Published: 2022-02-15 00:00:00 ET

HTTP/1.1 200 OK HTTP/1.1 200 OK X-Crawlera-Slave: 181.215.85.120:3128 X-Crawlera-Version: 1.60.1 accept-ranges: bytes content-type: text/html last-modified: Tue, 15 Feb 2022 21:15:18 GMT server: AmazonS3 x-amz-id-2: G9jVFOso8TOiUGF4zxvblNV3s3P5a2FSL0qJ7UHOFM3jgxD6eNn1WomdA5X4Qwo6NOFM1hhwwmw= x-amz-meta-mode: 33188 x-amz-meta-s3cmd-attrs: uid:504/gname:fitrprnt/uname:fitrprnt/gid:504/mode:33184/mtime:1644959661/atime:1644959661/md5:c168b156649f33dde0441c9a7e98dac4/ctime:1644959692 x-amz-replication-status: COMPLETED x-amz-request-id: HBZ412PJ7MJHKVMQ x-amz-version-id: LYvoZvW2TgWvKhFM97pCfupUi4o63bHT x-content-type-options: nosniff x-frame-options: SAMEORIGIN x-xss-protection: 1; mode=block x-akamai-transformed: 9 - 0 pmb=mTOE,2 expires: Thu, 06 Apr 2023 17:38:54 GMT cache-control: max-age=0, no-cache, no-store pragma: no-cache date: Thu, 06 Apr 2023 17:38:54 GMT vary: Accept-Encoding akamai-x-true-ttl: -1 strict-transport-security: max-age=31536000 ; includeSubDomains ; preload set-cookie: ak_bmsc=740094E35ECFADAEBDCFC70D248A4073~000000000000000000000000000000~YAAQD28RYKcd2FaHAQAAGGKmVxPRNnk9By1q7CBOVDM9Brn4MXBIe3+FhyLAOtDwaKe15gd0huliM9ZAvNMXDdtcCjmS/3ROqu97i84UfUBd66WagCFBZgiQsNxVxnQ8GvoCAHWxXEtkJDYTwrksbSIFJw+ee3PUEO68X8OFqIyyBbeaVULAWTIprbqtUYXwM3NOkj80Eu5bp+n88vGYY5SmEG4dlQAQdGxu1F4f/s2AaJt7fjAqPkgIqBQWdoJwTcJ+UJZlvXuY6/ZMFk4jrP8jw2p+mKAVU1R+aShpaesdjHY11BXlZcnnclsNSIftf3FrJ+e9ld9RrC/EgOBSRXQ5pZ/uJCRP6+YAbCPCTqoTeYzU2ZsErFTcQm8uo4Eo7HdeG/pOmw==; Domain=.sec.gov; Path=/; Expires=Thu, 06 Apr 2023 19:38:54 GMT; Max-Age=7200; HttpOnly set-cookie: bm_mi=9E65E05FD3EEEBD2567872C212D6BCB4~YAAQD28RYKgd2FaHAQAAGGKmVxOPZHzRQR7Z1hSSMUaNuDiwGK5DIcNSvSu3dOxaRmYXspZ6Mprd+OIvS67kCR2xUu71pSBgUVrTDyKx9T4ju2W0hRPEKokbsu9cMlUymvtBfgN4EUvTgcQmIhCvAkyRZFKyyVMiCIpMyZoXxw9b83+HAIZyu5apqwhAyO/Kma5KPoACP2V7rvwlFNjWTFeF94jOmFs9OURuYbFlE8/u4/d8lYhBGdWpuNoC19Ouu60H5uhCqM1rikip2oJ0hS06LOatPt6465jPGpR76gxQ0hzJ/atZhemUYA3FMGq7+fJWyBNJq41ga8OU7OdTABS4EsFoXMFIaLQrmA1kqR1Si7bCDM36AjC/bl2eo2aIaPGr1U+rpS0=~1; Domain=.sec.gov; Path=/; Expires=Thu, 06 Apr 2023 17:38:54 GMT; Max-Age=0; Secure Transfer-Encoding: chunked Proxy-Connection: close Connection: close

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

Note 1 - Significant Accounting Policies

Principles of Consolidation:

The consolidated financial statements include the accounts and operations of the Company in which a controlling interest is maintained. Investments in affiliated companies where the Company exercises significant influence, but does not control, and the activities of which it is not the primary beneficiary, are accounted for using the equity method. All intercompany accounts and transactions are eliminated upon consolidation.

Revenue:

A contract exists when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Revenue is generally recognized as performance obligations under the terms of a contract with a customer of the Company are satisfied. Of the Company's revenue, approximately 85% to 90% is from fixed-price contracts and continues to be recognized as of a point in time when products are shipped from the Company's manufacturing or distribution facilities or at a later point in time when control of the products transfers to the customer. The Company recognizes approximately 10% to 15% of revenue over time for services and certain sales of customer-specific product as it satisfies the performance obligations because of the continuous transfer of control to the customer, supported as follows:

•For certain service contracts, this continuous transfer of control to the customer occurs as the Company's service enhances assets that the customer owns and controls at all times, and the Company is contractually entitled to payment for work performed to date plus a reasonable margin.

•For U.S. government contracts, the customer is allowed to unilaterally terminate the contract for convenience, and is required to pay the Company for costs incurred plus a reasonable margin and can take control of any work in process.

•For certain non-U.S. government contracts involving customer-specific products, the customer controls the work in process based on contractual termination clauses or restrictions on the Company's use of the product, and the Company possesses a right to payment for work performed to date plus a reasonable margin.

As a result of control transferring over time for these products and services, revenue is recognized based on progress toward completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company has elected to use the cost-to-cost input measure of progress for these contracts because it best depicts the transfer of goods or services to the customer based on incurring costs on the contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred.

The pricing and payment terms for non-U.S. government contracts are based on the Company's standard terms and conditions or the result of specific negotiations with each customer. The Company's standard terms and conditions require payment 45 to 75 days from the invoice date, but the timing of payment for specific negotiated terms may vary. The Company also has both prime and subcontracts in support of the provision of goods and services to the U.S. government. Certain of these contracts are subject to the Federal Acquisition Regulation ("FAR") and are priced based on competitive market prices. Under the payment terms of certain of those U.S. government fixed-price contracts, the customer pays the Company performance-based payments, which are interim payments of up to 90% of the costs incurred to date based on quantifiable measures of performance or on the achievement of specified events or milestones. Because the customer retains a portion of the contract price until completion of such contracts, certain of these U.S. government fixed-price contracts result in revenue recognized in excess of billings, which is presented within "Unbilled receivables" on the Consolidated Balance Sheets. The portion of the payments retained by the customer until final contract settlement is not considered a significant financing component because the intent is to protect the customer.

---

Note 1 - Significant Accounting Policies (continued)

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Sales, value-added, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. As a practical expedient, the Company may exclude an assessment of whether promised goods or services are performance obligations, if such promised goods and services are immaterial to the customer contract taken as a whole, and combine these with other performance obligations. The Company has also elected not to adjust the promised amount of consideration for the effects of any significant financing component where the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Finally, the Company's policy is to exclude performance obligations resulting from contracts with a duration of one year or less from its disclosures related to remaining performance obligations.

The amount of consideration to which the Company expects to be entitled in exchange for the goods and services is not generally subject to significant variations. However, the Company does offer certain customers rebates, prompt payment discounts, end-user discounts, the right to return eligible products, and/or other forms of variable consideration. The Company estimates this variable consideration using the expected value amount, which is based on historical experience. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company adjusts the estimate of revenue at the earlier of when the amount of consideration the Company expects to receive changes or when the consideration becomes fixed. The Company recognizes the cost of freight and shipping when control of the products or services has transferred to the customer as an expense in "Cost of products sold" on the Consolidated Statement of Income, because those are costs incurred to fulfill the promise recognized, not a separate performance obligation. To the extent certain freight and shipping fees are charged to customers, the Company recognizes the amounts charged to customers as revenues and the related costs as an expense in "Cost of products sold" when control of the related products or services has transferred to the customer.

Contracts are occasionally modified to account for changes in contract specifications, requirements, and pricing. The Company considers contract modifications to exist when the modification either creates new enforceable rights and obligations or changes existing ones. Substantially all of the Company's contract modifications are for goods or services that are distinct from the existing contract. Therefore, the effect of a contract modification on the transaction price and the Company's measure of progress for the performance obligation to which it relates is generally recognized on a prospective basis.

Cash Equivalents:

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Restricted Cash:

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

Accounts Receivable, Less Allowances:

Accounts receivable, less allowances on the Consolidated Balance Sheets include amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. The Company maintains an allowance for doubtful accounts, which represents an estimate of the losses expected from the accounts receivable portfolio, to reduce accounts receivable to their net realizable value. The allowance is based upon historical trends in collections and write-offs, management's judgment of the probability of collecting accounts and management's evaluation of business risk. The Company extends credit to customers satisfying pre-defined credit criteria. The Company believes it has limited concentration of credit risk due to the diversity of its customer base.

Unbilled Receivables:

Unbilled receivables on the Consolidated Balance Sheets primarily include unbilled amounts typically resulting from sales under long-term contracts when the following conditions exist: (i) cost-to-cost method of revenue recognition is utilized; (ii) the revenue recognized exceeds the amount billed to the customer; and (iii) the right to payment is generally subject to the passage of time as milestones are achieved. The amounts recorded for unbilled receivables do not exceed their net realizable value.

---

Note 1 - Significant Accounting Policies (continued)

Inventories:

Inventories are valued at the lower of cost or net realizable value, with approximately 59% valued by the FIFO method and the remaining 41% valued by the LIFO method. The majority of the Company’s domestic inventories are valued by the LIFO method, while all of the Company’s international inventories are valued by the FIFO method.

Investments:

Short-term investments are investments with maturities between three months and one year and are valued at amortized cost, which approximates fair value. The Company held short-term investments as of December 31, 2021 and 2020 with a fair value and cost basis of $56.9 million and $37.6 million, respectively, which were included in "Other current assets" on the Consolidated Balance Sheets.

Property, Plant and Equipment:

Property, plant and equipment, net on the Consolidated Balance Sheets is valued at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred. The provision for depreciation is computed by the straight-line method based upon the estimated useful lives of the assets. The useful lives are 10 to 30 years for buildings, three to 10 years for computer software and three to 20 years for machinery and equipment.

The impairment of long-lived assets is evaluated when events or changes in circumstances indicate that the carrying amount of the asset or related group of assets may not be recoverable. If the expected future undiscounted cash flows are less than the carrying amount of the asset, an impairment loss is recognized at that time to reduce the asset to the lower of its fair value or its net book value.

Leases:

The Company determines if any arrangement is a lease at the inception of a contract. For leases where the Company is the lessee, it recognizes lease assets and related lease liabilities at the lease commencement date based on the present value of lease payments over the lease term. Most of the Company’s leases do not provide an implicit interest rate. As a result, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The lease assets also consist of amounts for favorable or unfavorable lease terms related to acquisitions. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized as depreciation expense and interest expense using the accelerated interest method of recognition. A lease asset and lease liability are not recorded for leases with an initial term of 12 months or less, and the lease expense related to these leases is recognized as incurred over the lease term.

Goodwill and Other Intangible Assets:

Intangible assets subject to amortization are amortized on a straight-line method over their legal or estimated useful lives, with useful lives ranging from one to 20 years. Goodwill and indefinite-lived intangible assets not subject to amortization are tested for impairment at least annually. The Company performs its annual impairment test as of October 1st. Furthermore, goodwill and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying values may not be recoverable in accordance with accounting rules related to goodwill and other intangible assets.

Purchase accounting and business combinations:

Assets acquired and the liabilities assumed as part of a business combination are recognized at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. The Company considers inputs to value the assets and liabilities by taking into account competitive trends, market comparisons, independent appraisals, and historical data, among other factors, as supplemented by current and anticipated market conditions. The valuation inputs in these analyses are based on market participant assumptions. The Company may refine these estimates and record adjustments to an asset or liability with the offset to goodwill during the measurement period, which may be up to one year from the acquisition date. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded in the Company’s Consolidated Statements of Income.

---

Note 1 - Significant Accounting Policies (continued)

Product Warranties:

The Company provides limited warranties on certain of its products. The Company accrues liabilities for warranties generally based upon specific claims and in certain instances based on historical warranty claim experience in accordance with accounting rules relating to contingent liabilities. When the Company becomes aware of a specific potential warranty claim for which liability is probable and reasonably estimable, a specific charge is recorded and accounted for accordingly. Adjustments are made quarterly to the accruals as claim data and historical experience change.

Income Taxes:

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recorded for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss and tax credit carryforwards. The Company recognizes valuation allowances against deferred tax assets by tax jurisdiction when it is more likely than not those assets will not be realized. Accruals for uncertain tax positions are provided for in accordance with ASC 740-10. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. The Company has elected to account for Global Intangible Low Tax ("GILTI") as a period cost.

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. Translation adjustments for assets and liabilities are reflected as a separate component of accumulated other comprehensive loss (income). Foreign currency gains and losses resulting from transactions are included in the Consolidated Statements of Income. Net of related derivative activity, the Company recognized foreign currency exchange losses resulting from transactions of $9.4 million and $10.0 million for the years ended December 31, 2021 and 2020, respectively, and a gain of $6.1 million for the year ended December 31, 2019.

Pension and Other Postretirement Benefits:

The Company recognizes actuarial gains and losses immediately through net periodic benefit cost upon the annual remeasurement in the fourth quarter, or on an interim basis if specific events trigger a remeasurement. Actuarial gains and losses are excluded from segment results, while all other components of net periodic benefit cost will continue to be included within segment results.

Stock-Based Compensation:

The Company recognizes stock-based compensation expense over the related vesting period of the awards based on the fair value on the grant date. Stock options are issued with an exercise price equal to the opening market price of Timken common shares on the date of grant. The fair value of stock options is determined using a Black-Scholes option pricing model, which incorporates assumptions regarding the expected volatility, the expected option life, the risk-free interest rate and the expected dividend yield. The fair value of stock-based awards that will settle in Timken common shares, other than stock options, is based on the opening market price of Timken common shares on the grant date. The fair value of stock-based awards that will settle in cash are remeasured at each reporting period until settlement of the awards. The Company recognizes forfeitures on stock-based awards as they occur. In addition, the Company’s share grants provide for the payment of dividends to employees and the Board of Directors upon vesting; these dividends are charged to retained earnings when paid.

Earnings Per Share:

Certain unvested restricted share grants provide for the payment of non-forfeitable dividends. The Company considers these awards as participating securities. Earnings per share are computed using the two-class method. Basic earnings per share are computed by dividing net income less undistributed earnings allocated to unvested restricted shares by the weighted-average number of common shares outstanding during the year. Diluted earnings per share are computed by dividing net income less undistributed earnings allocated to unvested restricted shares by the weighted-average number of common shares outstanding, adjusted for the dilutive impact of outstanding stock-based awards.

---

Note 1 - Significant Accounting Policies (continued)

Derivative Instruments:

The Company recognizes all derivatives on the Consolidated Balance Sheets at fair value. Derivatives that are not designated as hedges are adjusted to fair value through earnings. If the derivative is designated and qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of the derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in accumulated other comprehensive loss (income) until the hedged item is recognized in earnings. The Company’s holdings of forward foreign currency exchange contracts qualify as derivatives pursuant to the criteria established in derivative accounting guidance, and the Company has designated certain of those derivatives as hedges.

Use of Estimates:

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Because actual results could differ from these estimates, the Company reviews and updates these estimates and assumptions regularly to reflect recent experience.

Recent Accounting Pronouncements:

New Accounting Guidance Adopted:

In December 2019, the FASB issued Accounting Standards Update ("ASU") 2019-12, “Income Taxes (ASC 740) – Simplifying the Accounting for Income Taxes,” which is intended to reduce complexity in the accounting for income taxes while maintaining or improving the usefulness of information provided to financial statement users. The guidance amends certain existing provisions under ASC 740 to address a number of distinct items. This standard was effective for public companies in fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted ASU 2019-12 effective January 1, 2021, and the impact of the adoption was not material to the Company's results of operations and financial condition.

New Accounting Guidance Issued and Not Yet Adopted:

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

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." ASU 2021-08 requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with ASC Topic 606 as if the acquirer had originated the contracts. This new guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company expects to early adopt this guidance in the first quarter of 2022. The impact of the new guidance on the Company's Consolidated Financial Statements and related disclosures will depend on the magnitude of future acquisitions.

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.

---

Note 2 - Acquisitions

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

On November 30, 2020, the Company completed the acquisition of the assets of Aurora. With annual sales of approximately $30 million, Aurora serves a diverse range of industrial sectors, including aerospace and defense, racing, off-highway equipment and packaging. Aurora is headquartered in Montgomery, Illinois. The total purchase price for this acquisition was $17.1 million, including a post-closing net working capital adjustment. Based on markets and customers served, results for Aurora are reported in both the Mobile Industries segment and the Process Industries segment.

The purchase price allocations at fair value, net of cash acquired, for 2021 and 2020 acquisitions as of December 31, 2021 and 2020 are presented below:

			2021			2020
Assets:
Accounts receivable			$	0.2		$	2.7
Inventories			1.1			16.9
Other current assets			—			0.1
Property, plant and equipment			0.6			10.9
Operating lease assets			0.2			—
Goodwill			5.4			—
Other intangible assets			2.2			—
Total assets acquired			$	9.7		$	30.6
Liabilities:
Accounts payable, trade			$	0.3		$	0.8
Other current liabilities			—			0.5
Accrued postretirement liability			1.5			—
Long-term operating lease liabilities			0.2			—
Total liabilities assumed			$	2.0		$	1.3
Net assets acquired			$	7.7		$	29.3
Cash flow reconciling items:
Working capital adjustment related to 2019 acquisitions paid in 2020			—			6.7
Working capital adjustment related to 2020 acquisition received in 2021			(0.2)			—
Bargain purchase price gain			—			(12.0)
Cash paid for acquisitions, net of cash acquired			$	7.5		$	24.0

As a result of applying the accounting rules on business combinations, the Company recognized a bargain purchase price gain of $11.1 million in 2020 on the acquisition of Aurora. In April 2021, the Company received $0.2 million for a working capital adjustment to the purchase price for Aurora in accordance with the purchase agreement. This adjustment, as well as other measurement period adjustments recorded in 2021, resulted in an additional purchase price gain of $0.9 million recognized in 2021. The Company believes it was able to negotiate a bargain purchase price for the business due to some historic operational performance challenges, as well as the seller’s desire to exit the business in an expedited manner in an exclusive process with the Company.

In April 2020, the Company paid $6.7 million for a working capital adjustment to the purchase price for BEKA Lubrication ("BEKA") in accordance with the purchase agreement. This adjustment, as well as other measurement period adjustments recorded in 2020, resulted in an $8.4 million increase to goodwill.

---

Note 2 - Acquisitions (continued)

The amounts for 2021 in the table above represent the preliminary purchase price allocations for iMS. These purchase price allocations, including the residual amount allocated to goodwill, is based on preliminary information and is subject to change as additional information concerning final asset and liability valuations are obtained. As of December 31, 2021, the purchase price allocation for iMS is preliminary as it relates to certain working capital items, including the valuation of inventory and deferred revenue. During the measurement period for this acquisition, the Company will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments had been completed on the acquisition date.

No intangible assets were acquired in 2020. The following table summarizes the purchase price allocation at fair value for identifiable intangible assets acquired in 2021:

			2021
						Weighted- Average Life
Technology and know-how			$	1.5		19 years
Customer Relationships			0.5			2 years
Non-Competes			0.2			5 years
Total intangible assets			$	2.2

---

Note 3 - Revenue

The following table presents details deemed most relevant to the users of the financial statements about total revenue for the years ended December 31, 2021, 2020 and 2019:

			December 31, 2021
			Mobile			Process			Total
United States			$	950.9		$	782.7		$	1,733.6
Americas excluding United States			207.3			188.4			395.7
Europe / Middle East / Africa			487.8			540.3			1,028.1
China			125.8			486.1			611.9
Asia-Pacific excluding China			193.9			169.7			363.6
Net sales			$	1,965.7		$	2,167.2		$	4,132.9
			December 31, 2020
			Mobile			Process			Total
United States			$	853.8		$	699.6		$	1,553.4
Americas excluding United States			168.1			138.0			306.1
Europe / Middle East / Africa			389.9			457.0			846.9
China			102.2			421.0			523.2
Asia-Pacific excluding China			157.6			126.0			283.6
Net sales			$	1,671.6		$	1,841.6		$	3,513.2
			December 31, 2019
			Mobile			Process			Total
United States			$	1,007.1		$	821.0		$	1,828.1
Americas excluding United States			209.6			167.7			377.3
Europe / Middle East / Africa			390.8			489.2			880.0
China			92.1			268.5			360.6
Asia-Pacific excluding China			194.3			149.6			343.9
Net sales			$	1,893.9		$	1,896.0		$	3,789.9

When reviewing revenues by sales channel, the Company separates net sales to OEMs from sales to distributors and end users. The following table presents the percent of revenues by sales channel for the years ended December 31, 2021 and December 31, 2020:    

Revenue by sales channel			December 31, 2021			December 31, 2020
Original equipment manufacturers			60%			60%
Distribution/end users			40%			40%

In addition to disaggregating revenue by segment and geography and by sales channel as shown above, the Company believes information about the timing of transfer of goods or services, type of customer and distinguishing service revenue from product sales is also relevant. During the years ended December 31, 2021 and December 31, 2020, approximately 9% and 11%, respectively, of total net sales were recognized on an over-time basis because of the continuous transfer of control to the customer, with the remainder recognized as of a point in time. Approximately 4% of total net sales represented service revenue in 2021 and 2020, respectively. Finally, business with the U.S. government or its contractors represented approximately 7% of total net sales for 2021 and 2020, respectively.

---

Note 3 - Revenue (continued)

Remaining Performance Obligations:

Remaining performance obligations represent the transaction price of orders meeting the definition of a contract in the new revenue standard for which work has not been performed and excludes unexercised contract options. 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 $234.1 million at December 31, 2021.

Unbilled Receivables:

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

			December 31, 2021
Beginning balance, January 1			$	110.9
Additional unbilled revenue recognized			383.0
Less: amounts billed to customers			(389.4)
Ending balance			$	104.5

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

Note 4 - Segment Information

The Company operates under two reportable segments: (1) Mobile Industries and (2) Process Industries.

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

The Company's reportable segments are business units that target different industry sectors. While the segments often operate using a shared infrastructure, each reportable segment is managed to address specific customer needs in these diverse market segments.

Mobile Industries offers an extensive portfolio of bearings, seals, lubrication devices and systems, as well as power transmission components, engineered chain, augers, belts, couplings, clutches, brakes and related products and maintenance services, to OEMs and end users of: off-highway equipment for the agricultural, construction, mining, outdoor power equipment and powersports markets; on-highway vehicles including passenger cars, light trucks and medium- and heavy-duty trucks; rail cars and locomotives. Beyond service parts sold to OEMs, aftermarket sales and services to individual end users, equipment owners, operators and maintenance shops are handled directly or through the Company's extensive network of authorized automotive and heavy-truck distributors, and include hub units, specialty kits and more. Mobile Industries also provides power transmission systems and flight-critical components for civil and military aircraft, which include bearings, helicopter transmission systems, rotor-head assemblies, turbine engine components, gears and housings.

Process Industries supplies industrial bearings and assemblies, power transmission components such as gears and gearboxes, linear motion products, couplings, seals, lubricants, chains, belts and related products and services to OEMs and end users in industries that place heavy demands on operating equipment they make or use. This includes: metals, mining, cement and aggregate production; wind energy and solar; coal power generation and oil and gas; pulp and paper in applications including printing presses; packaging and automation; and cranes, hoists, drawbridges, gear drives, conveyors, health and critical motion control equipment, marine equipment and food processing equipment. This segment also supports aftermarket sales and service needs through its global network of authorized industrial distributors and through the provision of services directly to end users. In addition, the Company’s industrial services group offers end users a broad portfolio of maintenance support and capabilities that include repair and service for bearings and gearboxes as well as electric motor rewind, repair and services.

---

Note 4 - Segment Information (continued)

Measurement of segment profit or loss and segment assets:

The Company evaluates performance and allocates resources based on return on capital and profitable growth. The primary measurement used by management to measure the financial performance of each segment is EBITDA.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.

Factors used by management to identify the enterprise’s reportable segments:

Net sales by geographic area are reported by the destination of net sales, which is reflective of how the Company operates its segments. Long-lived assets by geographic area are reported by the location of the subsidiary.

Timken’s non-U.S. operations are subject to normal international business risks not generally applicable to a domestic business. These risks include currency fluctuation, changes in tariff restrictions, difficulties in establishing and maintaining relationships with local distributors and dealers, import and export licensing requirements, difficulties in staffing and managing geographically diverse operations and restrictive regulations by foreign governments, including price and exchange controls, compliance with a variety of foreign laws and regulations, including unexpected changes in taxation and environmental regulatory requirements, and disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the FCPA.

Business Segment Information:

The following tables provide segment financial information and a reconciliation of segment results to consolidated results:

			2021			2020			2019
Net sales to external customers:
Mobile Industries			$	1,965.7		$	1,671.6		$	1,893.9
Process Industries			2,167.2			1,841.6			1,896.0
			$	4,132.9		$	3,513.2		$	3,789.9
Segment EBITDA:
Mobile Industries			$	240.1		$	232.5		$	284.9
Process Industries			506.3			442.9			466.6
Total EBITDA, for reportable segments			$	746.4		$	675.4		$	751.5
Unallocated corporate expense			(46.1)			(40.7)			(55.4)
Corporate pension and other postretirement benefit related (expense)    income (1)			(0.3)			(18.5)			4.1
Acquisition-related gain (2)			0.9			11.1			—
Depreciation and amortization			(167.8)			(167.1)			(160.6)
Interest expense			(58.8)			(67.6)			(72.1)
Interest income			2.3			3.7			4.9
Income before income taxes			$	476.6		$	396.3		$	472.4

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

(2) The acquisition-related gain represents a bargain purchase price gain on the acquisition of Aurora, acquired on November 30, 2020. See Note 2 - Acquisitions for additional information.

			2021			2020
Assets employed at year-end:
Mobile Industries			$	2,216.4		$	2,082.2
Process Industries			2,548.3			2,482.6
Corporate (2)			406.0			476.8
			$	5,170.7		$	5,041.6

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

---

Note 4 - Segment Information (continued)

			2021			2020			2019
Capital expenditures:
Mobile Industries			$	52.3		$	70.5		$	74.2
Process Industries			95.4			50.1			65.3
Corporate			0.6			1.0			1.1
			$	148.3		$	121.6		$	140.6
Depreciation and amortization:
Mobile Industries			$	80.1		$	79.7		$	73.6
Process Industries			86.6			86.6			86.2
Corporate			1.1			0.8			0.8
			$	167.8		$	167.1		$	160.6

Geographic Financial Information:

			2021			2020
Property, Plant and Equipment, net:
United States			$	398.2		$	401.8
China			235.3			196.4
India			142.9			140.0
Romania			112.1			118.0
Rest of world			166.8			179.4
			$	1,055.3		$	1,035.6

Refer to Note 3 - Revenue for further information pertaining to geographic net sales information.

---

Note 5 - Income Taxes

Income before income taxes, based on geographic location of the operations to which such earnings are attributable, is provided below. As the Company has elected to treat certain foreign subsidiaries as branches for U.S. income tax purposes, pretax income attributable to the United States shown below may differ from the pretax income reported in the Company’s annual U.S. federal income tax return.

Income before income taxes:

			2021			2020			2019
United States			$	125.8		$	144.1		$	190.7
Non-United States			350.8			252.2			281.7
Income before income taxes			$	476.6		$	396.3		$	472.4

The provision for income taxes consisted of the following:

			2021			2020			2019
Current:
Federal			$	8.1		$	40.3		$	20.8
State and local			3.9			7.9			4.8
Foreign			98.2			78.9			81.0
			$	110.2		$	127.1		$	106.6
Deferred:
Federal			$	(5.2)		$	(19.5)		$	39.8
State and local			(3.4)			(1.3)			6.5
Foreign			(6.5)			(2.4)			(55.2)
			$	(15.1)		$	(23.2)		$	(8.9)
United States and foreign tax provision on income			$	95.1		$	103.9		$	97.7

The Company made net income tax payments of $100.7 million, $119.3 million and $118.6 million in 2021, 2020 and 2019, respectively.

The following table is the reconciliation between the provision for income taxes and the amount computed by applying the U.S. federal income tax rate of 21% to income before taxes:

			2021			2020			2019
Income tax at the U.S. federal statutory rate			$	100.1		$	83.2		$	99.2
Adjustments:
State and local income taxes, net of federal tax benefit			4.0			4.8			7.4
Tax on foreign remittances and U.S. tax on foreign income			15.4			22.5			26.4
Tax expense related to undistributed earnings of foreign subsidiaries			0.1			0.1			6.0
Foreign losses without current tax benefits			2.6			2.5			3.2
Foreign earnings taxed at different rates including tax holidays			15.4			11.1			12.6
U.S. foreign tax credit			(11.5)			(13.8)			(18.3)
Accruals and settlements related to tax audits			(7.7)			3.4			11.1
Valuation allowance changes			(7.8)			(0.7)			(44.5)
Deferred taxes related to branch operations			—			—			5.3
Stock based compensation			(8.1)			(3.1)			(1.8)
Other tax rate change			(1.7)			0.8			(5.0)
Other items, net			(5.7)			(6.9)			(3.9)
Provision for income taxes			$	95.1		$	103.9		$	97.7
Effective income tax rate			20.0		%	26.2		%	20.7		%

---

Note 5 - Income Taxes (continued)

The Company released $7.8 million of foreign valuation allowance for the year ended December 31, 2021, which relates to a valuation allowance that was recorded against Chinese net operating loss carryforwards. Once established, the valuation allowance is released when, based on the weight of all available evidence, management concludes that related deferred tax assets are more likely than not to be realized. Management concluded in the fourth quarter of 2021 that there was sufficient evidence to release the valuation allowance.

For the year ended December 31, 2019, the Company released $44.5 million of foreign valuation allowances, $40.7 million of which relates to the valuation allowance that was recorded against German indefinite-lived loss carryforwards and pension deferred tax assets. As a result of the execution of a tax planning strategy in the fourth quarter of 2019, management reached this conclusion and accordingly released the valuation allowance. Because the local German entity is treated as a branch under U.S. tax law, the valuation allowance release was partially offset by income tax expense of $5.3 million related to a U.S. deferred tax liability.

There are no changes to the Company’s assertion about its permanent reinvestment in undistributed foreign earnings. The Company recorded $0.1 million of income tax expense related to foreign withholding taxes on planned one-time distribution for the years ended December 31, 2021 and 2020, respectively. No additional deferred taxes have been recorded for any other outside basis differences as these amounts continue to be indefinitely reinvested in foreign operations. The amounts of undistributed foreign earnings were $1,249.1 million and $810.3 million at December 31, 2021 and December 31, 2020, respectively. It is not practicable to calculate the additional taxes that might be payable on such unremitted earnings due to the variety of circumstances and tax laws applicable at the time of distribution.

The effect of temporary differences giving rise to deferred tax assets and liabilities at December 31, 2021 and 2020 was as follows:

			2021			2020
Deferred tax assets:
Accrued postretirement benefits cost			$	12.4		$	15.4
Accrued pension cost			49.9			57.4
Other employee benefit accruals			15.7			11.0
Tax loss and credit carryforwards			83.2			90.2
Other, net			63.9			46.7
Valuation allowances			(31.0)			(36.7)
			$	194.1		$	184.0
Deferred tax liabilities - principally depreciation and amortization			(247.9)			(255.7)
Net deferred tax liabilities			$	(53.8)		$	(71.7)

The Company has U.S. federal and state tax credit and loss carryforwards with tax benefits totaling $8.6 million, portions of which will expire in 2022 and continue until 2039. In addition, the Company has loss carryforwards in various non-U.S. jurisdictions with tax benefits totaling $74.5 million, portions of which will expire in 2022 while others will be carried forward indefinitely. The Company has provided valuation allowances of $31.0 million against certain of these carryforwards. A majority of the non-U.S. loss carryforwards represent local country net operating losses for branches of the Company or entities treated as branches of the Company under U.S. tax law for which deferred taxes have been recorded.

---

Note 5 - Income Taxes (continued)

As of December 31, 2021, the Company had $36.1 million of total gross unrecognized tax benefits, $30.7 million of which would favorably impact the Company’s effective income tax rate in any future period if such benefits were recognized. As of December 31, 2021, the Company believes it is reasonably possible that the amount of unrecognized tax positions could decrease by approximately $3.2 million during the next 12 months. The potential decrease would primarily be driven by settlements with tax authorities and the expiration of various applicable statutes of limitation. As of December 31, 2021, the Company had accrued $8.9 million of interest and penalties related to uncertain tax positions. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense.

As of December 31, 2020, the Company had $45.6 million of total gross unrecognized tax benefits, $39.2 million of which would favorably impact the Company’s effective income tax rate in any future period if such benefits were recognized. As of December 31, 2020, the Company had accrued $8.6 million of interest and penalties related to uncertain tax positions.

As of December 31, 2019, the Company had $38.9 million of total gross unrecognized tax benefits, $36.1 million of which would favorably impact the Company’s effective income tax rate in any future period if such benefits were recognized. As of December 31, 2019, the Company had accrued $5.0 million of interest and penalties related to uncertain tax positions.

The following table reconciles the Company’s total gross unrecognized tax benefits for the years ended December 31, 2021, 2020 and 2019:

			2021			2020			2019
Beginning balance, January 1			$	45.6		$	38.9		$	26.0
Tax positions related to the current year:
Additions			1.6			2.2			3.6
Tax positions related to prior years:
Additions			3.7			8.7			11.7
Reductions			(8.1)			(1.0)			(1.1)
Settlements with tax authorities			(1.7)			(0.3)			(1.2)
Lapses in statutes of limitation			(5.0)			(2.9)			(0.1)
Ending balance, December 31			$	36.1		$	45.6		$	38.9

During 2021, gross unrecognized tax benefits decreased primarily for releases of accruals related to closing agreements and lapses in statute of limitations for the U.S. and a favorable non-U.S. transfer pricing settlement. These decreases were partially offset by accruals for uncertain tax positions related to non-U.S. non-deductible expenses.

During 2020, gross unrecognized tax benefits increased primarily for additional accruals for uncertain tax positions related to non-U.S. transfer pricing along with prior year tax matters in multiple jurisdictions related to previous acquisitions and non-deductible expenses. These increases were partially offset by releases of accrual for lapses in statutes of limitations.

During 2019, gross unrecognized tax benefits increased primarily for additional accruals for uncertain tax positions related to The Tax Cut and Jobs Act of 2017 along with prior year tax matters in multiple jurisdictions related to acquisitions. These increases were partially offset by settlements with the tax authorities for prior year tax matters related to the Company’s foreign operations.

As of December 31, 2021 the Company is subject to examination by the IRS for tax years 2017 to the present. The Company also is subject to tax examination in various U.S. state and local tax jurisdictions for tax years 2014 to the present, as well as various foreign tax jurisdictions, including Mexico, China, Poland, France, Germany and India for tax years as early as 1999 to the present. The Company’s unrecognized tax benefits are presented on the Consolidated Balance Sheets as a component of other non-current liabilities, or in certain instances, as a reduction to deferred income taxes.

---

Note 6 - 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 years ended December 31, 2021, 2020 and 2019: 

			2021			2020			2019
Numerator:
Net income attributable to The Timken Company			$	369.1		$	284.5		$	362.1
Less: undistributed earnings allocated to nonvested stock			—			—			—
Net income available to common shareholders for basic and diluted earnings per share			$	369.1		$	284.5		$	362.1
Denominator:
Weighted average number of shares outstanding - basic			75,885,316			75,354,280			75,758,123
Effect of dilutive securities:
Stock options and awards - based on the treasury stock method			1,121,273			1,047,086			1,138,442
Weighted average number of shares outstanding, assuming dilution of stock options and awards			77,006,589			76,401,366			76,896,565
Basic earnings per share			$	4.86		$	3.78		$	4.78
Diluted earnings per share			$	4.79		$	3.72		$	4.71

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

Note 7 - Inventories

The components of inventories at December 31, 2021 and 2020 were as follows:

			2021			2020
Manufacturing supplies			$	38.0		$	34.8
Raw materials			121.8			99.5
Work in process			418.4			320.3
Finished products			527.8			441.2
Subtotal			$	1,106.0		$	895.8
Allowance for surplus and obsolete inventory			(63.3)			(54.5)
Total Inventories, net			$	1,042.7		$	841.3

Inventories at December 31, 2021 valued on the FIFO cost method were 59% and the remaining 41% were valued by the LIFO method. If all inventories had been valued at FIFO, inventories would have been $199.4 million and $172.1 million greater at December 31, 2021 and 2020, respectively. The Company recognized an increase in its LIFO reserve of $27.3 million during 2021, compared to an increase in its LIFO reserve of $3.2 million during 2020. The increase in inventories from 2020 was primarily due to higher demand levels and longer supply chain lead times.

---

Note 8 - Property, Plant and Equipment

The components of property, plant and equipment, net at December 31, 2021 and 2020 were as follows:

			2021			2020
Land and buildings			$	554.1		$	535.3
Machinery and equipment			2,252.4			2,206.2
Subtotal			$	2,806.5		$	2,741.5
Less: accumulated depreciation			(1,751.2)			(1,705.9)
Property, Plant and Equipment, net			$	1,055.3		$	1,035.6

Note 9 - Goodwill and Other Intangible Assets

Goodwill:

The Company tests goodwill and indefinite-lived intangible assets for impairment at least annually, performing its annual impairment test as of October 1st. Furthermore, goodwill and indefinite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

The Company reviews goodwill for impairment at the reporting unit level. The Mobile Industries segment has four reporting units and the Process Industries segment has two reporting units. Changes in the carrying value of goodwill were as follows:

Year ended December 31, 2021:

			Mobile Industries			Process Industries			Total
Beginning Balance			$	384.6		$	663.0		$	1,047.6
Acquisitions			—			5.4			5.4
Foreign currency translation adjustments			(12.9)			(17.4)			(30.3)
Ending Balance			$	371.7		$	651.0		$	1,022.7

The acquisition of iMS added $5.4 million of goodwill. The goodwill for iMS is expected to be 100% tax deductible.

Year ended December 31, 2020:

			Mobile Industries			Process Industries			Total
Beginning Balance			$	361.3		$	632.4		$	993.7
Acquisitions			5.6			2.8			8.4
Foreign currency translation adjustments and other changes			17.7			27.8			45.5
Ending Balance			$	384.6		$	663.0		$	1,047.6

In 2020, the $8.4 million addition from acquisitions was the result of the measurement period adjustments related to the 2019 acquisitions of BEKA and The Diamond Chain Company ("Diamond Chain"), bringing total goodwill to $52.6 million for these acquisitions. Approximately $19.0 million of this amount was tax deductible.

No material goodwill impairment losses were recorded in 2021, 2020 or 2019.

---

Note 9 - Goodwill and Other Intangible Assets (continued)

Intangible Assets:

The following table displays intangible assets as of December 31, 2021 and 2020:

			2021									2020
			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
Intangible assets subject  to amortization:
Customer relationships			$	518.1		$	(189.3)		$	328.8		$	532.2		$	(161.9)		$	370.3
Technology and know-how			270.7			(86.6)			184.1			277.2			(72.0)			205.2
Trade names			14.3			(9.6)			4.7			14.2			(8.8)			5.4
Capitalized Software			280.0			(261.3)			18.7			276.4			(254.6)			21.8
Other			4.7			(3.6)			1.1			4.7			(3.7)			1.0
			$	1,087.8		$	(550.4)		$	537.4		$	1,104.7		$	(501.0)		$	603.7
Intangible assets not  subject to amortization:
Trade names			$	122.7					$	122.7		$	129.0					$	129.0
FAA air agency certificates			8.7						8.7			8.7						8.7
			$	131.4					$	131.4		$	137.7					$	137.7
Total intangible assets			$	1,219.2		$	(550.4)		$	668.8		$	1,242.4		$	(501.0)		$	741.4

Amortization expense for intangible assets was $54.5 million, $56.2 million and $57.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. Amortization expense included $46.8 million, $47.3 million and $46.7 million related to intangible assets acquired as part of a business combination for the years ended December 31, 2021, 2020 and 2019, respectively. Amortization expense for intangible assets is estimated to be approximately $49.1 million in 2022, $46.1 million in 2023, $44.0 million in 2024, $42.8 million in 2025 and $41.4 million in 2026. Substantially all amortization expense for intangible assets is recorded in Cost of product sold on the Consolidated Statements of Income.

Note 10 - Other Current Liabilities

The following table displays other current liabilities as of December 31, 2021 and 2020:

(Dollars in millions)			December 31,
			2021			2020
Sales rebates			$	70.3		$	41.1
Product warranty			11.7			9.4
Operating lease liabilities			26.2			27.2
Professional fees			10.8			9.6
Restructuring			7.0			8.0
Taxes other than income and payroll taxes			16.0			15.7
Interest			10.8			10.8
Other			97.8			92.3
Total Current Liabilities			$	250.6		$	214.1

---

Note 11 - Leasing

The Company enters into operating and finance leases for manufacturing facilities, warehouses, sales offices, information technology equipment, plant equipment, vehicles and certain other equipment.

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

			December 31, 2021			December 31, 2020
Operating lease expense			$	34.1		$	36.0
Amortization of right-of-use assets on finance leases			2.3			1.5
Total lease expense			$	36.4		$	37.5

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

Operating Leases			December 31, 2021			December 31, 2020
Lease assets:
Operating lease assets			$	118.9		$	118.2
Lease liabilities:
Short-term operating lease liabilities			$	26.2		$	27.2
Long-term operating lease liabilities			77.6			75.5
Total operating lease liabilities			$	103.8		$	102.7

Finance Leases			December 31, 2021			December 31, 2020
Lease assets:
Property, plant and equipment, net			$	5.3		$	5.3
Lease liabilities:
Current portion of long-term debt			$	1.4		$	0.8
Long-term debt			2.9			2.9
Total finance lease liabilities			$	4.3		$	3.7

Future minimum lease payments under non-cancellable leases at December 31, 2021 were as follows:

			Operating Leases			Finance Leases
Year Ending December 31,
2022			$	29.2		$	2.0
2023			22.1			1.2
2024			16.1			0.7
2025			13.2			0.4
2026			10.5			0.1
Thereafter			25.5			—
Total future minimum lease payments			$	116.6		$	4.4
Less: imputed interest			(12.8)			(0.1)
Total			$	103.8		$	4.3

.

---

Note 11 - Leasing (continued)

The following tables present other information related to leases:

			December 31, 2021			December 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	32.9		$	35.7
Financing cash flows from finance leases			2.2			1.2
Lease assets added in the period:
Operating leases			$	22.9		$	39.9
Finance leases			1.2			0.9

			December 31, 2021			December 31, 2020
Weighted-average remaining lease term:
Operating leases			5.4 years			5.1 years
Finance leases			2.9 years			2.9 years
Weighted-average discount rate:
Operating leases			3.30		%	3.69		%
Finance leases			2.71		%	2.55		%

Note 12 - Financing Arrangements

Short-term debt as of December 31, 2021 and 2020 was as follows:

			2021			2020
Variable-rate Accounts Receivable Facility with an interest rate of 0.96% at December 31, 2020			$	—		$	58.0
Borrowings under lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 0.50% to 2.00% at December 31, 2021 and 0.24% to 1.75% at December 31, 2020			42.6			61.8
Short-term debt			$	42.6		$	119.8

The Company renewed the Accounts Receivable Facility on November 30, 2021. The $100.0 million facility matures on November 30, 2024. Under the terms of the Accounts Receivable Facility, the Company sells, on an ongoing basis, certain domestic trade receivables to Timken Receivables Corporation, a wholly owned consolidated subsidiary that, in turn, uses the trade receivables to secure borrowings that are funded through a vehicle that issues commercial paper in the short-term market. Borrowings under the Accounts Receivable Facility may be limited to certain borrowing base limitations. These limitations reduced the availability of the Accounts Receivable Facility to $92.0 million at December 31, 2021. As of December 31, 2021, there were no outstanding borrowings under the Accounts Receivable Facility. The cost of this facility, which is the prevailing commercial paper rate plus facility fees, is considered a financing cost and is included in interest expense in the Consolidated Statements of Income. The interest rate was 0.9%, 1.0% and 2.8% at December 31, 2021, 2020 and 2019, respectively.

The lines of credit for certain of the Company’s foreign subsidiaries provide for short-term borrowings up to $295.3 million in the aggregate. Most of these lines of credit are uncommitted. At December 31, 2021, the Company’s foreign subsidiaries had borrowings outstanding of $42.6 million and bank guarantees of $0.4 million, which reduced the aggregate availability under these facilities to $252.3 million. The weighted-average interest rate on these lines of credit during the year were 0.8%, 0.6% and 0.5% in 2021, 2020 and 2019, respectively. The increase in the weighted-average interest rate was primarily due to a higher borrowing rates. The weighted-average interest rate on lines of credit outstanding at December 31, 2021 and 2020 was 0.6% and 0.8%, respectively.

---

Note 12 - Financing Arrangements (continued)

Long-term debt as of December 31, 2021 and 2020 was as follows:

			2021			2020
Variable-rate Senior Credit Facility with an average interest rate on U.S. Dollar of 1.09% and Euro of 1.00% at December 31, 2021 and 2.01% and 1.48%, respectively, at December 31, 2020			$	9.0		$	9.7
Variable-rate Term Loan(1), maturing on September 11, 2023, with an interest rate of 1.23% at December 31, 2021 and of 1.63% at December 31, 2020.			321.1			329.6
Fixed-rate Senior Unsecured Notes(1), maturing on September 1, 2024, with an interest rate of 3.875%			349.5			349.0
Fixed-rate Euro Senior Unsecured Notes(1), maturing on September 7, 2027, with an interest rate of 2.02%			170.3			182.9
Fixed-rate Senior Unsecured Notes(1), maturing on December 15, 2028, with an interest rate of 4.50%			396.9			396.5
Fixed-rate Medium-Term Notes, Series A(1), maturing at various dates through May 2028, with interest rates ranging from 6.74% to 7.76%			154.7			154.7
Fixed-rate Bank Loan, maturing on June 30, 2033, with an interest rate of 2.15%			15.8			18.8
Other			5.0			3.6
Total debt			$	1,422.3		$	1,444.8
Less current maturities			11.2			10.9
Long-term debt			$	1,411.1		$	1,433.9

(1) Net of discount and fees

The Company entered into the Senior Credit Facility on June 25, 2019. The Senior Credit Facility amends and restates the Company's previous credit agreement, dated as of June 19, 2015. The Senior Credit Facility is a $650.0 million unsecured revolving credit facility, which matures on June 25, 2024. At December 31, 2021, the Company had $9.0 million of outstanding borrowings under the Senior Credit Facility, which reduced the availability under this facility to $641.0 million. The Senior Credit Facility has two financial covenants: a consolidated leverage ratio and a consolidated interest coverage ratio. On May 27, 2020, the Senior Credit Facility was amended to, among other things, effectively increase the limit with respect to the consolidated leverage ratio. As amended, the consolidated leverage ratio was calculated using a net debt construct, netting unrestricted cash in excess of $25 million, instead of total debt. The change to the consolidated leverage ratio calculation was effective through June 30, 2021. In the third quarter of 2021, the calculation of the consolidated leverage ratio under the Senior Credit Facility reverted back to a total debt construct.

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

On September 11, 2018, the Company entered into the $350 million 2023 Term Loan. Proceeds from the 2023 Term Loan were used to fund the acquisitions of Apiary Investments Holding Limited and Rollon S.p.A., which closed on September 1, 2018 and September 18, 2018, respectively. On July 12, 2019, the Company amended the 2023 Term Loan agreement to, among other things, align covenants and other terms with the Senior Credit Facility. On May 27, 2020, the 2023 Term Loan agreement was further amended to align the calculation of the consolidated leverage ratio and other terms with the Senior Credit Facility. The change to the consolidated leverage ratio calculation was effective through June 30, 2021. In the third quarter of 2021, the calculation of the consolidated leverage ratio under the 2023 Term Loan reverted back to a total debt construct.

On September 18, 2017, the Company entered into the €100 million variable-rate term loan that matured on September 18, 2020 (the "2020 Term Loan"). Upon the final payment during the third quarter of 2020, the Company fully repaid the 2020 Term Loan.

At December 31, 2021, 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 December 31, 2021, outstanding letters of credit totaled $42.8 million, primarily having expiration dates within 12 months.

---

Note 12 - Financing Arrangements (continued)

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

Year
2022			$	11.2
2023			9.8
2024			305.3
2025			359.3
2026			1.0
Thereafter			735.7

Interest paid was $56.5 million in 2021, $65.2 million in 2020 and $67.4 million in 2019. This differs from interest expense due to the timing of payments, the amortization of deferred financing fees and interest capitalized of $2.6 million in 2021, $1.5 million in 2020 and $1.1 million in 2019.

---

Note 13 - Contingencies

The Company and certain of its subsidiaries have been identified as potentially responsible parties for investigation and remediation under the CERCLA, known as the Superfund, or similar state laws with respect to certain sites. Claims for investigation and remediation have been asserted against numerous other entities, which are believed to be financially solvent and are expected to fulfill their proportionate share of the obligation.

On December 28, 2004, the United States Environmental Protection Agency (“USEPA”) sent Lovejoy, Inc. ("Lovejoy") a Special Notice Letter that identified Lovejoy as a potentially responsible party, together with at least 14 other companies, at the Ellsworth Industrial Park Site in Downers Grove, DuPage County, Illinois (the “Site”). The Company 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 $6.0 million and $5.3 million for various known environmental matters that are probable and reasonably estimable as of December 31, 2021 and 2020, respectively, which includes the Lovejoy matter discussed 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 products. The product warranty liability included in other current liabilities on the Consolidated Balance Sheets for 2021 and 2020 was $11.7 million and $9.4 million, respectively. The increase in the liability during 2021 primarily relates to accruals that are based on the best estimate of costs for future claims based on products sold that are still under warranty. The estimate of these accruals is based on historical claims and expected trends that continue to mature. Any significant change to these assumptions may be material to the results of operations in any particular period in which that change occurs.

The following is a rollforward of the consolidated product warranty accrual at December 31, 2021 and December 31, 2020, respectively:

			December 31, 2021			December 31, 2020
Beginning balance, January 1			$	9.4		$	7.5
Expense			10.1			9.4
Payments			(7.8)			(7.5)
Ending balance			$	11.7		$	9.4

---

Note 14 - Stock Compensation

Under its long-term incentive plan, the Company's common shares have been made available for grant, at the discretion of the Compensation Committee of the Board of Directors, to officers, directors and other key employees. Grants can take the form of performance- or time-based restricted stock units, deferred shares and stock options. A summary of the awards granted in 2021 is presented below:

			Expected to be Settled in Equity			Expected to be Settled in Cash			Total Awards Granted
Performance-based restricted stock units			171,615			6,390			178,005
Time-based restricted stock units			131,115			4,320			135,435
Deferred shares			4,100			1,250			5,350

Performance-based restricted stock units are calculated and awarded based on the achievement of specified performance objectives and cliff vest three years from the date of grant. Time-based restricted stock units generally vest in 25% increments annually beginning on the first anniversary of the grant. Deferred shares generally cliff vest five years from the date of grant. For time-based restricted stock units that are expected to settle in cash, the Company had $0.9 million and $1.0 million accrued in salaries, wages and benefits as of December 31, 2021 and 2020, respectively, on the Consolidated Balance Sheets.

A summary of stock award activity, including performance-based restricted stock units, time-based restricted stock units and deferred shares that will settle in common shares for the year ended December 31, 2021 is as follows:

			Number of Shares			Weighted-average Grant Date Fair Value
Outstanding - beginning of year			1,125,472			$	46.50
Granted - new awards			306,830			75.57
Adjusted for performance results achieved (1)			181,933			44.65
Vested			(577,948)			44.18
Canceled or expired			(42,316)			56.55
Outstanding - end of year			993,971			$	56.06

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

As of December 31, 2021, a total of 993,971 stock awards have been awarded that have not yet vested. The Company distributed shares totaling 577,948 in 2021, 557,590 in 2020 and 539,396 in 2019 due to the vesting of stock awards. The grant date fair value of these vested shares was $25.5 million, $24.4 million and $17.3 million, respectively. The Company recognized compensation expense of $18.2 million, $19.6 million and $22.3 million for the years ended December 31, 2021, 2020 and 2019, respectively, relating to performance-based restricted stock units, time-based restricted stock units, deferred shares and restricted shares.

In addition to performance-based restricted stock units, time-based restricted stock units and deferred shares, the Company has granted stock option awards to officers and key employees. Stock options typically have a ten-year term and generally vest in 25% increments beginning annually on the first anniversary date of grant.

---

Note 14 - Stock Compensation (continued)

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

Beginning in 2020, the Company discontinued the use of nonqualified stock options. As such, there were no stock option awards granted in 2021 or 2020. The fair value of stock option awards granted in 2019 was estimated at the date of grant using a Black-Scholes option-pricing method with the following assumptions:

									2019
Weighted-average fair value per option									$	9.58
Risk-free interest rate									2.46		%
Dividend yield									2.52		%
Expected stock volatility									28.29		%
Expected life									5 years

Historical information was the primary basis for the selection of the expected dividend yield, expected volatility and the expected lives of the options. The dividend yield was calculated based upon the last dividend prior to the grant compared to the trailing 12 months' daily stock prices. The risk-free interest rate was based upon yields of U.S. zero coupon issues with a term equal to the expected life of the option being valued.

A summary of stock option award activity for the year ended December 31, 2021 is presented below:

			Number of Shares			Weighted-average Exercise Price			Weighted-average Remaining Contractual Term			Aggregate Intrinsic Value (millions)
Outstanding - beginning of year			1,904,749			$	40.53
Exercised			(674,705)			38.55
Canceled or expired			(12,099)			43.16
Outstanding - end of year			1,217,945			$	41.59		7 years			$	33.7
Options expected to vest			1,217,945			41.59			7 years			33.7
Options exercisable			890,855			41.00			6 years			25.2

The total intrinsic value of stock option awards exercised during the years ended December 31, 2021, 2020 and 2019 was $29.4 million, $20.7 million and $13.4 million, respectively. Net cash proceeds from the exercise of stock option awards were $26.0 million, $37.4 million and $27.5 million, respectively.

As of December 31, 2021, the Company had unrecognized compensation expense of $23.4 million related to stock options and stock awards, which is expected to be recognized over a total weighted-average period of two years. There were 6.4 million shares available for future grants for all plans at December 31, 2021.

---

Note 15 - Impairment and Restructuring Charges

Impairment and restructuring charges by segment were as follows:

Year ended December 31, 2021:

			Mobile Industries			Process Industries			Unallocated Corporate			Total
Impairment charges			$	1.1		$	3.4		$	—		$	4.5
Severance and related benefit costs			1.7			0.9			—			2.6
Exit costs			1.4			0.4			—			1.8
Total			$	4.2		$	4.7		$	—		$	8.9

Year ended December 31, 2020:

			Mobile Industries			Process Industries			Unallocated Corporate			Total
Impairment charges			$	0.2		$	0.2		$	—		$	0.4
Severance and related benefit costs			8.2			11.0			0.4			19.6
Exit costs			0.6			0.6			—			1.2
Total			$	9.0		$	11.8		$	0.4		$	21.2

Year ended December 31, 2019:

			Mobile Industries			Process Industries			Unallocated Corporate			Total
Impairment charges			$	1.8		$	0.8		$	—		$	2.6
Severance and related benefit costs			1.6			0.9			0.5			3.0
Exit costs			0.2			1.0			—			1.2
Total			$	3.6		$	2.7		$	0.5		$	6.8

The following discussion explains the major 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.

COVID-19 Pandemic Cost Reduction Initiatives:

During 2020, the Company recorded severance and related benefit costs of $12.0 million to eliminate approximately 200 salaried positions to align current employment levels with customer demand. Of the $12.0 million charge, $5.8 million related to the Mobile Industries segment, $5.8 million related to the Process Industries segment and $0.4 million related to Unallocated Corporate.

Mobile Industries:

On July 19, 2021, the Company announced the closure of its bearing manufacturing facility in Villa Carcina, Italy. The Company will be transferring the manufacturing of its single-row tapered roller bearing production to other bearing facilities in Europe, Asia and the United States. The Company expects to complete the closure by June of 2022 and is expected to affect approximately 110 employees. The Company expects to incur approximately $9 million to $11 million of expenses related to this closure. During 2021, the Company recorded impairment charges of $1.0 million, severance and related benefit costs of $1.8 million and exit costs of $1.1 million related to this closure. The Company has incurred cumulative pretax costs related to this closure of $6.5 million as of December 31, 2021, including rationalization costs recorded in cost of products sold. On January 31, 2022, the Company entered into an agreement to sell this facility with the sale expected to close in the fourth quarter of 2022.

---

Note 15 - Impairment and Restructuring Charges (continued)

On October 16, 2019, the Company announced the reorganization of its bearing plant in Gaffney, South Carolina. The Company transferred its high-volume bearing production and roller production to other Timken manufacturing facilities in the U.S. The transfer of these operations was substantially completed by the end of the third quarter of 2020 and is expected to affect approximately 150 employees. The Company expected to incur approximately $8 million to $10 million of pretax costs in total related to this reorganization. During 2020 and 2019, the Company recognized severance and related benefits of $0.3 million and $1.3 million, respectively, and exit costs of $0.4 million and $0.1 million, respectively, related to this reorganization. The Company has incurred cumulative pretax costs related to this reorganization of $7.7 million as of December 31, 2021, including rationalization costs recorded in cost of products sold.

Process Industries:

On February 4, 2020, the Company announced the closure of its chain plant in Indianapolis, Indiana. This plant was part of the Diamond Chain acquisition completed on April 1, 2019. The Company will be transferring the manufacturing of its Diamond Chain product line to its chain facility in Fulton, Illinois. The chain plant is expected to cease operations by the end of the second quarter of 2022 and is expected to affect approximately 240 employees. The Company expects to hire approximately 130 full-time positions in Fulton, Illinois and expects to incur approximately $10 million to $12 million of expenses related to this closure. During 2021 and 2020, the Company recorded severance and related benefit costs of $1.2 million and $3.1 million related to this closure. The Company has incurred cumulative pretax costs related to this closure of $9.9 million as of December 31, 2021, including rationalization costs recorded in cost of products sold.

On September 3, 2020, the Company announced the reorganization of its bearing plant in Canton, Ohio. The Company will be transferring production for certain product lines to other Timken locations in order to streamline resources and better align capacity with demand. The transfer of these operations is expected to occur by 2022 and is expected to affect approximately 40 employees. The Company expects to incur approximately $2.0 million to $2.5 million of pretax costs related to this reorganization. During 2020, the Company recognized severance and related benefits of $1.1 million related to this reorganization. The Company has incurred cumulative pretax costs related to this reorganization of $0.7 million as of December 31, 2021, including rationalization costs recorded in cost of products sold.

In addition, the Company recorded impairment charges of $3.4 million related to certain engineering-related assets used in the business during the year ended December 31, 2021. Management concluded no further investment would be made in these assets and as a result, reduced the value to zero.

Consolidated Restructuring Accrual:

The following is a rollforward of the consolidated restructuring accrual for the years ended December 31, 2021 and 2020:

			2021			2020
Beginning balance, January 1			$	8.0		$	2.7
Expense			4.4			20.8
Payments			(5.4)			(15.5)
Ending balance, December 31			$	7.0		$	8.0

---

Note 16 - Retirement Benefit Plans

The Company and its subsidiaries sponsor a number of defined benefit pension plans, which cover eligible employees, including certain employees in foreign countries. These plans generally are noncontributory. Pension benefits earned generally are based on years of service and compensation during active employment. The cash contributions and payments for the Company’s defined benefit pension plans were $20.4 million, $17.9 million and $35.4 million in 2021, 2020 and 2019, respectively. The 2021 contributions and payments included a $10 million payout of deferred compensation to a former executive officer of the Company, and the 2019 contributions and payments included a $24 million payout of deferred compensation to a former executive officer of the Company.

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

			U.S. Plans									International Plans
			2021			2020			2019			2021			2020			2019
Components of net periodic benefit cost:
Service cost			$	9.5		$	10.7		$	10.7		$	2.0		$	1.8		$	1.5
Interest cost			17.6			21.0			23.5			4.4			5.5			7.3
Expected return on plan assets			(23.2)			(25.3)			(25.8)			(10.2)			(8.7)			(10.2)
Amortization of prior service cost			1.2			1.6			1.6			0.2			0.2			0.2
Recognition of net actuarial losses    (gains)			13.9			(3.9)			(3.5)			(9.5)			20.1			17.4
Curtailment losses			—			0.9			—			—			—			—
Net periodic benefit cost (credit)			$	19.0		$	5.0		$	6.5		$	(13.1)		$	18.9		$	16.2

Assumptions			2021			2020			2019
U.S. Plans:
Discount rate			2.71% to 2.91%			3.04% to 3.55%			3.67% to 4.43%
Future compensation assumption			2.50		%	2.50		%	2.50		%
Expected long-term return on plan assets			4.15% to 4.90%			4.50% to 6.25%			5.35% to 6.25%
International Plans:
Discount rate			0.25% to 7.75%			0.75% to 9.00%			1.50% to 11.00%
Future compensation assumption			1.90% to 8.18%			2.00% to 8.20%			2.00% to 8.23%
Expected long-term return on plan assets			2.00% to 9.00%			1.75% to 9.00%			2.50% to 9.00%

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

Assumptions			2021			2020
U.S. Plans:
Discount rate			3.03% to 3.09%			2.71% to 2.91%
Future compensation assumption			2.50% to 3.50%			2.50		%
International Plans:
Discount rate			1.00% to 9.50%			0.25% to 7.75%
Future compensation assumption			2.10% to 8.00%			1.90% to 8.18%

---

Note 16 - Retirement Benefit Plans (continued)

The Company recognized actuarial losses of $4.4 million during 2021 primarily due to the impact of lower than expected returns on plan assets of $28.4 million, the impact of experience losses of $9.3 million, the impact of inflation of $8.5 million and other changes in actuarial assumptions of $3.2 million, partially offset by the net increase in the discount rate used to measure its defined benefit pension obligations of $45.0 million. The impact of the net increase in the discount rate used to measure the Company's defined benefit pension obligations was primarily driven by a 55 basis point increase in the discount rate used to measure its U.K. plan obligations, which increased from 1.25% in 2020 to 1.80% in 2021, and a 23 basis point increase in the weighted-average discount rate used to measure its U.S. plan obligations, which increased from 2.84% in 2020 to 3.07% in 2021.

The Company recognized actuarial losses of $16.2 million during 2020 primarily due to the impact of a net reduction in the discount rate used to measure its defined benefit pension obligations of $88.0 million and the impact of experience losses of $16.9 million, partially offset by higher than expected returns on plan assets of $84.3 million and other changes in valuation assumptions of $4.4 million. The impact of the net reduction in the discount rate used to measure the Company's defined benefit pension obligations was primarily driven by a 66 basis point reduction in the weighted-average discount rate used to measure its U.S. plan obligations, which decreased from 3.50% in 2019 to 2.84% in 2020.

The Company recognized actuarial losses of $13.9 million during 2019 primarily due to the impact of a net reduction in the discount rate used to measure its defined benefit pension obligations of $100.9 million and the impact of experience losses and other changes in valuation assumptions of $3.1 million, partially offset by higher than expected returns on plan assets of $90.1 million. The impact of the net reduction in the discount rate used to measure the Company's defined benefit pension obligations was primarily driven by a 86 basis point reduction in the weighted-average discount rate used to measure its U.S. plan obligations, which decreased from 4.36% in 2018 to 3.50% in 2019.

For expense purposes in 2021, the Company applied a weighted-average discount rate of 2.84% to its U.S. defined benefit pension plans. For expense purposes in 2022, the Company will apply a weighted-average discount rate of 3.07% to its U.S. defined benefit pension plans.

For expense purposes in 2021, the Company applied a weighted-average expected rate of return of 4.69% for the Company’s U.S. pension plan assets. For expense purposes in 2022, the Company will apply a weighted-average expected rate of return on plan assets of 4.78%.

---

Note 16 - Retirement Benefit Plans (continued)

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

			U.S. Plans						International Plans
			2021			2020			2021			2020
Change in benefit obligation:
Benefit obligation at beginning of year			$	663.1		$	634.7		$	379.7		$	328.8
Service cost			9.5			10.7			2.0			1.8
Interest cost			17.6			21.0			4.4			5.5
Plan amendments			—			0.1			0.5			—
Actuarial (gains) losses			(4.4)			56.6			(19.6)			43.9
International plan exchange rate change			—			—			(8.7)			14.1
Curtailments			—			0.3			—			—
Benefits paid			(119.5)			(60.3)			(15.2)			(14.4)
Benefit obligation at end of year			$	566.3		$	663.1		$	343.1		$	379.7

Change in plan assets:
Fair value of plan assets at beginning of year			$	553.3		$	520.2		$	312.8		$	274.7
Actual return on plan assets			4.9			85.8			0.1			32.5
Company contributions / payments			17.0			7.6			3.4			10.3
International plan exchange rate change			—			—			(4.3)			9.7
Benefits paid			(119.5)			(60.3)			(15.2)			(14.4)
Fair value of plan assets at end of year			455.7			553.3			296.8			312.8
Funded status at end of year			$	(110.6)		$	(109.8)		$	(46.3)		$	(66.9)

Amounts recognized on the Consolidated Balance Sheets:
Non-current assets			$	1.1		$	1.8		$	3.9		$	0.2
Current liabilities			(4.9)			(14.2)			(1.4)			(1.5)
Non-current liabilities			(106.8)			(97.4)			(48.8)			(65.6)
			$	(110.6)		$	(109.8)		$	(46.3)		$	(66.9)

Amounts recognized in accumulated other comprehensive      loss (income):
Net prior service cost			$	1.5		$	2.7		$	4.2		$	3.9
Accumulated other comprehensive loss (income)			$	1.5		$	2.7		$	4.2		$	3.9

Changes in prior service cost recognized in accumulated other comprehensive loss (income):
Accumulated other comprehensive loss (income) at beginning      of year			$	2.7		$	4.8		$	3.9		$	3.9
Prior service cost			—			0.1			0.5			—
Recognized prior service cost			(1.2)			(1.6)			(0.2)			(0.2)
Loss recognized due to curtailment			—			(0.6)			—			—
Foreign currency impact			—			—			—			0.2
Total recognized in accumulated other comprehensive      loss (income) at December 31			$	1.5		$	2.7		$	4.2		$	3.9

---

Note 16 - Retirement Benefit Plans (continued)

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

Defined benefit pension plans in the U.S. represent 62% of the benefit obligation and 61% of the fair value of plan assets as of December 31, 2021.

Certain of the Company’s defined benefit pension plans were overfunded as of December 31, 2021. As a result, $5.0 million and $2.0 million at December 31, 2021 and 2020, respectively, are included in other non-current assets on the Consolidated Balance Sheets. The current portion of accrued pension benefits, which was included in salaries, wages and benefits on the Consolidated Balance Sheets, was $6.3 million and $15.7 million at December 31, 2021 and 2020, respectively. The decrease in the current portion of accrued pension benefits relates to the 2021 deferred compensation payment to a former executive officer of the Company. In 2021, the current portion of accrued pension benefits relates to unfunded plans and represents the actuarial present value of expected payments related to the plans to be made over the next 12 months.

The accumulated benefit obligation at December 31, 2021 exceeded the market value of plan assets for several of the Company’s pension plans. For these plans, the projected benefit obligation was $574.8 million, the accumulated benefit obligation was $568.0 million and the fair value of plan assets was $413.8 million at December 31, 2021.

The total accumulated benefit obligation for all plans was $897.6 million and $1,026.3 million at December 31, 2021 and 2020, respectively.

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

As of December 31, 2021, 2020 and 2019, the Company’s defined benefit pension plans did not directly hold any of the Company’s common shares.

Plan Assets:

The Company’s target allocation for pension plan assets, as well as the actual pension plan asset allocations as of December 31, 2021 and 2020, was as follows: 

			Current Target Allocation									Percentage of Pension Plan Assets at December 31,
Asset Category												2021			2020
Equity securities			17%			to			23%			19%			22%
Fixed income securities			71%			to			83%			78%			75%
Other investments			2%			to			4%			3%			3%
Total												100%			100%

The Company recognizes its overall responsibility to ensure that the assets of its various defined benefit pension plans are managed effectively and prudently and in compliance with its policy guidelines and all applicable laws. Preservation of capital is important; however, the Company also recognizes that appropriate levels of risk are necessary to allow its investment managers to achieve satisfactory long-term results consistent with the objectives and the fiduciary character of the pension funds. Asset allocations are established in a manner consistent with projected plan liabilities, benefit payments and expected rates of return for various asset classes, and are reviewed regularly by management. The expected rate of return for the investment portfolio is based on expected rates of return for various asset classes, as well as historical asset class and fund performance.

---

Note 16 - Retirement Benefit Plans (continued)

Fair value is defined as the price that would 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 table presents the fair value hierarchy for those investments of the Company’s pension assets measured at fair value on a recurring basis:

			December 31, 2021												December 31, 2020
			Level 1			Level 2			Level 3			Total			Level 1			Level 2			Level 3			Total
Assets:
Cash and cash equivalents			$	13.8		$	—		$	—		$	13.8		$	37.1		$	—		$	—		$	37.1
Government and agency securities			22.7			2.7			—			25.4			45.1			3.0			—			48.1
Corporate bonds - investment grade			—			82.7			—			82.7			—			99.5			—			99.5
Common collective funds - fixed income			42.5			—			—			42.5			44.5			—			—			44.5
Mutual funds - fixed income			51.8			—			—			51.8			55.4			—			—			55.4
Mutual funds - international equity			41.0			—			—			41.0			60.4			—			—			60.4
			$	171.8		$	85.4		$	—		$	257.2		$	242.5		$	102.5		$	—		$	345.0
Investments measured at net asset value:
Equity securities - international companies												$	0.3											$	0.3
Common collective funds - domestic equities												45.9												63.2
Common collective funds - international equities												33.6												42.6
Common collective funds - fixed income												216.6												203.8
Common collective funds - diversified growth												18.5												20.1
Limited partnerships												10.4												13.2
Real estate partnerships												6.6												7.7
Other liability-driven investments												138.1												144.4
Other assets												25.3												25.8
Total Assets												$	752.5											$	866.1

International investments measured at net asset value totaled $253.5 million and $265.0 million at December 31, 2021 and 2020, respectively.

Cash and cash equivalents are valued at redemption value. Government and agency securities are valued at the closing price reported in the active market in which the individual securities are traded. Certain corporate bonds are valued at the closing price reported in the active market in which the bond is traded. Equity securities (both common and preferred stock) are valued at the closing price reported in the active market in which the individual security is traded. Common collective funds are valued based on a net asset value per share. Mutual funds classified as Level 1 assets include investments in fixed income and international equities. These investments are comprised of securities listed on exchange, market, or automated quotation systems, for which active, quoted prices are available. Mutual funds are valued based on a net asset value per share for shares held at year end, as determined by the closing price reported on the active market on which the individual securities are traded, or a pricing vendor or the fund family if an active market is not available. Asset-backed securities are valued based on quoted prices for similar assets in active markets. When such prices are unavailable, the plan trustee determines a valuation from the market maker dealing in the particular security.

---

Note 16 - Retirement Benefit Plans (continued)

Limited partnerships include investments in funds that invest primarily in private equity, venture capital and distressed debt. Limited partnerships are valued based on the ownership interest in the net asset value of the investment, which is used as a practical expedient to fair value, per the underlying investment fund, which is based upon the general partner's own assumptions about the assumptions a market participant would use in pricing the assets and liabilities of the partnership. Real estate investments include funds that invest in companies that primarily invest in commercial and residential properties, commercial mortgage-backed securities, debt and equity securities of real estate operating companies, and real estate investment trusts. Other real estate investments are valued based on the ownership interest in the net asset value of the investment, which is used as a practical expedient to fair value per the underlying investment fund, which is based on appraised values and current transaction prices.

Other liability-driven investments mainly include investments in index-linked open-end swap funds.  These funds invest in cash held deposits that reflect the index-linked deferred annuity with payment terms of specific years linked to UK inflation measures.  The underlying assets in this investment are valued daily. 

Common collective funds - diversified growth investments are pooled funds that invest in a multiple underlying asset classes, such as equities, fixed income, commodities, alternative investments, and cash in an effort to achieve returns on investment through capital appreciation and income.  The underlying assets in this investment are valued daily.   

Cash Flows:

Employer Contributions to Defined Benefit Plans
2020			$	17.9
2021			20.4
2022 (estimated)			9.5

Estimated future benefit payments, including estimated lump sum distributions, are expected to be as follows:

Benefit Payments
2022			$	78
2023			64
2024			59
2025			58
2026			57
2027-2031			247

Employee Savings Plans:

---

Note 17 - Other Postretirement Benefit Plans

The Company and its subsidiaries sponsor several postretirement plans that provide health care and life insurance benefits for eligible retirees and dependents. Depending on retirement date and employee classification, certain health care plans contain contribution and cost-sharing features such as deductibles, coinsurance and limitations on employer-provided subsidies. The remaining health care and life insurance plans are noncontributory.

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

			2021			2020			2019
Components of net periodic credit:
Service cost			$	0.2		$	0.2		$	0.2
Interest cost			1.5			2.1			5.9
Expected return on plan assets			—			(0.4)			(3.2)
Amortization of prior service credit			(10.1)			(9.8)			(5.4)
Recognition of net actuarial (gains) losses			(4.1)			1.4			(18.0)
Net periodic credit:			$	(12.5)		$	(6.5)		$	(20.5)

Assumptions:			2021			2020			2019
Discount rate			2.62		%	3.43		%	3.48% to 4.30%
Rate of return			—		%	3.00		%	4.85		%

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

Assumptions:			2021			2020
Discount rate			2.99		%	2.62		%

The Company recognized actuarial gains of $4.1 million during 2021 primarily due to the impact of a 37 basis point increase in the discount rate used to measure the Company's defined benefit postretirement obligations, which increased from 2.62% in 2020 to 2.99% in 2021. The increase in the discount rate resulted in a $1.6 million gain. In addition to the gain from the discount rate increases, the Company recognized actuarial gains of $1.1 million due to lower than expected benefit payments, $1.0 million due to the impact of a reduction in the rate for Medicare Advantage plans and $0.4 million due to changes in other actuarial assumptions.

The Company recognized actuarial losses of $1.4 million during 2020 primarily due to the impact of an 81 basis point decrease in the discount rate used to measure the Company's defined benefit postretirement obligations, which decreased from 3.43% in 2019 to 2.62% in 2020. The decrease in the discount rate resulted in a $3.9 million loss. This actuarial loss was partially offset by actuarial gains of $2.0 million due to the impact of a reduction in the rate for Medicare Advantage plans, $0.4 million due to higher than expected returns on plans assets and $0.1 million due to changes in other actuarial assumptions.

The Company recognized actuarial gains of $18.0 million during 2019 primarily due to the impact of a reduction in the rates for Medicare Advantage plans of $22.7 million. The change in the contractual rates for Medicare Advantage plans was due to a law change that repealed the tax on health care insurers after 2020.  In addition to the change in rates on Medicare Advantage plans, the Company recognized actuarial gains of $3.6 million due to higher than expected returns on plan assets and $5.2 million due to changes in other actuarial assumptions. These actuarial gains were partially offset by an 87 basis point decrease in the discount rate used to measure the Company's defined benefit postretirement obligations, which decreased from 4.30% to 3.43%. The decrease in the discount rate resulted in a $13.5 million loss.

During July 2019, the Company announced changes to the medical plan offerings for certain of its postretirement benefit plans, effective January 1, 2020, which will impact the benefits provided to certain retirees. This plan amendment resulted in a $92.8 million reduction in its postretirement benefit obligations and a corresponding pretax adjustment to accumulated other comprehensive loss. Starting with the three months ended September 30, 2019, the pretax adjustment of $92.8 million will be amortized from accumulated other comprehensive loss into net periodic benefit cost (as a benefit) until 2031.

---

Note 17 - Other Postretirement Benefit Plans

The discount rate assumption is based on current rates of high-quality long-term corporate bonds over the same period that benefit payments will be required to be made. The expected rate of return on plan assets assumption is based on the weighted-average expected return on the various asset classes in the plans’ portfolio. The asset class return is developed using historical asset return performance as well as current market conditions such as inflation, interest rates and equity market performance.

For expense purposes in 2021, the Company applied a discount rate of 2.62% to its other postretirement benefit plans. For expense purposes in 2022, the Company will apply a discount rate of 2.99% to its other postretirement benefit plans.

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

			2021			2020
Change in benefit obligation:
Benefit obligation at beginning of year			$	57.6		$	63.4
Service cost			0.2			0.2
Interest cost			1.5			2.1
Plan amendments			—			(3.1)
Actuarial (gains) losses			(4.1)			1.8
Benefits paid			(4.1)			(6.8)
Benefit obligation at end of year			$	51.1		$	57.6

Change in plan assets:
Fair value of plan assets at beginning of year			$	11.1		$	64.4
Company contributions / payments			—			2.7
Transfer to VEBA trust for certain active employees' medical benefits			(11.1)			(50.0)
Return on plan assets			—			0.8
Benefits paid			—			(6.8)
Fair value of plan assets at end of year			—			11.1
Funded status at end of year			$	(51.1)		$	(46.5)

Amounts recognized on the Consolidated Balance Sheets:
Current liabilities			(5.3)			(5.2)
Non-current liabilities			(45.8)			(41.3)
			$	(51.1)		$	(46.5)

Amounts recognized in accumulated other comprehensive loss (income):
Net prior service credit			$	(81.4)		$	(91.5)
Accumulated other comprehensive loss (income)			$	(81.4)		$	(91.5)

Changes to prior service credit recognized in accumulated other comprehensive      loss (income):
Accumulated other comprehensive income at beginning of year			$	(91.5)		$	(98.2)
Prior service credit			—			(3.1)
Recognized prior service credit			10.1			9.8
Total recognized in accumulated other comprehensive loss (income) at December 31			$	(81.4)		$	(91.5)

---

Note 17 - Other Postretirement Benefit Plans (continued)

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

The current portion of accrued postretirement benefits, which was included in salaries, wages and benefits on the Consolidated Balance Sheets, was $5.3 million and $5.2 million at December 31, 2021 and 2020, respectively. In 2021, the current portion of accrued postretirement benefits related to unfunded plans and represented the actuarial present value of expected payments related to the plans to be made over the next 12 months.

For measurement purposes, the Company assumed a weighted-average annual rate of increase in the per capita cost (health care cost trend rate) for medical benefits of 6.5% for 2022, declining gradually to 5.0% in 2028 and thereafter for medical and prescription drug benefits. For Medicare Advantage benefits, actual contract rates have been set for 2022, and are assumed to increase by 7.25% for 2022, declining gradually to 5.0% in 2031 and thereafter.

Plan Assets:

In January 2020, the Company established a second VEBA trust for certain active employees’ medical benefits. The Company transferred $50 million from the existing VEBA trust to fund the second VEBA trust. The $50 million that was transferred was primarily classified as other current assets based on the portfolio of the assets in the trust. In January 2021, the Company transferred the remaining $11.1 million in the existing VEBA trust to the second VEBA trust. The Company utilized all of the assets of the second VEBA trust in 2021 and 2020 for the payment of certain active employees’ medical benefits.

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

			Balance at December 31, 2020
Assets:			NAV			Level 1			Level 2			Level 3
Cash and cash equivalents			$	0.5		$	—		$	—		$	—
Mutual fund - fixed income			—			10.6			—			—
Total Assets			$	0.5		$	10.6		$	—		$	—

Cash and cash equivalents are valued at redemption value. Common collective funds are valued based on a net asset value per share, which is used as a practical expedient to fair value. When such prices are unavailable, the plan trustee determines a valuation from the market maker dealing in the particular security. Mutual funds are valued at the closing priced reported in the active market in which the individual funds are traded.

Cash Flows:

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

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

			Future Benefit Payments
2022			$	5
2023			4
2024			4
2025			4
2026			4
2027-2031			17

---

Note 18 - Accumulated Other Comprehensive (Loss) Income

The following tables present details about components of accumulated other comprehensive (loss) income for the years ended December 31, 2021 and December 31, 2020, respectively:

			Foreign currency translation adjustments			Pension and postretirement liability adjustments						Change in fair value of derivative financial instruments			Total
Balance at December 31, 2020			$	(18.0)		$	63.4					$	(4.1)		$	41.3
Other comprehensive (loss) income before reclassifications    and income taxes			(63.7)			(0.4)						2.4			(61.7)
Amounts reclassified from accumulated other comprehensive    (loss) income, before income tax			—			(8.7)						4.2			(4.5)
Income tax benefit (expense)			—			2.3						(1.8)			0.5
Net current period other comprehensive (loss) income,    net of income taxes			(63.7)			(6.8)						4.8			(65.7)
Noncontrolling interest			1.4			—						—			1.4
Net current period comprehensive (loss) income, net    of income taxes and noncontrolling interest			(62.3)			(6.8)						4.8			(64.3)
Balance at December 31, 2021			$	(80.3)		$	56.6					$	0.7		$	(23.0)

			Foreign currency translation adjustments			Pension and postretirement liability adjustments						Change in fair value of derivative financial instruments			Total
Balance at December 31, 2019			$	(115.3)		$	66.9					$	(1.7)		$	(50.1)
Other comprehensive income (loss) before reclassifications    and income taxes			92.7			2.8						(1.2)			94.3
Amounts reclassified from accumulated other comprehensive    (loss) income, before income tax			—			(7.4)						(2.3)			(9.7)
Income tax benefit			—			1.1						1.1			2.2
Net current period other comprehensive income (loss),    net of income taxes			92.7			(3.5)						(2.4)			86.8
Noncontrolling interest			4.6			—						—			4.6
Net current period comprehensive income (loss), net    of income taxes and noncontrolling interest			97.3			(3.5)						(2.4)			91.4
Balance at December 31, 2020			$	(18.0)		$	63.4					$	(4.1)		$	41.3

---

Note 19 - Fair Value

The following tables present the fair value hierarchy for those assets and liabilities on the Consolidated Balance Sheets measured at fair value on a recurring basis as of December 31, 2021 and 2020:

			December 31, 2021
			Total			Level 1			Level 2			Level 3
Assets:
Cash and cash equivalents			$	257.1		$	244.8		$	12.3		$	—
Restricted cash			0.8			0.8			—			—
Short-term investments			56.9			—			56.9			—
Foreign currency hedges			5.6			—			5.6			—
Total Assets			$	320.4		$	245.6		$	74.8		$	—
Liabilities:
Foreign currency hedges			$	1.0		$	—		$	1.0		$	—
Total Liabilities			$	1.0		$	—		$	1.0		$	—

			December 31, 2020
			Total			Level 1			Level 2			Level 3
Assets:
Cash and cash equivalents			$	320.3		$	318.6		$	1.7		$	—
Restricted cash			0.8			0.8			—			—
Short-term investments			37.6			—			37.6			—
Foreign currency hedges			1.1			—			1.1			—
Total Assets			$	359.8		$	319.4		$	40.4		$	—
Liabilities:
Foreign currency hedges			$	8.1		$	—		$	8.1		$	—
Total Liabilities			$	8.1		$	—		$	8.1		$	—

Cash and cash equivalents are highly liquid investments with maturities of three months or less when purchased and are valued at redemption value. Short-term investments are investments with maturities between four months and one year, and generally are valued at amortized cost, which approximates fair value. A portion of the cash and cash equivalents and short-term investments are valued based on net asset value. The Company uses publicly available foreign currency forward and spot rates to measure the fair value of its foreign currency forward contracts.

Additionally, the Company remeasures certain assets to fair value, using Level 3 measurements, as a result of the occurrence of triggering events such as purchase accounting for acquisitions. See Note 2 - Acquisitions for further discussion.

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

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

Financial Instruments:

The Company’s financial instruments consist primarily of cash and cash equivalents, short-term investments, net 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 $1,171.1 million and $1,220.7 million at December 31, 2021 and 2020, respectively. The carrying value of this debt was $1,087.5 million and $1,103.2 million at December 31, 2021 and 2020, respectively. The fair value of long-term fixed-rate debt was measured using Level 2 inputs.

---

Note 20 - Derivative Instruments

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 $100 million floating-to-fixed rate swap on the 2023 Term Loan,

which hedges the change in the 1-month LIBOR rate October 30, 2020 through 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 €54.5 million of its €150.0 million fixed-rate senior unsecured notes, maturing on September 07, 2027 (the "2027 Notes") as a hedge against its net investment in one of its European affiliates. 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 twelve months ended December 31, 2021 was to record a gain of $4.6 million to accumulated comprehensive loss (income) with a corresponding offset to other (expense) income, which partially offsets the impact of the foreign currency adjustment on the 2027 Notes.

The Company does not purchase or hold any derivative financial instruments for trading purposes. As of December 31, 2021 and 2020, the Company had $300.8 million and $173.2 million, respectively, of outstanding foreign currency forward contracts at notional value. Refer to Note 19 - Fair Value for the fair value disclosure of derivative financial instruments.

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 effective portion of 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. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any (i.e., the ineffective portion), or hedge components excluded from the assessment of effectiveness, are recognized in the Consolidated Statement of Income during the current period.

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 December 31, 2021 and 2020, the Company had $80.0 million and $86.9 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 it exposure to the variability in future cash flows for forecast transactions is generally eighteen months or less.

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 loan with a maturity date at 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.

---

Note 20 - Derivative Instruments (continued)

As of December 31, 2021 and 2020, the Company had $220.8 million and $86.3 million, respectively, of outstanding foreign currency forward contracts at notional value that were not designated as hedging instruments. The following table presents the impact of derivative instruments not designated as hedging instruments for the years ended December 31, 2021, 2020 and 2019, and the related location within the Consolidated Statements of Income.

						Amount of gain or (loss) recognized in income
						Year Ended December 31,
Derivatives not designated as hedging instruments			Location of gain or (loss) recognized in income			2021			2020			2019
Foreign currency forward contracts			Other income (expense), net			$	3.6		$	(3.7)		$	5.9

Note 21 - Research and Development

The Company leverages its technical knowledge, research expertise, and production and engineering capabilities across all of its products and end markets to deliver high-performance products and services to its customers. Costs included in "Research and Development Expense" primarily relate to new product innovation. Costs included in "Engineering Expense" primarily relate to the technological enhancement of existing products and services as we align with our customers evolving needs. Expenditures may fluctuate from year-to-year depending on special projects and needs.

			Year Ended December 31,
Expenditures as a percentage of sales			2021			2020			2019
Research and Development Expense			0.9		%	1.2		%	1.1		%
Engineering Expense			1.4		%	1.0		%	1.3		%
Total			2.3		%	2.2		%	2.4		%

---

Note 22 - Quarterly Financial Data

(Unaudited)

			2021
			1st			2nd			3rd			4th			Total
Net sales			$	1,025.4		$	1,062.9		$	1,037.3		$	1,007.3		$	4,132.9
Gross profit			299.2			302.3			267.9			233.1			1,102.5
Selling, general and administrative expenses			144.5			149.0			140.7			146.3			580.5
Impairment and restructuring charges			4.0			1.3			2.9			0.7			8.9
Net income (1)			116.0			107.2			91.6			66.7			381.5
Net income attributable to noncontrolling interests			2.7			2.4			3.5			3.8			12.4
Net income attributable to The Timken Company			113.3			104.8			88.1			62.9			369.1
Net income per share - Basic:			$	1.49		$	1.38		$	1.16		$	0.83		$	4.86
Net income per share - Diluted:			$	1.47		$	1.36		$	1.14		$	0.82		$	4.79
Dividends per share			$	0.29		$	0.30		$	0.30		$	0.30		$	1.19
			2020
			1st			2nd			3rd			4th			Total
Net sales			$	923.4		$	803.5		$	894.6		$	891.7		$	3,513.2
Gross profit			278.9			230.3			263.7			237.0			1,009.9
Selling, general and administrative expenses			153.6			111.8			132.7			135.7			533.8
Impairment and restructuring charges			3.6			3.1			12.0			2.5			21.2
Net income (2)			84.0			61.8			91.3			55.3			292.4
Net income attributable to noncontrolling interests			3.3			(0.1)			2.5			2.2			7.9
Net income attributable to The Timken Company			80.7			61.9			88.8			53.1			284.5
Net income per share - Basic:			$	1.07		$	0.82		$	1.18		$	0.70		$	3.78
Net income per share - Diluted:			$	1.06		$	0.82		$	1.16		$	0.69		$	3.72
Dividends per share			$	0.28		$	0.28		$	0.28		$	0.29		$	1.13

Earnings per share are computed independently for each of the quarters presented; therefore, the sum of the quarterly earnings per share may not equal the total computed for the year.

(1)Net income for the second quarter of 2021 included net actuarial losses of $3.5 million. Net income for the third quarter of 2021 included net actuarial losses of $3.9 million. Net income for the fourth quarter of 2021 included net actuarial gains of $8.0 million and the reversal of tax valuation allowances of $7.8 million.

---

---

---

---

---

---

---

---

---

---

---

---

---

Schedule II—Valuation and Qualifying Accounts

The Timken Company and Subsidiaries

 

Allowance for uncollectible accounts:			2021			2020			2019
Balance at beginning of period			$	16.5		$	18.1		$	21.9
Additions:
Charged to costs and expenses (1)			3.5			2.8			1.8
Deductions:
Charged to costs and expenses (3)			2.5			3.4			4.9
Charged to other accounts (2)			0.6			1.0			0.7
Balance at end of period			$	16.9		$	16.5		$	18.1
Allowance for surplus and obsolete inventory:			2021			2020			2019
Balance at beginning of period			$	54.5		$	40.1		$	43.2
Additions:
Charged to costs and expenses (4)			13.4			11.6			5.2
Charged to other accounts (2)			(0.7)			11.8			1.9
Deductions (5)			3.9			9.0			10.2
Balance at end of period			$	63.3		$	54.5		$	40.1
Valuation allowance on deferred tax assets:			2021			2020			2019
Balance at beginning of period			$	36.7		$	33.7		$	77.5
Additions:
Charged to costs and expenses (6)			3.1			2.7			1.1
Charged to other accounts (2)			—			1.0			—
Deductions
Charged to costs and expenses (7)			7.8			0.7			44.5
Charged to other accounts (2)			1.0			—			0.4
Balance at end of period			$	31.0		$	36.7		$	33.7

(1)Provision for uncollectible accounts included in expenses.

(2)Currency translation and change in reserves due to acquisitions, net of divestitures.

(3)Actual accounts written off against the allowance, net of recoveries.

(4)Provision for surplus and obsolete inventory included in expenses.

(5)Inventory items written off against the allowance.

(6)Increase in valuation allowance is recorded as a component of the provision for income taxes.