ 1,098.3

The acquisition of iMS added $ 5.4 million of goodwill.

The goodwill for iMS is expected to be 100 % tax deductible.

The acquisition of GGB added $ 63.6 million of goodwill, and the acquisition of Spinea added $ 43.3 million of goodwill.

The Company is still evaluating the tax deductibility of goodwill from the GGB acquisition, but it expects a portion of the goodwill to be deductible for tax purposes.

The goodwill for Spinea is expected to be 100 % tax deductible.

Year ended December 31, 2021:

6 unchanged sentences

Ending Balance $ 371.7 $ 651.0 $ 1,022.7

In 2020, the $ 8.4 million addition from acquisitions was the result of the measurement period adjustments related to the 2019 acquisitions of BEKA and The Diamond Chain Company ("Diamond Chain"), bringing total goodwill to $ 52.6 million for these acquisitions.

Approximately $ 19.0 million of this amount was tax deductible.

The acquisition of iMS added $ 5.4 million of goodwill and was 100 % tax deductible.

No material goodwill impairment losses were recorded in 2022, 2021 or 2020.

20 unchanged sentences

Total intangible assets $ 1,306.2 $ ( 540.9 ) $ 765.3 $ 1,219.2 $ ( 550.4 ) $ 668.8

Intangible assets acquired in 2022 totaled $ 182.6 million.

Intangible assets subject to amortization were assigned useful lives of one to 20 years and had a weighted-average amortization period of 16.3 years.

Amortization expense for intangible assets was $ 50.6 million, $ 54.5 million and $ 56.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.

1 unchanged sentence

Amortization expense for intangible assets is estimated to be approximately $ 54.9 million in 2023, $ 49.0 million in 2024, $ 47.5 million in 2025, $ 45.9 million in 2026 and $ 44.5 million in 2027.

Substantially all amortization expense for intangible assets is recorded in Cost of product sold on the Consolidated Statements of Income.

Substantially all amortization expense for intangible assets was recorded in Cost of product sold on the Consolidated Statements of Income.

Note 10 - Other Current Liabilities

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

(Dollars in millions) December 31,

(Dollars in millions)

Sales rebates $ 82.9 $ 70.3

Product warranty 11.7 9.4

Deferred revenue 54.3 3.8

Operating lease liabilities 24.1 26.2

Professional fees 10.8 9.6

Restructuring 7.0 8.0

Product warranty 23.5 11.7

Freight and duties 21.7 25.5

Current derivative liability 19.8 0.9

Taxes other than income and payroll taxes 18.7 16.0

Professional fees 17.4 10.8

Interest 15.0 10.8

Restructuring 3.1 7.0

Other 72.4 67.6

Total Current Liabilities $ 250.6 $ 214.1

Total other current liabilities $ 352.9 $ 250.6

Note 11 - 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 years ended December 31, 2021 and 2020 was as follows:

December 31, 2021 December 31, 2020

Lease expense for the years ended December 31, 2022, 2021 and 2020 as follows:

2022 2021 2020

Operating lease expense $ 30.3 $ 34.1 $ 36.0

1 unchanged sentence

Total lease expense $ 32.0 $ 36.4 $ 37.5

The following tables present the impact of leasing on the Consolidated Balance Sheet.

Operating Leases December 31, 2021 December 31, 2020

Cash flows from operating and financing leases for the years ended December 31, 2022, 2021 and 2020 as follows:

2022 2021 2020

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 30.1 $ 32.9 $ 35.7

Financing cash flows from finance leases 1.2 2.2 1.2

The following tables present the impact of leasing on the Consolidated Balance Sheets at December 31, 2022 and 2021:

Operating Leases 2022 2021

Lease assets:

4 unchanged sentences

Total operating lease liabilities $ 89.3 $ 103.8

Finance Leases December 31, 2021 December 31, 2020

Short-term operating lease liabilities at December 31, 2022 and 2021 are included in other current liabilities on the Consolidated Balance Sheets.

Finance Leases 2022 2021

Lease assets:

4 unchanged sentences

Total finance lease liabilities $ 3.2 $ 4.3

Note 11 - Leasing (continued)

Future minimum lease payments under non-cancellable leases at December 31, 2022 were as follows:

5 unchanged sentences

2026 11.4 0.3

2026 10.5 0.1

Thereafter 17.9 —

2 unchanged sentences

Total $ 89.3 $ 3.2

Note 11 - Leasing (continued)

The following tables present other information related to leases:

December 31, 2021 December 31, 2020

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 32.9 $ 35.7

Financing cash flows from finance leases 2.2 1.2

The following tables present lease assets added for the periods ended December 31, 2022 and 2021:

Lease assets added in the period:

1 unchanged sentence

Finance leases 0.9 1.2

December 31, 2021 December 31, 2020

The following tables present other information related to leases at December 31, 2022 and 2021:

Weighted-average remaining lease term:

6 unchanged sentences

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

Variable-rate Accounts Receivable Facility with an interest rate of 0.96 % at December 31, 2020

Borrowings under lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 2.38 % to 5.50 % at December 31, 2022 and 0.50 % to 2.00 % at December 31, 2021

Short-term debt $ 46.3 $ 42.6

The Company renewed the Accounts Receivable Facility on November 30, 2021.

The $ 100.0 million facility matures on November 30, 2024.

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 to certain borrowing base limitations.

These limitations reduced the availability of the Accounts Receivable Facility to $ 92.0 million at December 31, 2021.

As of December 31, 2021, there were no outstanding borrowings under the Accounts Receivable Facility.

The cost of this facility, which is the prevailing commercial paper rate plus facility fees, is considered a financing cost and is included in interest expense in the Consolidated Statements of Income.

The interest rate was 0.9 %, 1.0 % and 2.8 % at December 31, 2021, 2020 and 2019, respectively.

The lines of credit for certain of the Company’s foreign subsidiaries provide for short-term borrowings up to $ 234.2 million in the aggregate.

2 unchanged sentences

The weighted-average interest rate on these lines of credit during the year were 1.4 %, 0.8 % and 0.6 % in 2022 , 2021 and 2020, respectively.

The increase in the weighted-average interest rate was primarily due to a higher borrowing rates.

The increase in the weighted-average interest rate was primarily due to higher borrowing rates.

The weighted-average interest rate on lines of credit outstanding at December 31, 2022 and 2021 was 1.4 % and 0.6 %, respectively.

Note 12 - Financing Arrangements (continued)

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

1 unchanged sentence

Dollar of 5.10 % and Euro of 2.21 % at December 31, 2022 and 1.09 % and 1.00 %, respectively, at December 31, 2021

Variable-rate Term Loan (1) , maturing on September 11, 2023, with an interest rate of 1.23 % at December 31, 2021 and of 1.63 % at December 31, 2020.

Variable-rate Accounts Receivable Facility, with an interest rate of 5.01 % at December 31, 2022.

Variable-rate Term Loan (1) , maturing on December 5, 2027, with an interest rate of 5.55 % at December 31, 2022 and of 1.23 % at December 31, 2021

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

2 unchanged sentences

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 %

Fixed-rate Bank Loan, maturing on June 30, 2033, with an interest rate of 2.15 %

Fixed-rate Senior Unsecured Notes (1) , maturing on April 1, 2032, with an interest rate of 4.125 %

Fixed-rate Euro Bank Loan, maturing on June 30, 2033, with an interest rate of 2.15 %

Other 6.4 5.0

3 unchanged sentences

(1) Net of discount and fees

The Company entered into the Senior Credit Facility on June 25, 2019.

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 December 31, 2021, the Company had $ 9.0 million of outstanding borrowings under the Senior Credit Facility, which reduced the availability under this facility to $ 641.0 million.

The Senior Credit Facility has two financial covenants:

The Company has a $ 100.0 million Accounts Receivable Facility that matures on November 30, 2024.

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

These limitations reduced the availability of the Accounts Receivable Facility to $ 86.7 million at December 31, 2022.

As of December 31, 2022, there were $ 85.0 million outstanding borrowings under the Accounts Receivable Facility, which reduced the availability under this facility to $ 1.7 million.

The interest rate was 5.0 %, 0.9 % and 1.0 % at December 31, 2022, 2021 and 2020, respectively.

Note 12 - Financing Arrangements (continued)

On December 5, 2022, the Company entered into the Credit Agreement, which is comprised of the $ 750.0 million Senior Credit Facility and $ 400.0 million 2027 Term Loan that mature on December 5, 2027.

The Credit Agreement amended and restated the Company's previous revolving credit agreement, dated as of June 25, 2019, and replaced the $ 350.0 million 2023 Term Loan that was set to mature on September 11, 2023.

At December 31, 2022, the Senior Credit Facility had outstanding borrowings of $ 8.5 million, which reduced the availability under this facility to $ 741.5 million.

The Credit Agreement has two financial covenants:

a consolidated leverage ratio and a consolidated interest coverage ratio.

On May 27, 2020, the Senior Credit Facility was amended to, among other things, effectively increase the limit with respect to the consolidated leverage ratio.

As amended, the consolidated leverage ratio was calculated using a net debt construct, netting unrestricted cash in excess of $ 25 million, instead of total debt.

The change to the consolidated leverage ratio calculation was effective through June 30, 2021.

In the third quarter of 2021, the calculation of the consolidated leverage ratio under the Senior Credit Facility reverted back to a total debt construct.

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

On September 11, 2018, the Company entered into the $ 350 million 2023 Term Loan.

Proceeds from the 2023 Term Loan were used to fund the acquisitions of Apiary Investments Holding Limited and Rollon S.p.A., which closed on September 1, 2018 and September 18, 2018, respectively.

On July 12, 2019, the Company amended the 2023 Term Loan agreement to, among other things, align covenants and other terms with the Senior Credit Facility.

On May 27, 2020, the 2023 Term Loan agreement was further amended to align the calculation of the consolidated leverage ratio and other terms with the Senior Credit Facility.

The change to the consolidated leverage ratio calculation was effective through June 30, 2021.

In the third quarter of 2021, the calculation of the consolidated leverage ratio under the 2023 Term Loan reverted back to a total debt construct.

On September 18, 2017, the Company entered into the € 100 million variable-rate term loan that matured on September 18, 2020 (the "2020 Term Loan").

Upon the final payment during the third quarter of 2020, the Company fully repaid the 2020 Term Loan.

On March 28, 2022, the Company issued the 2032 Notes in the aggregate principal amount of $ 350.0 million with an interest rate of 4.125 %, maturing on April 1, 2032.

Proceeds from the 2032 Notes were used 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.

In addition, a portion of the proceeds from the 2032 Notes was used to fund the Spinea acquisition, which closed in the second quarter of 2022.

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

1 unchanged sentence

At December 31, 2022, outstanding letters of credit totaled $ 50.2 million, primarily having expiration dates within 12 months.

Note 12 - Financing Arrangements (continued)

The maturities of long-term debt (including $ 4.3 million of finance leases) for the five years subsequent to December 31, 2021 are as follows:

The maturities of long-term debt (including $ 3.2 million of finance leases) for the years subsequent to December 31, 2022 are as follows:

Thereafter 877.1

2 unchanged sentences

Note 13 - Contingencies

The Company and certain of its subsidiaries have been identified as potentially responsible parties for investigation and remediation under the CERCLA, known as the Superfund, or similar state laws with respect to certain sites.

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, 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.

10 unchanged sentences

Product Warranties:

In addition to the contingencies above, the Company provides limited warranties on certain products.

The product warranty liability included in other current liabilities on t he Consolidated Balance Sheets for 2021 and 2020 was $ 11.7 million and $ 9.4 million, respectively.

The increase in the liability during 2021 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.

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 for 2022 and 2021 was $ 23.5 million and $ 11.7 million, 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 2022 primarily relates to additional accruals for certain products sold into the automotive and wind energy sectors.

Accrual estimates are based on actual claims and expected trends that continue to mature.

The Company is currently evaluating claims raised by certain customers with respect to the performance of bearings sold into the wind energy sector.

Management believes that the outcome of these claims will not have a material effect on the Company's consolidated financial position;

however, the effect of any such outcome may be material to the results of operations of any particular period in which costs in excess of amounts provided, if any, are recognized.

The following is a rollforward of the consolidated product warranty accrual at December 31, 2022 and December 31, 2021, respectively:

14 unchanged sentences

Time-based restricted stock units generally vest in 25 % increments annually beginning on the first anniversary of the grant.

Deferred shares generally cliff vest five years from the date of grant.

Deferred shares generally cliff vest in a range of one to five years from the date of grant.

For time-based restricted stock units that are expected to settle in cash, the Company had $ 2.9 million and $ 0.9 million accrued in salaries, wages and benefits as of December 31, 2022 and 2021, respectively, on the Consolidated Balance Sheets.

9 unchanged sentences

Outstanding - end of year 937,971 $ 63.61

(1) Adjustments for the number of shares vested under the 2018 awards at the end of the three-year period ended December 31, 2020 being higher than the target number of shares.

(1) Adjustments for the number of shares vested under the 2019 awards at the end of the three-year period ended December 31, 2021 being slightly lower than the target number of shares.

As of December 31, 2022, a total of 937,971 stock award s have been awarded that have not yet vested.

5 unchanged sentences

Note 14 - Stock Compensation (continued)

During 2021, 2020 and 2019, the Company recognized stock-based compensation expense of $ 2.0 million ($ 1.5 million after tax or $ 0.02 per diluted share), $ 3.6 million ($ 2.7 million after tax or $ 0.04 per diluted share) and $ 4.9 million ($ 3.7 million after tax or $ 0.05 per diluted share), respectively, for stock option awards.

During 2022, 2021 and 2020, the Company recognized stock-based compensation expense of $ 1.1 million, $ 2.0 million and $ 3.6 million, respectively, for stock option awards.

Beginning in 2020, the Company discontinued the use of nonqualified stock options.

As such, there were no stock option awards granted in 2022, 2021 or 2020.

The fair value of stock option awards granted in 2019 was estimated at the date of grant using a Black-Scholes option-pricing method with the following assumptions:

Weighted-average fair value per option $ 9.58

Risk-free interest rate 2.46 %

Dividend yield 2.52 %

Expected stock volatility 28.29 %

Expected life 5 years

Historical information was the primary basis for the selection of the expected dividend yield, expected volatility and the expected lives of the options.

The dividend yield was calculated based upon the last dividend prior to the grant compared to the trailing 12 months' daily stock prices.

The risk-free interest rate was based upon yields of U.S.

zero coupon issues with a term equal to the expected life of the option being valued.

A summary of stock option award activity for the year ended December 31, 2022 is presented below:

35 unchanged sentences

however, it is not intended to reflect a comprehensive discussion of all amounts in the tables above.

COVID-19 Pandemic Cost Reduction Initiatives:

During 2020, the Company recorded severance and related benefit costs of $ 12.0 million to eliminate approximately 200 salaried positions to align current employment levels with customer demand.

Of the $ 12.0 million charge, $ 5.8 million related to the Mobile Industries segment, $ 5.8 million related to the Process Industries segment and $ 0.4 million related to Unallocated Corporate.

Mobile Industries:

In 2022, the Company classified the ADS business as assets held for sale and recorded impairment charges of $ 29.3 million.

The Company subsequently completed the sale of the ADS business on November 1, 2022 .

In addition, the Company recorded impairment charges of $ 9.0 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.

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

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 by June 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.

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

The Company completed the closure of the facility on October 31, 2022, and it affected approximately 110 employees.

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

During 2022, the Company recorded severance and related benefits of $ 1.4 million and exit costs of $ 1.6 million related to this closure.

During 2021, the Company recorded impairment charges of $ 1.0 million, severance and related benefit costs of $ 1.8 million and exit costs of $ 1.1 million related to this closure.

The Company has incurred cumulative pretax costs related to this closure of $ 6.5 million as of December 31, 2021 , 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.

The exit costs recognized in 2022 and 2021 primarily related to environmental remediation.

The Company incurred cumulative pretax costs related to this clo sure of $ 9.9 million as of December 31, 2022, including rationalization costs recorded in cost of products sold.

On November 1, 2022, the Company completed the sale of this facility and recognized a pretax gain of $ 3.6 million.

Note 15 - Impairment and Restructuring Charges (continued)

1 unchanged sentence

The Company transferred its high-volume bearing production and roller production to other Timken manufacturing facilities in the U.S.

The transfer of these operations was substantially completed by the end of the third quarter of 2020 and is expected to affect approximately 150 employees.

The transfer of these operations was completed by the end of the fourth quarter of 2021, and it affected approximately 150 employees.

The Company expected to incur approximately $ 8 million to $ 10 million of pretax costs in total related to this reorganization.

During 2020 and 2019, the Company recognized severance and related benefits of $ 0.3 million and $ 1.3 million, respectively, and exit costs of $ 0.4 million and $ 0.1 million, respectively, related to this reorganization.

During 2020, the Company recognized severance and related benefits of $ 0.3 million and exit costs of $ 0.4 million related to this reorganization.

The Company has incurred cumulative pretax costs related to this reorganization of $ 7.9 million as of December 31, 2022 , including rationalization costs recorded in cost of products sold.

On January 16, 2023, the Company announced the closure of its bearing plant, mentioned above, in Gaffney, South Carolina.

The Company expects to transfer its remaining operations to other Timken manufacturing facilities in North America.

The closure of this facility is expected to occur by the end of the fourth quarter of 2023 and is expected to affect approximately 225 employees.

The Company expects to incur approximately $ 10 million to $ 12 million of pretax costs in total related to this closure.

During 2022, the Company recognized severance and related benefits of $ 0.9 million under an ongoing benefit arrangement related to this closure.

Process Industries:

2 unchanged sentences

The Company will be transferring the manufacturing of its Diamond Chain product line to its chain facility in Fulton, Illinois.

The chain plant is expected to cease operations by the end of the second quarter of 2022 and is expected to affect approximately 240 employees.

The chain plant is expected to cease operations by the end of the first quarter of 2023 and is expected to affect approximately 240 employees.

The Company expects to hire approximately 130 full-time positions in Fulton, Illinois and expects to incur approximately $ 12 million to $ 15 million of expenses related to this closure.

During 2021 and 2020, the Company recorded severance and related benefit costs of $ 1.2 million and $ 3.1 million related to this closure.

During 2021 and 2020, the Company recorded severance and related benefit costs of $ 1.2 million and $ 3.1 million related to this closure, respectively.

The Company has incurred cumulative pretax costs related to this closure of $ 14.0 million as of December 31, 2022 , including rationalization costs recorded in cost of products sold.

On September 3, 2020, the Company announced the reorganization of its bearing plant in Canton, Ohio.

The Company will be transferring production for certain product lines to other Timken locations in order to streamline resources and better align capacity with demand.

The transfer of these operations is expected to occur by 2022 and is expected to affect approximately 40 employees.

The Company expects to incur approximately $ 2.0 million to $ 2.5 million of pretax costs related to this reorganization.

During 2020, the Company recognized severance and related benefits of $ 1.1 million related to this reorganization.

The Company has incurred cumulative pretax costs related to this reorganization of $ 0.7 million as of December 31, 2021 , including rationalization costs recorded in cost of products sold.

In addition, the Company recorded impairment charges of $ 3.4 million related to certain engineering-related assets used in the business during the year ended December 31, 2021.

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

COVID-19 Pandemic Cost Reduction Initiatives:

During 2020, the Company recorded severance and related benefit costs of $ 12.0 million to eliminate approximately 200 salaried positions to align current employment levels with customer demand.

Of the $ 12.0 million charge, $ 5.8 million related to the Mobile Industries segment, $ 5.8 million related to the Process Industries segment and $ 0.4 million related to Unallocated Corporate.

Consolidated Restructuring Accrual:

9 unchanged sentences

Pension benefits earned generally are based on years of service and compensation during active employment.

The cash contributions and payments for the Company’s define d benefit pension plans were $ 20.4 million, $ 17.9 million and $ 35.4 million in 2021 , 2020 and 2019, respectively.

The 2021 contributions and payments included a $ 10 million payout of deferred compensation to a former executive officer of the Company, and the 2019 contributions and payments included a $ 24 million payout of deferred compensation to a former executive officer of the Company.

The cash contributions and payments for the Company’s defined benefit pension plans were $ 11.2 million, $ 20.4 million and $ 17.9 million in 2022 , 2021 and 2020, respectively.

The 2021 contributions and payments included a $ 10 million payout of deferred compensation to a former executive officer of the Company.

The following tables summarize the net periodic benefit cost information and the related assumptions used to measure the net periodic benefit cost for the years ended December 31:

14 unchanged sentences

3.04 % to 3.55 %

Future compensation assumption 2.50 % 2.50 % 2.50 %

Future compensation assumption 2.50 % to 3.50 %

2.50 % 2.50 %

Expected long-term return on plan assets 4.35 % to 5.65 %

15 unchanged sentences

3.03 % to 3.09 %

Future compensation assumption 2.50 % to 3.50 %

Future compensation assumption 2.50 %

2.50 % to 3.50 %

International Plans:

4 unchanged sentences

Note 16 - Retirement Benefit Plans (continued)

The Company recognized actuarial losses of $ 4.4 million during 2021 primarily due to the impact of lower than expected returns on plan assets of $ 28.4 million, the impact of experience losses of $ 9.3 million, the impact of inflation of $ 8.5 million and other changes in actuarial assumptions of $ 3.2 million, partially offset by the net increase in the discount rate used to measure its defined benefit pension obligations of $ 45.0 million.

The Company recognized actuarial losses of $ 16.0 million during 2022 primarily due to the impact of lower than expected returns on plan assets of $ 220.6 million, the impact of experience losses of $ 33.0 million, the impact of inflation of $ 5.4 million and other actuarial losses of $ 0.2 million, partially offset by the favorable impact of a net increase in the discount rate used to measure its defined benefit pension obligations of $ 243.2 million.

The impact of the net increase in the discount rate used to measure the Company's defined benefit pension obligations was primarily driven by a 257 basis point increase in the weighted-average discount rate used to measure its U.S.

plan obligations, which increased from 3.07 % in 2021 to 5.64 % in 2022 and a 301 basis point increase in the discount rate used to measure its U.K.

plan obligations, which increased from 1.80 % in 2021 to 4.81 % in 2022.

The Company recognized actuarial losses of $ 4.4 million during 2021 primarily due to the impact of lower than expected returns on plan assets of $ 28.4 million, the impact of experience losses of $ 9.3 million, the impact of inflation of $ 8.5 million and other changes in actuarial assumptions of $ 3.2 million, partially offset by the favorable impact of a net increase in the discount rate used to measure its defined benefit pension obligations of $ 45.0 million.

The impact of the net increase in the discount rate used to measure the Company's defined benefit pension obligations was primarily driven by a 55 basis point increase in the discount rate used to measure its U.K.

4 unchanged sentences

plan obligations, which decreased from 3.50 % in 2019 to 2.84 % in 2020.

The Company recognized actuarial losses of $ 13.9 million during 2019 primarily due to the impact of a net reduction in the discount rate used to measure its defined benefit pension obligations of $ 100.9 million and the impact of experience losses and other changes in valuation assumptions of $ 3.1 million, partially offset by higher than expected returns on plan assets of $ 90.1 million.

The impact of the net reduction in the discount rate used to measure the Company's defined benefit pension obligations was primarily driven by a 86 basis point reduction in the weighted-average discount rate used to measure its U.S.

plan obligations, which decreased from 4.36 % in 2018 to 3.50 % in 2019.

For expense purposes in 2022, the Company applied a weighted-average discount rate of 3.07 % to its U.S.

14 unchanged sentences

Plan amendments — — — 0.5

Actuarial (gains) losses ( 4.4 ) 56.6 ( 19.6 ) 43.9

Actuarial gains ( 116.4 ) ( 4.4 ) ( 88.2 ) ( 19.6 )

International plan exchange rate change — — ( 32.6 ) ( 8.7 )

Curtailments — 0.3 — —

Benefits paid ( 139.2 ) ( 119.5 ) ( 14.7 ) ( 15.2 )

Acquisitions — — 3.2 —

Benefit obligation at end of year $ 335.3 $ 566.3 $ 218.1 $ 343.1

21 unchanged sentences

Recognized prior service cost ( 1.2 ) ( 1.2 ) ( 0.1 ) ( 0.2 )

Loss recognized due to curtailment — ( 0.6 ) — —

Foreign currency impact — — ( 0.5 ) —

7 unchanged sentences

As a result, $ 0.3 million and $ 5.0 million at December 31, 2022 and 2021, respectively, are included in other non-current assets on the Consolidated Balance Sheets.

The current portion of accrued pension benefits, which was included in salaries, wages and benefits on the Consolidated Balance Sheets, was $ 6.3 million and $ 15.7 million at December 31, 2021 and 2020, respectively.

The decrease in the current portion of accrued pension benefits relates to the 2021 deferred compensation payment to a former executive officer of the Company.

The current portion of accrued pension benefits, which was included in salaries, wages and benefits on the Consolidated Balance Sheets, was $ 6.3 million at December 31, 2022 and 2021, respectively.

In 2022, the current portion of accrued pension benefits relates to unfunded plans and represents the actuarial present value of expected payments related to the plans to be made over the next 12 months.

2 unchanged sentences

The total accumulated benefit obligation for all plans was $ 546.0 million and $ 897.6 million at December 31, 2022 and 2021, respectively.

Investment performance increased the value of the Company’s pension assets by 0.9 % in 2021.

Investment performance decreased the value of the Company’s pension assets by 26.7 % in 2022 largely due to increases in bond rates.

As of December 31, 2022 , 2021 and 2020, the Company’s defined benefit pension plans did not directly hold any of the Company’s common shares.

25 unchanged sentences

Corporate bonds - investment grade — 31.5 — 31.5 — 82.7 — 82.7

Equity securities - U.S.

companies 0.1 — — 0.1 — — — —

Common collective funds - fixed income 29.9 — — 29.9 42.5 — — 42.5

43 unchanged sentences

Effective January 1, 2019, the primary U.S.

Company sponsored defined contribution plan no longer allows contributions to be made to the Company stock fund to align with industry trends to remove investments in company stock as an option in a company sponsored defined contribution plan.

All participants in this plan are required to transfer remaining funds in the Company stock fund to other fund options by December 31, 2022.

Company sponsored defined contribution plan no longer allowed contributions to be made to the Company stock fund in order to align with industry trends to remove investments in company stock as an option in a company sponsored defined contribution plan.

All participants in this plan were instructed to transfer remaining funds in the Company stock fund to other fund options by December 31, 2022.

At December 31, 2022, the plans held 682,831 of the Company’s common shares with a fair value of $ 48.3 million.

These remaining common shares were fully transferred out of the Company stock fund in January 2023.

The Company paid dividends totaling $ 1.0 million, $ 1.2 million and $ 1.5 million in 2022 , 2021 and 2020, respectively, to plans to be disbursed to participant accounts holding the Company’s common shares.

14 unchanged sentences

2022 2021 2020

Discount rate 2.62 % 3.43 % 3.48 % to 4.30 %

Discount rate 2.99 % 2.62 % 3.43 %

Rate of return — % — % 3.00 %

3 unchanged sentences

The increase in the discount rate resulted in a $ 8.4 million gain.

In addition to the gain from the discount rate increases, the Company recognized actuarial gains of $ 3.0 million due to the impact of a reduction in the rate for Medicare Advantage plans and $ 1.9 million due to lower than expected benefit payments.

These actuarial gains were offset $ 0.2 million of changes to other assumptions.

The Company recognized actuarial gains of $ 4.1 million during 2021 primarily due to the impact of a 37 basis point increase in the discount rate used to measure the Company's defined benefit postretirement obligations, which increased from 2.62 % in 2020 to 2.99 % in 2021.

The increase in the discount rate resulted in a $ 1.6 million gain.

In addition to the gain from the discount rate increases, the Company recognized actuarial gains of $ 1.1 million due to lower than expected benefit payments, $ 1.0 million due to the impact of a reduction in the rate for Medicare Advantage plans and $ 0.4 million due to changes in other actuarial assumptions .

2 unchanged sentences

This actuarial loss was partially offset by actuarial gains of $ 2.0 million due to the impact of a reduction in the rate for Medicare Advantage plans, $ 0.4 million due to higher than expected returns on plans assets and $ 0.1 million due to changes in other actuarial assumptions.

The Company recognized actuarial gains of $ 18.0 million during 2019 primarily due to the impact of a reduction in the rates for Medicare Advantage plans of $ 22.7 million.

The change in the contractual rates for Medicare Advantage plans was due to a law change that repealed the tax on health care insurers after 2020.

In addition to the change in rates on Medicare Advantage plans, the Company recognized actuarial gains of $ 3.6 million due to higher than expected returns on plan assets and $ 5.2 million due to changes in other actuarial assumptions.

These actuarial gains were partially offset by an 87 basis point decrease in the discount rate used to measure the Company's defined benefit postretirement obligations, which decreased from 4.30 % to 3.43 %.

The decrease in the discount rate resulted in a $ 13.5 million loss.

During July 2019, the Company announced changes to the medical plan offerings for certain of its postretirement benefit plans, effective January 1, 2020, which will impact the benefits provided to certain retirees.

This plan amendment resulted in a $ 92.8 million reduction in its postretirement benefit obligations and a corresponding pretax adjustment to accumulated other comprehensive loss.

Starting with the three months ended September 30, 2019, the pretax adjustment of $ 92.8 million will be amortized from accumulated other comprehensive loss into net periodic benefit cost (as a benefit) until 2031.

Note 17 - Other Postretirement Benefit Plans

4 unchanged sentences

For expense purposes in 2023, the Company will apply a discount rate of 5.75 % to its other postretirement benefit plans.

The following tables set forth the change in benefit obligation, change in plan assets, funded status and amounts recognized on the Consolidated Balance Sheets of the other postretirement benefit plans as of December 31, 2021 and 2020:

The following tables set forth the change in benefit obligation, change in plan assets, funded status and amounts recognized on the Consolidated Balance Sheets for the other postretirement benefit plans as of December 31, 2022 and 2021:

Change in benefit obligation:

3 unchanged sentences

Plan amendments ( 0.6 ) —

Actuarial (gains) losses ( 4.1 ) 1.8

Actuarial gains ( 13.1 ) ( 4.1 )

International plan exchange rate change ( 0.1 ) —

Benefits paid ( 3.4 ) ( 4.1 )

2 unchanged sentences

Fair value of plan assets at beginning of year $ — $ 11.1

Company contributions / payments — 2.7

Transfer to VEBA trust for certain active employees' medical benefits — ( 11.1 )

Return on plan assets — 0.8

Benefits paid — ( 6.8 )

Fair value of plan assets at end of year — —

4 unchanged sentences

$ ( 35.5 ) $ ( 51.1 )

Amounts recognized in accumulated other comprehensive loss (income):

Amounts recognized in accumulated other comprehensive loss:

Net prior service credit $ ( 71.9 ) $ ( 81.4 )

Accumulated other comprehensive loss (income) $ ( 81.4 ) $ ( 91.5 )

Changes to prior service credit recognized in accumulated other comprehensive

loss (income):

Accumulated other comprehensive income at beginning of year $ ( 91.5 ) $ ( 98.2 )

Accumulated other comprehensive loss $ ( 71.9 ) $ ( 81.4 )

Changes to prior service credit recognized in accumulated other

comprehensive loss:

Accumulated other comprehensive loss at beginning of year $ ( 81.4 ) $ ( 91.5 )

Prior service credit ( 0.6 ) —

Recognized prior service credit 10.1 10.1

Total recognized in accumulated other comprehensive loss (income) at December 31 $ ( 81.4 ) $ ( 91.5 )

Total recognized in accumulated other comprehensive loss at December 31 $ ( 71.9 ) $ ( 81.4 )

Note 17 - Other Postretirement Benefit Plans (continued)

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

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

The current portion of accrued postretirement benefits, which was included in salaries, wages and benefits on the Consolidated Balance Sheets, was $ 4.1 million and $ 5.3 million at December 31, 2022 and 2021, respectively.

1 unchanged sentence

For measurement purposes, the Company assumed a weighted-average annual rate of increase in the per capita cost (health care cost trend rate) for medical benefits of 6.5 % for 2023 , declining gradually to 5.0 % in 2029 and thereafter for medical and prescription drug benefits.

For Medicare Advantage benefits, actual contract rates have been set for 2022, and are assumed to increase by 7.25 % for 2022, declining gradually to 5.0 % in 2031 and thereafter.

For Medicare Advantage benefits, actual contract rates have been set for 2023 through 2025, and are assumed to increase by $ 5 per year for 2026 to 2028 and then 6.0 % for 2028 , declining gradually to 5.0 % in 2032 and thereafter.

In 2010, the Company established a Voluntary Employee Beneficiary Association ("VEBA") trust for certain bargained associates' retiree medical benefits.

In January 2020, the Company established a second VEBA trust for certain active employees’ medical benefits.

The Company transferred $ 50 million from the existing VEBA trust to fund the second VEBA trust.

The $ 50 million that was transferred was primarily classified as other current assets based on the portfolio of the assets in the trust.

In January 2020, the Company transferred $ 50 million from the existing VEBA trust to fund the second VEBA trust.

In January 2021, the Company transferred the remaining $ 11.1 million in the existing VEBA trust to the second VEBA trust.

The Company utilized all of the assets of the second VEBA trust in 2021 and 2020 for the payment of certain active employees’ medical benefits.

The following table presents those investments of the Company’s VEBA trust assets as of December 31, 2020:

Balance at December 31, 2020

NAV Level 1 Level 2 Level 3

Cash and cash equivalents $ 0.5 $ — $ — $ —

Mutual fund - fixed income — 10.6 — —

Total Assets $ 0.5 $ 10.6 $ — $ —

Cash and cash equivalents are valued at redemption value.

Common collective funds are valued based on a net asset value per share, which is used as a practical expedient to fair value.

When such prices are unavailable, the plan trustee determines a valuation from the market maker dealing in the particular security.

Mutual funds are valued at the closing priced reported in the active market in which the individual funds are traded.

The Company did not make any employer contributions to the VEBA in 2021 and 2020, and the Company does not expect to make any employer contributions in the future.

As a result of the transfer, the Company expects to fund future payments for other postretirement benefit plans, which are expected to be approximately $ 4 million, from the general funds of the Company.

Estimated future benefit payments to be funded by the Company are expected to be as follows:

Future Benefit Payments

2028-2032 14.7

Note 18 - Accumulated Other Comprehensive (Loss) Income

21 unchanged sentences

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

Other comprehensive income (loss) before reclassifications

Other comprehensive (loss) income before reclassifications

and income taxes ( 63.7 ) ( 0.4 ) 2.4 ( 61.7 )

1 unchanged sentence

(loss) income, before income tax — ( 8.7 ) 4.2 ( 4.5 )

Income tax benefit — 1.1 1.1 2.2

Net current period other comprehensive income (loss),

Income tax benefit (expense) — 2.3 ( 1.8 ) 0.5

Net current period other comprehensive (loss) income,

net of income taxes ( 63.7 ) ( 6.8 ) 4.8 ( 65.7 )

Noncontrolling interest 1.4 — — 1.4

Net current period comprehensive income (loss), net

Net current period comprehensive (loss) income, net

of income taxes and noncontrolling interest ( 62.3 ) ( 6.8 ) 4.8 ( 64.3 )

6 unchanged sentences

Cash and cash equivalents $ 292.1 $ 289.3 $ 2.8 $ —

Cash and cash equivalents measured at net

asset value 39.5

Restricted cash 9.1 9.1 — —

Short-term investments 39.2 — 39.2 —

Foreign currency hedges 5.6 — 5.6 —

Interest rate swap contract 3.1 — 3.1 —

Foreign currency forward contracts 4.5 — 4.5 —

Total Assets $ 387.5 $ 298.4 $ 49.6 $ —

Foreign currency hedges $ 1.0 $ — $ 1.0 $ —

Foreign currency forward contracts $ 19.8 $ — $ 19.8 $ —

Total Liabilities $ 19.8 $ — $ 19.8 $ —

4 unchanged sentences

Short-term investments 56.9 — 56.9 —

Foreign currency hedges 1.1 — 1.1 —

Foreign currency forward contracts 5.6 — 5.6 —

Total Assets $ 320.4 $ 245.6 $ 74.8 $ —

Foreign currency hedges $ 8.1 $ — $ 8.1 $ —

Foreign currency forward contracts $ 1.0 $ — $ 1.0 $ —

Total Liabilities $ 1.0 $ — $ 1.0 $ —

4 unchanged sentences

Additionally, the Company remeasures certain assets to fair value, using Level 3 measurements, as a result of the occurrence of triggering events such as purchase accounting for acquisitions.

See Note 2 - Acquisitions for further discussion.

During the third quarter of 2022, the Company's ADS business, located in Manchester, Connecticut, was reclassified to assets held for sale.

In conjunction with this reclassification, the ADS business, with a carrying value of $ 62.1 million, was written down to its estimated fair value less cost to sell of $ 32.8 million, resulting in an impairment charge of $ 29.3 million.

The Company subsequently sold ADS on November 1, 2022.

The fair value for these net assets was determined based on an estimate of the value expected to be received upon the sale of this business.

See Note 2 - Acquisitions and Divestitures for further discussion.

In 2022, property, plant and equipment at the Company's joint venture in Russia, with a carrying value of $ 16.1 million, were written down to their fair value of $ 7.1 million, resulting in an impairment charge of $ 9.0 million.

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

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

No material assets were measured at fair value on a nonrecurring basis during the years ended December 31, 2021 and 2020.

Note 19 - Fair Value (continued)

No other material assets were measured at fair value on a nonrecurring basis during the years ended December 31, 2022 and 2021.

Financial Instruments:

13 unchanged sentences

which hedges the change in the 1-month LIBOR rate October 30, 2020 through September 11, 2023 to a fixed rate.

The Company repaid the LIBOR based 2023 Term Loan December 5, 2022 and replaced with a SOFR based 2022 Term Loan.

The Company amended the swap from LIBOR to SOFR commencing January 2023.

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.

71 unchanged sentences

(1) Net income for the second quarter of 2022 included net actuarial losses of $ 11.6 million.

Net income for the third quarter of 2022 included impairment charges of $ 29.3 million related to the sale of ADS.

Net income for the fourth quarter of 2022 included net actuarial gains of $ 12.3 million.

(2) Net income for the second quarter of 202 1 included net actuarial losses of $ 3.5 million.

Net income for the third quarter of 2021 included net actuarial losses of $ 3.9 million.

Net income for the fourth quarter of 2021 included net actuarial gains of $ 8.0 million and the reversal of tax valuation allowances of $ 7.8 million .

(2) Net income for the second quarter of 2020 included net actuarial losses of $ 8.8 million.

Net income for the third quarter of 2020 included net actuarial gains of $ 11.9 million and impairment and restructuring charges of $ 12.0 million.

Net income for the fourth quarter of 2020 included net actuarial losses of $ 21.6 million.

Note 23 - Subsequent Events

On February 1, 2023, the Company acquired the assets of American Roller Bearing ("ARB"), a North Carolina-based manufacturer of industrial bearings.

ARB primarily serves the aftermarket sector and operates manufacturing facilities in Hiddenite and Morganton, North Carolina.

ARB generated sales of more than $ 30 million in 2022 and the transaction was funded with cash on hand.

On January 30, 2023, the Company reached an agreement to acquire Nadella Group ("Nadella"), a leading European manufacturer of linear guides, telescopic rails, actuators and systems and other specialized industrial motion solutions, from ICG plc.

Nadella operates manufacturing facilities in Europe and China and reported revenue of approximately € 100 million in 2022.

The transaction, which is subject to customary closing conditions, is expected to close in the first quarter of 2023 and will be funded with cash on hand and borrowings from committed credit facilities.

Report of Independent Registered Public Accounting Firm

1 unchanged sentence

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The Timken Company and subsidiaries (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of income, comprehensive income , shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of The Timken Company and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income , shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S.

12 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Pension Benefit Obligation

1 unchanged sentence

As explained in Note 1, Significant Accounting Policies and Note 16, Retirement Benefit Plans, to the consolidated financial statements, the Company recognizes actuarial gains and losses immediately through net periodic benefit cost upon the annual remeasurement in the fourth quarter, or on an interim basis if specific events trigger a remeasurement, through updating the estimates used to measure the pension benefit obligation and plan assets to reflect the actual return on plan assets and updated actuarial assumptions.

Auditing the pension benefit obligation is complex and required the involvement of specialists due to the highly judgmental nature of certain of the actuarial assumptions (e.g., discount rate) used in the measurement process.

Auditing the pension benefit obligation is complex and required the involvement of specialists due to the judgmental nature of certain of the actuarial assumptions (e.g., discount rate) used in the measurement process.

These assumptions had a significant effect on the projected benefit obligation and net periodic benefit costs recognized.

2 unchanged sentences

To test the pension benefit obligation, our audit procedures included, among others, evaluating the methodology used, the significant actuarial assumptions discussed above, and the underlying data used by the Company.

We compared the actuarial assumptions used by management to historical trends and evaluated the change in the pension benefit obligation from prior year due to the change in service cost, interest cost, actuarial losses (gains), benefits paid and other activities.

We compared the actuarial assumptions used by management to historical trends and evaluated the change in the pension benefit obligation from prior year due to the change in service cost, interest cost, actuarial (gains) losses, benefits paid and other activities.

In addition, we involved actuarial specialists to assist with our procedures.

2 unchanged sentences

We also tested the completeness and accuracy of the underlying data, including the participant data used in the determination of the projected benefit obligation.

Valuation of Customer Relationships, Technology and Know-How and Trade name Intangible Assets in the Acquisition of GGB

Description of the Matter As described in Note 2 to the consolidated financial statements, during November 2022, the Company completed the acquisition of GGB for $302.5 million, net of cash acquired and subject to customary post-closing adjustments.

The acquisition was accounted for using the acquisition method of accounting.

The consideration paid in the acquisition must be allocated to the acquired assets and liabilities assumed generally based on their fair value with the excess of the purchase price over those fair values allocated to goodwill.

The preliminary estimates of the fair value of intangible assets were recorded as third-party valuations were received resulting in the recognition of customer relationships, technology and know-how and trade name intangible assets (collectively referred to as the intangible assets) of approximately $152 million.

Auditing the Company’s accounting for its acquisition of GGB was complex because the intangible assets recognized were material to the consolidated financial statements and the estimates of fair value involved subjectivity.

The subjectivity was primarily due to the sensitivity of the respective fair values to underlying assumptions about the future performance of the acquired business.

The Company used discounted cash flow models to measure the intangible assets.

The significant assumptions used to estimate the fair value of the intangible assets included the discount rates and certain assumptions that form the basis of the forecasted results (e.g., revenue growth rates and future EBITDA margins).

These significant assumptions are forward looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over its accounting for the acquisition of GGB, including recognition and measurement of the intangible assets acquired.

For example, we tested controls over the recognition and measurement of customer relationships, technology and know-how and trade name intangible assets, including management’s review of the methods and significant assumptions used to develop the fair value estimates.

To test the estimated fair values of the customer relationships, technology and know-how and trade name intangible assets, we performed audit procedures that included, among others, evaluating the Company's selection of the valuation methodology, evaluating the methods and significant assumptions used by the Company's valuation specialist, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.

For example, when evaluating the assumptions related to the revenue growth rates and future EBITDA margins, we compared the assumptions to the past performance of GGB and expected industry trends or forecasted performance of the guideline public companies.

We also performed sensitivity analyses to evaluate the changes in the fair value of the customer relationships, technology and know-how and trade name intangible assets that would result from changes in the significant assumptions.

We involved our EY valuation specialists to assist with our evaluation of the methodology used by the Company and certain significant assumptions included in the fair value estimates.

/s/ Ernst & Young LLP

5 unchanged sentences

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-K

Item 8. Financial Statements and Supplementary Data