SEC Info - Timken Co. - ‘10-Q’ for 9/30/22

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Timken Co. – ‘10-Q’ for 9/30/22

On: Wednesday, 10/26/22, at 5:27pm ET · For: 9/30/22 · Accession #: 98362-22-112 · File #: 1-01169

  As Of               Filer                 Filing    For·On·As Docs:Size

10/26/22  Timken Co.                        10-Q        9/30/22   97:11M

Quarterly Report — Form 10-Q

Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML   2.37M 
 2: EX-10.1     Material Contract                                   HTML    113K 
 3: EX-31.1     Certification -- §302 - SOA'02                      HTML     28K 
 4: EX-31.2     Certification -- §302 - SOA'02                      HTML     29K 
 5: EX-32.0     Certification -- §906 - SOA'02                      HTML     27K 
11: R1          Cover                                               HTML     76K 
12: R2          Consolidated Statements of Income                   HTML    109K 
13: R3          Consolidated Statements of Comprehensive Income     HTML     64K 
14: R4          Consolidated Balance Sheets                         HTML    168K 
15: R5          Consolidated Balance Sheets (Parenthetical)         HTML     40K 
16: R6          Consolidated Statements of Cash Flows               HTML    135K 
17: R7          Consolidated Statements of Cash Flows               HTML     26K 
                (Parenthetical)                                                  
18: R8          Basis of Presentation                               HTML     27K 
19: R9          Significant Accounting Policies                     HTML     34K 
20: R10         Acquisitions and Divestitures                       HTML     72K 
21: R11         Revenue                                             HTML     88K 
22: R12         Segment Information                                 HTML     67K 
23: R13         Income Taxes                                        HTML     39K 
24: R14         Earnings Per Share                                  HTML     53K 
25: R15         Inventories                                         HTML     38K 
26: R16         Goodwill and Other Intangible Assets                HTML     70K 
27: R17         Other Current Liabilities                           HTML     39K 
28: R18         Financing Arrangements                              HTML     64K 
29: R19         Contingencies                                       HTML     39K 
30: R20         Equity                                              HTML    137K 
31: R21         Impairment and Restructuring Charges                HTML     77K 
32: R22         Retirement Benefit Plans                            HTML     79K 
33: R23         Other Postretirement Benefit Plans                  HTML     47K 
34: R24         Accumulated Other Comprehensive Income (Loss)       HTML     98K 
35: R25         Fair Value                                          HTML     80K 
36: R26         Derivatives Instruments and Hedging Activities      HTML     44K 
37: R27         Significant Accounting Policies (Policies)          HTML     31K 
38: R28         Acquisitions and Divestitures (Tables)              HTML     72K 
39: R29         Revenue (Tables)                                    HTML     83K 
40: R30         Segment Information (Tables)                        HTML     64K 
41: R31         Income Taxes (Tables)                               HTML     36K 
42: R32         Earnings Per Share (Tables)                         HTML     52K 
43: R33         Inventories (Tables)                                HTML     37K 
44: R34         Goodwill and Other Intangible Assets (Tables)       HTML    109K 
45: R35         Other Current Liabilities (Tables)                  HTML     38K 
46: R36         Financing Arrangements (Tables)                     HTML     62K 
47: R37         Contingencies (Tables)                              HTML     33K 
48: R38         Equity (Tables)                                     HTML    132K 
49: R39         Impairment and Restructuring Charges (Tables)       HTML     69K 
50: R40         Retirement Benefit Plans (Tables)                   HTML     75K 
51: R41         Other Postretirement Benefit Plans (Tables)         HTML     44K 
52: R42         Accumulated Other Comprehensive Income (Loss)       HTML     97K 
                (Tables)                                                         
53: R43         Fair Value (Tables)                                 HTML     71K 
54: R44         Derivatives Instruments and Hedging Activities      HTML     35K 
                (Tables)                                                         
55: R45         Acquisitions and Divestitures - Acquisitions        HTML     57K 
                Narrative (Details)                                              
56: R46         Acquisitions and Divestitures - Initial Purchase    HTML     65K 
                Price Allocation (Details)                                       
57: R47         Acquisitions and Divestitures - Preliminary         HTML     40K 
                Purchase Price Allocation of Identifiable                        
                Intangible Assets Acquired (Details)                             
58: R48         Acquisitions and Divestitures - Final Purchase      HTML     32K 
                Price Allocation (Details)                                       
59: R49         Acquisitions and Divestitures - Divestitures        HTML     58K 
                Narrative (Details)                                              
60: R50         Acquisitions and Divestitures - Assets and          HTML     70K 
                Liabilities Held for Sale (Details)                              
61: R51         Revenue - Disaggregation of Revenue (Details)       HTML     69K 
62: R52         Revenue - Narrative (Details)                       HTML     40K 
63: R53         Revenue - Schedule of Contract with Customer,       HTML     34K 
                Asset and Liability (Details)                                    
64: R54         Segment Information (Details)                       HTML     60K 
65: R55         Income Taxes - Components of Income Tax Expense     HTML     31K 
                (Benefit) (Details)                                              
66: R56         Income Taxes - Narrative (Details)                  HTML     27K 
67: R57         Earnings Per Share - Denominator of Basic and       HTML     67K 
                Diluted Earnings Per Share (Details)                             
68: R58         Earnings Per Share - Narrative (Details)            HTML     27K 
69: R59         Inventories - Components of Inventories (Details)   HTML     39K 
70: R60         Inventories - Narrative (Details)                   HTML     30K 
71: R61         Goodwill and Other Intangible Assets - Carrying     HTML     39K 
                Value of Goodwill (Details)                                      
72: R62         Goodwill and Other Intangible Assets - Narrative    HTML     47K 
                (Details)                                                        
73: R63         Goodwill and Other Intangible Assets - Intangible   HTML     63K 
                Assets (Details)                                                 
74: R64         Other Current Liabilities (Details)                 HTML     48K 
75: R65         Financing Arrangements - Short Term Debt (Details)  HTML     33K 
76: R66         Financing Arrangements - Narrative (Details)        HTML     68K 
77: R67         Financing Arrangements - Long Term Debt (Details)   HTML     74K 
78: R68         Financing Arrangements - Maturities (Details)       HTML     46K 
79: R69         Contingencies - Narratives (Details)                HTML     30K 
80: R70         Contingencies - Schedule of Product Warranty        HTML     31K 
                (Details)                                                        
81: R71         Equity (Details)                                    HTML    101K 
82: R72         Impairment and Restructuring Charges -              HTML     41K 
                Restructuring Charges by Segment (Details)                       
83: R73         Impairment and Restructuring Charges - Narrative    HTML     72K 
                (Details)                                                        
84: R74         Impairment and Restructuring Charges -              HTML     33K 
                Consolidated Restructuring Accrual (Details)                     
85: R75         Retirement Benefit Plans - Components of Net        HTML     56K 
                Periodic Benefit Cost (Details)                                  
86: R76         Retirement Benefit Plans - Narrative (Details)      HTML     33K 
87: R77         Other Postretirement Benefit Plans (Details)        HTML     39K 
88: R78         Accumulated Other Comprehensive Income (Loss)       HTML     80K 
                (Details)                                                        
89: R79         Fair Value - Fair Value on Recurring Basis          HTML     59K 
                (Details)                                                        
90: R80         Fair Value - Narrative (Details)                    HTML     52K 
91: R81         Derivatives Instruments and Hedging Activities -    HTML     54K 
                Narrative (Details)                                              
92: R82         Derivatives Instruments and Hedging Activities -    HTML     27K 
                Cash Flow Hedging Strategy (Details)                             
95: XML         IDEA XML File -- Filing Summary                      XML    175K 
93: XML         XBRL Instance -- tkr-20220930_htm                    XML   3.09M 
94: EXCEL       IDEA Workbook of Financial Reports                  XLSX    162K 
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10: EX-101.PRE  XBRL Presentations -- tkr-20220930_pre               XML   1.08M 
 6: EX-101.SCH  XBRL Schema -- tkr-20220930                          XSD    164K 
96: JSON        XBRL Instance as JSON Data -- MetaLinks              461±   689K 
97: ZIP         XBRL Zipped Folder -- 0000098362-22-000112-xbrl      Zip    914K

‘10-Q’ — Quarterly Report

Document Table of Contents

Page	(sequential)	(alphabetic)	↑Top
		Alternative Formats (Word, et al.) Controls and Procedures Exhibits Financial Statements Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Part I Part Ii Quantitative and Qualitative Disclosures about Market Risk Risk Factors Table of Contents Unregistered Sales of Equity Securities and Use of Proceeds 101 104
1	1st Page – Filing Submission
"	104
"	Table of Contents
"	Part I
"	Financial Statements
"	101
"	Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Quantitative and Qualitative Disclosures about Market Risk
"	Controls and Procedures
"	Part Ii
"	Legal Proceedings
"	Risk Factors
"	Unregistered Sales of Equity Securities and Use of Proceeds
"	Exhibits

This is an HTML Document rendered as filed. [ Alternative Formats ]

iX: C: C:

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM i 10-Q


i ☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended i September 30, 2022


i ☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: i 1-1169

THE i TIMKEN COMPANY

(Exact name of registrant as specified in its charter)


i Ohio		i 34-0577130
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

i 4500 Mount Pleasant Street NW
i North Canton	i Ohio	i 44720-5450
(Address of principal executive offices)		(Zip Code)

i 234. i 262.3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

i Common Shares, without par value

i TKR

i The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

i Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

i ☐

Emerging growth company

i ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No i ☒

Indicate the number of shares outstanding of each of the issuer's classes of common shares, as of the latest practicable date.

Class

Outstanding at September 30, 2022

Common Shares, without par value

i 72,743,592 shares

Table of Contents

THE TIMKEN COMPANY

INDEX TO FORM 10-Q REPORT


			PAGE
I.	PART I.
	Item 1.	Financial Statements	1
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	28
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	47
	Item 4.	Controls and Procedures	47
II.	PART II.
	Item 1.	Legal Proceedings	48
	Item1A.	Risk Factors	48
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
	Item 6.	Exhibits	49

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE TIMKEN COMPANY AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2022

2021

2022

2021

(Dollars in millions, except per share data)

Net sales

i 1,136.4

i 1,037.3

i 3,414.7

i 3,125.6

Cost of products sold

i 813.6

i 769.4

i 2,422.7

i 2,256.2

Gross Profit

i 322.8

i 267.9

i 992.0

i 869.4

Selling, general and administrative expenses

i 159.8

i 140.7

i 469.8

i 434.2

Impairment and restructuring charges

i 31.3

i 2.9

i 42.3

i 8.2

Operating Income

i 131.7

i 124.3

i 479.9

i 427.0

Interest expense

( i 19.3)

( i 14.8)

( i 51.9)

( i 45.0)

Interest income

i 1.1

i 0.5

i 2.7

i 1.7

Non-service pension and other postretirement income (expense)

i 1.3

i 0.5

( i 5.3)

i 5.9

Other income, net

i 2.3

i 1.5

i 1.4

i 0.3

Income Before Income Taxes

i 117.1

i 112.0

i 426.8

i 389.9

Provision for income taxes

i 26.7

i 20.4

i 108.9

i 75.1

Net Income

i 90.4

i 91.6

i 317.9

i 314.8

Less: Net income attributable to noncontrolling interest

i 3.4

i 3.5

i 7.7

i 8.6

Net Income Attributable to The Timken Company

i 87.0

i 88.1

i 310.2

i 306.2

Net Income per Common Share Attributable to The Timken
Company Common Shareholders

Basic earnings per share

i 1.19

i 1.16

i 4.20

i 4.03

Diluted earnings per share

i 1.18

i 1.14

i 4.16

i 3.97

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2022

2021

2022

2021

(Dollars in millions)

Net Income

i 90.4

i 91.6

i 317.9

i 314.8

Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustments

( i 136.8)

( i 32.9)

( i 272.5)

( i 54.1)

Pension and postretirement liability adjustments

( i 1.4)

( i 1.5)

( i 4.3)

( i 4.8)

Change in fair value of derivative financial instruments

i 1.8

i 2.5

i 6.0

i 4.5

Other comprehensive loss, net of tax

( i 136.4)

( i 31.9)

( i 270.8)

( i 54.4)

Comprehensive income (loss), net of tax

( i 46.0)

i 59.7

i 47.1

i 260.4

Less: comprehensive income attributable to noncontrolling interest

i 0.1

i 3.7

i 2.9

i 7.8

Comprehensive income (loss) attributable to
The Timken Company

( i 46.1)

i 56.0

i 44.2

i 252.6

See accompanying Notes to the Consolidated Financial Statements.

Table of Contents

Consolidated Balance Sheets


	(Unaudited)
(Dollars in millions)	September 30, 2022		December 31, 2021
ASSETS
Current Assets
Cash and cash equivalents	$	i 300.9	$	i 257.1
Restricted cash	i 0.7		i 0.8
Accounts receivable, less allowances (2022 – $ i 16.1 million; 2021 – $ i 16.9 million)	i 735.5		i 626.4
Unbilled receivables	i 83.6		i 104.5
Inventories, net	i 1,132.6		i 1,042.7
Deferred charges and prepaid expenses	i 40.1		i 32.2
Other current assets	i 160.1		i 149.8

Total Current Assets	i 2,453.5		i 2,213.5
Property, Plant and Equipment, net	i 1,069.0		i 1,055.3
Other Assets
Goodwill	i 979.1		i 1,022.7
Other intangible assets	i 594.7		i 668.8
Operating lease assets	i 102.4		i 118.9


Deferred income taxes	i 56.7		i 67.6
Other non-current assets	i 26.5		i 23.9

Total Other Assets	i 1,759.4		i 1,901.9
Total Assets	$	i 5,281.9	$	i 5,170.7
LIABILITIES AND EQUITY
Current Liabilities


Accounts payable, trade	i 373.4		i 430.0
Short-term debt, including current portion of long-term debt	i 371.8		i 53.8
Salaries, wages and benefits	i 142.8		i 136.0
Income taxes payable	i 27.6		i 26.2

Other current liabilities	i 293.4		i 250.6

Total Current Liabilities	i 1,209.0		i 896.6
Non-Current Liabilities
Long-term debt	i 1,411.3		i 1,411.1
Accrued pension benefits	i 162.0		i 155.6
Accrued postretirement benefits	i 44.2		i 45.8
Long-term operating lease liabilities	i 67.1		i 77.6
Deferred income taxes	i 114.0		i 121.4
Other non-current liabilities	i 95.5		i 84.9

Total Non-Current Liabilities	i 1,894.1		i 1,896.4
Shareholders’ Equity
Class I and II Serial Preferred Stock, without par value:
Authorized – i i i i 10,000,000 / / / shares each class, i i i i none / / / issued	i —		i —
Common shares, without par value:
Authorized – i i 200,000,000 / shares
Issued (including shares in treasury) (2022 – i 77,665,364 shares; 2021 – i 77,090,104 shares)
Stated capital	i 40.7		i 40.7
Other paid-in capital	i 817.2		i 786.9
Retained earnings	i 1,857.4		i 1,616.4
Accumulated other comprehensive loss	( i 289.0)		( i 23.0)
Treasury shares at cost (2022 – i 4,921,772 shares; 2021 – i 1,715,282 shares)	( i 332.7)		( i 126.1)
Total Shareholders’ Equity	i 2,093.6		i 2,294.9
Noncontrolling Interest	i 85.2		i 82.8
Total Equity	i 2,178.8		i 2,377.7
Total Liabilities and Equity	$	i 5,281.9	$	i 5,170.7

See accompanying Notes to the Consolidated Financial Statements.

Table of Contents

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
	2022		2021
(Dollars in millions)
CASH PROVIDED (USED)
Operating Activities
Net income	$	i 317.9	$	i 314.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	i 122.0		i 126.5
Impairment charges	i 38.3		i 4.5
Loss on sale of assets	i 1.0		i 1.0

Loss on divestiture	i 2.1		i —
Acquisition-related gain	i —		( i 0.9)
Deferred income tax provision (benefit)	i 4.1		( i 6.4)
Stock-based compensation expense	i 22.3		i 15.6
Pension and other postretirement expense	i 11.9		i 2.9
Pension and other postretirement benefit contributions and payments	( i 11.5)		( i 18.2)


Changes in operating assets and liabilities:
Accounts receivable	( i 157.0)		( i 127.5)
Unbilled receivables	( i 5.2)		i 25.1
Inventories	( i 147.1)		( i 144.2)
Accounts payable, trade	( i 12.6)		i 60.5
Other accrued expenses	i 45.8		i 50.2
Income taxes	i 3.2		( i 0.3)
Other, net	( i 12.9)		( i 19.0)


Net Cash Provided by Operating Activities	i 222.3		i 284.6
Investing Activities
Capital expenditures	( i 122.5)		( i 103.6)
Acquisitions, net of cash acquired of $ i 0.2 million	( i 152.4)		( i 7.2)
Proceeds from disposal of property, plant and equipment	i 3.3		i —
Proceeds from divestitures, net of cash divested	i 1.0		i —
Investments in short-term marketable securities, net	i 27.8		( i 5.4)
Other, net	i 0.8		i 0.3


Net Cash Used in Investing Activities	( i 242.0)		( i 115.9)
Financing Activities
Cash dividends paid to shareholders	( i 69.2)		( i 69.5)
Purchase of treasury shares	( i 193.3)		( i 56.6)
Proceeds from exercise of stock options	i 4.2		i 25.4
Payments related to tax withholding for stock-based compensation	( i 9.5)		( i 23.5)
Borrowings on accounts receivable facility	i 197.0		i 186.1
Payments on accounts receivable facility	( i 197.0)		( i 244.1)
Proceeds from long-term debt	i 684.5		i 215.0
Payments on long-term debt	( i 347.7)		( i 224.4)
Deferred financing costs	( i 3.5)		i —
Short-term debt activity, net	i 17.0		( i 30.3)
Noncontrolling interest dividends paid	( i 0.5)		( i 0.5)
Other	i 6.5		i —


Net Cash Provided by (Used in) Financing Activities	i 88.5		( i 222.4)
Effect of exchange rate changes on cash	( i 25.1)		( i 4.8)
Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	i 43.7		( i 58.5)
Cash, cash equivalents and restricted cash at beginning of year	i 257.9		i 321.1
Cash, Cash Equivalents and Restricted Cash at End of Period	$	i 301.6	$	i 262.6

See accompanying Notes to the Consolidated Financial Statements.

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions, except per share data)

i Note 1 - Basis of Presentation

The accompanying Consolidated Financial Statements (unaudited) for The Timken Company (the "Company" or "Timken") have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by the accounting principles generally accepted in the United States ("U.S. GAAP") for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to the Consolidated Financial Statements and accompanying Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Note 2 - Significant Accounting Policies

The Company's significant accounting policies are detailed in "Note 1 - Significant Accounting Policies" of the Annual Report on Form 10-K for the year ended December 31, 2021.

Recent Accounting Pronouncements:

New Accounting Guidance Adopted:

In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU 2021-08, "Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." ASU 2021-08 requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with ASC Topic 606 as if the acquirer had originated the contracts. This new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2021-08 effective January 1, 2022, and the impact of the adoption was not material to the Company's results of operations and financial condition.

New Accounting Guidance Issued and Not Yet Adopted:

In September 2022, the FASB issued ASU 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50)." ASU 2022-04 is intended to establish disclosures that enhance the transparency of a supplier finance program used by an entity in connection with the purchase of goods and services. Supplier finance programs, which also may be referred to as reverse factoring, payables finance or structured payables arrangements, allow a buyer to offer its suppliers the option for access to payment in advance of an invoice due date, which is paid by a third-party finance provider or intermediary. Under the guidance, a buyer in a supplier finance program would disclose qualitative and quantitative information about its supplier finance programs. The new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance.

In November 2021, the FASB issued ASU 2021-10, "Government Assistance (Topic 832)." ASU 2021-10 is intended to increase transparency of government assistance by requiring entities to disclose the types of government assistance, the entity's accounting for government assistance, and the effect of the government assistance on an entity's financial statements. This new guidance is effective for all entities for annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the impact of the new guidance.

Table of Contents

Note 2 - Significant Accounting Policies (continued)

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ASU 2020-04 is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022. The Company is currently assessing which of its various contracts will require an update for a new reference rate and will determine the timing for implementation of this guidance after completing that analysis. The Company continues to monitor future amendments, such as the current proposal by the FASB to defer the sunset date of reference rate reform relief by two years to December 31, 2024, after which entities would no longer be permitted to apply the relief in Topic 848.

Note 3 - Acquisitions and Divestitures

Acquisitions:

On May 31, 2022, the Company completed the acquisition of Spinea, s.r.o. ("Spinea"), a European technology leader and manufacturer of highly engineered cycloidal reduction gears and actuators, with estimated 2022 full year sales of approximately $ i 40.0 million. Spinea’s solutions primarily serve high-precision automation and robotics applications in the factory automation sector. Spinea is located in Presov, Slovakia. The purchase price for this acquisition was $ i 152.4 million, net of cash acquired of $ i 0.2 million, subject to customary post-closing adjustments. Based on markets and customers served, results for Spinea are reported in the Process Industries segment.

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


	Initial Purchase Price Allocation
Assets:

Accounts receivable	$	i 2.1
Inventories	i 20.9
Other current assets	i 2.9
Property, plant and equipment	i 82.0

Goodwill	i 39.2
Other intangible assets	i 32.1

Total assets acquired	$	i 179.2
Liabilities:
Accounts payable, trade	$	i 7.4
Salaries, wages and benefits	i 1.5

Other current liabilities	i 1.2

Long-term debt	i 0.2


Deferred income taxes	i 1.0
Other non-current liabilities	i 15.5
Total liabilities assumed	$	i 26.8
Net assets acquired	$	i 152.4

/ /

Table of Contents

Note 3 - Acquisitions and Divestitures (continued)

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


	Preliminary Purchase Price Allocation
			Weighted - Average Life
Trade names	$	i 8.2	i 20 years
Technology and know-how	i 6.1		i 6 years
Customer relationships	i 17.2		i 17 years
Capitalized software	i 0.6		i 2 years
Total intangible assets	$	i 32.1

In determining the fair value of the amounts above, the Company utilized various forms of the income, cost and market approaches depending on the asset or liability being valued. The estimation of fair value required judgement related to future net cash flows, discount rates, competitive trends, market comparisons and other factors. Inputs were generally determined by taking into account independent appraisals and historical data, supplemented by current and anticipated market conditions.

The amounts in the table above represent the preliminary purchase price allocation for Spinea. This purchase price allocation, including the residual amount allocated to goodwill, is based on preliminary information and is subject to change as additional information concerning final asset and liability valuations are obtained. As of September 30, 2022, no elements of the purchase price allocation have been finalized. During the applicable measurement period, the Company will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments has been completed on the acquisition date.

On August 20, 2021, the Company completed the acquisition of the assets of Intelligent Machine Solutions ("iMS"), a manufacturer of industrial robotics and automation solutions, with annual sales of approximately $ i 6.0 million. iMS is headquartered in Norton Shores, Michigan. The total purchase price for this acquisition was $ i 7.7 million, including post-closing adjustments. In addition, the seller has the opportunity to earn $ i 3.0 million of contingent performance-based consideration between January 1, 2022 and June 30, 2024. This additional component will be accounted for as compensation expense over that period. Based on markets and customers served, results for iMS are primarily reported in the Process Industries segment.

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


	Final Purchase Price Allocation
Total assets acquired	$	i 9.8
Total liabilities assumed	i 2.1
Net assets acquired	$	i 7.7

On September 6, 2022, the Company entered into an agreement to acquire GGB Bearing Technology ("GGB Bearings"), a division of Enpro, Industries and a global technology and market leader of premium engineered metal-polymer plain bearings for $ i 305 million subject to customary post-closing adjustments. GGB Bearings revenue is estimated to be $ i 200 million for the full year 2022. GGB Bearings' products are used mainly in industrial applications, and the acquisition has manufacturing facilities across the United States, Europe and China. The transaction, which is subject to customary closing conditions, is expected to close in the fourth quarter of 2022 and will be funded with cash on hand and borrowings from existing credit facilities.

Table of Contents

Note 3 - Acquisitions and Divestitures (continued)

Divestitures:

On September 1, 2022, the Company completed the divestiture of Timken-Rus Service Company ooo ("Timken Russia"), i one of its i two subsidiaries in Russia. Timken Russia had net sales of $ i 4.8 million and $ i 19.6 million in 2022 and 2021, respectively. The results of operations of Timken Russia were reported in the Mobile Industries and Process Industries segments based on customers and underlying market sectors served. The Company recorded proceeds of $ i 1.0 million, net of cash divested of $ i 5.3 million, and recognized a loss of $ i 2.1 million on the sale of the business. The loss was reflected in other income, net in the Consolidated Statement of Income.

The Company made the decision to sell its Timken Aerospace Drive Systems, LLC ("ADS") business, located in Manchester, Connecticut. On October 7, 2022, the Company entered into a definitive agreement to sell the ADS business. During the third quarter of 2022, the business met the held for sale criteria, and the Company reclassified its assets and liabilities accordingly. Assets held for sale of $ i 40.1 million are included in other current assets, and liabilities held for sale of $ i 7.3 million are included in other current liabilities on the Consolidated Balance Sheet. As a result of the carrying value of the business exceeding the estimated sales price less costs to sell, the Company recorded an impairment charge of $ i 29.3 million. The impairment charge is included in the impairment and restructuring line on the Consolidated Statement of Income. The Company expects to complete the sale during the fourth quarter of 2022, subject to customary closing conditions. Operating results of the ADS business are included the Mobile Industries segment.

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



Assets:
Accounts receivable, net	$	i 6.0
Unbilled receivables	i 25.4
Inventories, net	i 13.4
Property, plant and equipment, net	i 4.4
Operating lease assets	i 3.7
Intangible assets, net	i 16.2
Other assets	i 0.3
Total assets	i 69.4
Less: impairment charge	( i 29.3)
Assets held for sale	$	i 40.1

Liabilities:
Accounts payable, trade	$	i 2.1
Salaries, wages and benefits	i 1.1
Other current liabilities	i 1.0
Long-term operating lease liabilities	i 3.1
Liabilities held for sale	$	i 7.3

Table of Contents

Note 4 - Revenue

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

Three Months Ended

September 30, 2022

September 30, 2021

Mobile

Process

Total

Mobile

Process

Total

United States

i 276.3

i 238.7

i 515.0

i 235.3

i 194.2

i 429.5

Americas excluding the United States

i 59.2

i 65.1

i 124.3

i 54.9

i 47.4

i 102.3

Europe / Middle East / Africa

i 105.2

i 124.7

i 229.9

i 118.2

i 137.5

i 255.7

China

i 30.4

i 129.5

i 159.9

i 27.7

i 125.9

i 153.6

Asia-Pacific excluding China

i 55.8

i 51.5

i 107.3

i 51.2

i 45.0

i 96.2

Net sales

i 526.9

i 609.5

i 1,136.4

i 487.3

i 550.0

i 1,037.3

Nine Months Ended

September 30, 2022

September 30, 2021

Mobile

Process

Total

Mobile

Process

Total

United States

i 808.8

i 695.2

i 1,504.0

i 715.6

i 582.0

i 1,297.6

Americas excluding the United States

i 181.0

i 184.8

i 365.8

i 156.0

i 139.7

i 295.7

Europe / Middle East / Africa

i 352.7

i 402.1

i 754.8

i 369.6

i 401.9

i 771.5

China

i 92.3

i 373.9

i 466.2

i 94.3

i 388.6

i 482.9

Asia-Pacific excluding China

i 176.1

i 147.8

i 323.9

i 150.5

i 127.4

i 277.9

Net sales

i 1,610.9

i 1,803.8

i 3,414.7

i 1,486.0

i 1,639.6

i 3,125.6

When reviewing revenue by sales channel, the Company separates net sales to original equipment manufacturers ("OEMs") from sales to distributors and end users. The following table presents the percent of revenue by sales channel for the nine months ended September 30, 2022 and 2021, respectively:


	Nine Months Ended	Nine Months Ended
Revenue by sales channel	September 30, 2022	September 30, 2021
Original equipment manufacturers	i 60%	i 61%
Distribution/end users	i 40%	i 39%

In addition to disaggregating revenue by segment, geography and by sales channel as shown above, the Company believes information about the timing of transfer of goods or services, type of customer and distinguishing service revenue from product sales is also relevant. During the nine months ended September 30, 2022 and September 30, 2021, approximately i 9% and i 8%, respectively, of total net sales were recognized on an over-time basis because of the continuous transfer of control to the customer, with the remainder recognized as of a point in time. Approximately i 4% and i 4% of total net sales represented service revenue during the nine months ended September 30, 2022 and September 30, 2021, respectively. Finally, business with the United States ("U.S.") government or its contractors represented approximately i i 7 / % of total net sales during each of the nine months ended September 30, 2022 and September 30, 2021.

Remaining Performance Obligations:

Remaining performance obligations represent the transaction price of orders meeting the definition of a contract for which work has not been performed and excludes unexercised contract options. Performance obligations having a duration of more than one year are concentrated in contracts for certain products and services provided to the U.S. government or its contractors. The aggregate amount of the transaction price allocated to remaining performance obligations for such contracts with a duration of more than one year was approximately $ i 170.7 million at September 30, 2022.

Table of Contents

Note 4 - Revenue (continued)

Unbilled Receivables:

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


	September 30, 2022		December 31, 2021
Beginning balance, January 1	$	i 104.5	$	i 110.9
Additional unbilled revenue recognized	i 301.9		i 383.0
Less: amounts billed to customers	( i 297.4)		( i 389.4)
Less: unbilled receivables reclassified to assets held for sale	( i 25.4)		i —

Ending balance	$	i 83.6	$	i 104.5

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

Table of Contents

Note 5 - Segment Information

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2022

2021

2022

2021

Net sales:

Mobile Industries

i 526.9

i 487.3

i 1,610.9

i 1,486.0

Process Industries

i 609.5

i 550.0

i 1,803.8

i 1,639.6

Net sales

i 1,136.4

i 1,037.3

i 3,414.7

i 3,125.6

Segment EBITDA:

Mobile Industries

i 20.0

i 53.2

i 164.2

i 200.1

Process Industries

i 165.3

i 129.7

i 484.4

i 401.9

Total EBITDA, for reportable segments

i 185.3

i 182.9

i 648.6

i 602.0

Unallocated corporate expense

( i 9.1)

( i 11.7)

( i 35.4)

( i 34.9)

Corporate pension and other postretirement benefit related expense (1)

( i 1.0)

( i 3.9)

( i 15.2)

( i 8.3)

Acquisition-related gain (2)

i —

i 0.3

i —

i 0.9

Depreciation and amortization

( i 39.9)

( i 41.3)

( i 122.0)

( i 126.5)

Interest expense

( i 19.3)

( i 14.8)

( i 51.9)

( i 45.0)

Interest income

i 1.1

i 0.5

i 2.7

i 1.7

Income before income taxes

i 117.1

i 112.0

i 426.8

i 389.9

(1) Corporate pension and other postretirement benefit related expense represents actuarial (losses) and gains that resulted from the remeasurement of pension and other postretirement plan assets and obligations as a result of changes in assumptions or experience.

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

/ /

Note 6 - Income Taxes

The Company's provision for income taxes in interim periods is computed by applying the estimated annual effective tax rates to income or loss before income taxes for the period. In addition, non-recurring or discrete items are recorded during the period(s) in which they occur.


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Provision for income taxes	$	i 26.7		$	i 20.4		$	i 108.9		$	i 75.1
Effective tax rate	i 22.8		%	i 18.2		%	i 25.5		%	i 19.3		%

Income tax expense for the three and nine months ended September 30, 2022 was calculated using forecasted multi-jurisdictional annual effective tax rates to determine a blended annual effective tax rate. The effective tax rate differs from the U.S. federal statutory rate of 21% primarily due to the projected mix of earnings in international jurisdictions with relatively higher tax rates.

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

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

Table of Contents

Note 7 - Earnings Per Share

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2022

2021

2022

2021

Numerator:

Net income attributable to The Timken Company

i 87.0

i 88.1

i 310.2

i 306.2

Less: undistributed earnings allocated to nonvested stock

i —

Net income available to common shareholders for basic
and diluted earnings per share

i 87.0

i 88.1

i 310.2

i 306.2

Denominator:

Weighted average number of shares outstanding - basic

i 73,177,956

i 76,068,582

i 73,890,483

i 75,980,355

Effect of dilutive securities:

Stock options and awards - based on the treasury
stock method

i 688,787

i 955,391

i 658,228

i 1,177,259

Weighted average number of shares outstanding assuming
dilution of stock options and awards

i 73,866,743

i 77,023,973

i 74,548,711

i 77,157,614

Basic earnings per share

i 1.19

i 1.16

i 4.20

i 4.03

Diluted earnings per share

i 1.18

i 1.14

i 4.16

i 3.97

The dilutive effect of stock options and awards includes all outstanding stock options and awards except stock options that are considered antidilutive. Stock options are antidilutive when the exercise price exceeds the average market price of the Company’s common shares during the periods presented. There were i i i i no / / / antidilutive stock options outstanding during the three and nine months ended September 30, 2022 and 2021.

Note 8 - Inventories

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


	September 30, 2022		December 31, 2021
Manufacturing supplies	$	i 39.7	$	i 38.0
Raw materials	i 115.9		i 121.8
Work in process	i 454.8		i 418.4
Finished products	i 588.2		i 527.8
Subtotal	i 1,198.6		i 1,106.0
Allowance for obsolete and surplus inventory	( i 66.0)		( i 63.3)
Total inventories, net	$	i 1,132.6	$	i 1,042.7

Inventories are valued at net realizable value, with approximately i 56% valued on the first-in, first-out ("FIFO") method and the remaining i 44% valued on the last-in, first-out ("LIFO") method. The majority of the Company's domestic inventories are valued on the LIFO method, and all the Company's international inventories are valued on the FIFO method.

The LIFO reserve at September 30, 2022 and December 31, 2021 was $ i 229.1 million and $ i 199.4 million, respectively. An actual valuation of the inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs. Because these calculations are subject to many factors beyond management’s control, annual results may differ from interim results as they are subject to the final year-end LIFO inventory valuation.

Table of Contents

Note 9 - Goodwill and Other Intangible Assets

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

Mobile
Industries

Process
Industries

Total

Beginning balance

i 371.7

i 651.0

i 1,022.7

Acquisitions

i —

i 39.2

Foreign currency translation adjustments and other changes

( i 33.8)

( i 49.0)

( i 82.8)

Ending balance

i 337.9

i 641.2

i 979.1

The acquisition of Spinea added $ i 39.2 million of goodwill. The goodwill is expected to be i 100% tax deductible.

i i

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

Balance at September 30, 2022

Balance at December 31, 2021

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Intangible assets
subject to amortization:

Customer relationships

i 459.4

( i 172.0)

i 287.4

i 518.1

( i 189.3)

i 328.8

Technology and know-how

i 230.7

( i 74.2)

i 156.5

i 270.7

( i 86.6)

i 184.1

Trade names

i 18.5

( i 7.3)

i 11.2

i 14.3

( i 9.6)

i 4.7

Capitalized software

i 283.6

( i 264.3)

i 19.3

i 280.0

( i 261.3)

i 18.7

Other

i 3.1

( i 2.4)

i 0.7

i 4.7

( i 3.6)

i 1.1

i 995.3

( i 520.2)

i 475.1

i 1,087.8

( i 550.4)

i 537.4

Intangible assets not subject to amortization:

Trade names

i 110.9

i 122.7

FAA air agency certificates

i 8.7

i 119.6

i 131.4

Total intangible assets

i 1,114.9

( i 520.2)

i 594.7

i 1,219.2

( i 550.4)

i 668.8

/ /

Amortization expense for intangible assets was $ i 37.4 million and $ i 41.7 million for the nine months ended September 30, 2022 and 2021, respectively. Amortization expense included $ i 32.2 million and $ i 35.8 million related to intangible assets acquired as part of a business combination for the nine months ended September 30, 2022 and 2021, respectively. Amortization expense for intangible assets is projected to be $ i 49.7 million in 2022; $ i 42.2 million in 2023; $ i 40.3 million in 2024; $ i 38.3 million in 2025; and $ i 36.9 million in 2026. Substantially all amortization expense for intangible assets is recorded in Cost of product sold on the Consolidated Statement of Income.

Table of Contents

Note 10 - Other Current Liabilities

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


(Dollars in millions)	September 30, 2022		December 31, 2021
Sales rebates	$	i 67.7	$	i 70.3
Freight and duties	i 24.5		i 25.5
Operating lease liabilities	i 22.2		i 26.2
Product warranty	i 19.6		i 11.7
Professional fees	i 16.4		i 10.8
Restructuring	i 4.1		i 7.0
Taxes other than income and payroll taxes	i 18.0		i 16.0
Interest	i 15.8		i 10.8
Other	i 105.1		i 72.3
Total other current liabilities	$	i 293.4	$	i 250.6

/ /

Table of Contents

Note 11 - Financing Arrangements

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


	September 30, 2022		December 31, 2021

Borrowings under lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from i 1.18% to i 2.75% at September 30, 2022 and i 0.50% to i 2.00% at December 31, 2021	$	i 50.9	$	i 42.6
Short-term debt	$	i 50.9	$	i 42.6

The lines of credit for certain of the Company's foreign subsidiaries provide for short-term borrowings up to $ i 235.8 million in the aggregate. Most of these lines of credit are uncommitted. At September 30, 2022, the Company’s foreign subsidiaries had borrowings outstanding of $ i 50.9 million and bank guarantees of $ i 2.6 million, which reduced the aggregate availability under these facilities to $ i 182.3 million.

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


	September 30, 2022		December 31, 2021
Variable-rate Senior Credit Facility with an average interest rate on Euro of i 1.00% at September 30, 2022 and U.S. Dollar of i 1.09% and Euro of i 1.00% at December 31, 2021	$	i 7.8	$	i 9.0

Variable-rate Accounts Receivable Facility	i —		i —
Variable-rate Term Loan(1), maturing on September 11, 2023, with an interest rate of i 4.24% at September 30, 2022 and i 1.23% at December 31, 2021	i 314.8		i 321.1
Fixed-rate Senior Unsecured Notes(1), maturing on September 1, 2024, with an interest rate of i i 3.875 / %	i 349.7		i 349.5
Fixed-rate Euro Senior Unsecured Notes(1), maturing on September 7, 2027, with an interest rate of i i 2.02 / %	i 146.8		i 170.3
Fixed-rate Senior Unsecured Notes(1), maturing on December 15, 2028, with an interest rate of i i 4.50 / %	i 397.1		i 396.9
Fixed-rate Medium-Term Notes, Series A(1), maturing at various dates through May 2028, with interest rates ranging from i i 6.74 / % to i i 7.76 / %	i 154.7		i 154.7
Fixed-rate Senior Unsecured Notes(1), maturing on April 1, 2032, with an interest rate of i i 4.125 / %	i 341.7		i —
Fixed-rate Euro Bank Loan, maturing on June 30, 2033, with an interest rate of i i 2.15 / %	i 12.7		i 15.8

Other	i 6.9		i 5.0
Total debt	$	i 1,732.2	$	i 1,422.3
Less: Current maturities	i 320.9		i 11.2
Long-term debt	$	i 1,411.3	$	i 1,411.1

(1) Net of discounts and fees

The Company has a $ i 100 million Amended and Restated Asset Securitization Agreement (the "Accounts Receivable Facility"), which matures on November 30, 2024. Under the terms of the Accounts Receivable Facility, the Company sells, on an ongoing basis, certain domestic trade receivables to Timken Receivables Corporation, a wholly-owned consolidated subsidiary that, in turn, uses the trade receivables to secure borrowings that are funded through a vehicle that issues commercial paper in the short-term market. Borrowings under the Accounts Receivable Facility may be limited to certain borrowing base limitations; however, availability under the Accounts Receivable Facility was not reduced by any such borrowing base limitations at September 30, 2022. As of September 30, 2022, there were i no outstanding borrowings under the Accounts Receivable Facility, and the entire $ i 100 million was available. The cost of this facility, which is the prevailing commercial paper rate plus facility fees, is considered a financing cost and is included in interest expense in the Consolidated Statements of Income.

Table of Contents

Note 11 - Financing Arrangements (continued)

The Company entered into the Fourth Amended and Restated Credit Agreement ("Senior Credit Facility") on June 25, 2019. The Senior Credit Facility is a $ i 650.0 million unsecured revolving credit facility, which matures on June 25, 2024. At September 30, 2022, the Company had $ i 7.8 million of outstanding borrowings under the Senior Credit Facility, which reduced the availability under this facility to $ i 642.2 million. The Senior Credit Facility has i two financial covenants: a consolidated leverage ratio and a consolidated interest coverage ratio.

On March 28, 2022, the Company issued fixed-rate unsecured senior notes ("2032 Notes") in the aggregate principal amount of $ i 350 million with an interest rate of i 4.125%, maturing on April 1, 2032. Proceeds from the 2032 Notes were used to for general corporate purposes, which included repayment of borrowings under the Senior Credit Facility and the Accounts Receivable Facility outstanding at the time of issuance.

On September 11, 2018, the Company entered into a $ i 350 million variable-rate term loan that matures on September 11, 2023 (the "2023 Term Loan"). Proceeds from the 2023 Term Loan were used to fund the acquisitions of Apiary Investments Holding Limited and Rollon S.p.A., which closed on September 1, 2018 and September 18, 2018, respectively. On July 12, 2019, the Company amended the 2023 Term Loan agreement to, among other things, align covenants and other terms with the Senior Credit Facility.

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

In the ordinary course of business, the Company utilizes standby letters of credit issued by financial institutions to guarantee certain obligations, most of which relate to insurance contracts. At September 30, 2022, outstanding letters of credit totaled $ i 43.5 million, most with expiration dates within 12 months.

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


Year
2022	$	i 3.7
2023	i 318.6
2024	i 359.4
2025	i 1.5
2026	i 11.3
2027	i 172.6
Thereafter	i 865.1

Table of Contents

Note 12 - 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, Downers Grove, DuPage County, Illinois (the “Site”). The Company acquired Lovejoy in 2016. Lovejoy’s Downers Grove property is situated within the Ellsworth Industrial Complex. The USEPA and the Illinois Environmental Protection Agency (“IEPA”) allege there have been one or more releases or threatened releases of hazardous substances, allegedly including, but not limited to, a release or threatened release on or from Lovejoy's property, at the Site. The relief sought by the USEPA and IEPA includes further investigation and potential remediation of the Site and reimbursement of response costs. Lovejoy’s allocated share of past and future costs related to the Site, including for investigation and/or remediation, could be significant. All previously pending property damage and personal injury lawsuits against Lovejoy related to the Site were settled or dismissed prior to our acquisition of Lovejoy.

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

Product Warranties:

In addition to the contingencies above, the Company provides limited warranties on certain of its products. The product warranty liability included in "Other current liabilities" on the Consolidated Balance Sheets was $ i 19.6 million and $ i 11.7 million at September 30, 2022 and December 31, 2021, respectively. The balances at the end of each respective period represent the best estimates of costs for future claims for products that are still under warranty. The increase in the liability for the first nine months of 2022 primarily relates to additional accruals for certain products sold into the automotive and renewable energy sectors. Accrual estimates are based on actual claims and expected trends that continue to mature. Any significant change to these assumptions may be material to the results of operations in any particular period in which such change occurs.

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


	September 30, 2022		December 31, 2021
Beginning balance, January 1	$	i 11.7	$	i 9.4
Expense	i 10.5		i 10.1
Payments	( i 2.6)		( i 7.8)
Ending balance	$	i 19.6	$	i 11.7

/ /

Table of Contents

Note 13 - Equity

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

The Timken Company Shareholders

Total

Stated
Capital

Other
Paid-In
Capital

Retained Earnings

Accumulated
Other
Comprehensive
Loss

Treasury
Stock

Non
controlling
Interest

Balance at June 30, 2022

i 2,289.2

i 40.7

i 804.1

i 1,793.2

( i 155.9)

( i 278.5)

i 85.6

Net income

i 90.4

i 87.0

i 3.4

Foreign currency translation adjustment

( i 136.8)

( i 133.5)

( i 3.3)

Pension and other postretirement liability

adjustments (net of income tax benefit

of $ i 0.6 million)

( i 1.4)

Change in fair value of derivative financial
instruments, net of reclassifications

i 1.8

Dividends declared to noncontrolling interest

( i 0.5)

Dividends – $ i 0.31 per share

( i 22.8)

Stock-based compensation expense

i 6.7

Stock purchased at fair market value

( i 49.0)

Stock option exercise activity

i 2.6

Shares surrendered for stock option activity

i —

i 3.8

( i 3.8)

Payments related to tax withholding for
stock-based compensation

( i 1.4)

Balance at September 30, 2022

i 2,178.8

i 40.7

i 817.2

i 1,857.4

( i 289.0)

( i 332.7)

i 85.2

The Timken Company Shareholders

Total

Stated
Capital

Other
Paid-In
Capital

Retained Earnings

Accumulated
Other
Comprehensive
Loss

Treasury
Stock

Non
controlling
Interest

Balance at December 31, 2021

i 2,377.7

i 40.7

i 786.9

i 1,616.4

( i 23.0)

( i 126.1)

i 82.8

Net income

i 317.9

i 310.2

i 7.7

Foreign currency translation adjustment

( i 272.5)

( i 267.7)

( i 4.8)

Pension and other postretirement liability

adjustments (net of income tax benefit

of $ i 1.5 million)

( i 4.3)

Change in fair value of derivative financial
instruments, net of reclassifications

i 6.0

Dividends - $ i 0.92 per share

( i 69.2)

Dividends declared to noncontrolling interest

( i 0.5)

Stock-based compensation expense

i 22.3

Stock purchased at fair market value

( i 193.3)

Stock option exercise activity

i 4.2

Shares surrendered for stock option activity

i —

i 3.8

( i 3.8)

Payments related to tax withholding for
stock-based compensation

( i 9.5)

Balance at September 30, 2022

i 2,178.8

i 40.7

i 817.2

i 1,857.4

( i 289.0)

( i 332.7)

i 85.2

/ /

Table of Contents

Note 13 - Equity (continued)

The Timken Company Shareholders

Total

Stated
Capital

Other
Paid-In
Capital

Retained Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Treasury
Stock

Non
controlling
Interest

Balance at June 30, 2021

i 2,367.3

i 40.7

i 778.6

i 1,510.9

i 19.8

( i 59.1)

i 76.4

Net income

i 91.6

i 88.1

i 3.5

Foreign currency translation adjustment

( i 32.9)

( i 33.1)

i 0.2

Pension and other postretirement liability

adjustments (net of income tax benefit of

$ i 0.5 million)

( i 1.5)

Change in fair value of derivative financial
instruments, net of reclassifications

i 2.5

Dividends paid to noncontrolling interest

( i 0.6)

Dividends - $ i 0.30 per share

( i 22.8)

Stock-based compensation expense

i 3.1

Stock purchased at fair market value

( i 30.3)

Balance at September 30, 2021

i 2,376.4

i 40.7

i 781.7

i 1,576.2

( i 12.3)

( i 89.4)

i 79.5

The Timken Company Shareholders

Total

Stated
Capital

Other
Paid-In
Capital

Retained Earnings

Accumulated
Other
Comprehensive
Income

Treasury
Stock

Non
controlling
Interest

Balance at December 31, 2020

i 2,225.2

i 40.7

i 740.7

i 1,339.5

i 41.3

( i 9.3)

i 72.3

Net income

i 314.8

i 306.2

i 8.6

Foreign currency translation adjustment

( i 54.1)

( i 53.3)

( i 0.8)

Pension and other postretirement liability

adjustments (net of income tax benefit

of $ i 1.6 million)

( i 4.8)

Change in fair value of derivative financial
instruments, net of reclassifications

i 4.5

Dividends paid to noncontrolling interest

( i 0.6)

Dividends - $ i 0.89 per share

( i 69.5)

Stock-based compensation expense

i 15.6

Stock purchased at fair market value

( i 56.6)

Stock option exercise activity

i 25.4

Payments related to tax withholding for
stock-based compensation

( i 23.5)

Balance at September 30, 2021

i 2,376.4

i 40.7

i 781.7

i 1,576.2

( i 12.3)

( i 89.4)

i 79.5

Table of Contents

Note 14 - Impairment and Restructuring Charges

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

For the three months ended September 30, 2022:

Mobile Industries

Process Industries

Total

Impairment charges

i 29.5

i —

i 29.5

Severance and related benefit costs

i 1.3

i 0.1

i 1.4

Exit costs

i 0.3

i 0.1

i 0.4

Total

i 31.1

i 0.2

i 31.3

For the nine months ended September 30, 2022:

Mobile Industries

Process Industries

Total

Impairment charges

i 38.3

i —

i 38.3

Severance and related benefit costs

i 2.4

i 0.4

i 2.8

Exit costs

i 1.1

i 0.1

i 1.2

Total

i 41.8

i 0.5

i 42.3

For the three months ended September 30, 2021:

Mobile Industries

Process Industries

Total

Severance and related benefit costs

i 2.2

i 0.3

i 2.5

Exit costs

i 0.4

i —

i 0.4

Total

i 2.6

i 0.3

i 2.9

For the nine months ended September 30, 2021:

Mobile Industries

Process Industries

Total

Impairment charges

i 1.1

i 3.4

i 4.5

Severance and related benefit costs

i 2.2

i 0.9

i 3.1

Exit costs

i 0.6

i —

i 0.6

Total

i 3.9

i 4.3

i 8.2

The following discussion explains the impairment and restructuring charges recorded for the periods presented; however, it is not intended to reflect a comprehensive discussion of all amounts in the tables above.

Mobile Industries:

During the three months ended September 30, 2022, the Company classified the ADS business as assets held for sale and recorded an impairment charges of $ i 29.3 million. The Company anticipates the sale of ADS business to be completed during the fourth quarter of 2022.

During the nine months ended September 30, 2022, the Company recorded impairment charges of $ i 9.0 million related to certain assets of its joint venture in Russia. As a result of Russia's invasion of Ukraine (and associated sanctions), the Company suspended its operations in Russia. Refer to Russia Operations in Management's Discussion and Analysis for additional information.

Table of Contents

Note 14 - Impairment and Restructuring Charges (continued)

On July 19, 2021, the Company announced the closure of its bearing manufacturing facility in Villa Carcina, Italy. The Company will be transferring the manufacturing of its single-row tapered roller bearing production to other bearing facilities in Europe, Asia and the United States. The Company expects to complete the closure of the facility by the end of October 2022 and is expected to affect approximately i 110 employees. The Company expects to incur approximately $ i 9 million to $ i 11 million of expenses related to this closure. During the three months ended September 30, 2022, the Company recorded severance and related benefits of $ i 0.4 million and exit costs of $ i 0.3 million associated with this closure, and during the nine months ended September 30, 2022, the Company recorded severance and related benefits of $ i 1.2 million and exit costs of $ i 1.3 million associated with this closure. During the three months ended September 30, 2021, the Company recorded severance and related benefits of $ i 2.2 million related to this closure. In addition to the severance and related benefits, the Company recorded impairment charges of $ i 1.0 million during the nine months ended September 30, 2021. The Company has incurred cumulative pretax costs related to this closure of $ i 9.1 million as of September 30, 2022, including rationalization costs recorded in cost of products sold. On January 31, 2022, the Company entered into an agreement to sell this facility with the sale expected to close in the fourth quarter of 2022.

Process Industries:

On February 4, 2020, the Company announced the closure of its chain manufacturing facility in Indianapolis, Indiana. This facility was part of the Diamond Chain Company ("Diamond Chain") acquisition completed on April 1, 2019. The Company will be transferring the manufacturing of its Diamond Chain product line to its chain facility in Fulton, Illinois. The chain plant is expected to cease operations by the end of the first quarter of 2023 and is expected to affect approximately i 240 employees. The Company expects to hire approximately i 130 full-time positions in Fulton, Illinois and expects to incur approximately $ i 11 million to $ i 14 million of expenses related to this closure. During the three months and nine months ended September 30, 2021, the Company recorded severance and related benefit costs of $ i 0.3 million and $ i 0.9 million, respectively, related to this closure. The Company has incurred cumulative pretax costs related to this closure of $ i 12.9 million as of September 30, 2022, including rationalization costs recorded in cost of products sold.

In addition, the Company recorded impairment charges of $ i 3.3 million related to certain engineering-related assets used in the business during the nine months ended September 30, 2021. Management concluded no further investment would be made in these assets and as a result, reduced the value to zero.

Consolidated Restructuring Accrual:

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


	September 30, 2022		December 31, 2021
Beginning balance, January 1	$	i 7.0	$	i 8.0
Expense	i 4.0		i 4.4
Payments	( i 6.9)		( i 5.4)
Ending balance	$	i 4.1	$	i 7.0

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

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Note 15 - Retirement Benefit Plans

The following table sets forth the net periodic benefit cost for the Company’s defined benefit pension plans. The amounts for the three and nine months ended September 30, 2022 are based on calculations prepared by the Company's actuaries and represent the Company’s best estimate of that period’s proportionate share of the amounts to be recorded for the year ending December 31, 2022.

U.S. Plans

International Plans

Total

Three Months Ended
September 30,

2022

2021

2022

2021

2022

2021

Components of net periodic benefit cost (credit):

Service cost

i 1.6

i 2.4

i 0.4

i 0.5

i 2.0

i 2.9

Interest cost

i 4.7

i 4.3

i 1.4

i 1.1

i 6.1

i 5.4

Expected return on plan assets

( i 4.3)

( i 5.5)

( i 2.2)

( i 2.5)

( i 6.5)

( i 8.0)

Amortization of prior service cost

i 0.3

i 0.4

i —

i 0.3

i 0.4

Recognition of net actuarial losses

i 1.0

i 3.9

i —

i 1.0

i 3.9

Net periodic benefit cost (credit)

i 3.3

i 5.5

( i 0.4)

( i 0.9)

i 2.9

i 4.6

U.S. Plans

International Plans

Total

Nine Months Ended
September 30,

2022

2021

2022

2021

2022

2021

Components of net periodic benefit cost (credit):

Service cost

i 5.3

i 7.2

i 1.2

i 1.5

i 6.5

i 8.7

Interest cost

i 12.9

i 13.2

i 4.3

i 3.3

i 17.2

i 16.5

Expected return on plan assets

( i 14.5)

( i 17.7)

( i 7.1)

( i 7.6)

( i 21.6)

( i 25.3)

Amortization of prior service cost

i 0.9

i 1.0

i 0.1

i 1.0

i 1.1

Recognition of net actuarial losses

i 15.2

i 8.3

i —

i 15.2

i 8.3

Net periodic benefit cost (credit)

i 19.8

i 12.0

( i 1.5)

( i 2.7)

i 18.3

i 9.3

The Company expects full year 2022 lump sum payments related to new retirees to exceed annual interest and service costs for two of the Company's U.S. defined benefit pension plans in 2022. This expectation triggered a remeasurement of assets and obligations for both plans. As a result of these remeasurements, the Company recognized net actuarial losses ("mark-to-market charges") of $ i 1.0 million and $ i 15.2 million during the three and nine months ended September 30, 2022, respectively.

For the three and nine months ended September 30, 2021, the Company expected to make lump sum payments related to new retirees in excess of annual interest and service costs for three of the Company's U.S. defined benefit pension plans in 2021. This expectation, along with the payout of deferred compensation to a former executive officer of the Company in June 2021, triggered a remeasurement of assets and obligations for these plans. As a result of this remeasurement, the Company recognized net actuarial losses of $ i 3.9 million and $ i 8.3 million during the three and nine months ended September 30, 2021, respectively.

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Note 16 - Other Postretirement Benefit Plans

The following table sets forth the net periodic benefit cost for the Company’s other postretirement benefit plans. The amounts for the three and nine months ended September 30, 2022 are based on calculations prepared by the Company's actuaries and represent the Company’s best estimate of that period’s proportionate share of the amounts to be recorded for the year ending December 31, 2022.

Three Months Ended
September 30,

Nine Months Ended
September 30,

2022

2021

2022

2021

Net periodic benefit credit:

Service Cost

i —

i 0.1

Interest cost

i 0.4

i 1.1

Amortization of prior service credit

( i 2.6)

( i 7.6)

Net periodic benefit credit

( i 2.2)

( i 6.4)

/ /

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Note 17 - Accumulated Other Comprehensive Income (Loss)

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

Foreign currency translation adjustments

Pension and other postretirement liability adjustments

Change in fair value of derivative financial instruments

Total

Balance at June 30, 2022

( i 214.5)

i 53.7

i 4.9

( i 155.9)

Other comprehensive (loss) income before
reclassifications and income taxes

( i 136.8)

i 0.3

i 3.3

( i 133.2)

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

i —

( i 2.3)

( i 0.8)

( i 3.1)

Income tax (expense) benefit

i —

i 0.6

( i 0.7)

( i 0.1)

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

( i 136.8)

( i 1.4)

i 1.8

( i 136.4)

Noncontrolling interest

i 3.3

i —

i 3.3

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

( i 133.5)

( i 1.4)

i 1.8

( i 133.1)

Balance at September 30, 2022

( i 348.0)

i 52.3

i 6.7

( i 289.0)

Foreign currency translation adjustments

Pension and other postretirement liability adjustments

Change in fair value of derivative financial instruments

Total

Balance at December 31, 2021

( i 80.3)

i 56.6

i 0.7

( i 23.0)

Other comprehensive (loss) income before
reclassifications and income taxes

( i 272.5)

i 0.8

i 10.4

( i 261.3)

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

i —

( i 6.6)

( i 2.4)

( i 9.0)

Income tax (expense) benefit

i —

i 1.5

( i 2.0)

( i 0.5)

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

( i 272.5)

( i 4.3)

i 6.0

( i 270.8)

Noncontrolling interest

i 4.8

i —

i 4.8

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

( i 267.7)

( i 4.3)

i 6.0

( i 266.0)

Balance at September 30, 2022

( i 348.0)

i 52.3

i 6.7

( i 289.0)

/ /

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

Foreign currency translation adjustments

Pension and other postretirement liability adjustments

Change in fair value of derivative financial instruments

Total

Balance at June 30, 2021

( i 38.2)

i 60.1

( i 2.1)

i 19.8

Other comprehensive (loss) income before
reclassifications and income taxes

( i 32.9)

i 0.2

i 2.7

( i 30.0)

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

i —

( i 2.2)

i 0.9

( i 1.3)

Income tax benefit (expense)

i —

i 0.5

( i 1.1)

( i 0.6)

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

( i 32.9)

( i 1.5)

i 2.5

( i 31.9)

Noncontrolling interest

( i 0.2)

i —

( i 0.2)

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

( i 33.1)

( i 1.5)

i 2.5

( i 32.1)

Balance at September 30, 2021

( i 71.3)

i 58.6

i 0.4

( i 12.3)

Foreign currency translation adjustments

Pension and other postretirement liability adjustments

Change in fair value of derivative financial instruments

Total

Balance at December 31, 2020

( i 18.0)

i 63.4

( i 4.1)

i 41.3

Other comprehensive (loss) income before
reclassifications and income taxes

( i 54.1)

i 0.1

i 2.0

( i 52.0)

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

i —

( i 6.5)

i 4.3

( i 2.2)

Income tax benefit (expense)

i —

i 1.6

( i 1.8)

( i 0.2)

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

( i 54.1)

( i 4.8)

i 4.5

( i 54.4)

Noncontrolling interest

i 0.8

i —

i 0.8

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

( i 53.3)

( i 4.8)

i 4.5

( i 53.6)

Balance at September 30, 2021

( i 71.3)

i 58.6

i 0.4

( i 12.3)

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

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Note 18 - Fair Value

Fair value is defined as the price that would be expected to be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The FASB provides accounting rules that classify the inputs used to measure fair value into the following hierarchy:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Level 3 – Unobservable inputs for the asset or liability.

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

September 30, 2022

Total

Level 1

Level 2

Level 3

Assets:

Cash and cash equivalents

i 267.3

i 266.5

i 0.8

i —

Cash and cash equivalents measured at net asset value

i 33.5

—

Restricted cash

i 0.7

i —

Short-term investments

i 24.7

i —

i 24.7

i —

Interest rate swap contract

i 3.7

i —

i 3.7

i —

Foreign currency forward contracts

i 15.0

i —

i 15.0

i —

Total assets

i 344.9

i 267.2

i 44.2

i —

Liabilities:

Foreign currency forward contracts

i 11.0

i —

i 11.0

i —

Total liabilities

i 11.0

i —

i 11.0

i —

December 31, 2021

Total

Level 1

Level 2

Level 3

Assets:

Cash and cash equivalents

i 257.1

i 244.8

i 12.3

i —

Restricted cash

i 0.8

i —

Short-term investments

i 56.9

i —

i 56.9

i —

Foreign currency forward contracts

i 5.6

i —

i 5.6

i —

Total assets

i 320.4

i 245.6

i 74.8

i —

Liabilities:

Foreign currency forward contracts

i 1.0

i —

i 1.0

i —

Total liabilities

i 1.0

i —

i 1.0

i —

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

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Note 18 - Fair Value (continued)

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

During the three months ended September 30, 2022, the Company's ADS business. located in Manchester, Connecticut, was reclassified to assets held for sale. In conjunction with this reclassification, the ADS business with a carrying value of $ i 62.1 million, was written down to its estimated fair value less cost to sell of $ i 32.8 million, resulting in an impairment charge of $ i 29.3 million. The fair value for these net assets was determined based on an estimate of the value expected to be received upon the sale of this business. Refer to Note 3 - Acquisitions and Divestitures for more information on the expected sale of ADS.

During the nine months ended September 30, 2022, property, plant and equipment at the Company's joint venture in Russia, with a carrying value of $ i 16.1 million, were written down to their fair value of $ i 7.1 million, resulting in an impairment charge of $ i 9.0 million. The fair value for these assets was determined based on an estimate of the best price that would be received in a current transaction to sell the assets to a third party.

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

Financial Instruments:

The Company’s financial instruments consist primarily of cash and cash equivalents, short-term investments, accounts receivable, trade accounts payable, short-term borrowings and long-term debt. Due to their short-term nature, the carrying value of cash and cash equivalents, short-term investments, accounts receivable, trade accounts payable and short-term borrowings are a reasonable estimate of their fair value. Due to the nature of fair value calculations for variable-rate debt, the carrying value of the Company's long-term variable-rate debt is a reasonable estimate of its fair value. The fair value of the Company’s long-term fixed-rate debt, based on quoted market prices, was $ i 1,320.6 million and $ i 1,171.1 million at September 30, 2022 and December 31, 2021, respectively. The carrying value of this debt was $ i 1,402.8 million and $ i 1,087.5 million at September 30, 2022 and December 31, 2021, respectively. 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 counterparties to its financial instruments.

Note 19 - Derivative Instruments and Hedging Activities

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are foreign currency exchange rate risk and interest rate risk. Forward contracts on various foreign currencies are entered into in order to manage the foreign currency exchange rate risk associated with certain of the Company's commitments denominated in foreign currencies. From time to time, interest rate swaps are used to manage interest rate risk associated with the Company’s fixed and floating-rate borrowings.

The Company designates certain foreign currency forward contracts as cash flow hedges of forecasted revenues and certain interest rate hedges as cash flow hedges of fixed-rate borrowings.

On September 8, 2020, the Company entered into a $ i 100 million floating-to-fixed rate swap on the 2023 Term Loan, which hedges the change in the 1-month LIBOR rate between October 30, 2020 and September 11, 2023 to a fixed rate. The Company’s risk management objective is to hedge the risk of changes in the monthly interest expense attributable to changes in the benchmark interest rate.

On September 15, 2020, the Company designated € i 54.5 million of its € i 150.0 million fixed-rate senior unsecured notes, maturing on September 7, 2027 (the "2027 Notes"), as a hedge against its net investment in one of its European subsidiaries. The objective of the hedge transaction is to protect the net investment in the foreign operations against changes in the exchange rate between the U.S. dollar and the Euro. The net impact for the three and nine months ended September 30, 2022, respectively, was a gain of $ i 3.7 million and a gain of $ i 8.5 million to accumulated comprehensive (loss) income with a corresponding offset to other income, which partially offsets the impact of the foreign currency adjustment on the 2027 Notes.

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Note 19 - Derivative Instruments and Hedging Activities (continued)

The Company entered into $ i 350 million of floating-to-fixed i 10-year Treasury rate locks during the first quarter of 2022, prior to issuing the 2032 Notes. This fixed the i 10-year Treasury yield and settled at pricing of the 2032 Notes, resulting in $ i 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 i 10-year tenor of the 2032 Notes.

The Company does not purchase or hold any derivative financial instruments for trading purposes. As of September 30, 2022 and December 31, 2021, the Company had $ i 419.4 million and $ i 300.8 million, respectively, of outstanding foreign currency forward contracts at notional value. Refer to Note 18 - Fair Value for the fair value disclosure of derivative financial instruments.

Cash Flow Hedging Strategy:

For certain derivative instruments that are designated and qualify as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings.

To protect against a reduction in the value of forecasted foreign currency cash flows resulting from export sales, the Company has instituted a foreign currency cash flow hedging program. The Company hedges portions of its forecasted cash flows denominated in foreign currencies with forward contracts. When the dollar strengthens significantly against foreign currencies, the decline in the present value of future foreign currency revenue is offset by gains in the fair value of the forward contracts designated as hedges. Conversely, when the dollar weakens, the increase in the present value of future foreign currency cash flows is offset by losses in the fair value of the forward contracts. As of September 30, 2022 and December 31, 2021, the Company had $ i 71.6 million and $ i 80.0 million, respectively, of outstanding foreign currency forward contracts at notional value that were classified as cash flow hedges.

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

Purpose for Derivative Instruments not designated as Hedging Instruments:

For derivative instruments that are not designated as hedging instruments, the instruments are typically forward contracts. In general, the practice is to reduce volatility by selectively hedging transaction exposures including intercompany loans, accounts payable and accounts receivable. Intercompany loans between entities with different functional currencies typically are hedged with a forward contract at the inception of the loan with a maturity date corresponding to the maturity of the loan. The revaluation of these contracts, as well as the revaluation of the underlying balance sheet items, is recorded directly to the income statement so the adjustment generally offsets the revaluation of the underlying balance sheet items to protect cash payments and reduce income statement volatility.

As of September 30, 2022 and December 31, 2021, the Company had $ i 347.8 million and $ i 220.8 million, respectively, of outstanding foreign currency forward contracts at notional value that were not designated as hedging instruments. i The following table presents the impact of derivative instruments not designated as hedging instruments for the three and nine months ended September 30, 2022 and 2021, respectively, and the related location within the Consolidated Statements of Income:


		Amount of gain or (loss) recognized in income
		Three Months Ended September 30,				Nine Months Ended September 30,
Derivatives not designated as hedging instruments:	Location of gain or (loss) recognized in income	2022		2021		2022		2021

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

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in millions, except per share data)

OVERVIEW

Introduction:

The Timken Company designs and manages a growing portfolio of engineered bearings and power transmission products. With more than a century of innovation and increasing knowledge, the Company continuously improves the reliability and efficiency of global machinery and equipment to move the world forward. The Company’s growing product and services portfolio features many strong industrial brands, such as Timken®, Philadelphia Gear®, Drives®, Cone Drive®, Rollon®, Lovejoy®, Diamond®, BEKA®, Groeneveld® and Spinea®. Timken employs more than 18,000 people globally in 43 countries. The Company operates under two reportable segments: (1) Mobile Industries and (2) Process Industries. The following further describes these business segments:

•Mobile Industries serves OEM customers that manufacture off-highway equipment for the agricultural, mining and construction markets; on-highway vehicles including passenger cars, light trucks, and medium- and heavy-duty trucks; rail cars and locomotives; outdoor power equipment; rotorcraft and fixed-wing aircraft; and other mobile equipment. 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.

•Process Industries serves OEM and end-user customers in industries that place heavy demands on the fixed operating equipment they make or use in heavy and other general industrial sectors. This includes metals, cement and aggregate production; power generation and renewable energy sources; oil and gas extraction and refining; pulp and paper and food processing; automation and robotics; and health and critical motion control equipment. Other applications include marine equipment, gear drives, cranes, hoists and conveyors. 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.

Timken creates value by understanding customer needs and applying its know-how to serve a broad range of customers in attractive markets and industries across the globe. The Company’s business strengths include its product technology, end-market diversity, geographic reach and aftermarket mix. Timken collaborates with OEMs to improve equipment efficiency with its engineered products and captures subsequent equipment replacement cycles by selling largely through independent channels in the aftermarket. Timken focuses its international efforts and footprint in regions of the world where strong macroeconomic factors such as urbanization, infrastructure development and sustainability create demand for its products and services.

The Company's long-term strategy has three primary elements:

Profitable Growth. The Company intends to expand into new and existing markets by leveraging its collective knowledge of metallurgy, friction management and power transmission to create value for Timken customers. Using a highly collaborative technical selling approach, the Company places particular emphasis on creating unique solutions for challenging and/or demanding applications. The Company intends to grow in attractive market sectors around the world, emphasizing those spaces that are highly fragmented, demand high service and value the reliability and efficiency offered by Timken products. The Company also targets applications that offer significant aftermarket demand, thereby providing product and services revenue throughout the equipment’s lifetime.

Operational Excellence. Timken operates with a relentless drive for exceptional results and a passion for superior execution. The Company embraces a continuous improvement culture that is charged with increasing efficiency, lowering costs, eliminating waste, encouraging organizational agility and building greater brand equity to fuel growth. This requires the Company’s ongoing commitment to attract, retain and develop the best talent across the world.

Capital Deployment to Drive Shareholder Value. The Company is intently focused on providing the highest returns for shareholders through its capital allocation framework, which includes: (1) investing in the core business through capital expenditures, research and development, and other initiatives to drive profitable organic growth; (2) pursuing strategic acquisitions to broaden its portfolio and capabilities across diverse markets, with a focus on bearings, adjacent power transmission products and related services; (3) returning capital to shareholders through dividends and share repurchases; and (4) maintaining a strong balance sheet and sufficient liquidity. As part of this framework, the Company may also restructure, reposition or divest underperforming product lines or assets.

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Overview:


	Three Months Ended September 30,
	2022		2021		$ Change		% Change
Net sales	$	1,136.4	$	1,037.3	$	99.1	9.6	%
Net income	90.4		91.6		(1.2)		(1.3)	%

Net income attributable to noncontrolling interest	3.4		3.5		(0.1)		(2.9)	%
Net income attributable to The Timken Company	$	87.0	$	88.1	$	(1.1)	(1.2)	%



Diluted earnings per share	$	1.18	$	1.14	$	0.04	3.5	%
Average number of shares – diluted	73,866,743		77,023,973		—		(4.1)	%


	Nine Months Ended September 30,
	2022		2021		$ Change		% Change
Net sales	$	3,414.7	$	3,125.6	$	289.1	9.2	%
Net income	317.9		314.8		3.1		1.0	%

Net income attributable to noncontrolling interest	7.7		8.6		(0.9)		(10.5)	%
Net income attributable to The Timken Company	$	310.2	$	306.2	$	4.0	1.3	%



Diluted earnings per share	$	4.16	$	3.97	$	0.19	4.8	%
Average number of shares – diluted	74,548,711		77,157,614		—		(3.4)	%

The increase in net sales for the three months ended September 30, 2022 compared with the three months ended September 30, 2021 was primarily driven by strong organic growth (including positive pricing), partially offset by the unfavorable impact of foreign currency exchange rate changes. The slight decrease in net income for the three months ended September 30, 2022 compared with the three months ended September 30, 2021 was primarily due to higher material, logistics and other operating costs, higher impairment and restructuring charges and a higher tax rate, partially offset by favorable price/mix and the impact of higher volume. The higher impairment and restructuring charges were primarily related to the anticipated divestiture of the Company's ADS business.

The increase in net sales for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021 was primarily driven by strong organic growth (including positive pricing), partially offset by the unfavorable impact of foreign currency exchange rate changes. The increase in net income for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021 was primarily due to favorable price/mix and the impact of higher volume, partially offset by higher material, logistics and other operating costs, higher impairment and restructuring charges, higher pension mark-to-market charges and a higher tax rate.

Outlook:

The Company expects 2022 full-year revenue to be up approximately 9% compared to 2021, primarily due to higher demand across most end markets, positive pricing and the continued execution of growth initiatives, partially offset by the net unfavorable impact of foreign currency exchange rates. The Company's earnings are expected to be up in 2022 compared with 2021, primarily due to the favorable impact of price/mix and higher volume, partially offset by higher material, logistics and other operating costs, as well as higher interest costs and a higher tax rate.

The Company expects to generate cash from operating activities in 2022 above 2021 levels driven by higher earnings. The Company expects capital expenditures of roughly 4.0% of sales in 2022, compared with 3.6% of sales ($148 million) in 2021.

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THE STATEMENT OF INCOME

Sales:


	Three Months Ended September 30,
	2022		2021		$ Change		% Change
Net sales	$	1,136.4	$	1,037.3	$	99.1	9.6	%


	Nine Months Ended September 30,
	2022		2021		$ Change		% Change
Net sales	$	3,414.7	$	3,125.6	$	289.1	9.2	%

Net sales increased for the three months ended September 30, 2022 compared with the three months ended September 30, 2021. The increase was primarily due to strong organic growth of $141 million and the benefit of acquisitions of $5 million, partially offset by the unfavorable impact of foreign currency exchange rate changes of $47 million. The higher organic revenue was driven by higher demand in the Mobile and Process Industries segments, and higher net pricing.

Net sales increased for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021. The increase was primarily due to strong organic growth of $376 million and the benefit of acquisitions of $10 million, partially offset by the unfavorable impact of foreign currency exchange rate changes of $97 million. The higher organic revenue was driven by higher demand in the Mobile and Process Industries segments, and higher net pricing.

Gross Profit:


	Three Months Ended September 30,
	2022			2021			$ Change		Change
Gross profit	$	322.8		$	267.9		$	54.9	20.5%
Gross profit % to net sales	28.4		%	25.8		%			260	bps


	Nine Months Ended September 30,
	2022			2021			$ Change		Change
Gross profit	$	992.0		$	869.4		$	122.6	14.1%
Gross profit % to net sales	29.1		%	27.8		%			130	bps

Gross profit increased for the three months ended September 30, 2022 compared with the three months ended September 30, 2021, primarily due to favorable price/mix of $103 million and the impact of higher volume of $27 million, partially offset by higher material and logistics costs of $35 million, unfavorable manufacturing performance of $35 million and the unfavorable impact of foreign currency exchange rate changes of $4 million.

Gross profit increased for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021, primarily due to favorable price/mix of $221 million and the impact of higher volume of $81 million, partially offset by higher material and logistics costs of $124 million, unfavorable manufacturing performance of $43 million and the unfavorable impact of foreign currency exchange rate changes of $9 million.

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Selling, General and Administrative ("SG&A") Expenses:


	Three Months Ended September 30,
	2022			2021			$ Change		Change
Selling, general and administrative expenses	$	159.8		$	140.7		$	19.1	13.6	%
Selling, general and administrative expenses % to net sales	14.1		%	13.6		%			50	bps


	Nine Months Ended September 30,
	2022			2021			$ Change		Change
Selling, general and administrative expenses	$	469.8		$	434.2		$	35.6	8.2	%
Selling, general and administrative expenses % to net sales	13.8		%	13.9		%			(10)	bps

SG&A expenses increased for the three and nine months ended September 30, 2022 compared with the three and nine months ended September 30, 2021. The increase for the three and nine months ended September 30, 2022, as compared to the year-ago periods, was primarily due to higher compensation costs (including incentive-based compensation) and increased spending to support the higher sales levels.

Impairment and Restructuring:


	Three Months Ended September 30,
	2022		2021		$ Change		% Change
Impairment charges	$	29.5	$	—	$	29.5	NM
Severance and related benefit costs	1.4		2.5		(1.1)		NM
Exit costs	0.4		0.4		—		—	%
Total	$	31.3	$	2.9	$	28.4	NM


	Nine Months Ended September 30,
	2022		2021		$ Change		% Change
Impairment charges	$	38.3	$	4.5	$	33.8	751.1	%
Severance and related benefit costs	2.8		3.1		(0.3)		(9.7)	%
Exit costs	1.2		0.6		0.6		100.0	%
Total	$	42.3	$	8.2	$	34.1	415.9	%

Impairment and restructuring charges of $31.3 million during the three months ended September 30, 2022 were primarily due to impairment charges of $29.3 million related to the anticipated divestiture of the Company's ADS business. In addition, the Company incurred severance and related benefits, and exit costs associated with the closure of the Company's Villa Carcina, Italy bearing plant during the three months ended September 30, 2022. This initiative was undertaken to reduce headcount and continue to right-size the Company's manufacturing footprint.

Impairment and restructuring charges of $42.3 million during the nine months ended September 30, 2022 were comprised primarily of impairment charges related to the anticipated divestiture of the ADS business and property, plant and equipment at the Company's joint venture in Russia. In addition, the Company incurred severance and related benefits, and exit costs associated with the closure of the Company's Villa Carcina, Italy bearing plant during the nine months ended September 30, 2022.

Impairment and restructuring charges of $2.9 million and $8.2 million during the three and nine months ended September 30, 2021 were comprised primarily of severance and related benefits related to the planned closures of the Company's Villa Carcina, Italy bearing plant and Indianapolis, Indiana chain plant. These initiatives were expected to reduce headcount and right-size the Company's manufacturing footprint. In addition, impairment charges during the nine September 30, 2021 were related to certain engineering-related assets used in the business. Management concluded no further investment would be made in the engineering-related assets and as a result, reduced the value to zero.

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Refer to Note 14 - Impairment and Restructuring Charges in the Notes to the Consolidated Financial Statements for additional information.

Interest Income and Expense:


	Three Months Ended September 30,
	2022		2021		$ Change		% Change
Interest expense	$	(19.3)	$	(14.8)	$	(4.5)	30.4	%
Interest income	1.1		0.5		$	0.6	120.0	%


	Nine Months Ended September 30,
	2022		2021		$ Change		% Change
Interest expense	$	(51.9)	$	(45.0)	$	(6.9)	15.3	%
Interest income	2.7		1.7		$	1.0	58.8	%

The increase in interest expense for the three and nine months ended September 30, 2022 compared with the three and nine months ended September 30, 2021 was primarily due to higher average debt outstanding due to the issuance of the $350 million 2032 Notes in March 2022. 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.

Other Income (Expense):


	Three Months Ended September 30,
	2022		2021		$ Change		% Change

Non-service pension and other postretirement income	$	1.3	$	0.5	$	0.8	NM
Other income, net	2.3		1.5		0.8		53.3	%
Total other income	$	3.6	$	2.0	$	1.6	NM


	Nine Months Ended September 30,
	2022		2021		$ Change		% Change

Non-service pension and other postretirement (expense) income	$	(5.3)	$	5.9	$	(11.2)	(189.8)	%
Other income, net	1.4		0.3		1.1		366.7	%
Total other (expense) income	$	(3.9)	$	6.2	$	(10.1)	(162.9)	%

Non-service pension and other postretirement income increased for the three months ended September 30, 2022 compared with the three months ended September 30, 2021, primarily due to lower pension remeasurement losses in 2022. Non-service pension and other postretirement (expense) income decreased for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021, primarily due to higher pension remeasurement losses in 2022. The remeasurements were triggered by expected lump sum payments to new retirees exceeding annual service and interest costs for two of the Company's U.S. defined benefit pension plans in 2022. As a result of the remeasurements, the Company recognized net actuarial losses of $1.0 million and $3.9 million during the three months ended September 30, 2022 and September 30, 2021, respectively, and $15.2 million and $8.3 million during the nine months ended September 30, 2022 and September 30, 2021, respectively. In addition, the decrease was due to a lower expected return on plan assets in 2022. Refer to Note 15 - Retirement Benefit Plans and Note 16 - Other Postretirement Benefit Plans in the Notes to the Consolidated Financial Statements for additional information.

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Income Tax Expense:


	Three Months Ended September 30,
	2022			2021			$ Change		Change
Provision for income taxes	$	26.7		$	20.4		$	6.3	30.9	%
Effective tax rate	22.8		%	18.2		%			460	bps


	Nine Months Ended September 30,
	2022			2021			$ Change		Change
Provision for income taxes	$	108.9		$	75.1		$	33.8	45.0	%
Effective tax rate	25.5		%	19.3		%			620	bps

Income tax expense increased $6.3 million for the three months ended September 30, 2022 compared with the three months ended September 30, 2021 primarily due to the net unfavorable impact of discrete tax items in comparison to the year ago period.

Income tax expense increased $33.8 million for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021 primarily due to an unfavorable mix of earnings in higher tax rate jurisdictions, the net unfavorable impact of discrete tax items, including a discrete tax benefits in the year ago period, and lower deductions for stock-based compensation.

Refer to Note 6 - Income Taxes for more information on the computation of the income tax expense in interim periods.

BUSINESS SEGMENTS

The Company's reportable segments are business units that serve different industry sectors. While the segments operate using shared infrastructure, each reportable segment is managed to address specific customer needs in these diverse market sectors. The primary measurement used by management to measure the financial performance of each segment is EBITDA. Refer to Note 5 - Segment Information in the Notes to the Consolidated Financial Statements for the reconciliation of EBITDA by segment to consolidated income before income taxes.

In August 2022, the Company announced organizational changes, which included the appointment of executive leaders for its Engineered Bearings and Industrial Motion product groups. The Company is currently evaluating whether these changes will affect its reportable segments.

The presentation of segment results below includes a reconciliation of the changes in net sales for each segment reported in accordance with U.S. GAAP to net sales adjusted to remove the effects of acquisitions and divestitures completed in 2022 and 2021 and foreign currency exchange rate changes. The effects of acquisitions, divestitures and foreign currency exchange rate changes on net sales are removed to allow investors and the Company to meaningfully evaluate the percentage change in net sales on a comparable basis from period to period.

The following item represents the Company's acquisitions and divestitures completed in 2022 and 2021:

•The Company completed the sale of Timken Russia during the third quarter of 2022. Results for Timken Russia were reported in the Mobile Industries and Process Industries segments based on customers and underlying market sectors served.

•The Company acquired Spinea during the second quarter of 2022. The majority of the results for Spinea are reported in the Process Industries segment.

•The Company acquired iMS during the third quarter of 2021. The majority of the results for iMS are reported in the Process Industries segment.

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Mobile Industries Segment:


	Three Months Ended September 30,
	2022			2021			$ Change		Change
Net sales	$	526.9		$	487.3		$	39.6	8.1%
EBITDA	$	20.0		$	53.2		$	(33.2)	(62.4%)
EBITDA margin	3.8		%	10.9		%			(710)	bps


	Three Months Ended September 30,
	2022		2021		$ Change		% Change
Net sales	$	526.9	$	487.3	$	39.6	8.1	%

Less: Divestitures	(0.3)		—		(0.3)		NM
Currency	(20.1)		—		(20.1)		NM
Net sales, excluding the impacts of divestitures and currency	$	547.3	$	487.3	$	60.0	12.3	%


	Nine Months Ended September 30,
	2022			2021			$ Change		Change
Net sales	$	1,610.9		$	1,486.0		$	124.9	8.4%
EBITDA	$	164.2		$	200.1		$	(35.9)	(17.9%)
EBITDA margin	10.2		%	13.5		%			(710)	bps


	Nine Months Ended September 30,
	2022		2021		$ Change		% Change
Net sales	$	1,610.9	$	1,486.0	$	124.9	8.4	%

Less: Divestitures	(0.3)				(0.3)		NM
Currency	(45.0)		—		(45.0)		NM
Net sales, excluding the impacts of divestitures and currency	$	1,656.2	$	1,486.0	$	170.2	11.5	%

The Mobile Industries segment's net sales, excluding the effects of divestitures and foreign currency exchange rate changes, increased $60.0 million or 12.3% in the three months ended September 30, 2022 compared with the three months ended September 30, 2021, reflecting increased shipments in the off-highway and automotive sectors, as well as higher net pricing. EBITDA decreased by $33.2 million or 62.4% for the three months ended September 30, 2022 compared with the three months ended September 30, 2021, primarily due to higher impairment and restructuring charges, higher material, logistics and other operating costs, partially offset by favorable price/mix and the impact of higher volume.

The Mobile Industries segment's net sales, excluding the effects of divestitures and foreign currency exchange rate changes, increased $170.2 million or 11.5% in the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021, reflecting increased shipments in the off-highway, heavy truck, rail and automotive and aerospace sectors, as well as higher net pricing. EBITDA decreased by $35.9 million or 17.9% for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021, primarily due to higher material, logistics and other operating costs, higher impairment and restructuring charges, partially offset by favorable price/mix and the impact of higher volume.

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Process Industries Segment:


	Three Months Ended September 30,
	2022			2021			$ Change		Change
Net sales	$	609.5		$	550.0		$	59.5	10.8%
EBITDA	$	165.3		$	129.7		$	35.6	27.4%
EBITDA margin	27.1		%	23.6		%			350	bps


	Three Months Ended September 30,
	2022		2021		$ Change		% Change
Net sales	$	609.5	$	550.0	$	59.5	10.8	%
Less: Acquisitions	7.0		—		7.0		NM
Divestitures	(1.5)		—		(1.5)		NM
Currency	(27.1)		—		(27.1)		NM
Net sales, excluding the impact of acquisitions, divestitures and currency	$	631.1	$	550.0	$	81.1	14.7	%


	Nine Months Ended September 30,
	2022			2021			$ Change		Change
Net sales	$	1,803.8		$	1,639.6		$	164.2	10.0%
EBITDA	$	484.4		$	401.9		$	82.5	20.5%
EBITDA margin	26.9		%	24.5		%			240	bps


	Nine Months Ended September 30,
	2022		2021		$ Change		% Change
Net sales	$	1,803.8	$	1,639.6	$	164.2	10.0	%
Less: Acquisitions	12.1		—		12.1		NM
Divestitures	(1.5)		—		(1.5)		NM
Currency	(52.1)		—		(52.1)		NM
Net sales, excluding the impact of acquisitions, divestitures and currency	$	1,845.3	$	1,639.6	$	205.7	12.5	%

The Process Industries segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, increased $81.1 million or 14.7% in the three months ended September 30, 2022 compared with the three months ended September 30, 2021. The increase was primarily driven by increased demand in the distribution, heavy industries, general industrial and marine sectors, as well as higher net pricing, partially offset by lower revenue in the renewable energy sector. EBITDA increased $35.6 million or 27.4% for the three months ended September 30, 2022 compared with the three months ended September 30, 2021 primarily due to favorable price/mix and the impact of higher volume, partially offset by higher material, logistics and other operating costs.

The Process Industries segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, increased $205.7 million or 12.5% in the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021. The increase was primarily driven by increased demand in the distribution, general industrial, heavy industries, marine and services sectors, as well as higher net pricing, partially offset by lower revenue in the renewable energy sector. EBITDA increased $82.5 million or 20.5% for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021 primarily due to favorable price/mix and the impact of higher volume, partially offset by higher material, logistics and other operating costs.

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Unallocated Corporate:


	Three Months Ended September 30,
	2022			2021			$ Change		Change
Unallocated corporate expense	$	(9.1)		$	(11.7)		$	2.6	(22.2	%)
Unallocated corporate expense % to net sales	(0.8)		%	(1.1)		%			30	bps


	Nine Months Ended September 30,
	2022			2021			$ Change		Change
Unallocated corporate expense	$	(35.4)		$	(34.9)		$	(0.5)	1.4	%
Unallocated corporate expense % to net sales	(1.0)		%	(1.1)		%			10	bps

The decrease in unallocated corporate expense for the three months ended September 30, 2022 compared with the three months ended September 30, 2021 was primarily due to foreign currency exchange gains recorded in 2022, compared to foreign currency exchange losses in the prior year, partially offset by higher compensation expense and other spending to support increased business activity levels.

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CASH FLOW


	Nine Months Ended September 30,
	2022		2021		$ Change


Net cash provided by operating activities	$	222.3	$	284.6	$	(62.3)


Net cash used in investing activities	(242.0)		(115.9)		(126.1)


Net cash provided by (used in) financing activities	88.5		(222.4)		310.9
Effect of exchange rate changes on cash	(25.1)		(4.8)		(20.3)
Increase (decrease) in cash and cash equivalents and restricted cash	$	43.7	$	(58.5)	$	102.2

Operating Activities:

The decrease in net cash provided by operating activities for the first nine months of 2022 compared with the first nine months of 2021 was primarily due to an increase in cash used for working capital items of $140.2 million, partially offset by an increase in the benefit of income taxes on cash of $14.0 million, a decrease in pension and other postretirement benefit contributions and payments of $6.6 million and a net increase in non-cash charges included in net income, including impairment charges, pension expense and stock-based compensation expense. Refer to the tables below for additional detail of the impact of each line item on net cash provided by operating activities.

The following table displays the impact of working capital items on cash during the nine months of 2022 and 2021, respectively:


	Nine Months Ended September 30,
	2022		2021		$ Change
Cash (used in) provided by:
*Accounts receivable*	$	(157.0)	$	(127.5)	$	(29.5)
Unbilled receivables	(5.2)		25.1		(30.3)
Inventories	(147.1)		(144.2)		(2.9)
Trade accounts payable	(12.6)		60.5		(73.1)
Other accrued expenses	45.8		50.2		(4.4)
Cash used in working capital items	$	(276.1)	$	(135.9)	$	(140.2)

The following table displays the impact of income taxes on cash during the nine months of 2022 and 2021, respectively:


	Nine Months Ended September 30,
	2022		2021		$ Change
Accrued income tax expense	$	108.9	$	75.1	$	33.8
Income tax payments	(98.8)		(80.0)		(18.8)
Other items	(2.8)		(1.8)		(1.0)
Change in income taxes	$	7.3	$	(6.7)	$	14.0

Investing Activities:

The increase in net cash used in investing activities for the first nine months of 2022 compared with the first nine months of 2021 was primarily due to an increase in cash used for acquisitions of $145.2 million and an increase in capital expenditures of $18.9 million, partially offset by a decrease in cash used for investments in short-term marketable securities of $33.2 million.

Financing Activities:

The change in net cash used in financing activities for the first nine months of 2022 compared with the first nine months of 2021 was primarily due to an increase in net borrowings of $451.5 million, partially offset by an increase in the purchases of treasury shares of $136.7 million.

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LIQUIDITY AND CAPITAL RESOURCES

Reconciliation of total debt to net debt and the ratio of net debt to capital:

Net Debt:


	September 30, 2022		December 31, 2021
Short-term debt, including current portion of long-term debt	$	371.8	$	53.8

Long-term debt	1,411.3		1,411.1
Total debt	$	1,783.1	$	1,464.9
Less: Cash and cash equivalents	300.9		257.1
Net debt	$	1,482.2	$	1,207.8

Ratio of Net Debt to Capital:


	September 30, 2022			December 31, 2021
Net debt	$	1,482.2		$	1,207.8
Total equity	2,178.8			2,377.7
Net debt plus total equity (capital)	$	3,661.0		$	3,585.5
Ratio of net debt to capital	40.5		%	33.7		%

The Company presents net debt because it believes net debt is more representative of the Company's financial position than total debt due to the amount of cash and cash equivalents held by the Company and the ability to utilize such cash and cash equivalents to reduce debt if needed.

At September 30, 2022, the Company had strong liquidity with $300.9 million of cash and cash equivalents on the Consolidated Balance Sheet, as well as $742.2 million of available resources from committed credit lines. Of the $300.9 million of cash and cash equivalents, $267.2 million resided in jurisdictions outside the United States. Repatriation of non-U.S. cash could be subject to taxes and some portion may be subject to governmental restrictions. As of September 30, 2022, Timken had $10.6 million of cash in Russia, which the Company is presently unable to repatriate. Part of the Company's strategy is to grow in attractive market sectors, many of which are outside the United States. This strategy includes making investments in facilities, equipment and potential new acquisitions. The Company plans to fund these investments, as well as meet working capital requirements, with cash and cash equivalents and unused lines of credit within the geographic location of these investments where feasible.

On June 25, 2019, the Company entered into the Senior Credit Facility, which is a $650.0 million unsecured revolving credit facility that matures on June 25, 2024. At September 30, 2022, the Senior Credit Facility had outstanding borrowings of $7.8 million, which reduced the availability to $642.2 million. The Senior Credit Facility has two financial covenants: a consolidated leverage ratio and a consolidated interest coverage ratio. The maximum consolidated leverage ratio permitted under the Senior Credit Facility is 3.5 to 1.0. As of September 30, 2022, the Company's consolidated leverage ratio was 2.22 to 1.0. The minimum consolidated interest coverage ratio permitted under the Senior Credit Facility is 3.0 to 1.0. As of September 30, 2022, the Company's consolidated interest coverage ratio was 12.45 to 1.0.

The interest rate under the Senior Credit Facility is variable with a spread based on the Company's debt rating. The average rate on outstanding Euro borrowings was 1.00% as of September 30, 2022. In addition, the Company pays a facility fee based on the applicable rate, which is variable with a spread based on the Company's debt rating, multiplied by the aggregate commitments of all of the lenders under the Senior Credit Facility. As of September 30, 2022, the Company carried investment-grade credit ratings with both Moody's (Baa2) and S&P Global (BBB-).

The Company has a $100 million Accounts Receivable Facility, which matures on November 30, 2024. The Accounts Receivable Facility is subject to certain borrowing base limitations and is secured by certain domestic trade accounts receivable of the Company. As of September 30, 2022, the Company had no outstanding borrowings under the Accounts Receivable Facility and no borrowing base limitations. Availability under the Accounts Receivable Facility was $100 million as of September 30, 2022.

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Other sources of liquidity include uncommitted short-term lines of credit for certain of the Company's foreign subsidiaries, which provide for borrowings of up to approximately $235.8 million. At September 30, 2022, the Company had borrowings outstanding of $50.9 million and bank guarantees of $2.6 million, which reduced the aggregate availability under these facilities to approximately $182.3 million.

On March 28, 2022, the Company issued the 2032 Notes in the aggregate principal amount of $350 million with an interest rate of 4.125%, maturing on April 1, 2032. Proceeds from the 2032 Notes were used for general corporate purposes, which included repayment of borrowings under the Senior Credit Facility and the Accounts Receivable Facility outstanding at the time of issuance. In addition, a portion of the proceeds from the 2032 Notes was used to fund the Spinea acquisition, which closed in the second quarter of 2022.

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

Financing Obligations and Other Commitments:

During the first nine months of 2022, the Company made cash contributions and payments of $8.9 million to its global defined benefit pension plans and $2.7 million to its other postretirement benefit plans. The Company expects to make contributions to its global defined benefit plans of approximately $11 million in 2022. The Company expects to make payments of approximately $4 million to its other postretirement benefit plans in 2022. Excluding mark-to-market charges, the Company expects higher pension and other postretirement benefits expense in 2022 compared to 2021 primarily due to lower expected returns on pension plan assets and higher interest expense, partially offset by lower service costs.

The Company does not have any off-balance sheet arrangements with unconsolidated entities or other persons.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's financial statements are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The Company reviews its critical accounting policies throughout the year. The Company has concluded that there have been no significant changes to its critical accounting policies or estimates, as described in its Annual Report on Form 10-K for the year ended December 31, 2021, during the nine months ended September 30, 2022.

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OTHER MATTERS

Foreign Currency:

Assets and liabilities of subsidiaries are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rates of exchange prevailing during the reporting period. Related translation adjustments are reflected as a separate component of accumulated other comprehensive loss. Foreign currency gains and losses resulting from transactions, and the related hedging activity, are included in the Consolidated Statements of Income.

For the nine months ended September 30, 2022, the Company recorded negative foreign currency translation adjustments of $267.7 million that decreased shareholders' equity, compared with negative foreign currency translation adjustments of $53.3 million that decreased shareholders' equity for the nine months ended September 30, 2021. The foreign currency translation adjustments for the nine months ended September 30, 2022 were negatively impacted by the strengthening of the U.S. dollar relative to other foreign currencies, including the Euro, Chinese Yuan and Indian Rupee.

Foreign currency exchange gains and losses, net of hedging activity, resulting from transactions included in the Company's operating results for the three months ended September 30, 2022 totaled $9.1 million of net gains, compared with $3.2 million of net losses during the three months ended September 30, 2021. Foreign currency exchange gains and losses, net of hedging activity, resulting from transactions included in the Company's operating results for the nine months ended September 30, 2022 totaled $13.7 million of net gains, compared with $8.8 million of net losses during the nine months ended September 30, 2021.

Russia Operations:

The Company had two subsidiaries in Russia, including Timken Russia, which was 100% owned by Timken and a 51%-owned joint venture to serve the Russian rail market ("Rail JV"). As a result of Russia's invasion of Ukraine (and associated sanctions), the Company suspended operations and recorded property, plant and equipment impairment charges of $9.0 million and inventory write-downs of $4.1 million during the nine months ended September 30, 2022. During the third quarter of 2022, the Company sold its Timken Russia business resulting in a loss of $2.1 million on the sale. After giving effect to these impairments and write-downs, as well as the sale of Timken Russia, as of September 30, 2022, the Company has net assets (net of noncontrolling interest of $7.4 million), totaling $8.1 million on its Consolidated Balance Sheet related to its Rail JV. Net assets include $10.6 million of cash and cash equivalents. The Company will continue to monitor the events in Russia and Ukraine and may record additional asset impairments or write-offs in the future.

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NON-GAAP MEASURES

Supplemental Non-GAAP Measures:

In addition to results reported in accordance with U.S. GAAP, the Company provides information on non-GAAP financial measures. These non-GAAP financial measures include adjusted net income, adjusted earnings per share, adjusted EBITDA and adjusted EBITDA margins, segment adjusted EBITDA and segment adjusted EBITDA margins, ratio of net debt to adjusted EBITDA (for the trailing 12 months), net debt, ratio of net debt to capital and free cash flow. This information is intended to supplement GAAP financial measures and is not intended to replace GAAP financial measures. Net debt and the ratio of net debt to capital is disclosed in the "Liquidity and Capital Resources" section of Management's Discussion and Analysis of Financial Condition and Results of Operations.

Adjusted Net Income and Adjusted EBITDA:

Adjusted net income and adjusted earnings per share represent net income attributable to The Timken Company and diluted earnings per share, respectively, adjusted for impairment, restructuring and reorganization charges, acquisition costs, including transaction costs and the amortization of the inventory step-up, property losses and recoveries, actuarial gains and losses associated with the remeasurement of the Company's defined benefit pension and other postretirement benefit plans, gains and losses on the sale of real estate, gains and losses on divestitures, the income tax impact of these adjustments, as well as other income tax discrete items, and other items from time to time that are not part of the Company's core operations. Management believes adjusted net income and adjusted earnings per share are useful to investors as they are representative of the Company's core operations and are used in the management of the business.

Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization, adjusted for items that are not part of the Company's core operations. These items include impairment, restructuring and reorganization charges, acquisition costs, including transaction costs and the amortization of the inventory step-up, property losses and recoveries, actuarial gains and losses associated with the remeasurement of the Company's defined benefit pension and other postretirement benefit plans, gains and losses on the sale of real estate, gains and losses on divestitures, and other items from time to time that are not part of the Company's core operations. Management believes adjusted EBITDA is useful to investors as it is representative of the Company's core operations and is used in the management of the business, including decisions concerning the allocation of resources and assessment of performance.

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Reconciliation of net income attributable to The Timken Company to adjusted net income, adjusted EBITDA and adjusted EBITDA Margin:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Net Sales	$	1,136.4		$	1,037.3		$	3,414.7		$	3,125.6
Net Income Attributable to The Timken Company	87.0			88.1			310.2			306.2
Impairment, restructuring and reorganization charges (1)	32.1			5.9			35.7			13.3
Corporate pension and other postretirement benefit related expense (2)	1.0			3.9			15.2			8.3
Russia-related charges (3)	2.3			—			15.3			—
Acquisition-related charges (4)	3.0			1.5			5.7			2.1


Noncontrolling interest of above adjustments	0.1			—			(5.7)			0.2
Provision for income taxes (5)	(12.9)			(8.4)			(18.2)			(26.3)
Adjusted Net Income	$	112.6		$	91.0		$	358.2		$	303.8
Net income attributable to noncontrolling interest	3.4			3.5			7.7			8.6
Provision for income taxes (as reported)	26.7			20.4			108.9			75.1
Interest expense	19.3			14.8			51.9			45.0
Interest income	(1.1)			(0.5)			(2.7)			(1.7)
Depreciation and amortization expense (6)	39.9			41.0			122.0			125.7
Less: Noncontrolling interest	0.1			—			(5.7)			0.2
Less: Provision for income taxes (5)	(12.9)			(8.4)			(18.2)			(26.3)
Adjusted EBITDA	$	213.6		$	178.6		$	669.9		$	582.6
Adjusted EBITDA Margin (% of net sales)	18.8		%	17.2		%	19.6		%	18.6		%

Diluted earnings and adjusted earnings per share in the table below are based on net income attributable to The Timken Company and adjusted net income, respectively, in the table above.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Diluted earnings per share (EPS)	$	1.18	$	1.14	$	4.16	$	3.97
Adjusted EPS	$	1.52	$	1.18	$	4.80	$	3.94
Diluted Shares	73,866,743		77,023,973		74,548,711		77,157,614

Reconciliation of segment EBITDA to segment adjusted EBITDA and segment adjusted EBITDA margin:


	Three Months Ended September 30, 2022
	Mobile			Process			Unallocated Corporate		Total
Net Sales	$	526.9		$	609.5		$	—	$	1,136.4
EBITDA	20.0			165.3			(10.1)		175.2
Impairment, restructuring and reorganization charges (1)	31.0			1.1			—		32.1
Corporate pension and other postretirement benefit related expense (2)	—			—			1.0		1.0
Russia-related charges (3)	4.1			(1.8)			—		2.3
Acquisition-related charges (4)	—			2.1			0.9		3.0

Adjusted EBITDA	$	55.1		$	166.7		$	(8.2)	$	213.6
Adjusted EBITDA Margin (% of net sales)	10.5		%	27.4		%	NM		18.8		%

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	Three Months Ended September 30, 2021
	Mobile			Process			Unallocated Corporate		Total
Net Sales	$	487.3		$	550.0		$	—	$	1,037.3
EBITDA	53.2			129.7			(15.3)		167.6
Impairment, restructuring and reorganization charges (1)	4.8			0.8			—		5.6
Corporate pension and other postretirement benefit related expense (2)	—			—			3.9		3.9
Acquisition-related charges (3)	0.2			0.2			1.1		1.5

Adjusted EBITDA	$	58.2		$	130.7		$	(10.3)	$	178.6
Adjusted EBITDA Margin (% of net sales)	11.9		%	23.7		%	NM		17.2		%


	Nine Months Ended September 30, 2022
	Mobile			Process			Unallocated Corporate		Total
Net Sales	$	1,610.9		$	1,803.8		$	—	$	3,414.7
EBITDA	164.2			484.4			(50.6)		598.0
Impairment, restructuring and reorganization charges (1)	33.0			2.7			—		35.7
Corporate pension and other postretirement benefit related expense (2)	—			—			15.2		15.2
Russia-related charges (3)	16.6			(1.3)			—		15.3
Acquisition-related charges (4)	—			3.5			2.2		5.7
Adjusted EBITDA	$	213.8		$	489.3		$	(33.2)	$	669.9
Adjusted EBITDA Margin (% of net sales)	13.3		%	27.1		%	NM		19.6		%


	Nine Months Ended September 30, 2021
	Mobile			Process			Unallocated Corporate		Total
Net Sales	$	1,486.0		$	1,639.6		$	—	$	3,125.6
EBITDA	200.1			401.9			(42.3)		559.7
Impairment, restructuring and reorganization charges (1)	6.3			6.2			—		12.5
Corporate pension and other postretirement benefit related expense (2)	—			—			8.3		8.3
Acquisition-related charges (3)	0.6			0.5			1.0		2.1
Adjusted EBITDA	$	207.0		$	408.6		$	(33.0)	$	582.6
Adjusted EBITDA Margin (% of net sales)	13.9		%	24.9		%	NM		18.6		%

(1) Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: (i) plant closures; (ii) the rationalization of certain plants; (iii) severance related to cost reduction initiatives; and (iv) impairment of assets held for sale. Impairment, restructuring and reorganization charges for the third quarter of 2022 included $29.3 million related to ADS. The Company re-assesses its operating footprint and cost structure periodically, and makes adjustments as needed that result in restructuring charges. However, management believes these actions are not representative of the Company’s core operations.

(2) Corporate pension and other postretirement benefit related expense represents actuarial losses (gains) that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions or experience. The Company recognizes actuarial losses and (gains) in connection with the annual remeasurement in the fourth quarter, or if specific events trigger a remeasurement. Refer to Note 15 - Retirement Benefit Plans and Note 16 - Other Postretirement Benefit Plans for additional discussion.

(3) Russia-related charges include impairments and allowances recorded against certain property, plant and equipment, inventory and trade receivables to reflect the current impact of Russia's invasion of Ukraine (and associated sanctions) on the Company's operations. In addition to impairments and allowances recorded, the Company recorded a loss on the divestiture of its Timken Russia business during the third quarter of 2022. Refer to Russia Operations on page 40 above for additional information.

(4) Acquisition-related charges represent the contingent consideration related to the acquisition of iMS that closed on August 20, 2021, and deal-related expenses associated with completed and certain unsuccessful transactions, as well as any resulting inventory step-up impact. In addition, the 2021 acquisition-related charges includes measurement period adjustments to the bargain purchase gain on the acquisition of the assets of Aurora that closed on November 30, 2020.

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(5) Provision for income taxes includes the net tax impact on pre-tax adjustments (listed above), the impact of discrete tax items recorded during the respective periods as well as other adjustments to reflect the use of one overall effective tax rate on adjusted pre-tax income in interim periods.

(6) Depreciation and amortization shown excludes depreciation recognized in reorganization charges, if any.

Free Cash Flow:

Free cash flow represents net cash provided by (used in) operating activities less capital expenditures. Management believes free cash flow is useful to investors because it is a meaningful indicator of cash generated from operating activities available for the execution of its business strategy.

Reconciliation of net cash provided by operating activities to free cash flow:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net cash provided by operating activities	$	145.2	$	105.8	$	222.3	$	284.6
Capital expenditures	(47.3)		(43.1)		(122.5)		(103.6)
Free cash flow	$	97.9	$	62.7	$	99.8	$	181.0

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Ratio of Net Debt to Adjusted EBITDA:

The ratio of net debt to adjusted EBITDA for the trailing twelve months represents total debt less cash and cash equivalents divided by adjusted EBITDA for the trailing twelve months. The Company presents net debt to adjusted EBITDA because it believes it is more representative of the Company's financial position as it is reflective of the Company's ability to cover its net debt obligations with results from its core operations. Net income for the trailing twelve months ended September 30, 2022 and December 31, 2021 was $384.6 million and $381.5 million, respectively. Net debt to adjusted EBITDA for the trailing twelve months was 1.8 at September 30, 2022, compared with 1.7 at December 31, 2021.

Reconciliation of Net income to Adjusted EBITDA for the trailing twelve months:


	Twelve Months Ended
	September 30, 2022		December 31, 2021
Net income	$	384.6	$	381.5
Provision for income taxes	128.9		95.1
Interest expense	65.7		58.8
Interest income	(3.3)		(2.3)
Depreciation and amortization	163.3		167.8
Consolidated EBITDA	739.2		700.9
Adjustments:
Impairment, restructuring and reorganization charges (1)	$	37.5	$	14.3
Corporate pension and other postretirement benefit related expense (2)	7.2		0.3
Acquisition-related charges (3)	5.9		2.3



Russia-related charges (4)	15.3		—
Tax indemnification and related items	0.2		0.2
Total adjustments	66.1		17.1
Adjusted EBITDA	$	805.3	$	718.0
Net Debt	$	1,482.2	$	1,207.8
Ratio of Net Debt to Adjusted EBITDA	1.8		1.7

(1) Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: (i) plant closures; (ii) the rationalization of certain plants; (iii) severance related to cost reduction initiatives; and (iv) impairment of assets held for sale. Impairment, restructuring and reorganization charges for the twelve months ended September 30, 2022 included $29.3 million related to ADS. The Company re-assesses its operating footprint and cost structure periodically, and makes adjustments as needed that result in restructuring charges. However, management believes these actions are not representative of the Company’s core operations.

(2) Corporate pension and other postretirement benefit related expense represents actuarial losses and (gains) that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions or experience. The Company recognizes actuarial losses and (gains) in connection with the annual remeasurement in the fourth quarter, or if specific events trigger a remeasurement.

(3) Acquisition-related charges represent contingent consideration related to the acquisition of iMS that closed on August 20, 2021, and deal-related expenses associated with completed and certain unsuccessful transactions, as well as any resulting inventory step-up impact. Also included is the acquisition-related gain related to measurement period adjustments to the bargain purchase gain on the acquisition of the assets of Aurora that closed on November 30, 2020.

(4) Russia-related charges include allowances and impairments recorded against certain trade receivables, inventory and other assets to reflect the current impact of Russia's invasion of Ukraine (and associated sanctions) on the Company's operations. In addition to impairments and allowances recorded, the Company recorded a loss on the divestiture of its Timken Russia business during the third quarter of 2022. Refer to Russia Operations on page 40 in Management Discussion and Analysis for additional information.

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FORWARD-LOOKING STATEMENTS

Certain statements set forth in this Form 10-Q and in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 that are not historical in nature (including the Company's forecasts, beliefs and expectations) are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, Management's Discussion and Analysis contains numerous forward-looking statements. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “outlook,” “intend,” “may,” “possible,” “potential,” “predict,” “project” or other similar words, phrases or expressions. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Form 10-Q. The Company cautions readers that actual results may differ materially from those expressed or implied in forward-looking statements made by or on behalf of the Company due to a variety of factors, such as:

•deterioration in world economic conditions, or in economic conditions in any of the geographic regions in which the Company or its customers or suppliers conduct business, including adverse effects from a global economic slowdown, recession, terrorism, or hostilities. This includes: political risks associated with the potential instability of governments and legal systems in countries in which the Company or its customers or suppliers conduct business, changes in currency valuations and recent world events that have increased the risks posed by international trade disputes, tariffs and sanctions;

•negative impacts to the Company's business, results of operations, financial position or liquidity, disruption to the Company's supply chains, negative impacts to customer demand or operations, and availability and health of employees, as a result of COVID-19 or other pandemics and associated governmental measures such as restrictions on travel and manufacturing operations;

•the effects of fluctuations in customer demand on sales, product mix and prices in the industries in which the Company operates. This includes: the ability of the Company to respond to rapid changes in customer demand, disruptions to the Company's supply chain, logistical issues associated with port closures or congestion, delays or increased costs, the effects of customer or supplier bankruptcies or liquidations, the impact of changes in industrial business cycles, the effects of distributor inventory corrections reflecting de-stocking of the supply chain and whether conditions of fair trade continue in the Company's markets;

•competitive factors, including changes in market penetration, increasing price competition by existing or new foreign and domestic competitors, the introduction of new products or services by existing and new competitors, competition for skilled labor and new technology that may impact the way the Company’s products are produced, sold or distributed;

•changes in operating costs. This includes: the effect of changes in the Company’s manufacturing processes; changes in costs associated with varying levels of operations and manufacturing capacity; availability and cost of raw materials and energy; disruptions to the Company's supply chain and logistical issues associated with port closures or congestion, delays or increased costs; changes in the expected costs associated with product warranty claims; changes resulting from inventory management and cost reduction initiatives; the effects of unplanned plant shutdowns; the effects of government-imposed restrictions and commercial requirements meant to address climate change; and changes in the cost of labor and benefits;

•the impact of inflation on employee expenses, shipping costs, raw material costs, energy and fuel costs and other production costs;

•the success of the Company’s operating plans, announced programs, initiatives and capital investments; the ability to integrate acquired companies and to address material issues not uncovered during the Company's due diligence review; and the ability of acquired companies to achieve satisfactory operating results, including results being accretive to earnings, realization of synergies and expected cash flow generation;

•the Company’s ability to maintain appropriate relations with unions or works councils that represent Company associates in certain locations in order to avoid disruptions of business and to maintain the continued service of our management and other key employees;

•unanticipated litigation, claims, investigations or assessments. This includes: claims, investigations or problems related to intellectual property, product liability or warranty, foreign export and trade laws, government procurement regulations, competition and anti-bribery laws, environmental or health and safety issues, data privacy and taxes;

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•changes in worldwide financial and capital markets, including availability of financing and interest rates on satisfactory terms in a rising interest rate environment, which affect the Company’s cost of funds and/or ability to raise capital, as well as customer demand and the ability of customers to obtain financing to purchase the Company’s products or equipment that contain the Company’s products;

•the Company's ability to satisfy its obligations and comply with covenants under its debt agreements, maintain favorable credit ratings and its ability to renew or refinance borrowings on favorable terms;

•the impact on the Company's pension obligations and assets due to changes in interest rates, investment performance and other tactics designed to reduce risk; and

•those items identified under Item 1A. "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 or this Form 10-Q.

Additional risks relating to the Company's business, the industries in which the Company operates, or the Company's common shares may be described from time to time in the Company's filings with the Securities and Exchange Commission. All of these risk factors are difficult to predict, are subject to material uncertainties that may affect actual results and may be beyond the Company's control.

Readers are cautioned that it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results and that the above list should not be considered to be a complete list. Except as required by the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Refer to information appearing under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q. Furthermore, a discussion of market risk exposures is included in Part II, Item 7A. Quantitative and Qualitative Disclosure about Market Risk, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes in reported market risk since the inclusion of this discussion in the Company’s Annual Report on Form 10-K referenced above.

ITEM 4. CONTROLS AND PROCEDURES

(a)Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based upon that evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

(b)Changes in Internal Control Over Financial Reporting

During the Company’s fiscal quarter ended September 30, 2022, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

On May 31, 2022, the Company completed the acquisition of Spinea. The results of this acquisition are included in the Company's consolidated financial statements for the first nine months of 2022. The total and net assets of Spinea represent 3% of the Company's total assets and 6% of the Company's net assets as of September 30, 2022. The net sales and net income of Spinea represented less than 1% of the Company's consolidated net sales and consolidated net income for the first nine months of 2022. The scope of the Company's assessment of the effectiveness of internal control over financial reporting will not include this acquisition. This exclusion is in accordance with the SEC's general guidance that an assessment of a recently acquired business may be omitted from the Company's scope in the year of acquisition.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in various claims and legal actions arising in the ordinary course of business. U.S. Securities and Exchange Commission ("SEC") regulations require us to disclose certain information about environmental proceedings when a governmental authority is a party to the proceedings if we reasonably believe that such proceedings may result in monetary sanctions above a stated threshold. Pursuant to such regulations, the Company uses the maximum permitted threshold of $1 million or more for purposes of determining whether disclosure of any such proceedings is required. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

Item 1A. Risk Factors

The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, included a detailed discussion of our risk factors. There have been no material changes to the risk factors included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. Investors should not interpret the disclosure of any risk factor to imply that the risk has not already materialized.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Common Shares

The following table provides information about purchases by the Company of its common shares during the quarter ended September 30, 2022.


Period	Total number of shares purchased (1)	Average price paid per share (2)		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs (3)
7/1/2022 - 7/31/2022	—	$	—	—	6,800,000
8/1/2022 - 8/31/2022	430,147	66.03		420,000	6,380,000
9/1/2022 - 9/30/2022	330,000	64.47		330,000	6,050,000
Total	760,147			750,000	—

(1)Of the shares purchased in August, 10,147 represent common shares of the Company that were owned and tendered by employees to exercise stock options and to satisfy withholding obligations in connection with the exercise of stock options or vesting of restricted shares.

(2)For shares tendered in connection with the vesting of restricted shares, the average price paid per share is an average calculated using the daily high and low of the Company's common shares as quoted on the New York Stock Exchange at the time of vesting. For shares tendered in connection with the exercise of stock options, the price paid is the real-time trading stock price at the time the options are exercised.

(3)On February 12, 2021, the Company's Board of Directors approved a new share purchase plan, effective March 1, 2021, pursuant to which the Company may purchase up to ten million of its common shares, in the aggregate. This share purchase plan expires on February 28, 2026. Under this plan, the Company may purchase shares from time to time in open market purchases or privately negotiated transactions, and it may make all or part of the purchases pursuant to accelerated share repurchases or Rule 10b5-1 plans.

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Item 6. Exhibits










































































10.1			The Timken Company 1996 Deferred Compensation Plan for officers and other key employees, amended and restated effective as of August 2, 2022.

31.1			Certification of Richard G. Kyle, President and Chief Executive Officer (principal executive officer) of The Timken Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of Philip D. Fracassa, Executive Vice President and Chief Financial Officer (principal financial officer and principal accounting officer) of The Timken Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32			Certifications of Richard G. Kyle, President and Chief Executive Officer (principal executive officer) and Philip D. Fracassa, Executive Vice President and Chief Financial Officer (principal financial officer and principal accounting officer) of The Timken Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101			Financial statements from the quarterly report on Form 10-Q of The Timken Company for the quarter ended September 30, 2022 filed on October 26, 2022, formatted in Inline XBRL: (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.

104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


						THE TIMKEN COMPANY
Date: October 26, 2022						By: /s/ *Richard G. Kyle*
						Richard G. Kyle President and Chief Executive Officer (Principal Executive Officer)

Date: October 26, 2022						By: /s/ *Philip D. Fracassa*
						Philip D. Fracassa Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

Dates Referenced Herein and Documents Incorporated by Reference

This ‘10-Q’ Filing	Date	Other Filings

	6/30/33
	4/1/32
	12/15/28
	9/7/27
	2/28/26
	12/31/24
	11/30/24
	9/1/24
	6/30/24
	6/25/24
	12/15/23
	9/11/23
	12/31/22
	12/15/22
Filed on:	10/26/22	8-K
	10/7/22
For Period end:	9/30/22
	9/6/22
	9/1/22
	8/2/22
	6/30/22	10-Q
	5/31/22	4, SD
	3/28/22	8-K
	1/31/22	SC 13G/A
	1/1/22
	12/31/21	10-K, 11-K, SD
	12/15/21
	9/30/21	10-Q
	8/20/21
	7/19/21
	6/30/21	10-Q
	3/1/21
	2/12/21	4, 8-K, SC 13G/A
	12/31/20	10-K, 11-K, 5, SD
	11/30/20
	10/30/20
	9/15/20
	9/8/20	4
	2/4/20
	7/12/19	8-K
	6/25/19	11-K, 8-K
	4/1/19	8-K
	9/18/18
	9/11/18
	9/1/18
	12/28/04
		List all Filings

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Filing Submission 0000098362-22-000112 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Timken Co. – ‘10-Q’ for 9/30/22

On: Wednesday, 10/26/22, at 5:27pm ET · For: 9/30/22 · Accession #: 98362-22-112 · File #: 1-01169

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