What changed in this filing

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Item 1. Financial Statements

2023-05-03 compared with 2022-10-26 · 270 added, 410 removed, 473 unchanged (59% of the section changed)

3 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(Dollars in millions, except per share data)

1 unchanged sentence

Cost of products sold 846.0 786.3

Gross Profit 322.8 267.9 992.0 869.4

Selling, general and administrative expenses 186.8 154.1

Amortization of intangible assets 13.5 10.9

Impairment and restructuring charges 28.9 1.0

2 unchanged sentences

Interest income 1.5 0.6

Non-service pension and other postretirement income (expense) 1.3 0.5 ( 5.3 ) 5.9

Non-service pension and other postretirement income 0.1 1.3

Other income, net 3.1 0.2

11 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(Dollars in millions)

Net Income $ 125.7 $ 121.9

Other comprehensive (loss) income, net of tax:

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments 27.7 ( 22.6 )

1 unchanged sentence

Change in fair value of derivative financial instruments ( 0.8 ) 2.0

Other comprehensive loss, net of tax ( 136.4 ) ( 31.9 ) ( 270.8 ) ( 54.4 )

Comprehensive income (loss), net of tax ( 46.0 ) 59.7 47.1 260.4

Other comprehensive income (loss), net of tax 25.4 ( 22.1 )

Comprehensive income, net of tax 151.1 99.8

comprehensive income attributable to noncontrolling interest 3.7 1.1

Comprehensive income (loss) attributable to

The Timken Company $ ( 46.1 ) $ 56.0 $ 44.2 $ 252.6

Comprehensive income attributable to The Timken Company $ 147.4 $ 98.7

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Balance Sheets

(Dollars in millions) September 30,

(Dollars in millions) March 31,

2023 December 31,

53 unchanged sentences

Consolidated Statements of Cash Flows

Nine Months Ended

September 30,

Three Months Ended

(Dollars in millions)

6 unchanged sentences

Loss on sale of assets 0.2 0.6

Loss on divestiture 2.1 —

Acquisition-related gain — ( 0.9 )

Deferred income tax provision (benefit) 4.1 ( 6.4 )

Gain on divestitures ( 4.0 ) —

Deferred income tax provision 2.8 1.8

Stock-based compensation expense 11.0 7.1

9 unchanged sentences

Other, net ( 2.1 ) 8.0

Net Cash Provided by Operating Activities 222.3 284.6

Net Cash Provided by (Used in) Operating Activities 78.6 ( 1.2 )

Investing Activities

Capital expenditures ( 41.7 ) ( 34.3 )

Acquisitions, net of cash acquired of $ 0.2 million

( 152.4 ) ( 7.2 )

Proceeds from disposal of property, plant and equipment 3.3 —

Acquisitions, net of cash acquired ( 29.2 ) —

Proceeds from divestitures, net of cash divested 5.7 —

13 unchanged sentences

Short-term debt activity, net ( 8.1 ) ( 11.1 )

Noncontrolling interest dividends paid ( 0.5 ) ( 0.5 )

Net Cash Provided by (Used in) Financing Activities 88.5 ( 222.4 )

Net Cash (Used in) Provided by Financing Activities ( 17.5 ) 204.7

Effect of exchange rate changes on cash 1.8 ( 1.2 )

Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash 43.7 ( 58.5 )

(Decrease) Increase in Cash, Cash Equivalents and Restricted Cash ( 1.6 ) 167.3

Cash, cash equivalents and restricted cash at beginning of year 340.7 257.9

8 unchanged sentences

For further information, refer to the Consolidated Financial Statements and accompanying Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

The Company previously classified intangible asset amortization expense within cost of products sold in the Company's Consolidated Statements of Income.

Intangible asset amortization expense is now classified separately.

The 2022 presentation has been revised to conform to the 2023 presentation resulting in a reduction in the cost of products sold for the three months ended March 31, 2022.

Note 2 - Significant Accounting Policies

2 unchanged sentences

New Accounting Guidance Adopted:

In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 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.

New Accounting Guidance Issued and Not Yet Adopted:

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.

In September 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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.

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Early adoption is permitted.

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

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.

Note 2 - Significant Accounting Policies (continued)

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

Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ASU 2020-04 is intended to provide temporary optional expedients and exceptions to the U.S.

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

This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022.

The Company is currently assessing which of its various contracts will require an update for a new reference rate and will determine the timing for implementation of this guidance after completing that analysis.

The Company continues to monitor future amendments, such as the current proposal by the FASB to defer the sunset date of reference rate reform relief by two years to December 31, 2024, after which entities would no longer be permitted to apply the relief in Topic 848.

Refer to Note 12 - Supply Chain Financing in the Notes to the Consolidated Financial Statements for additional information.

Note 3 - Acquisitions and Divestitures

Acquisitions:

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

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

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

Spinea is located in Presov, Slovakia.

The purchase price for this acquisition was $ 152.4 million, net of cash acquired of $ 0.2 million, subject to customary post-closing adjustments.

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

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

On January 31, 2023, the Company acquired the assets of American Roller Bearing Company ("ARB"), a North Carolina-based manufacturer of industrial bearings.

ARB, which boasts a large U.S.

installed base and strong aftermarket business, operates manufacturing facilities in Hiddenite and Morganton, North Carolina.

The total purchase price for this acquisition was $ 32.0 million, including $ 0.5 million of the purchase price that was held back for the post-closing settlement of working capital.

ARB generated sales of approximately $ 35 million in 2022 and the transaction was funded with cash on hand.

Results for ARB are reported in the Engineered Bearings segment.

The following table presents the purchase price allocation at fair value for the ARB acquisition as of March 31, 2023.

Initial Purchase

4 unchanged sentences

Property, plant and equipment 12.8

Goodwill 39.2

Other intangible assets 0.1

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Other current liabilities 3.0

Long-term debt 0.2

Deferred income taxes 1.0

Other non-current liabilities 15.5

Total liabilities assumed $ 5.9

Net assets acquired $ 31.5

Note 3 - Acquisitions and Divestitures (continued)

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

Preliminary Purchase Price Allocation

Weighted - Average Life

Trade names $ 8.2 20 years

Technology and know-how 6.1 6 years

Customer relationships 17.2 17 years

Capitalized software 0.6 2 years

Total intangible assets $ 32.1

In determining the fair value of the amounts above, the Company utilized various forms of the income, cost and market approaches depending on the asset or liability being valued.

1 unchanged sentence

Inputs were generally determined by taking into account independent appraisals and historical data, supplemented by current and anticipated market conditions.

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

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

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

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

This purchase price allocation, including the residual amount allocated to goodwill or the recognition of a bargain purchase price gain, is based on preliminary information and is subject to change as additional information concerning final asset and liability valuations are obtained and management completes its reassessment of the measurement period procedures based on the results of the preliminary valuation.

As of March 31, 2023, no elements of the purchase price allocation have been finalized.

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

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

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

iMS is headquartered in Norton Shores, Michigan.

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

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

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

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

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

Final Purchase Price Allocation

Total assets acquired $ 9.8

Total liabilities assumed 2.1

Net assets acquired $ 7.7

On September 6, 2022, the Company entered into an agreement to acquire GGB Bearing Technology ("GGB Bearings"), a division of Enpro, Industries and a global technology and market leader of premium engineered metal-polymer plain bearings for $ 305 million subject to customary post-closing adjustments.

GGB Bearings revenue is estimated to be $ 200 million for the full year 2022.

GGB Bearings' products are used mainly in industrial applications, and the acquisition has manufacturing facilities across the United States, Europe and China.

The transaction, which is subject to customary closing conditions, is expected to close in the fourth quarter of 2022 and will be funded with cash on hand and borrowings from existing credit facilities.

On November 4, 2022, the Company completed the acquisition of GGB Bearing Technology ("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 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.

Results for GGB are reported in the Engineered Bearings segment.

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

("Spinea"), a European technology leader and manufacturer of highly engineered cycloidal reduction gears and actuators, with full year 2022 sales of approximately $ 40 million.

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

Spinea is located in Presov, Slovakia.

The purchase price for this acquisition was $ 151.2 million, net of cash acquired of $ 0.2 million, subject to customary post-closing adjustments.

Results for Spinea are reported in the Industrial Motion segment.

Note 3 - Acquisitions and Divestitures (continued)

Divestitures:

On September 1, 2022, the Company completed the divestiture of Timken-Rus Service Company ooo ("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 $ 2.1 million on the sale of the business.

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

The Company made the decision to sell its Timken Aerospace Drive Systems, LLC ("ADS") business, located in Manchester, Connecticut.

On October 7, 2022, the Company entered into a definitive agreement to sell the ADS business.

During the third quarter of 2022, the business met the held for sale criteria, and the Company reclassified its assets and liabilities accordingly.

Assets held for sale of $ 40.1 million are included in other current assets, and liabilities held for sale of $ 7.3 million are included in other current liabilities on the Consolidated Balance Sheet.

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.

The impairment charge is included in the impairment and restructuring line on the Consolidated Statement of Income.

The Company expects to complete the sale during the fourth quarter of 2022, subject to customary closing conditions.

Operating results of the ADS business are included the Mobile Industries segment.

The following table provides the major captions of assets and liabilities held for sale at September 30, 2022:

Accounts receivable, net $ 6.0

Unbilled receivables 25.4

Inventories, net 13.4

Property, plant and equipment, net 4.4

Operating lease assets 3.7

Intangible assets, net 16.2

The following table presents the updated purchase price allocation at fair value, net of cash acquired, for the 2022 acquisitions, as of March 31, 2023:

Initial Purchase Price Allocation Adjustments Updated Purchase Price Allocation

Accounts receivable $ 30.6 $ — $ 30.6

Inventories 52.3 ( 0.6 ) 51.7

Other current assets 7.6 — 7.6

Property, plant and equipment 153.6 ( 3.5 ) 150.1

Goodwill 106.9 ( 2.4 ) 104.5

Other intangible assets 182.6 ( 0.8 ) 181.8

Other assets 12.1 3.5 15.6

Total assets 69.4

impairment charge ( 29.3 )

Assets held for sale $ 40.1

Total assets acquired $ 545.7 $ ( 3.8 ) $ 541.9

Accounts payable, trade $ 16.8 $ ( 0.5 ) $ 16.3

Salaries, wages and benefits 11.8 — 11.8

Income taxes payable 3.2 — 3.2

Other current liabilities 7.0 ( 1.0 ) 6.0

Long-term operating lease liabilities 3.1

Liabilities held for sale $ 7.3

Accrued pension benefits 3.2 — 3.2

Deferred income taxes 30.0 — 30.0

Other non-current liabilities 20.0 — 20.0

Total liabilities assumed $ 92.0 $ ( 1.5 ) $ 90.5

Net assets acquired $ 453.7 $ ( 2.3 ) $ 451.4

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

The purchase price allocation for Spinea is preliminary pending the continued evaluation of operating leases, which is expected to be finalized during the second quarter of 2023.

The purchase price allocation for GGB is preliminary pending the continued evaluation of certain working capital accounts, real estate and other intangible assets, as well the related impacts on deferred income taxes.

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

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

On April 4, 2023, the Company acquired Leonardo Top S.a.r.l.

("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.

Divestitures:

On February 28, 2023, the Company completed the sale of all of its membership interests in S.E.

Setco Services Company, LLC ("SE Setco"), a 50 % owned joint venture.

The Company had accounted for SE Setco as an equity method investment prior to the sale.

The Company received $ 5.7 million in cash proceeds for SE Setco and recognized a pretax gain of $ 4.8 million on the sale.

The gain was reflected in other income, net in the Consolidated Statement of Income.

Note 4 - Segment Information

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

Effective January 1, 2023, the Company began operating under new reportable segments.

The Company’s two reportable segments are Engineered Bearings and Industrial Motion.

Segment results for 2022 have been revised to conform to the 2023 presentation of segments.

Three Months Ended

Engineered Bearings $ 900.7 $ 772.4

Industrial Motion 362.1 352.2

Net sales $ 1,262.8 $ 1,124.6

Segment EBITDA:

Engineered Bearings $ 205.0 $ 168.3

Industrial Motion 48.2 62.4

Total EBITDA, for reportable segments $ 253.2 $ 230.7

Unallocated corporate expense ( 17.7 ) ( 12.9 )

Corporate pension and other postretirement benefit related income (expense) (1)

Depreciation and amortization ( 45.6 ) ( 41.4 )

Interest expense ( 24.1 ) ( 14.3 )

Interest income 1.5 0.6

Income before income taxes $ 168.2 $ 160.1

(1) Corporate pension and other postretirement benefit related expense represents 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 or experience.

2023 December 31, 2022

Assets by Segment:

Engineered Bearings $ 3,384.3 $ 3,270.3

Industrial Motion 2,044.4 2,070.1

Corporate (2)

$ 5,853.0 $ 5,772.4

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

Note 5 - Revenue

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

The following table presents details deemed most relevant to the users of the financial statements about total revenue for the three months ended March 31, 2023 and 2022:

Three Months Ended Three Months Ended

September 30, 2022 September 30, 2021

Mobile Process Total Mobile Process Total

United States $ 276.3 $ 238.7 $ 515.0 $ 235.3 $ 194.2 $ 429.5

Americas excluding the United States 59.2 65.1 124.3 54.9 47.4 102.3

Europe / Middle East / Africa 105.2 124.7 229.9 118.2 137.5 255.7

China 30.4 129.5 159.9 27.7 125.9 153.6

Asia-Pacific excluding China 55.8 51.5 107.3 51.2 45.0 96.2

Net sales $ 526.9 $ 609.5 $ 1,136.4 $ 487.3 $ 550.0 $ 1,037.3

Nine Months Ended Nine Months Ended

September 30, 2022 September 30, 2021

Mobile Process Total Mobile Process Total

March 31, 2023 March 31, 2022

Engineered Bearings Industrial Motion Total Engineered Bearings Industrial Motion Total

United States $ 340.9 $ 194.3 $ 535.2 $ 289.8 $ 198.8 $ 488.6

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

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

Nine Months Ended Nine Months Ended

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

The following table presents the approximate percent of revenue by sales channel for the three months ended March 31, 2023 and 2022:

Three Months Ended Three Months Ended

Revenue by sales channel March 31, 2023 March 31, 2022

Original equipment manufacturers 60 % 60 %

1 unchanged sentence

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

During the nine months ended September 30, 2022 and September 30, 2021, approximately 9 % and 8 %, 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 % and 4 % of t otal net sales represented service revenue during the nine months ended September 30, 2022 and September 30, 2021, respectively.

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

During the three months ended March 31, 2023 and March 31, 2022, approximately 8 % and 9 %, respectively, of total net sales were recognized on an over-time basis because of the continuous transfer of control to the customer, with the remainder recognized as of a point in time.

Approximately 4 % and 5 % of total net sales represented service revenue during the three months ended March 31, 2023 and March 31, 2022, respectively.

Finally, business with the United States ("U.S.") government or its contractors represented approximately 5 % and 7 % of total net sales during each of the three months ended March 31, 2023 and March 31, 2022, respectively.

Remaining Performance Obligations:

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government or its contractors.

The aggregate amount of the transaction price allocated to remaining performance obligations for such contracts with a duration of more than one year was approximately $ 170.7 million a t September 30, 2022.

The aggregate amount of the transaction price allocated to remaining performance obligations for such contracts with a duration of more than one year was approximately $ 126.0 million a t March 31, 2023.

Note 5 - Revenue (continued)

Unbilled Receivables:

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

September 30,

The following table contains a rollforward of unbilled receivables for the three months ended March 31, 2023 and the twelve months ended December 31, 2022:

2023 December 31,

4 unchanged sentences

Ending balance $ 115.1 $ 103.9

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

Note 5 - Segment Information

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Mobile Industries $ 526.9 $ 487.3 $ 1,610.9 $ 1,486.0

Process Industries 609.5 550.0 1,803.8 1,639.6

Net sales $ 1,136.4 $ 1,037.3 $ 3,414.7 $ 3,125.6

Segment EBITDA:

Mobile Industries $ 20.0 $ 53.2 $ 164.2 $ 200.1

Process Industries 165.3 129.7 484.4 401.9

Total EBITDA, for reportable segments $ 185.3 $ 182.9 $ 648.6 $ 602.0

Unallocated corporate expense ( 9.1 ) ( 11.7 ) ( 35.4 ) ( 34.9 )

Corporate pension and other postretirement benefit related expense (1)

( 1.0 ) ( 3.9 ) ( 15.2 ) ( 8.3 )

Acquisition-related gain (2)

Depreciation and amortization ( 39.9 ) ( 41.3 ) ( 122.0 ) ( 126.5 )

Interest expense ( 19.3 ) ( 14.8 ) ( 51.9 ) ( 45.0 )

Interest income 1.1 0.5 2.7 1.7

Income before income taxes $ 117.1 $ 112.0 $ 426.8 $ 389.9

(2) The acquisition-related gain represents measurement period adjustments to the bargain purchase gain on the acquisition of Aurora Bearing Company ("Aurora"), which closed on November 30, 2020.

There were no impairment losses recorded on unbilled receivables for the three months ended March 31, 2023 and the twelve months ended December 31, 2022.

Deferred Revenue:

The following table contains a rollforward of deferred revenue for the three months ended March 31, 2023 and the twelve months ended December 31, 2022:

2023 December 31,

Beginning balance, January 1 $ 54.3 $ 35.8

Revenue (cash) received in advance 7.8 54.8

revenue recognized ( 16.3 ) ( 36.3 )

Ending balance $ 45.8 $ 54.3

Note 6 - Income Taxes

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Provision for income taxes $ 42.5 $ 38.2

Effective tax rate 25.3 % 23.9 %

Income tax expense for the three and nine months ended September 30, 2022 was calculated using forecasted multi-jurisdictional annual effective tax rates to determine a blended annual effective tax rate.

Income tax expense for the three months ended March 31, 2023 was calculated using forecasted multi-jurisdictional annual effective tax rates to determine a blended annual effective tax rate.

The effective tax rate differs from the U.S.

federal statutory rate of 21% primarily due to the projected mix of earnings in international jurisdictions with relatively higher tax rates.

The effective tax rate of 22.8 % for the three months ended September 30, 2022 was higher than the rate for the three months ended September 30, 2021 primarily due to the net unfavorable impact of discrete tax items in comparison to the year ago period.

The effective tax rate of 25.5 % for the nine months ended September 30, 2022 was higher than the rate for the nine months ended September 30, 2021 primarily due to an unfavorable mix of earnings in higher tax rate jurisdictions, the net unfavorable impact of discrete tax items, including a discrete tax benefits in the year ago period in connection with the settlement of the 2017 and 2018 U.S.

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

The effective tax rate of 25.3 % for the three months ended March 31, 2023 was higher than the effective tax rate for the three months ended March 31, 2022 primarily due to an increase in the mix of earnings in international jurisdictions with relatively higher tax rates.

Note 7 - Earnings Per Share

The following table sets forth the reconciliation of the numerator and the denominator of basic earnings per share and diluted earnings per share for the three and nine months ended September 30, 2022 and 2021, respectively:

The following table sets forth the reconciliation of the numerator and the denominator of basic earnings per share and diluted earnings per share for the three months ended March 31, 2023 and 2022, respectively:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net income attributable to The Timken Company $ 122.3 $ 118.2

undistributed earnings allocated to nonvested stock — — — —

Net income available to common shareholders for basic

and diluted earnings per share $ 87.0 $ 88.1 $ 310.2 $ 306.2

Weighted average number of shares outstanding - basic 72,499,928 74,782,153

6 unchanged sentences

Diluted earnings per share $ 1.67 $ 1.56

The dilutive effect of stock options and awards includes all outstanding stock options and awards except stock options that are considered antidilutive.

The dilutive effect of performance-based restricted stock units are included once they meet minimum performance thresholds.

The dilutive effect of stock options includes all outstanding stock options except stock options that are considered antidilutive.

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

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

There were no antidilutive stock options outstanding during the three months ended March 31, 2023 and 2022.

Note 8 - Inventories

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

September 30,

The components of inventories at March 31, 2023 and December 31, 2022 were as follows:

2023 December 31,

7 unchanged sentences

Inventories are valued at net realizable value, with approximately 60 % valued on the first-in, first-out ("FIFO") method and the remaining 40 % valued on the last-in, first-out ("LIFO") method.

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

The LIFO reserve at September 30, 2022 and December 31, 2021 was $ 229.1 million and $ 199.4 million, respectively.

The majority of the Company's domestic inventories are valued on the LIFO method.

The Company's international inventories are valued on the FIFO method.

The LIFO reserve at March 31, 2023 and December 31, 2022 was $ 234.2 million and $ 235.4 million, respectively.

An actual valuation of the inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time.

2 unchanged sentences

Note 9 - Goodwill and Other Intangible Assets

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

Industries Process

Industries Total

The Company tests goodwill and indefinite-lived intangible assets for impairment at least annually, performing its annual impairment test as of October 1 st .

Furthermore, goodwill and indefinite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

In connection with the adoption of new reportable segments, goodwill was reallocated to new reporting units based on relative fair value at the reporting unit level.

The Engineered Bearings segment has one reporting unit and the Industrial Motion segment has six reporting units.

The changes in the carrying amount of goodwill for the three months ended March 31, 2023 were as follows:

Engineered Bearings Industrial Motion Total

Beginning balance $ 679.8 $ 418.5 $ 1,098.3

Acquisitions — 39.2 39.2

Impairment loss — ( 28.3 ) ( 28.3 )

Foreign currency translation adjustments and other changes ( 0.5 ) 6.3 5.8

Ending balance $ 679.3 $ 396.5 $ 1,075.8

The acquisition of Spinea added $ 39.2 million of goodwill.

The goodwill is expected to be 100 % tax deductible.

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

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

During the first quarter of 2023, the Company reviewed goodwill for impairment for its reporting units due to the change in reporting segments that went into effect January 1, 2023.

The Company utilizes both an income approach and a market approach in testing goodwill for impairment.

The Company utilized updated forecasts for the income approach as part of the goodwill impairment review.

Based on the earnings and cash flow forecasts for the Belts & Chain reporting unit within the Industrial Motion segment, the Company determined that the reporting unit could not support the carrying value of its goodwill.

As a result, the Company recorded a pretax impairment loss of $ 28.3 million during the first quarter of 2023, which was reported in impairment and restructuring charges on the Consolidated Statement of Income.

The following table displays intangible assets as of March 31, 2023 and December 31, 2022:

Balance at March 31, 2023 Balance at December 31, 2022

Amount Accumulated

15 unchanged sentences

Total intangible assets $ 1,312.6 $ ( 557.3 ) $ 755.3 $ 1,306.2 $ ( 540.9 ) $ 765.3

Amortization expense for intangible assets was $ 37.4 million and $ 41.7 million for the nine months ended September 30, 2022 and 2021, respectively.

Amortization expense included $ 32.2 million and $ 35.8 million related to intangible assets acquired as part of a business combination for the nine months ended September 30, 2022 and 2021, respectively.

Amortization expense for intangible assets was $ 15.1 million and $ 12.7 million for the three months ended March 31, 2023 and 2022, respectively.

Amortization expense related to intangible assets acquired as part of a business combination is reported in amortization of intangible assets on the Consolidated Statement of Income, and amortization expense related to capitalized software is reported in cost of products sold or selling, general and administrative expenses on the Consolidated Statement of Income.

Amortization expense for intangible assets is projected to be $ 56.2 million in 2023;

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and $ 47.3 million in 2027.

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

Note 10 - Other Current Liabilities

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

(Dollars in millions) September 30,

The following table displays other current liabilities as of March 31, 2023 and December 31, 2022:

(Dollars in millions) March 31,

2023 December 31,

Sales rebates $ 64.8 $ 82.9

Freight and duties 24.5 25.5

Operating lease liabilities 22.2 26.2

Deferred revenue 45.8 54.3

Product warranty 25.4 23.5

Professional fees 16.4 10.8

Restructuring 4.1 7.0

Operating lease liabilities 25.3 24.1

Current derivative liability 23.1 19.8

Taxes other than income and payroll taxes 21.0 18.7

Freight and duties 17.3 21.7

Interest 16.9 15.0

Professional fees 16.5 17.4

Restructuring 3.0 3.1

Other 78.0 72.4

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Note 11 - Financing Arrangements

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

September 30,

Short-term debt at March 31, 2023 and December 31, 2022 was as follows:

2023 December 31,

Borrowings under lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 1.18 % to 2.75 % at September 30, 2022 and 0.50 % to 2.00 % at December 31, 2021

$ 50.9 $ 42.6

Variable-rate Accounts Receivable Facility with an interest rate of 5.54 % at March 31, 2023

Borrowings under lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 3.42 % to 4.90 % at March 31, 2023 and 2.38 % to 5.50 % at December 31, 2022

Short-term debt $ 45.8 $ 46.3

The lines of credit for certain of the Company's foreign subsidiaries provide for short-term borrowings up to $ 235.8 million in the aggregate.

The Company has a $ 100 million Amended and Restated Asset Securitization Agreement (the "Accounts Receivable Facility"), which 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;

however, availability under the Accounts Receivable Facility was not reduced by any such borrowing base limitations at March 31, 2023.

As of March 31, 2023, there were $ 100.0 million in outstanding borrowings under the Accounts Receivable Facility, which reduced the availability under this facility to zero .

$ 7.1 million of the outstanding borrowings under the Accounts Receivable Facility was classified as short-term at March 31, 2023, which reflects the Company's expectations over the next 12 months relative to the minimum borrowing base.

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

Lines of credit for certain of the Company's foreign subsidiaries provide for short-term borrowings up to $ 237.4 million in the aggregate.

Most of these lines of credit are uncommitted.

At September 30, 2022, the Company’s foreign subsidiaries had borrowings outstanding of $ 50.9 million and bank guarantees of $ 2.6 million, which reduced the aggregate availability under these facilities to $ 182.3 million.

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

September 30,

At March 31, 2023, the Company’s foreign subsidiaries had borrowings outstanding of $ 38.7 million and bank guarantees of $ 3.7 million, which reduced the aggregate availability under these facilities to $ 195.0 million.

Long-term debt at March 31, 2023 and December 31, 2022 was as follows:

2023 December 31,

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

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

Dollar of 5.72 % and Euro of 3.46 % at March 31, 2023 and U.S.

Dollar of 5.10 % and Euro of 2.21 % at December 31, 2022

Variable-rate Accounts Receivable Facility — —

Variable-rate Term Loan (1) , maturing on September 11, 2023, with an interest rate of 4.24 % at September 30, 2022 and 1.23 % at December 31, 2021

Variable-rate Accounts Receivable Facility with an interest rate of 5.54 % at March 31, 2023 and 5.01 % at December 31, 2022

Variable-rate Term Loan (1) , maturing on December 5, 2027, with an interest rate of 5.54 % at March 31, 2023 and 5.55 % at December 31, 2022

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

9 unchanged sentences

(1) Net of discounts and fees

The Company has a $ 100 million Amended and Restated Asset Securitization Agreement (the "Accounts Receivable Facility"), which matures on November 30, 2024.

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

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

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

Note 11 - Financing Arrangements (continued)

The Company entered into the Fourth Amended and Restated Credit Agreement ("Senior Credit Facility") on June 25, 2019.

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

At September 30, 2022, the Company had $ 7.8 million of outstanding borrowings under the Senior Credit Facility, which reduced the availability under this facility to $ 642.2 million.

The Senior Credit Facility has two financial covenants:

On December 5, 2022, the Company entered into the Fifth Amended and Restated Credit Agreement ("Credit Agreement"), which is comprised of the $ 750.0 million unsecured revolving credit facility ("Senior Credit Facility") and a $ 400.0 million unsecured term loan facility ("2027 Term Loan") that each mature on December 5, 2027.

The Credit Agreement amended and restated the Company's previous revolving credit agreement that was set to mature on June 25, 2024, and replaced the $ 350.0 million term loan that was set to mature on September 11, 2023 ("2023 Term Loan").

The Credit Agreement also replaced interest rates based on LIBOR with interest rates based on Secured Overnight Financing Rate ("SOFR").

At March 31, 2023, the Company had $ 63.6 million of outstanding borrowings under the Senior Credit Facility, which reduced the availability under this facility to $ 686.4 million.

The Credit Agreement has two financial covenants:

a consolidated leverage ratio and a consolidated interest coverage ratio.

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

Proceeds from the 2032 Notes were used to for general corporate purposes, which included repayment of borrowings under the Senior Credit Facility and the Accounts Receivable Facility outstanding at the time of issuance.

On September 11, 2018, the Company entered into a $ 350 million variable-rate term loan that matures on September 11, 2023 (the "2023 Term Loan").

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.

At September 30, 2022, the Company was in full compliance with all applicable covenants on its outstanding debt.

Proceeds from the 2032 Notes were used for general corporate purposes, which included the repayment of borrowings under the Senior Credit Facility and the Accounts Receivable Facility outstanding at the time of issuance.

At March 31, 2023, the Company was in full compliance with all applicable covenants on its outstanding debt.

In the ordinary course of business, the Company utilizes standby letters of credit issued by financial institutions to guarantee certain obligations, most of which relate to insurance contracts.

At September 30, 2022, outstanding letters of credit totaled $ 43.5 million, most with expiration dates within 12 months.

The maturities of long-term debt (including $ 3.1 million of finance leases) subsequent to September 30, 2022 are as follows:

At March 31, 2023, outstanding letters of credit totaled $ 52.0 million, most with expiration dates within 12 months.

The maturities of long-term debt (including $ 3.5 million of finance leases) subsequent to March 31, 2023 are as follows:

Thereafter 355.9

The table above excludes $ 11.4 million of unamortized premiums and fees that are netted against long-term debt at March 31, 2023.

Note 12 - Supply Chain Financing

The Company offers a supplier finance program with two different financial institutions where suppliers may receive early payment from the financial institutions on invoices issued to the Company.

The Company and each financial institution entered into arrangements providing for the Company to pay the financial institution per the terms of any supplier invoice paid early under the program and to pay an annual fee for the supplier finance platform subscription and related support.

The Company and the financial institutions may terminate participation in the program with 90 days’ written notice.

The supplier finance programs are unsecured and are not guaranteed by the Company.

The financial institutions enter into separate arrangements with suppliers directly to participate in the program.

The Company does not determine the terms or conditions of such arrangements or participate in the transactions between the suppliers and the financial institutions.

The supplier invoice terms under the program typically require payment in full within 90 days of the invoice date.

The following table is a rollforward of the outstanding obligations for the Company’s supplier finance program for the three months ended March 31, 2023:

Confirmed obligations outstanding, January 1 $ 14.4

Invoices confirmed 20.4

Confirmed invoices paid ( 19.3 )

Confirmed obligations outstanding, ending balance $ 15.5

The obligations outstanding at March 31, 2023 were included in accounts payable, trade on the Consolidated Balance Sheet.

Note 13 - Contingencies

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Claims for investigation and remediation have been asserted against numerous other entities, which are believed to be financially solvent and are expected to fulfill their proportionate share of the obligation.

On December 28, 2004, the United States Environmental Protection Agency (“USEPA”) sent Lovejoy, Inc.

On December 28, 2004, the United States Environmental Protection Agency (“USEPA”) sent Lovejoy, LLC.

("Lovejoy") a Special Notice Letter that identified Lovejoy as a potentially responsible party, together with at least 14 other companies, at the Ellsworth Industrial Park Site, Downers Grove, DuPage County, Illinois (the “Site”).

5 unchanged sentences

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

The Company had total environmental accruals of $ 5.0 million and $ 6.0 million for various known environmental matters that are probable and reasonably estimable at September 30, 2022 and December 31, 2021, respectively, which includes the Lovejoy matter described above.

The Company had total environmental accruals of $ 4.7 million and $ 4.8 million for various known environmental matters that are probable and reasonably estimable at March 31, 2023 and December 31, 2022, respectively, which includes the Lovejoy matter described above.

These accruals were recorded based upon the best estimate of costs to be incurred in light of the progress made in determining the magnitude of remediation costs, the timing and extent of remedial actions required by governmental authorities and the amount of the Company’s liability in proportion to other responsible parties.

1 unchanged sentence

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

The product warranty liability included in "Other current liabilities" on the Consolidated Balance Sheets was $ 19.6 million and $ 11.7 million at September 30, 2022 and December 31, 2021, respectively.

The product warranty liability included in "Other current liabilities" on the Consolidated Balance Sheets was $ 25.4 million and $ 23.5 million at March 31, 2023 and December 31, 2022, respectively.

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

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

The increase in the liability for the first three months of 2023 primarily relates to additional accruals for certain products sold into the automotive and renewable energy sectors.

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

Any significant change to these assumptions may be material to the results of operations in any particular period in which such change occurs.

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

September 30,

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 for the three months ended March 31, 2023 and twelve months ended December 31, 2022:

2023 December 31,

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Note 14 - Equity

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

The Timken Company Shareholders

Capital Other

Capital Retained Earnings Accumulated

Comprehensive

Loss Treasury

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

Net income 90.4 87.0 3.4

Foreign currency translation adjustment ( 136.8 ) ( 133.5 ) ( 3.3 )

Pension and other postretirement liability

adjustments (net of income tax benefit

of $ 0.6 million)

( 1.4 ) ( 1.4 )

Change in fair value of derivative financial

instruments, net of reclassifications 1.8 1.8

Dividends declared to noncontrolling interest ( 0.5 ) ( 0.5 )

Dividends – $ 0.31 per share

( 22.8 ) ( 22.8 )

Stock-based compensation expense 6.7 6.7

Stock purchased at fair market value ( 49.0 ) ( 49.0 )

Stock option exercise activity 2.6 2.6

Shares surrendered for stock option activity — 3.8 ( 3.8 )

Payments related to tax withholding for

stock-based compensation ( 1.4 ) ( 1.4 )

Balance at September 30, 2022 $ 2,178.8 $ 40.7 $ 817.2 $ 1,857.4 $ ( 289.0 ) $ ( 332.7 ) $ 85.2

The following tables present the changes in the components of equity for the three months ended March 31, 2023 and 2022, respectively:

The Timken Company Shareholders

14 unchanged sentences

( 23.6 ) ( 23.6 )

Dividends declared to noncontrolling interest ( 0.5 ) ( 0.5 )

Stock-based compensation expense 11.0 11.0

1 unchanged sentence

Stock option exercise activity 12.7 12.7

Shares surrendered for stock option activity — 3.8 ( 3.8 )

Payments related to tax withholding for

stock-based compensation ( 13.8 ) ( 13.8 )

Balance at September 30, 2022 $ 2,178.8 $ 40.7 $ 817.2 $ 1,857.4 $ ( 289.0 ) $ ( 332.7 ) $ 85.2

Note 13 - Equity (continued)

The Timken Company Shareholders

Capital Other

Capital Retained Earnings Accumulated

Comprehensive

Income (Loss) Treasury

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

Net income 91.6 88.1 3.5

Foreign currency translation adjustment ( 32.9 ) ( 33.1 ) 0.2

Pension and other postretirement liability

adjustments (net of income tax benefit of

$ 0.5 million)

( 1.5 ) ( 1.5 )

Change in fair value of derivative financial

instruments, net of reclassifications 2.5 2.5

Dividends paid to noncontrolling interest ( 0.6 ) ( 0.6 )

Dividends - $ 0.30 per share

( 22.8 ) ( 22.8 )

Stock-based compensation expense 3.1 3.1

Stock purchased at fair market value ( 30.3 ) ( 30.3 )

Balance at September 30, 2021 $ 2,376.4 $ 40.7 $ 781.7 $ 1,576.2 $ ( 12.3 ) $ ( 89.4 ) $ 79.5

Balance at March 31, 2023 $ 2,436.3 $ 40.7 $ 853.3 $ 2,030.8 $ ( 156.8 ) $ ( 420.0 ) $ 88.3

The Timken Company Shareholders

12 unchanged sentences

instruments, net of reclassifications 2.0 2.0

Dividends paid to noncontrolling interest ( 0.6 ) ( 0.6 )

Dividends - $ 0.30 per share

5 unchanged sentences

stock-based compensation ( 7.5 ) ( 7.5 )

Balance at September 30, 2021 $ 2,376.4 $ 40.7 $ 781.7 $ 1,576.2 $ ( 12.3 ) $ ( 89.4 ) $ 79.5

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

Note 15 - Impairment and Restructuring Charges

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

For the three months ended September 30, 2022:

Mobile Industries Process Industries Total

Impairment charges $ 29.5 $ — $ 29.5

Severance and related benefit costs 1.3 0.1 1.4

Exit costs 0.3 0.1 0.4

Total $ 31.1 $ 0.2 $ 31.3

For the nine months ended September 30, 2022:

Mobile Industries Process Industries Total

For the three months ended March 31, 2023:

Engineered Bearings Industrial Motion Total

Impairment charges $ — $ 28.3 $ 28.3

Severance and related benefit costs 0.7 ( 0.1 ) 0.6

Exit costs 1.1 0.1 1.2

Total $ 0.7 $ 28.2 $ 28.9

For the three months ended September 30, 2021:

Mobile Industries Process Industries Total

Severance and related benefit costs $ 2.2 $ 0.3 $ 2.5

Exit costs 0.4 — 0.4

Total $ 2.6 $ 0.3 $ 2.9

For the nine months ended September 30, 2021:

Mobile Industries Process Industries Total

Impairment charges $ 1.1 $ 3.4 $ 4.5

For the three months ended March 31, 2022:

Engineered Bearings Industrial Motion Total

Severance and related benefit costs $ 0.4 $ ( 0.1 ) $ 0.3

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

Mobile Industries:

During the three months ended September 30, 2022, the Company classified the ADS business as assets held for sale and recorded an impairment charges of $ 29.3 million.

The Company anticipates the sale of ADS business to be completed during the fourth quarter of 2022.

During the nine months ended September 30, 2022, 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.

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

Note 14 - Impairment and Restructuring Charges (continued)

Engineered Bearings:

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

The Company expects to transfer its remaining operations to other bearing 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 the three months ended March 31, 2023, the Company recorded severance and related benefits of $ 0.8 million related to this closure.

T he Company incurred cumulative pretax costs related to this closure of $ 2.0 million as of March 31, 2023, including rationalization costs recorded in cost of products sold.

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 of the facility by the end of October 2022 and is expected to affect approximately 110 employees.

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

During the three months ended September 30, 2022, the Company recorded severance and related benefits of $ 0.4 million and exit costs of $ 0.3 million associated with this closure, and during the nine months ended September 30, 2022, the Company recorded severance and related benefits of $ 1.2 million and exit costs of $ 1.3 million associated with this closure.

During the three months ended September 30, 2021, the Company recorded severance and related benefits of $ 2.2 million related to this closure.

In addition to the severance and related benefits, the Company recorded impairment charges of $ 1.0 million during the nine months ended September 30, 2021.

T he Company has incurred cumulative pretax costs related to this closure of $ 9.1 million as of September 30, 2022, including rationalization costs recorded in cost of products sold.

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

Process Industries:

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.

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

The Company incurred cumulative pretax costs related to this closure of $ 9.8 million as of March 31, 2023, including rationalization costs recorded in cost of products sold.

On November 1, 2022, the Company completed the sale of this facility.

Industrial Motion:

During the third quarter of 2022, the Company announced certain organizational changes, which included the appointment of executive leaders for its Engineered Bearings and Industrial Motion product groups.

After evaluating the impact from the organizational changes and revising segment results through the balance of 2022, the Company concluded that it will operate under two new reportable segments, Engineered Bearings and Industrial Motion, effective January 1, 2023.

In conjunction with this change in segmented results, the Company had to reallocate goodwill to new reporting units under these two segments.

In addition, the Company had to review goodwill for impairment under these new reporting units.

As a result of this goodwill impairment review, the Company recognized a pretax goodwill impairment loss of $ 28.3 million during the three months ended March 31, 2023.

Note 15 - Impairment and Restructuring Charges (continued)

On February 4, 2020, the Company announced the closure of its chain manufacturing facility in Indianapolis, Indiana.

This facility was part of the Diamond Chain Company ("Diamond Chain") acquisition completed on April 1, 2019.

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

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

The Company transferred the majority of its Diamond Chain product line to its chain manufacturing facility in Fulton, Illinois.

The chain plant is expected to cease operations by the end of April 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 the three months and nine months ended September 30, 2021, the Company recorded severance and related benefit costs of $ 0.3 million and $ 0.9 million, respectively, related to this closure.

The Company has incurred cumulative pretax costs related to this closure of $ 12.9 million as of September 30, 2022, including rationalization costs recorded in cost of products sold.

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

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

The Company has incurred cumulative pretax costs related to this closure of $ 14.4 million as of March 31, 2023, including rationalization costs recorded in cost of products sold.

Consolid ated Restructuring Accrual:

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

September 30,

The following is a rollforward of the consolidated restructuring accrual for the three months ended March 31, 2023 and twelve months ended December 31, 2022:

2023 December 31,

3 unchanged sentences

Ending balance $ 3.0 $ 3.1

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

The restructuring accrual at March 31, 2023 and December 31, 2022 was included in other current liabilities on the Consolidated Balance Sheets.

Note 16 - Retirement Benefit Plans

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

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

The amounts for the three months ended March 31, 2023 are based on calculations prepared by the Company's actuaries and represent the Company’s best estimate of that period’s proportionate share of the amounts to be recorded for the year ending December 31, 2023.

Plans International Plans Total

Three Months Ended

September 30, Three Months Ended

September 30,

2022 2021 2022 2021 2022 2021

Components of net periodic benefit cost (credit):

Service cost $ 1.6 $ 2.4 $ 0.4 $ 0.5 $ 2.0 $ 2.9

Interest cost 4.7 4.3 1.4 1.1 6.1 5.4

Expected return on plan assets ( 4.3 ) ( 5.5 ) ( 2.2 ) ( 2.5 ) ( 6.5 ) ( 8.0 )

Amortization of prior service cost 0.3 0.4 — — 0.3 0.4

Recognition of net actuarial losses 1.0 3.9 — — 1.0 3.9

Net periodic benefit cost (credit) $ 3.3 $ 5.5 $ ( 0.4 ) $ ( 0.9 ) $ 2.9 $ 4.6

Plans International Plans Total

Nine Months Ended

September 30, Nine Months Ended

September 30,

March 31, Three Months Ended

2023 2022 2023 2022 2023 2022

4 unchanged sentences

Amortization of prior service cost — 0.3 0.1 — 0.1 0.3

Recognition of net actuarial losses 15.2 8.3 — — 15.2 8.3

Recognition of net actuarial (gains)

losses ( 0.9 ) 2.6 — — ( 0.9 ) 2.6

Net periodic benefit cost (credit) $ 1.7 $ 3.7 $ 0.3 $ ( 0.6 ) $ 2.0 $ 3.1

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

defined benefit pension plans in 2022.

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

As a result of these remeasurements, the Company recognized net actuarial losses ("mark-to-market charges") of $ 1.0 million and $ 15.2 million during the three and nine months ended September 30, 2022, respectively.

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

defined benefit pension plans in 2021.

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

As a result of this remeasurement, the Company recognized net actuarial losses of $ 3.9 million and $ 8.3 million during the three and nine months ended September 30, 2021, respectively.

For the three months ended March 31, 2023, lump sum payments related to new retirees exceeded annual interest and service costs for one of the Company's U.S.

defined benefit pension plans, triggering a remeasurement of assets and obligations for this plan.

As a result of this remeasurement, the Company recognized a net actuarial gain ("mark-to-market charges") of $ 0.9 million during the three months ended March 31, 2023.

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

defined benefit pension plans.

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

As a result of this remeasurement, the Company recognized a net actuarial loss of $ 2.6 million during the three months ended March 31, 2022.

Note 17 - Other Postretirement Benefit Plans

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

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net periodic benefit credit:

Service Cost $ — $ — $ 0.1 $ 0.1

Interest cost $ 0.5 $ 0.4

2 unchanged sentences

Note 18 - Accumulated Other Comprehensive Income (Loss)

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

The following tables present details about components of accumulated other comprehensive (loss) income for the three months ended March 31, 2023 and 2022, respectively:

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

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

Other comprehensive (loss) income before

Balance at December 31, 2022 $ ( 235.7 ) $ 50.8 $ 3.0 $ ( 181.9 )

Other comprehensive income (loss) before

reclassifications and income taxes 27.7 — ( 0.8 ) 26.9

2 unchanged sentences

taxes — ( 2.0 ) ( 0.3 ) ( 2.3 )

Income tax (expense) benefit — 0.6 ( 0.7 ) ( 0.1 )

Net current period other comprehensive (loss)

income, net of income taxes ( 136.8 ) ( 1.4 ) 1.8 ( 136.4 )

Income tax benefit — 0.5 0.3 0.8

Net current period other comprehensive income

(loss), net of income taxes 27.7 ( 1.5 ) ( 0.8 ) 25.4

Noncontrolling interest ( 0.3 ) — — ( 0.3 )

Net current period other comprehensive (loss)

income, net of income taxes and noncontrolling

Net current period other comprehensive income

(loss), net of income taxes and noncontrolling

interest 27.4 ( 1.5 ) ( 0.8 ) 25.1

Balance at September 30, 2022 $ ( 348.0 ) $ 52.3 $ 6.7 $ ( 289.0 )

Balance at March 31, 2023 $ ( 208.3 ) $ 49.3 $ 2.2 $ ( 156.8 )

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

5 unchanged sentences

taxes — ( 2.2 ) ( 0.9 ) ( 3.1 )

Income tax (expense) benefit — 1.5 ( 2.0 ) ( 0.5 )

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

Net current period other comprehensive (loss)

4 unchanged sentences

interest ( 20.0 ) ( 1.5 ) 2.0 ( 19.5 )

Balance at September 30, 2022 $ ( 348.0 ) $ 52.3 $ 6.7 $ ( 289.0 )

Note 17 - Accumulated Other Comprehensive Income (Loss) (continued)

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

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

Other comprehensive (loss) income before

reclassifications and income taxes ( 32.9 ) 0.2 2.7 ( 30.0 )

Amounts reclassified from accumulated other

comprehensive (loss) income before income

taxes — ( 2.2 ) 0.9 ( 1.3 )

Income tax benefit (expense) — 0.5 ( 1.1 ) ( 0.6 )

Net current period other comprehensive (loss)

income, net of income taxes ( 32.9 ) ( 1.5 ) 2.5 ( 31.9 )

Noncontrolling interest ( 0.2 ) — — ( 0.2 )

Net current period comprehensive (loss) income,

net of income taxes and noncontrolling interest ( 33.1 ) ( 1.5 ) 2.5 ( 32.1 )

Balance at September 30, 2021 $ ( 71.3 ) $ 58.6 $ 0.4 $ ( 12.3 )

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

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

Other comprehensive (loss) income before

reclassifications and income taxes ( 54.1 ) 0.1 2.0 ( 52.0 )

Amounts reclassified from accumulated other

comprehensive (loss) income before income

taxes — ( 6.5 ) 4.3 ( 2.2 )

Income tax benefit (expense) — 1.6 ( 1.8 ) ( 0.2 )

Net current period other comprehensive (loss)

income, net of income taxes ( 54.1 ) ( 4.8 ) 4.5 ( 54.4 )

Noncontrolling interest 0.8 — — 0.8

Net current period comprehensive (loss) income,

net of income taxes and noncontrolling interest ( 53.3 ) ( 4.8 ) 4.5 ( 53.6 )

Balance at September 30, 2021 $ ( 71.3 ) $ 58.6 $ 0.4 $ ( 12.3 )

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

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

5 unchanged sentences

Level 3 – Unobservable inputs for the asset or liability.

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

September 30, 2022

The following tables present the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:

March 31, 2023

Total Level 1 Level 2 Level 3

11 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 —

Interest rate swap contract 3.1 — 3.1 —

Foreign currency forward contracts 4.5 — 4.5 —

8 unchanged sentences

Note 19 - Fair Value (continued)

In addition, the Company remeasures certain assets at fair value, using Level 3 inputs, as a result of the occurrence of triggering events such as purchase accounting for acquisitions.

During the three months ended September 30, 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 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.

Refer to Note 3 - Acquisitions and Divestitures for more information on the expected sale of ADS.

During the nine months ended September 30, 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.

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

In addition, the Company remeasures certain assets at fair value, using Level 3 inputs, as a result of the occurrence of triggering events such as purchase accounting for acquisitions or goodwill impairment.

No other material assets w ere measured at fair value on a nonrecurring basis during the three months ended March 31, 2023 and 2022, respectively.

Financial Instruments:

2 unchanged sentences

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

The fair value of the Company’s long-term fixed-rate debt, based on quoted market prices, was $ 1,320.6 million and $ 1,171.1 million at September 30, 2022 and December 31, 2021, respectively.

The carrying value of this debt was $ 1,402.8 million and $ 1,087.5 million at September 30, 2022 and December 31, 2021, respectively.

The fair value of the Company’s long-term fixed-rate debt, based on quoted market prices, was $ 1,381.7 million and $ 1,353.5 million at March 31, 2023 and December 31, 2022, respectively.

The carrying value of this debt was $ 1,420.3 million and $ 1,417.9 million at March 31, 2023 and December 31, 2022, respectively.

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

7 unchanged sentences

On September 8, 2020, the Company entered into a $ 100 million floating-to-fixed rate swap on the 2023 Term Loan, which hedges the change in the 1-month LIBOR rate between October 30, 2020 and September 11, 2023 to a fixed rate.

The Company repaid the LIBOR based 2023 Term Loan on December 5, 2022 and replaced it with the SOFR based 2027 Term Loan.

The Company amended the interest rate for 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.

2 unchanged sentences

dollar and the Euro.

The net impact for the three and nine months ended September 30, 2022, respectively, was a gain of $ 3.7 million and a gain of $ 8.5 million to accumulated comprehensive (loss) income with a corresponding offset to other income, which partially offsets the impact of the foreign currency adjustment on the 2027 Notes.

Note 19 - Derivative Instruments and Hedging Activities (continued)

The net impact for the three months ended March 31, 2023, respectively, was a loss of $ 0.7 million to accumulated comprehensive (loss) income with a corresponding offset to other income (expense) which partially offsets the impact of the foreign currency adjustment on the 2027 Notes.

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

2 unchanged sentences

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

As of September 30, 2022 and December 31, 2021, the Company had $ 419.4 million and $ 300.8 million, respectively, of outstanding foreign currency forward contracts at notional value.

As of March 31, 2023 and December 31, 2022, the Company had $ 674.0 million and $ 635.6 million, respectively, of outstanding foreign currency forward contracts at notional value.

Refer to Note 19 - Fair Value for the fair value disclosure of derivative financial instruments.

Note 20 - Derivative Instruments and Hedging Activities (continued)

Cash Flow Hedging Strategy:

4 unchanged sentences

Co nverse ly, when the dollar weakens, the increase in the present value of future foreign currency cash flows is offset by losses in the fair value of the forward contracts.

As of September 30, 2022 and December 31, 2021, the Company had $ 71.6 million and $ 80.0 million, respectively, of outstanding foreign currency forward contracts at notional value that were classified as cash flow hedges.

As of March 31, 2023 and December 31, 2022, the Company had $ 79.7 million and $ 82.3 million, respectively, of outstanding foreign currency forward contracts at notional value that were classified as cash flow hedges.

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

4 unchanged sentences

The revaluation of these contracts, as well as the revaluation of the underlying balance sheet items, is recorded directly to the income statement so the adjustment generally offsets the revaluation of the underlying balance sheet items to protect cash payments and reduce income statement volatility.

As of September 30, 2022 and December 31, 2021, the Company had $ 347.8 million and $ 220.8 million, respectively, of outstanding foreign currency forward contracts at notional value that were not d esignated as hedging instruments.

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

As of March 31, 2023 and December 31, 2022, the Company had $ 594.3 million and $ 553.3 million, respectively, of outstanding foreign currency forward contracts at notional value that were not d esignated as hedging instruments.

The following table presents the impact of derivative instruments not designated as hedging instruments for the three months ended March 31, 2023 and 2022, respectively, and the related location within the Consolidated Statements of Income:

Amount of gain or (loss) recognized in income

Three Months Ended

September 30, Nine Months Ended

September 30,

Derivatives not designated as hedging instruments:

Location of gain or (loss) recognized in income 2023 2022

Foreign currency forward contracts Other expense, net $ ( 1.1 ) $ 1.2 $ ( 8.0 ) $ 0.5

Foreign currency forward contracts Other income, net $ ( 2.6 ) $ ( 1.0 )

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

What changed 10-Q

Item 1. Financial Statements