What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-26 compared with 2023-02-16 · 402 added, 336 removed, 1254 unchanged (37% of the section changed)

15 unchanged sentences

Cost of products sold 3,259.9 3,164.7 2,983.6

Gross Profit 1,288.1 1,102.5 1,009.9

Selling, general and administrative expenses 740.8 637.1 580.5

Amortization of intangible assets 65.7 43.9 46.8

Impairment and restructuring charges 45.5 44.1 8.9

2 unchanged sentences

Interest income 9.3 3.8 2.3

Non-service pension and other postretirement income (expense) 9.3 18.3 ( 4.7 )

Other income (expense), net 5.5 0.8 ( 1.1 )

Acquisition-related gain — 0.9 11.1

Non-service pension and other postretirement (expense) income ( 24.0 ) 9.3 18.3

Other (expense) income, net ( 1.2 ) 5.5 1.7

Income Before Income Taxes 530.5 550.9 476.6

13 unchanged sentences

Net Income $ 408.0 $ 417.0 $ 381.5

Other comprehensive (loss) income, net of tax:

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments 33.5 ( 162.7 ) ( 63.7 )

1 unchanged sentence

Change in fair value of derivative financial instruments ( 0.8 ) 2.3 4.8

Other comprehensive (loss) income, net of tax ( 166.2 ) ( 65.7 ) 86.8

Other comprehensive income (loss), net of tax 26.6 ( 166.2 ) ( 65.7 )

Comprehensive Income, net of tax 434.6 250.8 315.8

68 unchanged sentences

Impairment charges 33.2 38.3 4.5

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

Acquisition-related gain — ( 0.9 ) ( 11.1 )

Loss on divestitures 3.5 — —

Loss (gain) on sale of assets 1.3 ( 1.9 ) 1.3

(Gain) loss on acquisitions and divestitures ( 2.9 ) 3.5 ( 0.9 )

Deferred income tax benefit ( 11.6 ) ( 3.6 ) ( 15.1 )

Stock-based compensation expense 30.6 30.4 20.2

Pension and other postretirement (income) expense ( 0.6 ) ( 6.6 ) 17.4

Pension and other postretirement expense (income) 26.5 ( 0.6 ) ( 6.6 )

Pension and other postretirement benefit contributions and payments ( 29.8 ) ( 14.6 ) ( 24.5 )

10 unchanged sentences

Capital expenditures ( 187.8 ) ( 178.4 ) ( 148.3 )

Acquisitions, net of cash acquired of $ 19.4 million in 2022

Acquisitions, net of cash acquired of $ 30.0 million in 2023 and $ 19.4 million in 2022

( 638.8 ) ( 453.7 ) ( 7.5 )

Proceeds from disposals of property, plant and equipment 1.8 9.6 0.6

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

Proceeds from divestitures, net of cash divested of $ 0.7 million in 2023 and

$ 5.3 million in 2022

Investments in short-term marketable securities, net 5.7 14.6 ( 18.0 )

13 unchanged sentences

Noncontrolling interest dividends paid ( 0.6 ) ( 0.5 ) ( 0.5 )

Proceeds from the sale of shares in Timken India Limited 284.8 — —

Other ( 4.4 ) 6.5 —

14 unchanged sentences

Balance at January 1, 2021 $ 2,225.2 $ 40.7 $ 740.7 $ 1,339.5 $ 41.3 $ ( 9.3 ) $ 72.3

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

14 unchanged sentences

Purchase of treasury shares ( 211.6 ) ( 211.6 )

Shares surrendered for stock option activity — 3.8 ( 3.8 )

Stock option exercise activity 8.5 8.5

13 unchanged sentences

( 94.0 ) ( 94.0 )

Sale of shares of Timken India Limited 229.0 194.5 8.1 26.4

Other ownership changes ( 4.0 ) ( 1.5 ) ( 2.5 )

Stock-based compensation expense 30.6 30.6

1 unchanged sentence

Stock option exercise activity 21.8 21.8

Shares surrendered for stock option activity — 3.8 ( 3.8 )

Payments related to tax withholding for stock-based

53 unchanged sentences

Cash and cash equivalents of $ 0.4 million and $ 9.1 million were restricted at December 31, 2023 and 2022, 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.

The decrease in restricted cash was primarily due to the deconsolidation of the Company's Russian joint venture.

Accounts Receivable, Less Allowances:

3 unchanged sentences

The allowance is based upon historical trends in collections and write-offs, management's judgment of the probability of collecting accounts and management's evaluation of business risk.

The Company extends credit to customers satisfying pre-defined credit criteria.

The Company extends credit to customers satisfying predefined credit criteria.

The Company believes it has limited concentration of credit risk due to the diversity of its customer base.

7 unchanged sentences

Inventories are valued at the lower of cost or net realizable value, with approximately 62 % valued by the FIFO method and the remaining 38 % valued by the LIFO method.

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.

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

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

37 unchanged sentences

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

The Company has elected to account for Global Intangible Low Tax ("GILTI") as a period cost.

The Company has elected to account for Global Intangible Low Tax Income ("GILTI") as a period cost.

Foreign Currency:

3 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 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.

Net of related derivative activity, the Company recognized a foreign currency exchange loss resulting from transactions of $ 14.8 million for the year ended December 31, 2023 and recognized a gain of $ 15.4 million and a loss of $ 9.4 million for the years ended December 31, 2022 and 2021, respectively.

Pension and Other Postretirement Benefits:

23 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)

Income Statement Presentation:

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 and 2021 presentation has been revised to conform to the 2023 presentation resulting in a reduction in the cost of products sold for the years ended December 31, 2022 and 2021.

Recent Accounting Pronouncements:

New Accounting Guidance Adopted:

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.

This standard was effective for public companies in fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company adopted ASU 2019-12 effective January 1, 2021, 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.

2 unchanged sentences

Early adoption is permitted.

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):

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.

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.

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.

Refer to Note 13 - Supply Chain Financing in the Notes to the Consolidated Financial Statements for additional information.

New Accounting Guidance Issued and Not Yet Adopted:

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 40).

ASU 2023-09 is intended to enhance the transparency and decision to improve the usefulness of income tax disclosures primarily related to the rate reconciliation and income taxes paid information.

The amendments in this update require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold.

The amendments require that all entities disclose on an annual basis the amount of income taxes paid disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold.

For public business entities, the new guidance is effective for annual periods beginning after December 15, 2024.

Early adoption is permitted.

The Company is currently evaluating the impact of adopting this guidance.

Note 1 - Significant Accounting Policies (continued)

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280).

ASU 2023-07 requires that a public entity disclose:

(1) on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss;

(2) on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition;

and (3) the title and position of the CODM and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources.

The other segment items category is the difference between segment revenue less the segment expenses disclosed and each reported measure of segment profit or loss.

For public business entities, the new guidance is effective for annual periods beginning after December 15, 2023.

Early adoption is permitted.

The Company is currently evaluating the impact of adopting this guidance.

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.

During 2023, the Company completed six acquisitions, which enhance its product portfolio.

On December 20, 2023, the Company completed the acquisition of 100 % of the capital stock of Lagersmit, a Netherlands-based manufacturer of highly engineered sealing solutions for marine, dredging, water, tidal energy and other industrial applications, for $ 128.2 million, net of cash acquired of $ 6.5 million.

Lagersmit employs approximately 90 people.

Results for Lagersmit are reported in the Industrial Motion segment.

On September 1, 2023, the Company acquired 100 % of the capital stock of Des-Case, a Tennessee-based manufacturer of specialty filtration products for industrial lubricants, for $ 123.3 million, net of cash acquired of $ 1.8 million.

Des-Case has manufacturing facilities in Tennessee and the Netherlands and employs approximately 120 people.

Results for Des-Case are reported in the Industrial Motion segment.

On April 4, 2023, the Company acquired 100 % of the capital stock of Nadella, a leading European manufacturer of linear guides, telescopic rails, actuators and systems and other specialized industrial motion solutions, for $ 293.5 million, net of cash acquired of $ 21.0 million.

Based in Italy, Nadella employs approximately 450 people and operates manufacturing facilities in Europe and China.

Net sales for Nadella were $ 74.6 million in 2023 for the period subsequent to the completion of the acquisition.

Results for Nadella are reported in the Industrial Motion segment.

On November 1, 2023, the Company acquired iMECH.

The Company acquired 100 % of the capital stock in the U.S.

and substantially all of the assets in Canada.

iMECH manufactures thrust bearings, radial bearings, specialty coatings and other components primarily used in the energy industry.

iMECH employs approximately 70 people and has facilities in Houston, Texas and Alberta, Canada.

Results for iMECH are reported in the Engineered Bearings segment.

On September 29, 2023, the Company acquired 100 % of the capital stock of Rosa, a European designer and manufacturer of roller guideways, linear bearings, customized linear systems and actuators, commercialized ball guideways and precision ball screws.

Rosa employs approximately 65 people and has its headquarters, R&D and high-precision manufacturing facility in Milan, Italy.

Results for Rosa are reported in the Industrial Motion segment.

On January 31, 2023, the Company acquired substantially all of the assets of 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.

ARB employs approximately 190 people.

Results for ARB are reported in the Engineered Bearings segment.

The total purchase price for these three acquisitions was $ 96.0 million, net of cash acquired of $ 1.3 million.

The Company incurred transaction costs of $ 6.3 million to complete 2023 acquisitions.

During 2022, the Company completed two acquisitions.

On November 4, 2022, the Company completed the acquisition of GGB, a global leader in premium engineered metal-polymer plain bearings, for $ 300.2 million, net of cash acquired of $ 18.6 million.

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.

Results for GGB are reported in the Engineered Bearings segment.

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.

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

1 unchanged sentence

The purchase price for this acquisition was $ 151.3 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.

iMS is headquartered in Norton Shores, Michigan.

The purchase price for this acquisition was $ 7.7 million.

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

Results for Spinea are reported in the Industrial Motion segment.

The Company incurred transaction costs of $ 4.7 million to complete 2022 acquisitions.

Note 2 - Acquisitions and Divestitures (continued)

4 unchanged sentences

Property, plant and equipment 47.7 148.7

Operating lease assets 7.3 4.9

Goodwill 285.6 107.9

6 unchanged sentences

Other current liabilities 10.7 6.0

Short-term debt 4.7 —

Long-term debt 6.0 —

Accrued pension cost 3.6 3.5

Long-term operating lease liabilities 7.0 0.8

Deferred income taxes 83.3 24.0

1 unchanged sentence

Total liabilities assumed $ 169.3 $ 85.2

Noncontrolling interest acquired 5.2 —

Net assets acquired $ 641.0 $ 451.5

Cash flow reconciling items:

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

Working capital adjustment related to 2022 acquisitions received in 2023

Cash paid for acquisitions, net of cash acquired $ 638.8 $ 453.7

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.

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.

The 2023 acquisitions presented above include goodwill of $ 58.5 million and intangible assets of $ 77.5 million for Lagersmit, goodwill of $ 78.9 million and intangible assets of $ 45.1 million for Des-Case, and goodwill of $ 128.5 million and intangible assets of $ 158.7 million, including customer relationships of $ 107.2 million, for Nadella.

The 2022 acquisitions presented above include goodwill of $ 64.5 million and intangible assets of $ 151.4 million for GGB, and goodwill of $ 43.4 million and intangible assets of $ 30.6 million for Spinea.

In determining the fair value of amounts above related to Lagersmit, iMECH and Rosa, the Company utilized a benchmarking approach based on the Company's prior acquisitions to determine the preliminary fair values for identified intangibles assets and the step-up of inventory.

Upon completion of the final purchase price allocation, the final fair values of the assets acquired, liabilities assumed and resulting goodwill may differ materially from the preliminary assessment.

Any changes to the initial estimates of the fair value of the assets acquired and liabilities assumed will be recorded to those assets and liabilities and residual amounts will be allocated to goodwill.

In determining the fair value of amounts above related to Des-Case, Nadella and ARB, the Company utilized various forms of the income, cost and market approaches depending on the asset or liability being valued.

The estimation of fair value required judgment related to future net cash flows, discount rates, customer attrition rates, competitive trends, market comparisons and other factors.

As a result, the Company utilized third party valuation specialists to assist in determining the fair value of certain assets.

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

Note 2 - Acquisitions and Divestitures (continued)

The amounts in the table above represent the preliminary purchase price allocation for the 2023 acquisitions.

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 and management completes its reassessment of the measurement period procedures based on the results of the preliminary valuation.

The purchase price allocations for Lagersmit, iMECH, Rosa and Des-Case are preliminary due to the proximity of the acquisition date to December 31, 2023, and as a result no elements of the purchase price allocation have been finalized.

The purchase price allocation for Nadella is preliminary with respect to most assets acquired and liabilities assumed.

The purchase price allocation for ARB is complete.

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.

The following table summarizes the preliminary purchase price allocation at fair value for identifiable intangible assets acquired in 2023 and 2022:

Average Life Weighted-

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

Trade names (finite life) 6.2 20 years — —

Trade names (indefinite life) $ — Indefinite $ 30.0 Indefinite

Trade names (finite life) 39.0 19 years 6.2 20 years

Technology and know-how 67.6 15 years 36.0 13 years

Customer relationships 199.5 15 years 107.6 15 years

Non-competes — — 0.2 5 years

Capitalized software 2.3 2 years — —

Capitalized software 0.6 2 years 2.2 2 years

Total intangible assets $ 306.7 $ 182.0

Divestitures:

During the third quarter of 2023, the Company made the decision to sell its TWB business, located in Jiangsu Province, China.

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 $ 1.0 million in 2023.

On October 16, 2023, the Company completed the divestiture of TWB.

TWB had net sales of $ 22.7 million and $ 39.3 million in 2023 and 2022, respectively.

The results of operations of TWB were reported in the Engineered Bearings segment.

The Company recorded proceeds of $ 9.0 million, net of cash divested of $ 0.7 million, on the sale of the business and reported an additional loss of $ 0.6 million in the fourth quarter of 2023.

On February 28, 2023, the Company completed the sale of all of its membership interests in 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 proceeds for SE Setco and recognized a pretax gain of $ 4.8 million on the sale.

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

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.

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 in 2022.

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

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 results of operations of ADS were reported in the Industrial Motion segment.

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

During 2023, the Company recorded an additional loss of $ 1.2 million due to the payment of a working capital adjustment.

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.

Timken Russia had net sales of $ 4.8 million in 2022.

The results of operations of Timken Russia were reported in the Engineered Bearings segment.

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.

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

Note 3 - Revenue

1 unchanged sentence

December 31, 2023

Mobile Process Total

Engineered Bearings Industrial Motion Total

United States $ 1,266.1 $ 789.8 $ 2,055.9

5 unchanged sentences

December 31, 2022

Mobile Process Total

Engineered Bearings Industrial Motion Total

United States $ 1,198.1 $ 793.9 $ 1,992.0

5 unchanged sentences

December 31, 2021

Mobile Process Total

Engineered Bearings Industrial Motion Total

United States $ 1,027.5 $ 706.1 $ 1,733.6

10 unchanged sentences

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, 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.

During the years ended December 31, 2023, 2022 and 2021, approximately 9 % of total net sales were recognized on an over-time basis because of the continuous transfer of control to the customer, with the remainder recognized as of a point in time.

Service revenue represented approximately 4 % of total net sales in 2023, 2022 and 2021.

Finally, business with the U.S.

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

government or its contractors represented approximately 6 % of total net sales in 2023 and 7 % of total net sales for 2022 and 2021.

Note 3 - Revenue (continued)

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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 $ 182 million at December 31, 2023.

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:

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There were no impairment losses recorded on unbilled receivables for the years ended December 31, 2023 and 2022.

Deferred Revenue:

The following table contains a rollforward of deferred revenue for the years ended December 31, 2023 and 2022:

Beginning balance, January 1 $ 54.3 $ 35.8

Acquisitions 1.4 —

Revenue (cash) received in advance 165.2 54.8

revenue recognized ( 175.5 ) ( 36.3 )

Ending balance $ 45.4 $ 54.3

Note 4 - Segment Information

The Company has historically operated under two reportable segments:

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

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

The Company operates under two reportable segments:

(1) Engineered Bearings and (2) Industrial Motion.

Segment results for 2022 and 2021 have been revised to conform to the 2023 presentation of segments.

Description of types of products and services from which each reportable segment derives its revenues:

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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 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;

on-highway vehicles including passenger cars, light trucks and medium- and heavy-duty trucks;

rail cars and locomotives.

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, 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.

The Engineered Bearings portfolio features bearings with precision tolerances, proprietary internal geometries and quality materials.

Products include tapered, spherical, cylindrical, thrust, ball, plain, miniature, precision and housed unit bearings that deliver strong performance, consistency and reliability.

The portfolio serves OEMs and end users in the following markets:

industrial distribution, renewable energy, automotive, rail, aerospace, metals and mining, heavy truck, agriculture and turf, and construction.

Beyond products 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.

The Industrial Motion portfolio features products such as drives, breathers, seals, automatic lubrication systems, linear motion products, chain, belts, couplings, industrial clutches and brakes and gears and gearboxes.

The portfolio products and services to OEMs and end users in markets that place heavy demands on operating equipment they make or use.

This includes:

metals, mining, cement and aggregate production;

wind energy and solar;

coal power generation and oil and gas;

pulp and paper in applications including printing presses;

packaging and automation;

and cranes, hoists, drawbridges, gear drives, conveyors, health and critical motion control equipment, marine equipment and food processing equipment.

industrial distribution, automation, agriculture and turf, services, marine, renewable energy, aerospace and construction.

This segment also supports aftermarket sales and service needs through its global network of authorized industrial distributors and through the provision of services directly to end users.

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.

In addition, the Company’s industrial drivetrain services offer 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.

Measurement of segment profit or loss and segment assets:

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Net sales to external customers:

Mobile Industries $ 2,106.5 $ 1,965.7 $ 1,671.6

Process Industries 2,390.2 2,167.2 1,841.6

Engineered Bearings $ 3,257.7 $ 3,092.6 $ 2,815.1

Industrial Motion 1,511.3 1,404.1 1,317.8

$ 4,769.0 $ 4,496.7 $ 4,132.9

Segment EBITDA:

Mobile Industries $ 217.1 $ 240.1 $ 232.5

Process Industries 621.5 506.3 442.9

Engineered Bearings $ 661.7 $ 615.8 $ 513.4

Industrial Motion 262.0 222.8 233.0

Total EBITDA, for reportable segments $ 923.7 $ 838.6 $ 746.4

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(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 and Divestitures for additional information.

Assets employed at year-end:

Mobile Industries $ 2,371.6 $ 2,216.4

Process Industries 2,963.4 2,548.3

Engineered Bearings $ 3,296.8 $ 3,270.3

Industrial Motion 2,744.5 2,070.1

Corporate (2)

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Capital expenditures:

Mobile Industries $ 71.2 $ 52.3 $ 70.5

Process Industries 105.8 95.4 50.1

Engineered Bearings $ 140.7 $ 143.8 $ 118.6

Industrial Motion 46.2 33.2 29.1

Corporate 0.9 1.4 0.6

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Depreciation and amortization:

Mobile Industries $ 75.2 $ 80.1 $ 79.7

Process Industries 87.6 86.6 86.6

Engineered Bearings $ 107.2 $ 87.6 $ 87.2

Industrial Motion 92.7 74.8 78.9

Corporate 1.4 1.6 1.7

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foreign tax credit ( 55.8 ) ( 15.2 ) ( 11.5 )

Effect of cross-border tax laws ( 10.3 ) ( 3.9 ) ( 3.6 )

Accruals and settlements related to tax audits ( 3.2 ) ( 9.5 ) ( 7.7 )

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Note 5 - Income Taxes (continued)

The Company recognized $ 55.8 million of tax benefits for U.S.

foreign tax credit utilization primarily from acquisition integration structuring for the year ended December 31, 2023.

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.

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

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.

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

Note 5 - Income Taxes (continued)

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

The following table reconciles the Company’s total gross unrecognized tax benefits for the years ended December 31, 2023, 2022 and 2021:

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Ending balance, December 31 $ 34.2 $ 26.0 $ 36.1

During 2023 , gross unrecognized tax benefits increased primarily for accruals related to prior year tax matters in multiple jurisdictions related to acquisitions and non-U.S.

non-deductible expenses.

These increases were partially offset by releases of accruals related to closing agreements and lapses in statute of limitations.

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.

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non-deductible expenses.

During 2020, gross unrecognized tax benefits increased primarily for additional accruals for uncertain tax positions related to non-U.S.

transfer pricing along with prior year tax matters in multiple jurisdictions related to previous acquisitions and non-deductible expenses.

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

As of December 31, 2023, the Company is subject to examination by the IRS for tax years 2019 to the present.

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

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 .

state and local tax jurisdictions for tax years 2016 to the present, as well as various foreign tax jurisdictions, including Mexico, China, Poland, France, India, Germany 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.

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Net income attributable to The Timken Company $ 394.1 $ 407.4 $ 369.1

undistributed earnings allocated to nonvested stock — — —

Net income available to common shareholders for basic and diluted earnings per share $ 407.4 $ 369.1 $ 284.5

Weighted average number of shares outstanding - basic 71,377,656 73,602,247 75,885,316

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Diluted earnings per share $ 5.47 $ 5.48 $ 4.79

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 is taken into account once they have met 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.

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

There were no antidilutive stock options outstanding during 2023, 2022 and 2021.

Note 7 - Inventories

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If all inventories had been valued at FIFO, inventories would have been $ 232.1 million and $ 235.4 million greater at December 31, 2023 and 2022, respectively.

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 2021 was primarily due to higher demand levels .

The Company recognized a decrease in its LIFO reserve of $ 3.3 million during 2023, compared to an increase in its LIFO reserve of $ 36.0 million during 2022.

Note 8 - Property, Plant and Equipment

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Total depreciation expense was $ 129.0 million, $ 113.4 million and $ 113.3 million in 2023, 2022 and 2021, respectively.

At December 31, 2023 and 2022, $ 22.9 million and $ 18.6 million of property, plant and equipment was included in accounts payable, trade and were paid subsequent to year-end.

The Consolidated Statement of Cash Flows was adjusted accordingly.

Note 9 - Goodwill and Other Intangible Assets

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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.

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

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

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.

Changes in the carrying value of goodwill were as follows:

Year ended December 31, 2023:

Mobile Industries Process

Industries Total

Engineered Bearings Industrial Motion Total

Beginning Balance $ 679.8 $ 418.5 $ 1,098.3

Acquisitions 13.2 272.4 285.6

Foreign currency translation adjustments ( 11.6 ) ( 19.7 ) ( 31.3 )

Impairment loss — ( 28.3 ) ( 28.3 )

Foreign currency translation adjustments and other changes ( 0.7 ) 14.7 14.0

Ending Balance $ 692.3 $ 677.3 $ 1,369.6

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.

During the first quarter of 2023, the Company reviewed goodwill for impairment for its reporting units due to the change in segment reporting 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 and 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 acquisitions of Lagersmit, iMECH, Rosa, Des-Case, Nadella and ARB added goodwill of $ 58.5 million, $ 12.8 million, $ 6.5 million, $ 78.9 million, $ 128.5 million and $ 0.4 million, respectively, in 2023.

Goodwill arising from these acquisitions is attributed to the expected synergies, including future cost savings, and other benefits expected to be generated by combining the companies.

The goodwill related to iMECH and ARB is deductible for tax purposes and will be amortized over 15 years.

For the other 2023 acquisitions, goodwill will not be deductible for tax purposes.

Note 9 - Goodwill and Other Intangible Assets (continued)

Year ended December 31, 2022:

Mobile Industries Process

Industries Total

Engineered Bearings Industrial Motion Total

Beginning Balance $ 610.8 $ 411.9 $ 1,022.7

3 unchanged sentences

Ending Balance $ 679.8 $ 418.5 $ 1,098.3

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

The acquisition of GGB added $ 63.6 million of goodwill, and the acquisition of Spinea added $ 43.3 million of goodwill in 2022.

In 2023, measurement period adjustments of $ 0.9 million and $ 0.1 million, respectively, were recorded to adjust goodwill for GGB and Spinea.

Approximately 40 % of the goodwill for GGB is being deducted for tax purposes, and all of the goodwill for Spinea is being deducted for tax purposes.

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

Note 9 - Goodwill and Other Intangible Assets (continued)

Intangible Assets:

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Amortization expense for intangible assets was $ 72.3 million, $ 50.6 million and $ 54.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Amortization expense included $ 43.9 million, $ 46.8 million and $ 47.3 million related to intangible assets acquired as part of a business combination for the years ended December 31, 2022, 2021 and 2020, respectively.

Amortization expense for intangible assets is estimated to be approximately $ 77 million in 2024, $ 72 million in 2025, $ 70 million in 2026, $ 68 million in 2027 and $ 67 million in 2028.

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

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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, 2022, 2021 and 2020 as follows:

Lease expense for the years ended December 31, 2023, 2022 and 2021 was as follows:

2023 2022 2021

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Total lease expense $ 35.7 $ 32.0 $ 36.4

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

Cash flows from operating and financing leases for the years ended December 31, 2023, 2022 and 2021 was as follows:

2023 2022 2021

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2027 13.9 1.0

2028 10.9 0.5

Thereafter 18.8 1.4

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

Variable-rate Term Loan (1) maturing on August 16, 2024, with an interest rate of 5.112 % at December 31, 2023

Borrowings under lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 4.35 % to 7.33 % at December 31, 2023 and 2.38 % to 5.50 % at December 31, 2022

Short-term debt $ 246.2 $ 46.3

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.

Most of these lines of credit are uncommitted.

At December 31, 2022, the Company’s foreign subsidiaries had borrowings outstanding of $ 46.3 million and bank guarantees of $ 2.8 million, which reduced the aggregate availability under these facilities to $ 185.1 million.

On August 16, 2023, the Company entered into a € 200 million variable-rate term loan ("2024 Term Loan"), maturing on August 16, 2024.

Proceeds from the 2024 Term Loan were used to repay borrowings on the Senior Credit Facility and Accounts Receivable Facility, as well as for general corporate purposes.

The Company currently intends to repay or replace the 2024 Term Loan prior to its maturity.

The lines of credit for certain of the Company’s foreign subsidiaries provide for short-term borrowings, with most of these lines of credit being uncommitted.

At December 31, 2023, the Company’s foreign subsidiaries had borrowings outstanding of $ 25.4 million and bank guarantees of $ 2.1 million.

The weighted-average interest rate on these lines of credit during the year were 4.24 %, 1.4 % and 0.8 % in 2023 , 2022 and 2021, respectively.

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Dollar of 6.48 % and Euro of 4.85 % at December 31, 2023 and 5.10 % and 2.21 %, respectively, at December 31, 2022

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

$ 247.4 $ 8.5

Variable-rate Accounts Receivable Facility, with an interest rate of 6.42 % at December 31, 2023 and of 5.01 % at December 31, 2022

Variable-rate Term Loan (1) , maturing on December 5, 2027, with an interest rate of 6.58 % at December 31, 2023 and of 5.55 % at December 31, 2022

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(1) Net of discount and fees

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

Note 12 - Financing Arrangements (continued)

The Company renewed the Accounts Receivable Facility on December 6, 2023.

The $ 100.0 million Accounts Receivable Facility matures on November 30, 2026.

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.

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The interest rate was 6.4 %, 5.0 % and 0.9 % at December 31, 2023, 2022 and 2021, 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.

On December 5, 2022, the Company entered into the Credit Agreement, which is comprised of a $ 750.0 million Senior Credit Facility and $ 400.0 million 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 2023 Term Loan that was set to mature on September 11, 2023.

The Credit Agreement also replaced interest rates based on LIBOR with interest rates based SOFR.

At December 31, 2023, the Senior Credit Facility had outstanding borrowings of $ 247.4 million and $ 1.3 million of letters of credit under the Senior Credit Facility, which reduced the availability under this facility to $ 501.3 million.

The Credit Agreement has two financial covenants:

a consolidated leverage ratio and a consolidated interest coverage ratio.

a consolidated net leverage ratio and a consolidated interest coverage ratio.

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.

Proceeds from the 2032 Notes were used for general corporate purposes, which included the repayment of borrowings under the Company's previous senior credit facility and Accounts Receivable Facility at the time of issuance.

The Company has the 2024 Notes in the aggregate principal amount of $ 350.0 million with an interest rate of 3.875 %, maturing on September 1, 2024.

The Company currently intends to refinance the 2024 Notes prior to their maturity.

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

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This differs from interest expense due to the timing of payments, the amortization of deferred financing fees and interest capitalized of $ 0.2 million in 2023, $ 1.0 million in 2022 and $ 2.6 million in 2021.

Note 13 - 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 or 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 twelve months ended December 31, 2023:

Confirmed obligations outstanding, January 1 $ 14.4

Invoices confirmed 97.1

Confirmed invoices paid ( 90.2 )

Confirmed obligations outstanding, ending balance $ 21.3

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

Note 14 - Contingencies

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

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

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

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

The Company is responsible for environmental remediation at various manufacturing facilities presently or formerly operated by the Company.

In addition, the Company, through one of its subsidiaries, has currently been identified as a potentially responsible party for investigation and remediation under the Comprehensive Environmental Response, Compensation and Liability Act, known as the Superfund, or similar state laws with respect to one site.

Claims for investigation and remediation have been asserted against numerous other unrelated 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, LLC ("Lovejoy") a Special Notice Letter that identified Lovejoy as a potentially responsible party, together with at least 14 unrelated parties, at the Ellsworth Industrial Park Site, Downers Grove, DuPage County, Illinois (the “Site”).

The Company acquired Lovejoy in 2016.

Lovejoy’s Downers Grove property is situated within the Ellsworth Industrial Complex.

The USEPA and the Illinois Environmental Protection Agency (“IEPA”) allege there have been one or more releases or threatened releases of hazardous substances, allegedly including, but not limited to, a release or threatened release on or from Lovejoy's property, at the Site.

The USEPA and the Illinois Environmental Protection Agency (“IEPA”) allege there have been one or more releases or threatened releases of hazardous substances, including, but not limited to, a release or threatened release on or from Lovejoy's property at the Site.

The relief sought by the USEPA and IEPA includes further investigation and potential remediation of the Site and reimbursement of response costs.

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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.

The ultimate resolution of these matters could result in actual costs that exceed amounts accrued.

Product Warranties:

1 unchanged sentence

The product warranty liability included in "Other current liabilities" on the Consolidated Balance Sheets for 2023 and 2022 was $ 15.2 million and $ 23.5 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.

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

The liability primarily relates to accruals for products sold into the automotive and renewable 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.

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

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.

however, the effect of any such change may be material to the results of operations of any particular period in which such change occurs.

The following is a rollforward of the consolidated product warranty accrual at December 31, 2023 and December 31, 2022, respectively:

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Note 15 - Stock Compensation

Under its long-term incentive plan, the Company's common shares have been made available for grant, at the discretion of the Compensation Committee of the Board of Directors, to officers, directors and other key employees.

Under its long-term incentive plan, the Company's common shares have been made available for grant, at the discretion of the Compensation Committee of the Board of Directors or its designees, to officers, directors and other key employees.

Grants can take the form of performance- or time-based restricted stock units, deferred shares and stock options.

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

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

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

For time-based restricted stock units that are expected to settle in cash, the Company had $ 2.0 million and $ 2.9 million accrued in salaries, wages and benefits as of December 31, 2023 and 2022, respectively, on the Consolidated Balance Sheets.

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(1) Adjustments for the number of shares vested under the 2020 awards at the end of the three-year period ended December 31, 2022 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.

The Company distributed shares totaling 376,261 in 2023 , 386,594 in 2022 and 577,948 in 2021 due to the vesting of stock awards.

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Outstanding - end of year 386,617 $ 42.69 5 years $ 14.5

Options expected to vest 921,310 41.61 6 years 26.8

Options exercisable 810,445 41.37 6 years 23.7

As of December 31, 2023, there were 386,617 stock options outstanding.

All of these options are fully vested and are exercisable at December 31, 2023.

The total intrinsic value of stock option awards exercised during the years ended December 31, 2023, 2022 and 2021 was $ 22.2 million, $ 7.3 million and $ 29.4 million, respectively.

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Year ended December 31, 2023:

Industries Process

Industries Unallocated Corporate Total

Engineered Bearings Industrial Motion Total

Impairment charges $ 4.9 $ 28.3 $ 33.2

3 unchanged sentences

Year ended December 31, 2022:

Industries Process

Industries Unallocated Corporate Total

Engineered Bearings Industrial Motion Total

Impairment charges $ 9.0 $ 29.3 $ 38.3

3 unchanged sentences

Year ended December 31, 2021:

Industries Process

Industries Unallocated Corporate Total

Engineered Bearings Industrial Motion Total

Impairment charges $ 4.4 $ 0.1 $ 4.5

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

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.

Engineered Bearings:

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

The facility ceased operations at the end of the fourth quarter of 2023 and affected approximately 225 employees.

The Company transferred its operations to other bearing manufacturing facilities.

The Company expects to incur approximately $ 12 million to $ 14 million of pretax costs in total related to this closure.

During 2023, the Company recorded severance and related benefits of $ 3.6 million and exit costs of $ 0.6 million related to this closure.

During 2022, the Company recorded severance and related benefits of $ 0.9 million related to this closure.

The Company has incurred cumulative pretax costs related to this closure of $ 12.5 million as of December 31, 2023, including rationalization costs recorded in cost of products sold.

As a result of Russia's invasion of Ukraine (and associated sanctions), the Company suspended its operations in Russia in 2022.

During the year ended December 31, 2023, the Company recorded impairment charges of $ 3.9 million related to certain assets of its Russian JV.

During the year ended December 31, 2022, the Company recorded impairment charges of $ 9.0 million related to certain assets of its Russian JV.

During the fourth quarter of 2023, after evaluating various plans for the Russian JV and the Company's ability to control and influence the joint venture, the Company concluded it should deconsolidate its Russian JV and wrote-down the remaining investment of $ 4.7 million.

During the year ended December 31, 2023, the Company classified TWB as assets held for sale and recorded impairment charges of $ 1.0 million.

The Company subsequently completed the sale of TWB on October 16, 2023.

Note 16 - Impairment and Restructuring Charges (continued)

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

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

The Company transferred the manufacturing of its single-row tapered roller bearing production to other bearing facilities.

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.

1 unchanged sentence

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.

The Company incurred cumulative pretax costs related to this closure 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)

On October 16, 2019, the Company announced the reorganization of its bearing plant in Gaffney, South Carolina.

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

The transfer of these operations was 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, 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:

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

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

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 related segmentation implications through the balance of 2022, the Company concluded that it would begin operating under two new reportable segments, Engineered Bearings and Industrial Motion, effective January 1, 2023.

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

In addition, the Company was required 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.

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.

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

This plant was part of the Diamond Chain acquisition completed on April 1, 2019.

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

The chain plant is expected to 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, 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.

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.

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

The chain plant ceased operations on April 30, 2023 and affected approximately 240 employees.

The Company hired approximately 130 full-time positions in Fulton, Illinois.

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

The Company incurred cumulative pretax costs related to this closure of $ 14.5 million as of December 31, 2023, including rationalization costs recorded in cost of products sold.

During the year ended December 31, 2023, the Company recorded severance and related benefits of $ 2.2 million related to one of its automatic lubrication systems facilities in Europe and $ 1.5 million related to its gear drive manufacturing facility in Europe to align current employment levels with current demand.

Consolidated Restructuring Accrual:

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2023 2022 2021 2023 2022 2021

Components of net periodic benefit cost:

Components of net periodic

benefit cost:

Service cost $ 0.8 $ 6.9 $ 9.5 $ 1.6 $ 1.6 $ 2.0

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Amortization of prior service cost 0.2 1.2 1.2 0.2 0.1 0.2

Recognition of net actuarial losses

(gains) 22.6 13.9 ( 3.9 ) ( 6.6 ) ( 9.5 ) 20.1

Curtailment losses — — 0.9 — — —

Recognition of net actuarial

losses (gains) 9.2 22.6 13.9 12.4 ( 6.6 ) ( 9.5 )

Net periodic benefit cost (credit) $ 19.6 $ 29.5 $ 19.0 $ 14.2 $ ( 8.5 ) $ ( 13.1 )

4 unchanged sentences

Future compensation assumption 2.50 % to 3.50 %

2.50 % 2.50 %

2.50 % to 3.50 %

Expected long-term return on plan assets 4.31 % to 4.91 %

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Future compensation assumption 3.25 %

2.50 % to 3.50 %

International Plans:

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Note 17 - Retirement Benefit Plans (continued)

The Company recognized actuarial losses of $ 21.6 million during 2023 primarily due to the impact of a net reduction in the discount rate used to measure its defined benefit pension obligations of $ 17.6 million and the impact of experience losses of $ 10.3 million, partially offset by changes in mortality of $ 6.0 million primarily related to the U.K.

plan obligations and other actuarial gains of $ 0.3 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 24 basis point reduction in the weighted-average discount rate used to measure its U.S.

plan obligations, which decreased from 5.64 % in 2022 to 5.40 % in 2023, and a 33 basis point decrease in the discount rate used to measure its U.K.

plan obligations, which decreased from 4.81 % in 2022 to 4.48 % in 2023.

Returns on plan assets had no impact on actuarial losses for 2023.

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.

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plan obligations, which increased from 2.84 % in 2020 to 3.07 % in 2021.

The Company recognized actuarial losses of $ 16.2 million during 2020 primarily due to the impact of a net reduction in the discount rate used to measure its defined benefit pension obligations of $ 88.0 million and the impact of experience losses of $ 16.9 million, partially offset by higher than expected returns on plan assets of $ 84.3 million and other changes in valuation assumptions of $ 4.4 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 66 basis point reduction in the weighted-average discount rate used to measure its U.S.

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

For expense purposes in 2023, the Company applied a weighted-average discount rate of 5.64 % to its U.S.

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Interest cost 17.9 17.7 10.4 5.7

Plan amendments — — — 0.5

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

Actuarial losses (gains) 10.8 ( 116.4 ) 10.8 ( 88.2 )

International plan exchange rate change — — 10.4 ( 32.6 )

1 unchanged sentence

Acquisitions — — 3.9 3.2

Other — — 1.8 —

Benefit obligation at end of year $ 333.2 $ 335.3 $ 242.3 $ 218.1

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of year $ 0.3 $ 1.5 $ 3.6 $ 4.2

Prior service cost — — — 0.5

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

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loss (income) at December 31 $ 0.1 $ 0.3 $ 3.6 $ 3.6

Note 16 - Retirement Benefit Plans (continued)

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.

Defined benefit pension plans in the U.S.

represent 61 % of the benefit obligation and 52 % of the fair value of plan assets as of December 31, 2022.

Note 17 - Retirement Benefit Plans (continued)

Certain of the Company’s defined benefit pension plans were overfunded as of December 31, 2022.

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 at December 31, 2022 and 2021, respectively.

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

No defined benefit pension plans were overfunded as of December 31, 2023.

The current portion of accrued pension benefits, which was included in salaries, wages and benefits on the Consolidated Balance Sheets, was $ 7.2 million and $ 6.3 million at December 31, 2023 and 2022, respectively.

In 2023, 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.

The four largest defined benefit pension plans, covering certain employees in the United States and U.K., represent 83 % and 84 % of the Company's projected benefit obligation at December 31, 2023 and 2022, respectively.

These defined benefit pension plans are closed to new entrants and benefits have been frozen for three of these plans.

The accumulated benefit obligation at December 31, 2023 exceeded the market value of plan assets for several of the Company’s pension plans.

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The total accumulated benefit obligation for all plans was $ 567.0 million and $ 546.0 million at December 31, 2023 and 2022, respectively.

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

Investment performance increased the value of the Company’s pension assets by 6.3 % in 2023 largely due to decreases in bond rates.

As of December 31, 2023 , 2022 and 2021, the Company’s defined benefit pension plans did not directly hold any of the Company’s common shares.

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The Company made contributions to its defined contribution plans of $ 35.6 million, $ 29.4 million and $ 27.3 million in 2023, 2022 and 2021, respectively.

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

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.

Note 18 - Other Postretirement Benefit Plans

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Interest cost 1.9 1.4 1.5

Expected return on plan assets — — ( 0.4 )

Amortization of prior service credit ( 8.3 ) ( 10.1 ) ( 10.1 )

Recognition of net actuarial (gains) losses ( 13.1 ) ( 4.1 ) 1.4

Recognition of net actuarial gains ( 1.0 ) ( 13.1 ) ( 4.1 )

Net periodic credit $ ( 7.3 ) $ ( 21.6 ) $ ( 12.5 )

2023 2022 2021

2022 2021 2020

Discount rate 5.75 % 2.99 % 2.62 %

Rate of return — % — % 3.00 %

The following table summarizes assumptions used to measure the benefit obligation for the other postretirement benefit plans at December 31:

Discount rate 5.55 % 5.75 %

The Company recognized actuarial gains of $ 1.0 million during 2023 primarily due to lower than expected benefit payments of $ 1.4 million and $ 0.1 million due to changes in other actuarial assumptions.

These actuarial gains were partially offset a $ 0.5 million loss due to the impact of a 20 basis point decrease in the discount rate used to measure the Company's defined benefit postretirement obligations, which decreased from 5.75 % in 2022 to 5.55 % in 2023.

The Company recognized actuarial gains of $ 13.1 million during 2022 primarily due to the impact of a 276 basis point increase in the discount rate used to measure the Company's defined benefit postretirement obligations, which increased from 2.99 % in 2021 to 5.75 % in 2022.

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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 .

The Company recognized actuarial losses of $ 1.4 million during 2020 primarily due to the impact of an 81 basis point decrease in the discount rate used to measure the Company's defined benefit postretirement obligations, which decreased from 3.43 % in 2019 to 2.62 % in 2020.

The decrease in the discount rate resulted in a $ 3.9 million loss.

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.

Note 17 - Other Postretirement Benefit Plans

Note 18 - Other Postretirement Benefit Plans (continued)

The discount rate assumption is based on current rates of high-quality long-term corporate bonds over the same period that benefit payments will be required to be made.

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Benefit obligation at end of year $ 33.7 $ 35.5

Change in plan assets:

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

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

Fair value of plan assets at end of year — —

Funded status at end of year $ ( 33.7 ) $ ( 35.5 )

12 unchanged sentences

Total recognized in accumulated other comprehensive loss at December 31 $ ( 63.6 ) $ ( 71.9 )

Note 17 - Other Postretirement Benefit Plans (continued)

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.

1 unchanged sentence

In 2023, the current portion of accrued postretirement benefits related to unfunded plans and represented the actuarial present value of expected payments related to the plans to be made over the next 12 months.

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.

Note 18 - Other Postretirement Benefit Plans (continued)

For measurement purposes, the Company assumed a weighted-average annual rate of increase in the per capita cost (health care cost trend rate) of 6.25 % for 2024, 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 2024 through 2026, and are assumed to increase by $ 5 per year for 2027 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.

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.

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:

1 unchanged sentence

2029-2033 13.8

Note 19 - Sale of Shares of Timken India Limited

On June 20, 2023, the Company completed the sale of 7.6 million shares of TIL, a publicly traded subsidiary of the Company, generating net proceeds of $ 229 million after estimated income taxes of $ 55 million and transaction costs.

The sale reduced the Company’s ownership in TIL from 67.8 percent to 57.7 percent.

Note 20 - Accumulated Other Comprehensive (Loss) Income

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

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

Foreign currency

3 unchanged sentences

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

Other comprehensive (loss) income before reclassifications

Ownership changes 6.6 — — 6.6

Other comprehensive income (loss) before reclassifications

and income taxes 33.5 ( 0.2 ) ( 2.0 ) 31.3

1 unchanged sentence

(loss) income, before income tax — ( 7.9 ) 0.9 ( 7.0 )

Income tax benefit (expense) — 1.9 ( 0.6 ) 1.3

Net current period other comprehensive (loss) income,

net of income taxes ( 162.7 ) ( 5.8 ) 2.3 ( 166.2 )

Income tax benefit — 2.0 0.3 2.3

Net current period other comprehensive income (loss),

net of income taxes and ownership changes 40.1 ( 6.1 ) ( 0.8 ) 33.2

Noncontrolling interest 1.8 — — 1.8

Net current period comprehensive (loss) income, net

of income taxes and noncontrolling interest ( 155.4 ) ( 5.8 ) 2.3 ( 158.9 )

Net current period comprehensive income (loss), net

of income taxes, noncontrolling interest and ownership

changes 41.9 ( 6.1 ) ( 0.8 ) 35.0

Balance at December 31, 2023 $ ( 193.8 ) $ 44.7 $ 2.2 $ ( 146.9 )

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Cash and cash equivalents $ 384.4 $ 381.0 $ 3.4 $ —

Cash and cash equivalents measured at net

asset value 39.5

Cash and cash equivalents measured at net asset value 34.5

Restricted cash 0.4 0.4 — —

Short-term investments 31.6 — 31.6 —

Interest rate swap contract 3.1 — 3.1 —

Foreign currency forward contracts 3.3 — 3.3 —

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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 3.1 — 3.1 —

Foreign currency forward contracts 4.5 — 4.5 —

2 unchanged sentences

Total Liabilities $ 19.8 $ — $ 19.8 $ —

Cash and cash equivalents are highly liquid investments with maturities of three months or less when purchased and are valued at redemption value.

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

Cash and cash equivalents are highly liquid investments with maturities of 90 days or less when purchased and are valued at redemption value.

Short-term investments are investments with maturities between 91 days and one year, and generally are valued at amortized cost, which approximates fair value.

A portion of the cash and cash equivalents and short-term investments are valued based on net asset value.

The Company uses publicly available market interest rates to measure the fair value of its interest rate swap contracts.

The Company uses publicly available foreign currency forward and spot rates to measure the fair value of its foreign currency forward contracts.

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.

In addition, 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 or goodwill impairment.

During the third quarter of 2023, TWB was reclassified to assets held for sale.

In conjunction with this reclassification, the legal entity, with a carrying value of $ 10.3 million, was written down to $ 9.3 million, which represented its estimated fair value less the cost to sell, resulting in an impairment charge of $ 1.0 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.

See Note 2 - Acquisitions and Divestitures for further discussion.

During the third quarter of 2023, property, plant and equipment and leased assets at the Company's joint venture in Russia, with a carrying value of $ 3.9 million, were written down to their estimated fair value, resulting in an impairment charge of $ 3.9 million.

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

Note 21 - Fair Value (continued)

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

3 unchanged sentences

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.

In 2022, property, plant and equipment at the Russian JV, 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.

Note 19 - Fair Value (continued)

No other material assets were measured at fair value on a nonrecurring basis during the years ended December 31, 2023 and 2022.

6 unchanged sentences

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

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

Note 22 - Derivative Instruments

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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 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.

The swap matured on September 11, 2023.

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

1 unchanged sentence

dollar and the Euro.

The net impact for the twelve months ended December 31, 2022 was to record a gain of $ 3.6 million to accumulated comprehensive loss (income) with a corresponding offset to other (expense) income, which partially offsets the impact of the foreign currency adjustment on the 2027 Notes.

The net impact for the twelve months ended December 31, 2023 was to record a loss of $ 1.8 million to accumulated comprehensive loss (income) with a corresponding offset to other (expense) income, which partially offsets the impact of the foreign currency adjustment on the 2027 Notes.

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

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

This amount was recorded to accumulated comprehensive income and will be amortized as a reduction in interest expense over the 10-year tenor of the 2032 Notes.

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

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

Note 22 - Derivative Instruments (continued)

Derivative Instruments not designated as Hedging Instruments:

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

Note 20 - Derivative Instruments (continued)

As of December 31, 2023 and 2022 , the Company had $ 518.0 million and $ 553.3 million, respectively, of outstanding foreign currency forward contracts at notional value that were not designated as hedging instruments.

15 unchanged sentences

Total 2.7 % 2.3 % 2.3 %

Note 24 - 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 or maintaining 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 applicable interest expense.

As of December 31, 2023, the Company has $ 1.6 million and $ 36.0 million of government assistance in other current liabilities and other non-current liabilities , respectively.

In addition, the Company cumulatively recorded $ 7.5 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 $ 1.6 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, all or a portion of the incentive could be recaptured with interest by October 2027.

The Company is currently accounting for a potential shortfall of $ 16.7 million, including interest.

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

The Company recorded amortization expense of $ 2.1 million as a reduction to cost of products sold .

In addition, the Company recorded total interest expense of $ 0.5 million due to the possibility 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.

If the total tax obligation is not met, any shortfall could result in a recapture of the grant with interest as early as 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, 2023, the Company recorded amortization expense of $ 1.6 million as a reduction to cost of products sold .

In addition, the Company recorded total interest expense of $ 1.1 million due to the expectation of having to pay a portion of the grant back.

The Company may have 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.

Note 25 - Quarterly Financial Data

1 unchanged sentence

Net sales $ 1,262.8 $ 1,272.3 $ 1,142.7 $ 1,091.2 $ 4,769.0

Gross profit 327.4 341.8 322.8 296.1 1,288.1

Cost of products sold 846.0 866.9 787.1 759.9 3,259.9

Selling, general and administrative expenses 186.8 184.9 179.6 189.5 740.8

Amortization of intangible assets 13.5 17.3 17.5 17.4 65.7

Impairment and restructuring charges 28.9 2.5 8.9 5.2 45.5

Operating income 187.6 200.7 149.6 119.2 657.1

Net income (1)

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Net sales $ 1,124.6 $ 1,153.7 $ 1,136.4 $ 1,082.0 $ 4,496.7

Gross profit 299.2 302.3 267.9 233.1 1,102.5

Cost of products sold 786.3 801.3 802.9 774.2 3,164.7

Selling, general and administrative expenses 154.1 155.9 159.8 167.3 637.1

Amortization of intangible assets 10.9 10.6 10.7 11.7 43.9

Impairment and restructuring charges 1.0 10.0 31.3 1.8 44.1

Operating income 172.3 175.9 131.7 127.0 606.9

Net income (2)

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therefore, the sum of the quarterly earnings per share may not equal the total computed for the year.

(1) Net income for the first quarter of 2023 included goodwill impairment charges of $ 28.3 million.

Net income for the fourth quarter of 2023 included net actuarial losses of $ 22.3 million.

(2) 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 third quarter of 2022 included impairment charges of $ 29.3 million.

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 .

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

To the Shareholders and the Board of Directors of The Timken Company and subsidiaries

To the Shareholders and the Board of Directors of The Timken Company

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, 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”).

We have audited the accompanying consolidated balance sheets of The Timken Company and subsidiaries (the Company) as of December 31, 2023 and 2022, 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, 2023, and the related notes and 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S.

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These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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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

Description of the Matter At December 31, 2022, the Company’s pension benefit obligation was $553.4 million and exceeded the fair value of pension plan assets of $387.1 million, resulting in an unfunded pension benefit obligation of $166.3 million.

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 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.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s accounting for the measurement of the pension benefit obligation.

For example, we tested controls over management’s review of the pension benefit obligation calculations, the relevant data inputs and the significant actuarial assumptions used in the calculations.

United States and United Kingdom Pension Benefit Obligations

Description of the Matter At December 31, 2023, the Company’s pension benefit obligation was $575.5 million.

The four plans with the largest pension benefit obligations, covering certain employees in the United States and the United Kingdom, comprised 83% of the total projected benefit obligation as of December 31, 2023.

As explained in Note 1 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.

Auditing the pension benefit obligations of these four plans was complex and required the involvement of specialists due to the estimation uncertainty involved in determining the discount rates used in the measurement of these benefit obligations.

For example, we tested controls over management’s review of the discount rates used in the measurement of these benefit obligations.

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 (gains) losses, benefits paid and other activities.

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

For example, we evaluated management’s methodology for determining the discount rate that reflects the maturity and duration of the benefit payments and is used to measure the pension benefit obligation.

We compared the actuarial assumptions used by management to historical trends and, we involved actuarial specialists to assist with our procedures.

In certain instances, as part of this assessment, we compared the projected cash flows to prior year and compared the current year benefits paid to the prior year projected cash flows.

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).

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

Valuation of Customer Relationships Intangible Asset in the Acquisition of Leonardo Top S.a.r.l.

Description of the Matter As described in Note 2 to the consolidated financial statements, during April 2023, the Company completed the acquisition of Leonardo Top S.a.r.l.

(“Nadella”) for $293.5 million, net of cash acquired.

The acquisition was accounted for under the purchase method of accounting and the assets acquired and liabilities assumed have been recorded based on preliminary estimates of fair value and is subject to change based on the finalization of the fair values of the assets acquired and liabilities assumed.

Auditing the Company’s accounting for the preliminary allocation of the purchase price for its acquisition of Nadella was complex due to the significant estimation uncertainty involved in estimating the fair value of the customer relationships intangible asset, which was recorded on a preliminary basis.

The total preliminary fair value ascribed to the customer relationships intangible asset amounted to $107.2 million.

The Company used a discounted cash flow model to value the customer relationships intangible asset.

The significant assumptions used to estimate the preliminary fair value of customer relationships intangible asset included the projected EBITDA margins and customer attrition rate.

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.

For example, we tested controls that address the risks of material misstatement relating to the valuation of the customer relationships intangible asset, including management’s review of the methods and significant assumptions used to develop such estimate.

To test the estimated fair value of the customer relationships intangible asset, we performed audit procedures that included, among others, evaluating the Company’s selection of the valuation methodology, evaluating the model and significant assumptions used by the Company, 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 projected EBITDA margins, we compared the assumptions to the past performance of Nadella and forecasted performance of the guideline public companies.

We also performed sensitivity analyses to evaluate the changes in the fair value of the customer relationships intangible asset that would result from changes in the significant assumptions.

In addition, we involved our valuation specialists to assist with our evaluation of the methodology and significant assumptions used by the Company to determine the preliminary fair value estimate of the customer relationships intangible asset, including the projected EBITDA margins and customer attrition rate.

/s/ Ernst & Young LLP

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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