Published: 2023-02-16 00:00:00 ET

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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.

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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 and cash equivalents of $9.1 million and $0.8 million were restricted at December 31, 2022 and 2021, respectively. $8.5 million of this amount at December 31, 2022 is in Russia under the Company's Rail JV, and the Company is presently unable to repatriate these funds to one of its subsidiaries outside of Russia.

Accounts Receivable, Less Allowances:

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.

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Note 1 - Significant Accounting Policies (continued)

Inventories:

Inventories are valued at the lower of cost or net realizable value, with approximately 58% valued by the FIFO method and the remaining 42% 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 four months and one year and are valued at amortized cost, which approximates fair value. The Company held short-term investments as of December 31, 2022 and 2021 with a fair value and cost basis of $39.2 million and $56.9 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.

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

Pension and Other Postretirement Benefits:

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

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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.

Government Assistance:

From time to time, the Company receives government assistance in the form of grants and other incentives from various governments to support capital projects and other business development. The amount received is typically based on the amount of qualifying capital expenditures or business development costs in the countries providing the government assistance. The Company typically has to meet certain requirements, such as adding a specified number of qualifying positions, to retain the government assistance or the funds can be clawed back by the government. Once the Company determines that it will meet the requirements of the government assistance, the funds are recognized over the life of the related assets or as the costs are incurred. For amounts that are expected to be paid back, the Company recognizes interest expense on those funds.

As of December 31, 2022, the Company has $0.9 million and $33.8 million of government assistance in other current liabilities and other non-current liabilities, respectively. In addition, the Company cumulatively recorded $3.3 million and $0.2 million of government assistance as a reduction to cost of products sold and SG&A, respectively. The Company also cumulatively recognized interest expense of $0.9 million related to the expected shortfall of incentive obligations. The following paragraphs discuss the Company's most significant government assistance programs.

In 2022, the Company acquired Spinea. Prior to the acquisition, Spinea received incentives totaling $18.0 million from the Slovakian Government to invest in a new production facility and related machinery and equipment. As a result, Spinea is required to create 450 new jobs. If Spinea is unable to meet these commitments, a portion of the incentive and related interest will be paid back in October 2024. The Company is currently accounting for a potential shortfall of $14.7 million, including interest. The remaining amount is being amortized over the period the costs are being incurred. In 2022, the Company recorded amortization expense of $0.2 million as a reduction to cost of products sold. In addition, the Company recorded total interest expense of $0.1 million due to the expectation of having to pay a portion of the incentive back.

In 2017 and 2018, the Company received grants from the Romanian Government for the reimbursement of capital investments for its new production facility, totaling $16.5 million. While the original grants were based on capital investments, the Company needs to pay various taxes, including corporate income tax, payroll taxes and building tax, totaling $16.5 million between 2019 through 2024. If the total tax obligation is not met, any shortfall will require that the grant and related interest will be paid back in December 2024. The Company is currently accounting for a potential shortfall of $8.4 million, including interest. The incentive is being amortized over the useful life of the assets. Cumulatively as of December 31, 2022, the Company recorded amortization expense of $1.2 million as a reduction to cost of products sold. In addition, the Company recorded total interest expense of $0.8 million due to the expectation of having to pay a portion of the grant back.

The Company may receive other government assistance that is not described above; however, the total amount of the government assistance is immaterial to the Company’s Consolidated Financial Statements.

Use of Estimates:

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.

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Note 1 - Significant Accounting Policies (continued)

Recent Accounting Pronouncements:

New Accounting Guidance Adopted:

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

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

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

New Accounting Guidance Issued and Not Yet Adopted:

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

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Note 2 - Acquisitions and Divestitures

Acquisitions:

The Company completed two acquisitions in 2022. On November 4, 2022, the Company completed the acquisition of GGB, a global technology and market leader of premium engineered metal-polymer plain bearings for $302.5 million, net of cash acquired of $19.2 million, subject to customary post-closing adjustments. GGB's revenue was estimated to be approximately $200 million for the full year 2022. GGB's products are used mainly in industrial applications, including pumps and compressors, HVAC, off-highway, energy, material handling and aerospace. With manufacturing facilities across the United States, Europe and China, GGB employs approximately 900 people and has a global engineering, distribution and sales footprint. On May 31, 2022, the Company completed the acquisition of Spinea, a European technology leader and manufacturer of highly engineered cycloidal reduction gears and actuators, with estimated 2022 full year sales of approximately $40.0 million. Spinea’s solutions primarily serve high-precision automation and robotics applications in the factory automation sector. Spinea is located in Presov, Slovakia. The purchase price for this acquisition was $151.2 million, net of cash acquired of $0.2 million. The Company incurred acquisition-related costs of $3.6 million in 2022 to complete these acquisitions. Based on markets and customers served, results for GGB are reported in the Mobile Industries and Process Industries segments, and results for Spinea are reported in the Process Industries segment.

On August 20, 2021, the Company completed the acquisition of the assets of iMS, a manufacturer of industrial robotics and automation solutions, with annual sales of approximately $6.0 million. iMS is headquartered in Norton Shores, Michigan. The purchase price for this acquisition was $7.7 million. Based on markets and customers served, results for iMS are primarily reported in the Process Industries segment.

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Note 2 - Acquisitions and Divestitures (continued)

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

			2022			2021
Assets:
Accounts receivable			$	30.6		$	0.2
Inventories			52.3			1.1
Other current assets			7.6			—
Property, plant and equipment			153.6			0.6
Goodwill			106.9			5.4
Other intangible assets			182.6			2.2
Other non-current assets			12.1			0.2
Total assets acquired			$	545.7		$	9.7
Liabilities:
Accounts payable, trade			$	16.8		$	0.3
Salaries, wages and benefits			11.8			—
Income taxes payable			3.2			—
Other current liabilities			7.0			1.5
Deferred income taxes			30.0			—
Other non-current liabilities			23.2			0.2
Total liabilities assumed			$	92.0		$	2.0
Net assets acquired			$	453.7		$	7.7
Cash flow reconciling items:
Working capital adjustment related to 2020 acquisitions paid in 2021			—			(0.2)
Cash paid for acquisitions, net of cash acquired			$	453.7		$	7.5

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

The amounts for 2022 in the table above represent the preliminary purchase price allocations for GGB and Spinea. These purchase price allocations, including the residual amount allocated to goodwill, is based on preliminary information and is subject to change as additional information concerning final asset and liability valuations are obtained. The purchase price allocation for GGB is preliminary as a result of the proximity of the acquisition date to December 31, 2022, and as a result, no elements of the purchase price allocation has been finalized. The purchase price allocation for Spinea is preliminary with respect to certain working capital items, specifically inventory, and certain income tax adjustments. During the measurement period for each acquisition, the Company will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments had been completed on the acquisition date.

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Note 2 - Acquisitions and Divestitures (continued)

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

			2022						2021
						Weighted- Average Life						Weighted- Average Life
Trade names (indefinite life)			$	35.2		Indefinite			$	—		—
Trade names (finite life)			6.2			20 years			—			—
Technology and know-how			38.7			15 years			1.5			19 years
Customer relationships			100.2			16 years			0.5			2 years
Non-competes			—			—			0.2			5 years
Capitalized software			2.3			2 years			—			—
Total intangible assets			$	182.6					$	2.2

Divestitures:

During the third quarter of 2022, the Company made the decision to sell its ADS business, located in Manchester, Connecticut. The business met the held for sale criteria, and the Company reclassified its assets and liabilities accordingly. As a result of the carrying value of the business exceeding the estimated sales price less costs to sell, the Company recorded an impairment charge of $29.3 million. On November 1, 2022, the Company completed the divestiture of the ADS business. ADS had net sales of $39.7 million and $48.8 million in 2022 and 2021, respectively. The results of operations of ADS were reported in the Mobile Industries segment based on customers and underlying market sectors served. The Company recorded proceeds of $33.0 million on the sale of the business.

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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, 2022, 2021 and 2020:

			December 31, 2022
			Mobile			Process			Total
United States			$	1,060.0		$	931.7		$	1,991.7
Americas excluding United States			236.4			240.1			476.5
Europe / Middle East / Africa			463.6			532.6			996.2
China			120.1			488.4			608.5
Asia-Pacific excluding China			226.4			197.4			423.8
Net sales			$	2,106.5		$	2,390.2		$	4,496.7
			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

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, 2022, 2021 and 2020:    

Revenue by sales channel			2022			2021			2020
Original equipment manufacturers			60%			60%			60%
Distribution/end users			40%			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, 2022 and December 31, 2021, approximately 9% of total net sales were recognized on an over-time basis, compared to 11% in 2020.These sales were recognized over-time due to the continuous transfer of control to the customer, with the remainder recognized as of a point in time. Approximately 4% of total net sales represented service revenue in 2022, 2021 and 2020. Finally, business with the U.S. government or its contractors represented approximately 7% of total net sales for 2022, 2021 and 2020.

---

Note 3 - Revenue (continued)

Remaining Performance Obligations:

Remaining performance obligations represent the transaction price of orders meeting the definition of a contract 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 $171 million at December 31, 2022. The decrease in the remaining performance obligations compared to December 31, 2021 was due to the divestiture of ADS in the fourth quarter of 2022. Refer to Note 2 - Acquisitions and Divestitures for further information regarding the divestiture.

Unbilled Receivables:

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

			2022			2021
Beginning balance, January 1			$	104.5		$	110.9
Additional unbilled revenue recognized			396.2			383.0
Less: amounts billed to customers			(370.5)			(389.4)
Less: unbilled receivables divested			(26.3)			—
Ending balance			$	103.9		$	104.5

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

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Note 4 - Segment Information

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

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

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.

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Note 4 - Segment Information (continued)

Business Segment Information:

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

			2022			2021			2020
Net sales to external customers:
Mobile Industries			$	2,106.5		$	1,965.7		$	1,671.6
Process Industries			2,390.2			2,167.2			1,841.6
			$	4,496.7		$	4,132.9		$	3,513.2
Segment EBITDA:
Mobile Industries			$	217.1		$	240.1		$	232.5
Process Industries			621.5			506.3			442.9
Total EBITDA, for reportable segments			$	838.6		$	746.4		$	675.4
Unallocated corporate expense			(50.0)			(46.1)			(40.7)
Corporate pension and other postretirement benefit related expense (1)			(2.9)			(0.3)			(18.5)
Acquisition-related gain (2)			—			0.9			11.1
Depreciation and amortization			(164.0)			(167.8)			(167.1)
Interest expense			(74.6)			(58.8)			(67.6)
Interest income			3.8			2.3			3.7
Income before income taxes			$	550.9		$	476.6		$	396.3

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

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

			2022			2021
Assets employed at year-end:
Mobile Industries			$	2,371.6		$	2,216.4
Process Industries			2,963.4			2,548.3
Corporate (2)			437.4			406.0
			$	5,772.4		$	5,170.7

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

			2022			2021			2020
Capital expenditures:
Mobile Industries			$	71.2		$	52.3		$	70.5
Process Industries			105.8			95.4			50.1
Corporate			1.4			0.6			1.0
			$	178.4		$	148.3		$	121.6
Depreciation and amortization:
Mobile Industries			$	75.2		$	80.1		$	79.7
Process Industries			87.6			86.6			86.6
Corporate			1.2			1.1			0.8
			$	164.0		$	167.8		$	167.1

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Note 4 - Segment Information (continued)

Geographic Financial Information:

			2022			2021
Property, Plant and Equipment, net:
United States			$	418.3		$	398.2
China			272.5			235.3
India			130.6			142.9
Romania			101.8			112.1
Rest of world			284.2			166.8
			$	1,207.4		$	1,055.3

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

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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:

			2022			2021			2020
United States			$	86.0		$	125.8		$	144.1
Non-United States			464.9			350.8			252.2
Income before income taxes			$	550.9		$	476.6		$	396.3

The provision for income taxes consisted of the following:

			2022			2021			2020
Current:
Federal			$	11.2		$	8.1		$	40.3
State and local			6.7			3.9			7.9
Foreign			119.6			98.2			78.9
			$	137.5		$	110.2		$	127.1
Deferred:
Federal			$	(7.8)		$	(5.2)		$	(19.5)
State and local			(0.3)			(3.4)			(1.3)
Foreign			4.5			(6.5)			(2.4)
			$	(3.6)		$	(15.1)		$	(23.2)
United States and foreign tax provision on income			$	133.9		$	95.1		$	103.9

The Company made net income tax payments of $120.6 million, $100.7 million and $119.3 million in 2022, 2021 and 2020, 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:

			2022			2021			2020
Income tax at the U.S. federal statutory rate			$	115.7		$	100.1		$	83.2
Adjustments:
State and local income taxes, net of federal tax benefit			5.3			4.0			4.8
Tax on foreign remittances and U.S. tax on foreign income			19.0			15.4			22.5
Tax expense related to undistributed earnings of foreign subsidiaries			1.0			0.1			0.1
Foreign losses without current tax benefits			3.1			2.6			2.5
Foreign earnings taxed at different rates including tax holidays			19.4			15.4			11.1
U.S. foreign tax credit			(15.2)			(11.5)			(13.8)
Accruals and settlements related to tax audits			(9.5)			(7.7)			3.4
Valuation allowance changes			(0.9)			(7.8)			(0.7)
Stock based compensation			(1.2)			(8.1)			(3.1)
Other items, net			(2.8)			(7.4)			(6.1)
Provision for income taxes			$	133.9		$	95.1		$	103.9
Effective income tax rate			24.3		%	20.0		%	26.2		%

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Note 5 - Income Taxes (continued)

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

There are no changes to the Company’s assertion about its permanent reinvestment in undistributed foreign earnings. The Company recorded $1.0 million and $0.1 million of income tax expense related to foreign withholding taxes on planned one-time distributions for the years ended December 31, 2022 and 2021, respectively. No additional deferred taxes have been recorded for any other outside basis differences as these amounts continue to be indefinitely reinvested in foreign operations. The amounts of undistributed foreign earnings were $1,620.0 million and $1,249.1 million at December 31, 2022 and December 31, 2021, 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, 2022 and 2021 was as follows:

			2022			2021
Deferred tax assets:
Accrued postretirement benefits cost			$	8.4		$	12.4
Accrued pension cost			46.5			49.9
Other employee benefit accruals			16.1			15.7
Tax loss and credit carryforwards			80.7			83.2
Other, net			61.7			63.9
Valuation allowances			(31.3)			(31.0)
			$	182.1		$	194.1
Deferred tax liabilities - principally depreciation and amortization			(250.9)			(247.9)
Net deferred tax liabilities			$	(68.8)		$	(53.8)

The Company has U.S. federal and state tax credit and loss carryforwards with tax benefits totaling $9.8 million, portions of which will expire in 2023 and continue until 2040. In addition, the Company has loss carryforwards in various non-U.S. jurisdictions with tax benefits totaling $70.9 million, portions of which will expire in 2023 while others will be carried forward indefinitely. The Company has provided valuation allowances of $30.6 million against certain of these carryforwards and $0.7 million against other deferred tax assets. 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.

As of December 31, 2022, the Company had $26.0 million of total gross unrecognized tax benefits, $23.3 million of which would favorably impact the Company’s effective income tax rate in any future period if such benefits were recognized. As of December 31, 2022, the Company believes it is reasonably possible that the amount of unrecognized tax positions could decrease by approximately $2.7 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, 2022, the Company had accrued $8.8 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, 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 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.

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Note 5 - Income Taxes (continued)

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

			2022			2021			2020
Beginning balance, January 1			$	36.1		$	45.6		$	38.9
Tax positions related to the current year:
Additions			0.6			1.6			2.2
Tax positions related to prior years:
Additions			4.0			3.7			8.7
Reductions			(4.7)			(8.1)			(1.0)
Settlements with tax authorities			(1.9)			(1.7)			(0.3)
Lapses in statutes of limitation			(8.1)			(5.0)			(2.9)
Ending balance, December 31			$	26.0		$	36.1		$	45.6

During 2022, gross unrecognized tax benefits decreased primarily for releases of accruals related to lapses in statute of limitations and reductions related to foreign currency for non-U.S. positions. These decreases were partially offset by accruals for uncertain tax positions related to prior year tax matters in multiple jurisdictions related to acquisitions.

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

As of December 31, 2022, the Company is subject to examination by the IRS for tax years 2017 to the present. The Company also is subject to tax examination in various U.S. state and local tax jurisdictions for tax years 2015 to the present, as well as various foreign tax jurisdictions, including Mexico, China, Poland, France, Germany, India, Romania and Slovakia for tax years as early as 2003 to the present. The Company’s unrecognized tax benefits are presented on the Consolidated Balance Sheets as a component of other non-current liabilities, or in certain instances, as a reduction to deferred income taxes.

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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, 2022, 2021 and 2020: 

			2022			2021			2020
Numerator:
Net income attributable to The Timken Company			$	407.4		$	369.1		$	284.5
Less: undistributed earnings allocated to nonvested stock			—			—			—
Net income available to common shareholders for basic and diluted earnings per share			$	407.4		$	369.1		$	284.5
Denominator:
Weighted average number of shares outstanding - basic			73,602,247			75,885,316			75,324,280
Effect of dilutive securities:
Stock options and awards - based on the treasury stock method			721,592			1,121,273			1,047,086
Weighted average number of shares outstanding, assuming dilution of stock options and awards			74,323,839			77,006,589			76,371,366
Basic earnings per share			$	5.54		$	4.86		$	3.78
Diluted earnings per share			$	5.48		$	4.79		$	3.72

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 during 2022 and 2021, and 676,627 during 2020.

Note 7 - Inventories

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

			2022			2021
Manufacturing supplies			$	41.7		$	38.0
Raw materials			132.0			121.8
Work in process			491.2			418.4
Finished products			584.8			527.8
Subtotal			$	1,249.7		$	1,106.0
Allowance for surplus and obsolete inventory			(58.4)			(63.3)
Total Inventories, net			$	1,191.3		$	1,042.7

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Note 8 - Property, Plant and Equipment

The components of property, plant and equipment, net at December 31, 2022 and 2021 were as follows:

			2022			2021
Land and buildings			$	628.4		$	554.1
Machinery and equipment			2,316.5			2,252.4
Subtotal			$	2,944.9		$	2,806.5
Less: accumulated depreciation			(1,737.5)			(1,751.2)
Property, Plant and Equipment, net			$	1,207.4		$	1,055.3

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 three 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, 2022:

			Mobile Industries			Process Industries			Total
Beginning Balance			$	371.7		$	651.0		$	1,022.7
Acquisitions			30.5			76.4			106.9
Foreign currency translation adjustments			(11.6)			(19.7)			(31.3)
Ending Balance			$	390.6		$	707.7		$	1,098.3

The acquisition of GGB added $63.6 million of goodwill, and the acquisition of Spinea added $43.3 million of goodwill. The Company is still evaluating the tax deductibility of goodwill from the GGB acquisition, but it expects a portion of the goodwill to be deductible for tax purposes. The goodwill for Spinea is expected to be 100% tax deductible.

Year ended December 31, 2021:

			Mobile Industries			Process Industries			Total
Beginning Balance			$	384.6		$	663.0		$	1,047.6
Acquisitions			—			5.4			5.4
Foreign currency translation adjustments and other changes			(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 and was 100% tax deductible.

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

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Note 9 - Goodwill and Other Intangible Assets (continued)

Intangible Assets:

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

			2022									2021
			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount			Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount
Intangible assets subject  to amortization:
Customer relationships			$	561.5		$	(183.2)		$	378.3		$	518.1		$	(189.3)		$	328.8
Technology and know-how			273.1			(80.4)			192.7			270.7			(86.6)			184.1
Trade names			18.4			(8.7)			9.7			14.3			(9.6)			4.7
Capitalized Software			288.4			(266.3)			22.1			280.0			(261.3)			18.7
Other			3.3			(2.3)			1.0			4.7			(3.6)			1.1
			$	1,144.7		$	(540.9)		$	603.8		$	1,087.8		$	(550.4)		$	537.4
Intangible assets not  subject to amortization:
Trade names			$	152.8					$	152.8		$	122.7					$	122.7
FAA air agency certificates			8.7						8.7			8.7						8.7
			$	161.5					$	161.5		$	131.4					$	131.4
Total intangible assets			$	1,306.2		$	(540.9)		$	765.3		$	1,219.2		$	(550.4)		$	668.8

Intangible assets acquired in 2022 totaled $182.6 million. Intangible assets subject to amortization were assigned useful lives of one to 20 years and had a weighted-average amortization period of 16.3 years.

Amortization expense for intangible assets was $50.6 million, $54.5 million and $56.2 million for the years ended December 31, 2022, 2021 and 2020, respectively. Amortization expense included $43.9 million, $46.8 million and $47.3 million related to intangible assets acquired as part of a business combination for the years ended December 31, 2022, 2021 and 2020, respectively. Amortization expense for intangible assets is estimated to be approximately $54.9 million in 2023, $49.0 million in 2024, $47.5 million in 2025, $45.9 million in 2026 and $44.5 million in 2027. Substantially all amortization expense for intangible assets was recorded in Cost of product sold on the Consolidated Statements of Income.

Note 10 - Other Current Liabilities

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

(Dollars in millions)
			2022			2021
Sales rebates			$	82.9		$	70.3
Deferred revenue			54.3			3.8
Operating lease liabilities			24.1			26.2
Product warranty			23.5			11.7
Freight and duties			21.7			25.5
Current derivative liability			19.8			0.9
Taxes other than income and payroll taxes			18.7			16.0
Professional fees			17.4			10.8
Interest			15.0			10.8
Restructuring			3.1			7.0
Other			72.4			67.6
Total other current liabilities			$	352.9		$	250.6

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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, 2022, 2021 and 2020 as follows:

			2022			2021			2020
Operating lease expense			$	30.3		$	34.1		$	36.0
Amortization of right-of-use assets on finance leases			1.7			2.3			1.5
Total lease expense			$	32.0		$	36.4		$	37.5

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

			2022			2021			2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			$	30.1		$	32.9		$	35.7
Financing cash flows from finance leases			1.2			2.2			1.2

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

Operating Leases			2022			2021
Lease assets:
Operating lease assets			$	101.4		$	118.9
Lease liabilities:
Short-term operating lease liabilities			$	24.1		$	26.2
Long-term operating lease liabilities			65.2			77.6
Total operating lease liabilities			$	89.3		$	103.8

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

Finance Leases			2022			2021
Lease assets:
Property, plant and equipment, net			$	4.0		$	5.3
Lease liabilities:
Current portion of long-term debt			$	1.3		$	1.4
Long-term debt			1.9			2.9
Total finance lease liabilities			$	3.2		$	4.3

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Note 11 - Leasing (continued)

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

			Operating Leases			Finance Leases
Year Ending December 31,
2023			$	27.0		$	1.4
2024			18.6			0.9
2025			15.2			0.6
2026			11.4			0.3
2027			9.5			0.1
Thereafter			17.9			—
Total future minimum lease payments			$	99.6		$	3.3
Less: imputed interest			(10.3)			(0.1)
Total			$	89.3		$	3.2

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

			2022			2021
Lease assets added in the period:
Operating leases			$	22.1		$	22.9
Finance leases			0.9			1.2

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

			2022			2021
Weighted-average remaining lease term:
Operating leases			5.4 years			5.4 years
Finance leases			2.8 years			2.9 years
Weighted-average discount rate:
Operating leases			3.55		%	3.30		%
Finance leases			3.07		%	2.71		%

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Note 12 - Financing Arrangements

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

			2022			2021
Borrowings under lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 2.38% to 5.50% at December 31, 2022 and 0.50% to 2.00% at December 31, 2021			46.3			42.6
Short-term debt			$	46.3		$	42.6

The lines of credit for certain of the Company’s foreign subsidiaries provide for short-term borrowings up to $234.2 million in the aggregate. Most of these lines of credit are uncommitted. At December 31, 2022, the Company’s foreign subsidiaries had borrowings outstanding of $46.3 million and bank guarantees of $2.8 million, which reduced the aggregate availability under these facilities to $185.1 million. The weighted-average interest rate on these lines of credit during the year were 1.4%, 0.8% and 0.6% in 2022, 2021 and 2020, respectively. The increase in the weighted-average interest rate was primarily due to higher borrowing rates. The weighted-average interest rate on lines of credit outstanding at December 31, 2022 and 2021 was 1.4% and 0.6%, respectively.

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

			2022			2021
Variable-rate Senior Credit Facility with an average interest rate on U.S. Dollar of 5.10% and Euro of 2.21% at December 31, 2022 and 1.09% and 1.00%, respectively, at December 31, 2021			$	8.5		$	9.0
Variable-rate Accounts Receivable Facility, with an interest rate of 5.01% at December 31, 2022.			85.0			—
Variable-rate Term Loan(1), maturing on December 5, 2027, with an interest rate of 5.55% at December 31, 2022 and of 1.23% at December 31, 2021			399.1			321.1
Fixed-rate Senior Unsecured Notes(1), maturing on September 1, 2024, with an interest rate of 3.875%			349.8			349.5
Fixed-rate Euro Senior Unsecured Notes(1), maturing on September 7, 2027, with an interest rate of 2.02%			160.4			170.3
Fixed-rate Senior Unsecured Notes(1), maturing on December 15, 2028, with an interest rate of 4.50%			397.2			396.9
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%			154.8			154.7
Fixed-rate Senior Unsecured Notes(1), maturing on April 1, 2032, with an interest rate of 4.125%			342.1			—
Fixed-rate Euro Bank Loan, maturing on June 30, 2033, with an interest rate of 2.15%			13.6			15.8
Other			6.4			5.0
Total debt			$	1,916.9		$	1,422.3
Less current maturities			2.7			11.2
Long-term debt			$	1,914.2		$	1,411.1

(1) Net of discount and fees

The Company has a $100.0 million Accounts Receivable Facility that 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 $86.7 million at December 31, 2022. As of December 31, 2022, there were $85.0 million outstanding borrowings under the Accounts Receivable Facility, which reduced the availability under this facility to $1.7 million. The 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 5.0%, 0.9% and 1.0% at December 31, 2022, 2021 and 2020, respectively.

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Note 12 - Financing Arrangements (continued)

On December 5, 2022, the Company entered into the Credit Agreement, which is comprised of the $750.0 million Senior Credit Facility and $400.0 million 2027 Term Loan that mature on December 5, 2027. The Credit Agreement amended and restated the Company's previous revolving credit agreement, dated as of June 25, 2019, and replaced the $350.0 million 2023 Term Loan that was set to mature on September 11, 2023. At December 31, 2022, the Senior Credit Facility had outstanding borrowings of $8.5 million, which reduced the availability under this facility to $741.5 million. The Credit Agreement has two financial covenants: a consolidated leverage ratio and a consolidated interest coverage ratio.

On March 28, 2022, the Company issued the 2032 Notes in the aggregate principal amount of $350.0 million with an interest rate of 4.125%, maturing on April 1, 2032. Proceeds from the 2032 Notes were used for general corporate purposes, which included repayment of borrowings under the Senior Credit Facility and the Accounts Receivable Facility outstanding at the time of issuance. In addition, a portion of the proceeds from the 2032 Notes was used to fund the Spinea acquisition, which closed in the second quarter of 2022.

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

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

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

Year
2023			$	2.7
2024			442.0
2025			26.6
2026			51.4
2027			529.0
Thereafter			877.1

Interest paid was $72.5 million in 2022, $56.5 million in 2021 and $65.2 million in 2020. This differs from interest expense due to the timing of payments, the amortization of deferred financing fees and interest capitalized of $1.0 million in 2022, $2.6 million in 2021 and $1.5 million in 2020.

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Note 13 - Contingencies

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

On December 28, 2004, the United States Environmental Protection Agency (“USEPA”) sent Lovejoy, Inc. ("Lovejoy") a Special Notice Letter that identified Lovejoy as a potentially responsible party, together with at least 14 other companies, at the Ellsworth Industrial Park Site in Downers Grove, DuPage County, Illinois (the “Site”). The Company 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 $4.8 million and $6.0 million for various known environmental matters that are probable and reasonably estimable as of December 31, 2022 and 2021, 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 of its products. The product warranty liability included in "Other current liabilities" on the Consolidated Balance Sheets for 2022 and 2021 was $23.5 million and $11.7 million, respectively. The balances at the end of each respective period represent the best estimates of costs for future claims for products that are still under warranty. The increase in the liability for 2022 primarily relates to additional accruals for certain products sold into the automotive and wind energy sectors. Accrual estimates are based on actual claims and expected trends that continue to mature. The Company is currently evaluating claims raised by certain customers with respect to the performance of bearings sold into the wind energy sector. Management believes that the outcome of these claims will not have a material effect on the Company's consolidated financial position; however, the effect of any such outcome may be material to the results of operations of any particular period in which costs in excess of amounts provided, if any, are recognized.

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

			December 31, 2022			December 31, 2021
Beginning balance, January 1			$	11.7		$	9.4
Expense			14.7			10.1
Payments			(2.9)			(7.8)
Ending balance			$	23.5		$	11.7

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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 2022 is presented below:

			Expected to be Settled in Equity			Expected to be Settled in Cash			Total Awards Granted
Performance-based restricted stock units			194,875			8,755			203,630
Time-based restricted stock units			155,470			5,845			161,315
Deferred shares			19,500			—			19,500

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

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, 2022 is as follows:

			Number of Shares			Weighted-average Grant Date Fair Value
Outstanding - beginning of year			993,971			$	56.06
Granted - new awards			369,845			66.49
Adjusted for performance results achieved (1)			(12,836)			42.60
Vested			(386,594)			48.33
Canceled or expired			(26,415)			64.13
Outstanding - end of year			937,971			$	63.61
(1) Adjustments for the number of shares vested under the 2019 awards at the end of the three-year period ended December 31, 2021 being slightly lower than the target number of shares.

As of December 31, 2022, a total of 937,971 stock awards have been awarded that have not yet vested. The Company distributed shares totaling 386,594 in 2022, 577,948 in 2021 and 557,590 in 2020 due to the vesting of stock awards. The grant date fair value of these vested shares was $18.7 million, $25.5 million and $24.4 million, respectively. The Company recognized compensation expense of $29.3 million, $18.2 million and $19.6 million for the years ended December 31, 2022, 2021 and 2020, 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.

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Note 14 - Stock Compensation (continued)

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

Beginning in 2020, the Company discontinued the use of nonqualified stock options. As such, there were no stock option awards granted in 2022, 2021 or 2020.

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

			Number of Shares			Weighted-average Exercise Price			Weighted-average Remaining Contractual Term			Aggregate Intrinsic Value (millions)
Outstanding - beginning of year			1,217,945			$	41.59
Exercised			(295,695)			41.54
Canceled or expired			(940)			43.44
Outstanding - end of year			921,310			$	41.61		6 years			$	26.8
Options expected to vest			921,310			41.61			6 years			26.8
Options exercisable			810,445			41.37			6 years			23.7

The total intrinsic value of stock option awards exercised during the years ended December 31, 2022, 2021 and 2020 was $7.3 million, $29.4 million and $20.7 million, respectively. Net cash proceeds from the exercise of stock option awards were $8.5 million, $26.0 million and $37.4 million, respectively.

As of December 31, 2022, the Company had unrecognized compensation expense of $32.1 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 4.3 million shares available for future grants for all plans at December 31, 2022.

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Note 15 - Impairment and Restructuring Charges

Impairment and restructuring charges by segment were as follows:

Year ended December 31, 2022:

			Mobile Industries			Process Industries			Unallocated Corporate			Total
Impairment charges			$	38.3		$	—		$	—		$	38.3
Severance and related benefit costs			3.8			0.4			—			4.2
Exit costs			1.5			0.1			—			1.6
Total			$	43.6		$	0.5		$	—		$	44.1

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

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.

Mobile Industries:

In 2022, the Company classified the ADS business as assets held for sale and recorded impairment charges of $29.3 million. The Company subsequently completed the sale of the ADS business on November 1, 2022. In addition, the Company recorded impairment charges of $9.0 million related to certain assets of its joint venture in Russia. As a result of Russia's invasion of Ukraine (and associated sanctions), the Company suspended its operations in Russia.

On July 19, 2021, the Company announced the closure of its bearing manufacturing facility in Villa Carcina, Italy. The Company transferred the manufacturing of its single-row tapered roller bearing production to other bearing facilities in Europe, Asia and the United States. The Company completed the closure of the facility on October 31, 2022, and it affected approximately 110 employees. The Company expected to incur approximately $9 million to $11 million of expenses related to this closure. During 2022, the Company recorded severance and related benefits of $1.4 million and exit costs of $1.6 million related to this closure. During 2021, the Company recorded impairment charges of $1.0 million, severance and related benefit costs of $1.8 million and exit costs of $1.1 million related to this closure. The exit costs recognized in 2022 and 2021 primarily related to environmental remediation. The Company incurred cumulative pretax costs related to this closure of $9.9 million as of December 31, 2022, including rationalization costs recorded in cost of products sold. On November 1, 2022, the Company completed the sale of this facility and recognized a pretax gain of $3.6 million.

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Note 15 - Impairment and Restructuring Charges (continued)

On October 16, 2019, the Company announced the reorganization of its bearing plant in Gaffney, South Carolina. The Company transferred its high-volume bearing production and roller production to other Timken manufacturing facilities in the U.S. The transfer of these operations was completed by the end of the fourth quarter of 2021, and it affected approximately 150 employees. The Company expected to incur approximately $8 million to $10 million of pretax costs in total related to this reorganization. During 2020, the Company recognized severance and related benefits of $0.3 million and exit costs of $0.4 million related to this reorganization. The Company has incurred cumulative pretax costs related to this reorganization of $7.9 million as of December 31, 2022, including rationalization costs recorded in cost of products sold.

On January 16, 2023, the Company announced the closure of its bearing plant, mentioned above, in Gaffney, South Carolina. The Company expects to transfer its remaining operations to other Timken manufacturing facilities in North America. The closure of this facility is expected to occur by the end of the fourth quarter of 2023 and is expected to affect approximately 225 employees. The Company expects to incur approximately $10 million to $12 million of pretax costs in total related to this closure. During 2022, the Company recognized severance and related benefits of $0.9 million under an ongoing benefit arrangement related to this closure.

Process Industries:

On February 4, 2020, the Company announced the closure of its chain plant in Indianapolis, Indiana. This plant was part of the Diamond Chain acquisition completed on April 1, 2019. The Company will be transferring the manufacturing of its Diamond Chain product line to its chain facility in Fulton, Illinois. The chain plant is expected to cease operations by the end of the first quarter of 2023 and is expected to affect approximately 240 employees. The Company expects to hire approximately 130 full-time positions in Fulton, Illinois and expects to incur approximately $12 million to $15 million of expenses related to this closure. During 2021 and 2020, the Company recorded severance and related benefit costs of $1.2 million and $3.1 million related to this closure, respectively. The Company has incurred cumulative pretax costs related to this closure of $14.0 million as of December 31, 2022, including rationalization costs recorded in cost of products sold.

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

COVID-19 Pandemic Cost Reduction Initiatives:

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

Consolidated Restructuring Accrual:

The following is a rollforward of the consolidated restructuring accrual for the years ended December 31, 2022 and 2021:

			2022			2021
Beginning balance, January 1			$	7.0		$	8.0
Expense			5.8			4.4
Payments			(9.7)			(5.4)
Ending balance, December 31			$	3.1		$	7.0

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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 $11.2 million, $20.4 million and $17.9 million in 2022, 2021 and 2020, respectively. The 2021 contributions and payments included a $10 million payout of deferred compensation to a former executive officer of the Company.

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

			U.S. Plans									International Plans
			2022			2021			2020			2022			2021			2020
Components of net periodic benefit cost:
Service cost			$	6.9		$	9.5		$	10.7		$	1.6		$	2.0		$	1.8
Interest cost			17.7			17.6			21.0			5.7			4.4			5.5
Expected return on plan assets			(18.9)			(23.2)			(25.3)			(9.3)			(10.2)			(8.7)
Amortization of prior service cost			1.2			1.2			1.6			0.1			0.2			0.2
Recognition of net actuarial losses    (gains)			22.6			13.9			(3.9)			(6.6)			(9.5)			20.1
Curtailment losses			—			—			0.9			—			—			—
Net periodic benefit cost (credit)			$	29.5		$	19.0		$	5.0		$	(8.5)		$	(13.1)		$	18.9

Assumptions			2022			2021			2020
U.S. Plans:
Discount rate			3.03% to 4.95%			2.71% to 2.91%			3.04% to 3.55%
Future compensation assumption			2.50% to 3.50%			2.50		%	2.50		%
Expected long-term return on plan assets			4.35% to 5.65%			4.15% to 4.90%			4.50% to 6.25%
International Plans:
Discount rate			1.00% to 9.50%			0.25% to 7.75%			0.75% to 9.00%
Future compensation assumption			2.10% to 8.00%			1.90% to 8.18%			2.00% to 8.20%
Expected long-term return on plan assets			2.00% to 8.90%			2.00% to 9.00%			1.75% to 9.00%

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

Assumptions			2022			2021
U.S. Plans:
Discount rate			5.62% to 5.74%			3.03% to 3.09%
Future compensation assumption			2.50%			2.50% to 3.50%
International Plans:
Discount rate			3.70% to 10.70%			1.00% to 9.50%
Future compensation assumption			2.80% to 10.00%			2.10% to 8.00%

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Note 16 - Retirement Benefit Plans (continued)

The Company recognized actuarial losses of $16.0 million during 2022 primarily due to the impact of lower than expected returns on plan assets of $220.6 million, the impact of experience losses of $33.0 million, the impact of inflation of $5.4 million and other actuarial losses of $0.2 million, partially offset by the favorable impact of a net increase in the discount rate used to measure its defined benefit pension obligations of $243.2 million. The impact of the net increase in the discount rate used to measure the Company's defined benefit pension obligations was primarily driven by a 257 basis point increase in the weighted-average discount rate used to measure its U.S. plan obligations, which increased from 3.07% in 2021 to 5.64% in 2022 and a 301 basis point increase in the discount rate used to measure its U.K. plan obligations, which increased from 1.80% in 2021 to 4.81% in 2022.

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

For expense purposes in 2022, the Company applied a weighted-average discount rate of 3.07% to its U.S. defined benefit pension plans. For expense purposes in 2023, the Company will apply a weighted-average discount rate of 5.64% to its U.S. defined benefit pension plans.

For expense purposes in 2022, the Company applied a weighted-average expected rate of return of 4.84% for the Company’s U.S. pension plan assets. For expense purposes in 2023, the Company will apply a weighted-average expected rate of return on plan assets of 4.43%.

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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, 2022 and 2021:

			U.S. Plans						International Plans
			2022			2021			2022			2021
Change in benefit obligation:
Benefit obligation at beginning of year			$	566.3		$	663.1		$	343.1		$	379.7
Service cost			6.9			9.5			1.6			2.0
Interest cost			17.7			17.6			5.7			4.4
Plan amendments			—			—			—			0.5
Actuarial gains			(116.4)			(4.4)			(88.2)			(19.6)
International plan exchange rate change			—			—			(32.6)			(8.7)
Benefits paid			(139.2)			(119.5)			(14.7)			(15.2)
Acquisitions			—			—			3.2			—
Benefit obligation at end of year			$	335.3		$	566.3		$	218.1		$	343.1

Change in plan assets:
Fair value of plan assets at beginning of year			$	455.7		$	553.3		$	296.8		$	312.8
Actual return on plan assets			(120.1)			4.9			(72.3)			0.1
Company contributions / payments			5.2			17.0			6.0			3.4
International plan exchange rate change			—			—			(30.3)			(4.3)
Benefits paid			(139.2)			(119.5)			(14.7)			(15.2)
Fair value of plan assets at end of year			201.6			455.7			185.5			296.8
Funded status at end of year			$	(133.7)		$	(110.6)		$	(32.6)		$	(46.3)

Amounts recognized on the Consolidated Balance Sheets:
Non-current assets			$	—		$	1.1		$	0.3		$	3.9
Current liabilities			(4.8)			(4.9)			(1.5)			(1.4)
Non-current liabilities			(128.9)			(106.8)			(31.4)			(48.8)
			$	(133.7)		$	(110.6)		$	(32.6)		$	(46.3)

Amounts recognized in accumulated other comprehensive      loss (income):
Net prior service cost			$	0.3		$	1.5		$	3.6		$	4.2
Accumulated other comprehensive loss (income)			$	0.3		$	1.5		$	3.6		$	4.2

Changes in prior service cost recognized in accumulated other comprehensive loss (income):
Accumulated other comprehensive loss (income) at beginning      of year			$	1.5		$	2.7		$	4.2		$	3.9
Prior service cost			—			—			—			0.5
Recognized prior service cost			(1.2)			(1.2)			(0.1)			(0.2)
Foreign currency impact			—			—			(0.5)			—
Total recognized in accumulated other comprehensive      loss (income) at December 31			$	0.3		$	1.5		$	3.6		$	4.2

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Note 16 - Retirement Benefit Plans (continued)

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

Defined benefit pension plans in the U.S. represent 61% of the benefit obligation and 52% of the fair value of plan assets as of December 31, 2022.

Certain of the Company’s defined benefit pension plans were overfunded as of December 31, 2022. As a result, $0.3 million and $5.0 million at December 31, 2022 and 2021, respectively, are included in other non-current assets on the Consolidated Balance Sheets. The current portion of accrued pension benefits, which was included in salaries, wages and benefits on the Consolidated Balance Sheets, was $6.3 million at December 31, 2022 and 2021, respectively. In 2022, the current portion of accrued pension benefits relates to unfunded plans and represents the actuarial present value of expected payments related to the plans to be made over the next 12 months.

The accumulated benefit obligation at December 31, 2022 exceeded the market value of plan assets for several of the Company’s pension plans. For these plans, the projected benefit obligation was $544.2 million, the accumulated benefit obligation was $539.9 million and the fair value of plan assets was $378.0 million at December 31, 2022.

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

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

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

Plan Assets:

The Company’s target allocation for pension plan assets, as well as the actual pension plan asset allocations as of December 31, 2022 and 2021, was as follows: 

			Current Target Allocation									Percentage of Pension Plan Assets at December 31,
Asset Category												2022			2021
Equity securities			16%			to			22%			18%			19%
Fixed income securities			72%			to			82%			77%			78%
Other investments			2%			to			6%			5%			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.

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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, 2022												December 31, 2021
			Level 1			Level 2			Level 3			Total			Level 1			Level 2			Level 3			Total
Assets:
Cash and cash equivalents			$	22.9		$	—		$	—		$	22.9		$	13.8		$	—		$	—		$	13.8
Government and agency securities			10.7			0.9			—			11.6			22.7			2.7			—			25.4
Corporate bonds - investment grade			—			31.5			—			31.5			—			82.7			—			82.7
Equity securities - U.S. companies			0.1			—			—			0.1			—			—			—			—
Common collective funds - fixed income			29.9			—			—			29.9			42.5			—			—			42.5
Mutual funds - fixed income			31.6			—			—			31.6			51.8			—			—			51.8
Mutual funds - international equity			21.5			—			—			21.5			41.0			—			—			41.0
			$	116.7		$	32.4		$	—		$	149.1		$	171.8		$	85.4		$	—		$	257.2
Investments measured at net asset value:
Equity securities - international companies												$	0.4											$	0.3
Common collective funds - domestic equities												19.9												45.9
Common collective funds - international equities												17.5												33.6
Common collective funds - fixed income												82.6												216.6
Common collective funds - diversified growth												12.1												18.5
Limited partnerships												6.8												10.4
Real estate partnerships												5.2												6.6
Other liability-driven investments												68.6												138.1
Other assets												24.9												25.3
Total Assets												$	387.1											$	752.5

International investments measured at net asset value totaled $155.0 million and $253.5 million at December 31, 2022 and 2021, 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.

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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
2021			$	20.4
2022			11.2
2023 (estimated)			25.0

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

Benefit Payments
2023			$	49.6
2024			43.0
2025			44.0
2026			45.3
2027			42.7
2028-2032			203.3

Employee Savings Plans:

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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:

			2022			2021			2020
Components of net periodic credit:
Service cost			$	0.2		$	0.2		$	0.2
Interest cost			1.4			1.5			2.1
Expected return on plan assets			—			—			(0.4)
Amortization of prior service credit			(10.1)			(10.1)			(9.8)
Recognition of net actuarial (gains) losses			(13.1)			(4.1)			1.4
Net periodic credit:			$	(21.6)		$	(12.5)		$	(6.5)

Assumptions:			2022			2021			2020
Discount rate			2.99		%	2.62		%	3.43		%
Rate of return			—		%	—		%	3.00		%

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

Assumptions:			2022			2021
Discount rate			5.75		%	2.99		%

The Company recognized actuarial gains of $13.1 million during 2022 primarily due to the impact of a 276 basis point increase in the discount rate used to measure the Company's defined benefit postretirement obligations, which increased from 2.99% in 2021 to 5.75% in 2022. The increase in the discount rate resulted in a $8.4 million gain. In addition to the gain from the discount rate increases, the Company recognized actuarial gains of $3.0 million due to the impact of a reduction in the rate for Medicare Advantage plans and $1.9 million due to lower than expected benefit payments. These actuarial gains were offset $0.2 million of changes to other assumptions.

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

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.

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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 2022, the Company applied a discount rate of 2.99% to its other postretirement benefit plans. For expense purposes in 2023, the Company will apply a discount rate of 5.75% to its other postretirement benefit plans.

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

			2022			2021
Change in benefit obligation:
Benefit obligation at beginning of year			$	51.1		$	57.6
Service cost			0.2			0.2
Interest cost			1.4			1.5
Plan amendments			(0.6)			—
Actuarial gains			(13.1)			(4.1)
International plan exchange rate change			(0.1)			—
Benefits paid			(3.4)			(4.1)
Benefit obligation at end of year			$	35.5		$	51.1

Change in plan assets:
Fair value of plan assets at beginning of year			$	—		$	11.1
Transfer to VEBA trust for certain active employees' medical benefits			—			(11.1)
Fair value of plan assets at end of year			—			—
Funded status at end of year			$	(35.5)		$	(51.1)

Amounts recognized on the Consolidated Balance Sheets:
Current liabilities			$	(4.1)		$	(5.3)
Non-current liabilities			(31.4)			(45.8)
			$	(35.5)		$	(51.1)

Amounts recognized in accumulated other comprehensive loss:
Net prior service credit			$	(71.9)		$	(81.4)
Accumulated other comprehensive loss			$	(71.9)		$	(81.4)

Changes to prior service credit recognized in accumulated other      comprehensive loss:
Accumulated other comprehensive loss at beginning of year			$	(81.4)		$	(91.5)
Prior service credit			(0.6)			—
Recognized prior service credit			10.1			10.1
Total recognized in accumulated other comprehensive loss at December 31			$	(71.9)		$	(81.4)

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Note 17 - Other Postretirement Benefit Plans (continued)

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

The current portion of accrued postretirement benefits, which was included in salaries, wages and benefits on the Consolidated Balance Sheets, was $4.1 million and $5.3 million at December 31, 2022 and 2021, respectively. In 2022, the current portion of accrued postretirement benefits related to unfunded plans and represented the actuarial present value of expected payments related to the plans to be made over the next 12 months.

For measurement purposes, the Company assumed a weighted-average annual rate of increase in the per capita cost (health care cost trend rate) for medical benefits of 6.5% for 2023, declining gradually to 5.0% in 2029 and thereafter for medical and prescription drug benefits. For Medicare Advantage benefits, actual contract rates have been set for 2023 through 2025, and are assumed to increase by $5 per year for 2026 to 2028 and then 6.0% for 2028, declining gradually to 5.0% in 2032 and thereafter.

Plan Assets:

In 2010, the Company established a Voluntary Employee Beneficiary Association ("VEBA") trust for certain bargained associates' retiree medical benefits. In January 2020, the Company established a second VEBA trust for certain active employees’ medical benefits. In January 2020, the Company transferred $50 million from the existing VEBA trust to fund the second VEBA trust. In January 2021, the Company transferred the remaining $11.1 million in the existing VEBA trust to the second VEBA trust. The Company utilized all of the assets of the second VEBA trust in 2021 and 2020 for the payment of certain active employees’ medical benefits. As a result of the transfer, the Company expects to fund future payments for other postretirement benefit plans, which are expected to be approximately $4 million, from the general funds of the Company.

Cash Flows:

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

			Future Benefit Payments
2023			$	4.2
2024			3.9
2025			3.7
2026			3.6
2027			3.5
2028-2032			14.7

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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, 2022 and December 31, 2021, respectively:

			Foreign currency translation adjustments			Pension and postretirement liability adjustments						Change in fair value of derivative financial instruments			Total
Balance at December 31, 2021			$	(80.3)		$	56.6					$	0.7		$	(23.0)
Other comprehensive (loss) income before reclassifications    and income taxes			(162.7)			1.1						6.6			(155.0)
Amounts reclassified from accumulated other comprehensive    (loss) income, before income tax			—			(8.8)						(3.7)			(12.5)
Income tax benefit (expense)			—			1.9						(0.6)			1.3
Net current period other comprehensive (loss) income,    net of income taxes			(162.7)			(5.8)						2.3			(166.2)
Noncontrolling interest			7.3			—						—			7.3
Net current period comprehensive (loss) income, net    of income taxes and noncontrolling interest			(155.4)			(5.8)						2.3			(158.9)
Balance at December 31, 2022			$	(235.7)		$	50.8					$	3.0		$	(181.9)

			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)

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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, 2022 and 2021:

			December 31, 2022
			Total			Level 1			Level 2			Level 3
Assets:
Cash and cash equivalents			$	292.1		$	289.3		$	2.8		$	—
Cash and cash equivalents measured at net  asset value			39.5
Restricted cash			9.1			9.1			—			—
Short-term investments			39.2			—			39.2			—
Interest rate swap contract			3.1			—			3.1			—
Foreign currency forward contracts			4.5			—			4.5			—
Total Assets			$	387.5		$	298.4		$	49.6		$	—
Liabilities:
Foreign currency forward contracts			$	19.8		$	—		$	19.8		$	—
Total Liabilities			$	19.8		$	—		$	19.8		$	—

			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 forward contracts			5.6			—			5.6			—
Total Assets			$	320.4		$	245.6		$	74.8		$	—
Liabilities:
Foreign currency forward contracts			$	1.0		$	—		$	1.0		$	—
Total Liabilities			$	1.0		$	—		$	1.0		$	—

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.

During the third quarter of 2022, the Company's ADS business, located in Manchester, Connecticut, was reclassified to assets held for sale. In conjunction with this reclassification, the ADS business, with a carrying value of $62.1 million, was written down to its estimated fair value less cost to sell of $32.8 million, resulting in an impairment charge of $29.3 million. The Company subsequently sold ADS on November 1, 2022. The fair value for these net assets was determined based on an estimate of the value expected to be received upon the sale of this business. See Note 2 - Acquisitions and Divestitures for further discussion.

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

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

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Note 19 - Fair Value (continued)

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

Financial Instruments:

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 $1,353.5 million and $1,171.1 million at December 31, 2022 and 2021, respectively. The carrying value of this debt was $1,417.9 million and $1,087.5 million at December 31, 2022 and 2021, respectively. The fair value of long-term fixed-rate debt was measured using Level 2 inputs.

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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 repaid the LIBOR based 2023 Term Loan December 5, 2022 and replaced with a SOFR based 2022 Term Loan. The Company amended the swap from LIBOR to SOFR commencing January 2023. The Company’s risk management objective is to hedge the risk of changes in the monthly interest expense attributable to changes in the benchmark interest rate.

On September 15, 2020, the Company designated €54.5 million of its €150.0 million fixed-rate senior unsecured notes, maturing on September 7, 2027 (the "2027 Notes") as a hedge against its net investment in one of its European affiliates. 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, 2022 was to record a gain of $3.6 million to accumulated comprehensive loss (income) with a corresponding offset to other (expense) income, which partially offsets the impact of the foreign currency adjustment on the 2027 Notes.

The Company does not purchase or hold any derivative financial instruments for trading purposes. As of December 31, 2022 and 2021, the Company had $635.6 million and $300.8 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, 2022 and 2021, the Company had $82.3 million and $80.0 million, respectively, of outstanding foreign currency forward contracts at notional value that were classified as cash flow hedges.

The maximum length of time over which the Company hedges 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.

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Note 20 - Derivative Instruments (continued)

As of December 31, 2022 and 2021, the Company had $553.3 million and $220.8 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, 2022, 2021 and 2020, 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			2022			2021			2020
Foreign currency forward contracts			Other income (expense), net			$	(25.2)		$	3.6		$	(3.7)

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			2022			2021			2020
Research and Development Expense			0.8		%	0.9		%	1.2		%
Engineering Expense			1.5		%	1.4		%	1.0		%
Total			2.3		%	2.3		%	2.2		%

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Note 22 - Quarterly Financial Data

(Unaudited)

			2022
			1st			2nd			3rd			4th			Total
Net sales			$	1,124.6		$	1,153.7		$	1,136.4		$	1,082.0		$	4,496.7
Gross profit			327.4			341.8			322.8			296.1			1,288.1
Selling, general and administrative expenses			154.1			155.9			159.8			167.3			637.1
Impairment and restructuring charges			1.0			10.0			31.3			1.8			44.1
Net income (1)			121.9			105.6			90.4			99.1			417.0
Net income attributable to noncontrolling interests			3.7			0.6			3.4			1.9			9.6
Net income attributable to The Timken Company			118.2			105.0			87.0			97.2			407.4
Net income per share - Basic:			$	1.58		$	1.43		$	1.19		$	1.34		$	5.54
Net income per share - Diluted:			$	1.56		$	1.42		$	1.18		$	1.32		$	5.48
Dividends per share			$	0.30		$	0.31		$	0.31		$	0.31		$	1.23
			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 (2)			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

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 2022 included net actuarial losses of $11.6 million. Net income for the third quarter of 2022 included impairment charges of $29.3 million related to the sale of ADS. Net income for the fourth quarter of 2022 included net actuarial gains of $12.3 million.

(2)Net income for the second quarter of 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.

Note 23 - Subsequent Events

On February 1, 2023, the Company acquired the assets of American Roller Bearing ("ARB"), a North Carolina-based manufacturer of industrial bearings. ARB primarily serves the aftermarket sector and operates manufacturing facilities in Hiddenite and Morganton, North Carolina. ARB generated sales of more than $30 million in 2022 and the transaction was funded with cash on hand.

On January 30, 2023, the Company reached an agreement to acquire Nadella Group ("Nadella"), a leading European manufacturer of linear guides, telescopic rails, actuators and systems and other specialized industrial motion solutions, from ICG plc. Nadella operates manufacturing facilities in Europe and China and reported revenue of approximately €100 million in 2022. The transaction, which is subject to customary closing conditions, is expected to close in the first quarter of 2023 and will be funded with cash on hand and borrowings from committed credit facilities.

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Schedule II—Valuation and Qualifying Accounts

The Timken Company and Subsidiaries

 

Allowance for uncollectible accounts:			2022			2021			2020
Balance at beginning of period			$	16.9		$	16.5		$	18.1
Additions:
Charged to costs and expenses (1)			3.7			3.5			2.8
Deductions:
Charged to costs and expenses (3)			0.4			2.5			3.4
Charged to other accounts (2)			2.3			0.6			1.0
Balance at end of period			$	17.9		$	16.9		$	16.5
Allowance for surplus and obsolete inventory:			2022			2021			2020
Balance at beginning of period			$	63.3		$	54.5		$	40.1
Additions:
Charged to costs and expenses (4)			12.9			13.4			11.6
Charged to other accounts (2)			1.2			(0.7)			11.8
Deductions (5)			19.0			3.9			9.0
Balance at end of period			$	58.4		$	63.3		$	54.5
Valuation allowance on deferred tax assets:			2022			2021			2020
Balance at beginning of period			$	31.0		$	36.7		$	33.7
Additions:
Charged to costs and expenses (6)			3.1			3.1			2.7
Charged to other accounts (2)			—			—			1.0
Deductions
Charged to costs and expenses (7)			0.9			7.8			0.7
Charged to other accounts (2)			1.9			1.0			—
Balance at end of period			$	31.3		$	31.0		$	36.7

(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.