THE TIMKEN COMPANY

INDEX TO FORM 10-Q REPORT


			PAGE
I.	PART I.
	Item 1.	Financial Statements	1
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2120
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
	Item 4.	Controls and Procedures	36
II.	PART II.
	Item 1.	Legal Proceedings	37
	Item1A.	Risk Factors	37
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
	Item 6.	Exhibits	38

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE TIMKEN COMPANY AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)


		Three Months Ended March 31,				Three Months Ended March 31,
		2021		2020				2022		2021
(Dollars in millions, except per share data)	(Dollars in millions, except per share data)						(Dollars in millions, except per share data)
Net sales	Net sales	$	1,025.4	$	923.4		Net sales	$	1,124.6	$	1,025.4
Cost of products sold	Cost of products sold	726.2		644.5			Cost of products sold	797.2		726.2
Gross Profit	Gross Profit	299.2		278.9			Gross Profit	327.4		299.2
Selling, general and administrative expenses	Selling, general and administrative expenses	144.5		153.6			Selling, general and administrative expenses	154.1		144.5

Impairment and restructuring charges	Impairment and restructuring charges	4.0		3.6			Impairment and restructuring charges	1.0		4.0

Operating Income	Operating Income	150.7		121.7			Operating Income	172.3		150.7
Interest expense	Interest expense	(14.9)		(17.1)			Interest expense	(14.3)		(14.9)
Interest income	Interest income	0.5		1.5			Interest income	0.6		0.5

Non-service pension and other postretirement income	Non-service pension and other postretirement income	4.0		3.4			Non-service pension and other postretirement income	1.3		4.0
Other income, net	Other income, net	1.0		4.1			Other income, net	0.2		1.0
Income Before Income Taxes	Income Before Income Taxes	141.3		113.6			Income Before Income Taxes	160.1		141.3
Provision for income taxes	Provision for income taxes	25.3		29.6			Provision for income taxes	38.2		25.3
Net Income	Net Income	116.0		84.0			Net Income	121.9		116.0
Less: Net income attributable to noncontrolling interest	Less: Net income attributable to noncontrolling interest	2.7		3.3			Less: Net income attributable to noncontrolling interest	3.7		2.7
Net Income Attributable to The Timken Company	Net Income Attributable to The Timken Company	$	113.3	$	80.7		Net Income Attributable to The Timken Company	$	118.2	$	113.3

Net Income per Common Share Attributable to The Timken Company Common Shareholders	Net Income per Common Share Attributable to The Timken Company Common Shareholders						Net Income per Common Share Attributable to The Timken Company Common Shareholders
Basic earnings per share	Basic earnings per share	$	1.49	$	1.07		Basic earnings per share	$	1.58	$	1.49

Diluted earnings per share	Diluted earnings per share	$	1.47	$	1.06		Diluted earnings per share	$	1.56	$	1.47

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

(Unaudited)


		Three Months Ended March 31,				Three Months Ended March 31,
		2021		2020				2022		2021
(Dollars in millions)	(Dollars in millions)						(Dollars in millions)
Net Income	Net Income	$	116.0	$	84.0		Net Income	$	121.9	$	116.0
Other comprehensive income (loss), net of tax:
Other comprehensive loss, net of tax:							Other comprehensive loss, net of tax:
Foreign currency translation adjustments	Foreign currency translation adjustments	(44.4)		(78.8)			Foreign currency translation adjustments	(22.6)		(44.4)
Pension and postretirement liability adjustments	Pension and postretirement liability adjustments	(1.6)		(1.3)			Pension and postretirement liability adjustments	(1.5)		(1.6)
Change in fair value of marketable securities		0		(0.4)

Change in fair value of derivative financial instruments	Change in fair value of derivative financial instruments	2.2		4.2			Change in fair value of derivative financial instruments	2.0		2.2
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	(43.8)		(76.3)			Other comprehensive loss, net of tax	(22.1)		(43.8)
Comprehensive Income, net of tax	Comprehensive Income, net of tax	72.2		7.7			Comprehensive Income, net of tax	99.8		72.2
Less: comprehensive income (loss) attributable to noncontrolling interest		2.3		(4.2)
Less: comprehensive income attributable to noncontrolling interest							Less: comprehensive income attributable to noncontrolling interest	1.1		2.3
Comprehensive Income Attributable to The Timken Company	Comprehensive Income Attributable to The Timken Company	$	69.9	$	11.9		Comprehensive Income Attributable to The Timken Company	$	98.7	$	69.9

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Balance Sheets


		(Unaudited)					(Unaudited)
(Dollars in millions)	(Dollars in millions)	March 31, 2021		December 31, 2020		(Dollars in millions)	March 31, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	302.3	$	320.3	Cash and cash equivalents	$	424.5	$	257.1
Restricted cash	Restricted cash	0.8		0.8		Restricted cash	0.7		0.8
Accounts receivable, less allowances (2021 – $16.8 million; 2020 – $16.5 million)		712.3		581.1
Accounts receivable, less allowances (2022 – $17.5 million; 2021 – $16.9 million)						Accounts receivable, less allowances (2022 – $17.5 million; 2021 – $16.9 million)	743.9		626.4
Unbilled receivables	Unbilled receivables	113.3		110.9		Unbilled receivables	88.5		104.5
Inventories, net	Inventories, net	864.8		841.3		Inventories, net	1,112.6		1,042.7
Deferred charges and prepaid expenses	Deferred charges and prepaid expenses	40.3		39.9		Deferred charges and prepaid expenses	41.0		32.2
Other current assets	Other current assets	109.8		106.0		Other current assets	137.1		149.8

Total Current Assets	Total Current Assets	2,143.6		2,000.3		Total Current Assets	2,548.3		2,213.5
Property, Plant and Equipment, net	Property, Plant and Equipment, net	1,020.6		1,035.6		Property, Plant and Equipment, net	1,039.9		1,055.3
Other Assets	Other Assets					Other Assets
Goodwill	Goodwill	1,028.4		1,047.6		Goodwill	1,010.4		1,022.7
Other intangible assets	Other intangible assets	712.6		741.4		Other intangible assets	648.6		668.8
Operating lease assets	Operating lease assets	113.1		118.2		Operating lease assets	116.7		118.9
Non-current pension assets		0.1		2.0

Deferred income taxes	Deferred income taxes	69.8		77.0		Deferred income taxes	65.2		67.6
Other non-current assets	Other non-current assets	18.0		19.5		Other non-current assets	29.4		23.9

Total Other Assets	Total Other Assets	1,942.0		2,005.7		Total Other Assets	1,870.3		1,901.9
Total Assets	Total Assets	$	5,106.2	$	5,041.6	Total Assets	$	5,458.5	$	5,170.7
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current Liabilities	Current Liabilities					Current Liabilities
Short-term debt		$	167.5	$	119.8
Current portion of long-term debt		10.8		10.9
Short-term operating lease liabilities		26.2		27.2

Accounts payable, trade	Accounts payable, trade	362.6		351.4		Accounts payable, trade	416.1		430.0
Short-term debt, including current portion of long-term debt						Short-term debt, including current portion of long-term debt	41.0		53.8
Salaries, wages and benefits	Salaries, wages and benefits	120.2		135.7		Salaries, wages and benefits	118.3		136.0
Income taxes payable	Income taxes payable	24.9		16.1		Income taxes payable	30.0		26.2

Other current liabilities	Other current liabilities	204.6		186.9		Other current liabilities	260.8		250.6

Total Current Liabilities	Total Current Liabilities	916.8		848.0		Total Current Liabilities	866.2		896.6
Non-Current Liabilities	Non-Current Liabilities					Non-Current Liabilities
Long-term debt	Long-term debt	1,423.7		1,433.9		Long-term debt	1,747.2		1,411.1
Accrued pension benefits	Accrued pension benefits	157.4		163.0		Accrued pension benefits	156.5		155.6
Accrued postretirement benefits	Accrued postretirement benefits	52.1		41.3		Accrued postretirement benefits	45.3		45.8
Long-term operating lease liabilities	Long-term operating lease liabilities	70.9		75.5		Long-term operating lease liabilities	76.5		77.6
Deferred income taxes	Deferred income taxes	138.3		148.7		Deferred income taxes	121.9		121.4
Other non-current liabilities	Other non-current liabilities	96.9		106.0		Other non-current liabilities	89.9		84.9

Total Non-Current Liabilities	Total Non-Current Liabilities	1,939.3		1,968.4		Total Non-Current Liabilities	2,237.3		1,896.4
Shareholders’ Equity	Shareholders’ Equity					Shareholders’ Equity
Class I and II Serial Preferred Stock, without par value:	Class I and II Serial Preferred Stock, without par value:					Class I and II Serial Preferred Stock, without par value:
Authorized – 10,000,000 shares each class, none issued	Authorized – 10,000,000 shares each class, none issued	0		0		Authorized – 10,000,000 shares each class, none issued	—		—
Common shares, without par value:	Common shares, without par value:					Common shares, without par value:
Authorized – 200,000,000 shares	Authorized – 200,000,000 shares					Authorized – 200,000,000 shares
Issued (including shares in treasury) (2021 – 76,729,850 shares; 2020 – 75,834,668 shares)
Issued (including shares in treasury) (2022 – 77,457,218 shares; 2021 – 77,090,104 shares)						Issued (including shares in treasury) (2022 – 77,457,218 shares; 2021 – 77,090,104 shares)
Stated capital	Stated capital	40.7		40.7		Stated capital	40.7		40.7
Other paid-in capital	Other paid-in capital	761.3		740.7		Other paid-in capital	795.4		786.9
Retained earnings	Retained earnings	1,429.0		1,339.5		Retained earnings	1,711.1		1,616.4
Accumulated other comprehensive (loss) income		(2.1)		41.3
Treasury shares at cost (2021 – 746,378 shares; 2020 – 158,836 shares)		(53.4)		(9.3)
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(42.5)		(23.0)
Treasury shares at cost (2022 – 3,326,669 shares; 2021 – 1,715,282 shares)						Treasury shares at cost (2022 – 3,326,669 shares; 2021 – 1,715,282 shares)	(233.6)		(126.1)
Total Shareholders’ Equity	Total Shareholders’ Equity	2,175.5		2,152.9		Total Shareholders’ Equity	2,271.1		2,294.9
Noncontrolling Interest	Noncontrolling Interest	74.6		72.3		Noncontrolling Interest	83.9		82.8
Total Equity	Total Equity	2,250.1		2,225.2		Total Equity	2,355.0		2,377.7
Total Liabilities and Equity	Total Liabilities and Equity	$	5,106.2	$	5,041.6	Total Liabilities and Equity	$	5,458.5	$	5,170.7

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Statements of Cash Flows

(Unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020			2022		2021
(Dollars in millions)	(Dollars in millions)					(Dollars in millions)
CASH PROVIDED (USED)	CASH PROVIDED (USED)					CASH PROVIDED (USED)
Operating Activities	Operating Activities					Operating Activities
Net income	Net income	$	116.0	$	84.0	Net income	$	121.9	$	116.0
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	43.0		42.3		Depreciation and amortization	41.4		43.0
Impairment charges	Impairment charges	3.4		0.1		Impairment charges	—		3.4
Loss on sale of assets	Loss on sale of assets	0.3		1.2		Loss on sale of assets	0.6		0.3

Acquisition-related gain	Acquisition-related gain	(0.6)		0		Acquisition-related gain	—		(0.6)
Deferred income tax benefit		(2.0)		(5.1)
Deferred income tax provision (benefit)						Deferred income tax provision (benefit)	1.8		(2.0)
Stock-based compensation expense	Stock-based compensation expense	6.5		5.6		Stock-based compensation expense	7.1		6.5
Pension and other postretirement income		(1.0)		(0.3)
Pension and other postretirement benefit expense (income)						Pension and other postretirement benefit expense (income)	1.0		(1.0)
Pension and other postretirement benefit contributions and payments	Pension and other postretirement benefit contributions and payments	(2.5)		(5.5)		Pension and other postretirement benefit contributions and payments	(5.2)		(2.5)

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(138.9)		(47.6)		Accounts receivable	(118.2)		(138.9)
Unbilled receivables	Unbilled receivables	(2.5)		(8.3)		Unbilled receivables	16.1		(2.5)
Inventories	Inventories	(33.3)		0.3		Inventories	(70.2)		(33.3)
Accounts payable, trade	Accounts payable, trade	19.9		0		Accounts payable, trade	7.7		19.9
Other accrued expenses	Other accrued expenses	17.0		(34.3)		Other accrued expenses	(19.5)		17.0
Income taxes	Income taxes	3.6		12.5		Income taxes	6.3		3.6
Other, net	Other, net	2.8		11.3		Other, net	8.0		2.8

Net Cash Provided by Operating Activities		31.7		56.2
Net Cash (Used in) Provided by Operating Activities						Net Cash (Used in) Provided by Operating Activities	(1.2)		31.7
Investing Activities	Investing Activities					Investing Activities
Capital expenditures	Capital expenditures	(29.4)		(31.8)		Capital expenditures	(34.3)		(29.4)

Investments in short-term marketable securities, net	Investments in short-term marketable securities, net	(9.9)		0.2		Investments in short-term marketable securities, net	(0.8)		(9.9)
Other		(0.1)		0
Other, net						Other, net	0.1		(0.1)

Net Cash Used in Investing Activities	Net Cash Used in Investing Activities	(39.4)		(31.6)		Net Cash Used in Investing Activities	(35.0)		(39.4)
Financing Activities	Financing Activities					Financing Activities
Cash dividends paid to shareholders	Cash dividends paid to shareholders	(23.8)		(22.9)		Cash dividends paid to shareholders	(23.5)		(23.8)
Purchase of treasury shares	Purchase of treasury shares	(26.3)		(42.3)		Purchase of treasury shares	(100.0)		(26.3)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	14.1		7.5		Proceeds from exercise of stock options	1.4		14.1
Payments related to tax withholding for stock-based compensation	Payments related to tax withholding for stock-based compensation	(17.8)		(10.2)		Payments related to tax withholding for stock-based compensation	(7.5)		(17.8)
Accounts receivable facility borrowings		66.1		10.0
Accounts receivable facility payments		(24.1)		(10.0)
Borrowings on accounts receivable facility						Borrowings on accounts receivable facility	100.0		66.1
Payments on accounts receivable facility						Payments on accounts receivable facility	(100.0)		(24.1)
Proceeds from long-term debt	Proceeds from long-term debt	70.0		200.0		Proceeds from long-term debt	524.3		70.0
Payments on long-term debt	Payments on long-term debt	(73.4)		(37.9)		Payments on long-term debt	(182.7)		(73.4)

Deferred financing costs						Deferred financing costs	(2.6)		—
Short-term debt activity, net	Short-term debt activity, net	8.8		72.3		Short-term debt activity, net	(11.1)		8.8

Other						Other	6.4		—

Net Cash (Used in) Provided by Financing Activities		(6.4)		166.5
Net Cash Provided By (Used in) Financing Activities						Net Cash Provided By (Used in) Financing Activities	204.7		(6.4)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(3.9)		(13.3)		Effect of exchange rate changes on cash	(1.2)		(3.9)
(Decrease) Increase in Cash, Cash Equivalents and Restricted Cash		(18.0)		177.8
Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash						Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	167.3		(18.0)
Cash, cash equivalents and restricted cash at beginning of year	Cash, cash equivalents and restricted cash at beginning of year	321.1		216.2		Cash, cash equivalents and restricted cash at beginning of year	257.9		321.1
Cash, Cash Equivalents and Restricted Cash at End of Period	Cash, Cash Equivalents and Restricted Cash at End of Period	$	303.1	$	394.0	Cash, Cash Equivalents and Restricted Cash at End of Period	$	425.2	$	303.1

See accompanying Notes to the Consolidated Financial Statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions, except per share data)

Note 1 - Basis of Presentation

The accompanying Consolidated Financial Statements (unaudited) for The Timken Company (the "Company" or "Timken") have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by the accounting principles generally accepted in the United States ("U.S. GAAP") for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to the Consolidated Financial Statements and accompanying Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Note 2 - Significant Accounting Policies

The Company's significant accounting policies are detailed in "Note 1 - Significant Accounting Policies" of the Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Recent Accounting Pronouncements:

New Accounting Guidance Adopted:

In ~~December 2019,~~October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ASU ~~2019-12, “Income Taxes (ASC 740) – Simplifying the~~2021-08, "Business Combinations (Topic 805), Accounting for ~~Income Taxes,” which is intended~~Contract Assets and Contract Liabilities from Contracts with Customers." ASU 2021-08 requires contract assets and contract liabilities acquired in a business combination to ~~reduce complexity~~be recognized in accordance with ASC Topic 606 as if the ~~accounting for income taxes while maintaining or improving~~acquirer had originated the ~~usefulness of information provided to financial statement users. The~~contracts. This new guidance ~~amends certain existing provisions under ASC 740 to address a number of distinct items. This standard~~ is effective for ~~public companies in~~ fiscal years beginning after December 15, ~~2020,~~2022, including interim periods within those fiscal years. Early adoption is ~~permitted, including adoption in any interim period for which financial statements have not yet been issued.~~permitted. The Company adopted ASU ~~2019-12~~2021-08 effective January 1, ~~2021,~~2022, and the impact of the adoption was not material to the Company's results of operations and financial condition.

New Accounting Guidance Issued and Not Yet Adopted:

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

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ~~This guidance~~ASU 2020-04 is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ~~(LIBOR)~~("LIBOR") and other interbank offered rates to alternative reference rates. This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022. The Company is currently assessing which of its various contracts will require an update for a new reference rate and will determine the timing for implementation of this guidance after completing that analysis.

~~Note 3 - Acquisitions~~

The Company completed 1 acquisition in 2020. On November 30, 2020, the Company completed the acquisition of the assets of Aurora Bearing Company ("Aurora"). With annual sales of approximately $30 million, Aurora serves a diverse range of industrial sectors, including aerospace and defense, racing, off-highway equipment and packing. Aurora is headquartered in Montgomery, Illinois. The total purchase price for this acquisition was $17.3 million, including a post-closing net working capital adjustment. Based on markets and customers served, results for Aurora are reported in both the Mobile Industries segment and the Process Industries segment.

~~The following table presents the purchase price allocation at fair value, net of cash acquired, for the Aurora acquisition as of March 31, 2021:~~

Initial Purchase
Price Allocation Adjustments Purchase
Price Allocation
Assets:
Accounts receivable, net $ 2.7 $ 0 $ 2.7
Inventories, net 16.4 0 16.4
Other current assets 0.1 0.2 0.3
Property, plant and equipment, net 10.9 0 10.9
   Total assets acquired $ 30.1 $ 0.2 $ 30.3
Liabilities:
Accounts payable, trade $ 0.8 $ 0 $ 0.8
Other current liabilities 0.9 (0.4) 0.5
   Total liabilities assumed 1.7 (0.4) 1.3
   Net assets acquired $ 28.4 $ 0.6 $ 29.0

As a result of applying the accounting rules on business combinations, the Company recognized a bargain purchase gain of $11.7 million on the acquisition of Aurora. The Company recognized $0.6 million of the bargain purchase price gain during the first three months of 2021 primarily due to the working capital adjustment. The Company believes it was able to negotiate a bargain purchase price for the business due to some historic operational performance challenges, as well as the seller's desire to exit the business in an expedited manner in an exclusive process with the Company.

Note 43 - Revenue

The following table presents details deemed most relevant to the users of the financial statements about total revenue for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively:

Three Months Ended Three Months Ended
March 31, 2021 March 31, 2020
Mobile Process Total Mobile Process Total
United States $ 242.9 $ 186.2 $ 429.1 $ 238.2 $ 192.6 $ 430.8
Americas excluding United States 48.8 43.2 92.0 48.8 35.0 83.8
Europe / Middle East / Africa 127.1 127.2 254.3 108.7 115.6 224.3
China 34.4 124.3 158.7 21.8 81.0 102.8
Asia-Pacific excluding China 51.3 40.0 91.3 49.2 32.5 81.7
Net sales $ 504.5 $ 520.9 $ 1,025.4 $ 466.7 $ 456.7 $ 923.4


	Three Months Ended						Three Months Ended
	March 31, 2022						March 31, 2021
	Mobile		Process		Total		Mobile		Process		Total
United States	$	262.2	$	226.6	$	488.8	$	242.9	$	186.2	$	429.1
Americas excluding the United States	58.1		55.1		113.2		48.8		43.2		92.0
Europe / Middle East / Africa	129.4		135.6		265.0		127.1		127.2		254.3
China	30.7		120.7		151.4		34.4		124.3		158.7
Asia-Pacific excluding China	60.0		46.2		106.2		51.3		40.0		91.3
Net sales	$	540.4	$	584.2	$	1,124.6	$	504.5	$	520.9	$	1,025.4

When reviewing revenue by sales channel, the Company separates net sales to original equipment manufacturers ("OEMs") from sales to distributors and end users. The following table presents the percent of revenue by sales channel for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively:

Three Months Ended

Revenue by sales channel

March 31, 2021

March 31, 2020

Revenue by sales channel

March 31, 2022

March 31, 2021

Original equipment manufacturers

61%

59%

Original equipment manufacturers

60%

61%

Distribution/end users

39%

41%

Distribution/end users

40%

39%

In addition to disaggregating revenue by segment, geography and by sales channel as shown above, the Company believes information about the timing of transfer of goods or services, type of customer and distinguishing service revenue from product sales is also relevant. During the three months ended March 31, ~~2021~~2022 and March 31, ~~2020, approximatel~~2021, approximately y 9%~~and 12%, respectively,~~ of total net sales were recognized on an over-time basis because of the continuous transfer of control to the customer, with the remainder recognized as of a point in time. Approximately ~~4% and~~ 5% and 4% of total net sales represented service revenue during each of the three months ended March 31, ~~2021~~2022 and March 31, ~~2020,~~2021, respectively. Finally, business with the United States ("U.S.") government or its contractors represented approximately 7% ~~and 8%~~ of total net sales during the three months ended March 31, ~~2021~~2022 and March 31, ~~2020, respectively.~~2021.

Remaining Performance Obligations:

Remaining performance obligations represent the transaction price of orders meeting the definition of a contract for which work has not been performed and excludes unexercised contract options. Performance obligations having a duration of more than one year are concentrated in contracts for certain products and services provided to the U.S. government or its contractors. The aggregate amount of the transaction price allocated to remaining performance obligations for such contracts with a duration of more than one year was ~~approximately $388.5~~approximately $213.1 million atat March 31, ~~2021.~~2022.

Unbilled Receivables:

The following table contains a rollforward of unbilled receivables for the three months ended March 31, ~~2021:~~2022:


	March 31, ~~2021~~ 2022
Beginning balance, January 1	$	~~110.9~~104.5
Additional unbilled revenue recognized	~~91.3~~105.5
Less: amounts billed to customers	~~(88.9)~~(121.5)

Ending balance	$	~~113.3~~88.5

There were no impairment losses recorded on unbilled receivables for the three months ended March 31, ~~2021.~~

2022.

Note 54 - Segment Information

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


		Three Months Ended March 31,				Three Months Ended March 31,
		2021		2020				2022		2021
Net sales:	Net sales:						Net sales:
Mobile Industries	Mobile Industries	$	504.5	$	466.7		Mobile Industries	$	540.4	$	504.5
Process Industries	Process Industries	520.9		456.7			Process Industries	584.2		520.9
Net sales	Net sales	$	1,025.4	$	923.4		Net sales	$	1,124.6	$	1,025.4
Segment EBITDA:	Segment EBITDA:						Segment EBITDA:
Mobile Industries	Mobile Industries	$	79.6	$	75.1		Mobile Industries	$	75.1	$	79.6
Process Industries	Process Industries	131.0		107.5			Process Industries	155.6		131.0
Total EBITDA, for reportable segments	Total EBITDA, for reportable segments	$	210.6	$	182.6		Total EBITDA, for reportable segments	$	230.7	$	210.6
Unallocated corporate expense	Unallocated corporate expense	(11.6)		(11.1)			Unallocated corporate expense	(12.9)		(11.6)

Corporate pension and other postretirement benefit related expense (1)	Corporate pension and other postretirement benefit related expense (1)	(0.9)		0			Corporate pension and other postretirement benefit related expense (1)	(2.6)		(0.9)
Acquisition-related gain (2)	Acquisition-related gain (2)	0.6		0			Acquisition-related gain (2)	—		0.6
Depreciation and amortization	Depreciation and amortization	(43.0)		(42.3)			Depreciation and amortization	(41.4)		(43.0)
Interest expense	Interest expense	(14.9)		(17.1)			Interest expense	(14.3)		(14.9)
Interest income	Interest income	0.5		1.5			Interest income	0.6		0.5
Income before income taxes	Income before income taxes	$	141.3	$	113.6		Income before income taxes	$	160.1	$	141.3

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

(2) The acquisition-related gain represents measurement period adjustments to the bargain purchase gain on the acquisition of Aurora Bearing Company ("Aurora"), which closed on November 30, 2020. ~~See~~ ~~Note 3 - Acquisitions~~ ~~for additional information.~~

Note 65 - Income Taxes

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


		Three Months Ended March 31,						Three Months Ended March 31,
		2021			2020					2022			2021
Provision for income taxes	Provision for income taxes	$	25.3		$	29.6			Provision for income taxes	$	38.2		$	25.3
Effective tax rate	Effective tax rate	17.9		%	26.1		%		Effective tax rate	23.9		%	17.9		%

Income tax expense for the three months ended March 31, ~~2021~~2022 was calculated using forecasted multi-jurisdictional annual effective tax rates to determine a blended annual effective tax rate. The effective tax rate differs from the U.S. federal statutory rate of 21% primarily due to the projected mix of earnings in international jurisdictions with relatively higher tax rates.

The effective tax rate of 23.9% for the three months ended March 31, 2022 was higher than the rate for the three months ended March 31, 2021 primarily due to higher pre-tax earnings and a higher discrete tax benefit in the prior year due to the release of accruals for uncertain tax positions from the settlement of the 2017 and 2018 U.S. federal tax years ~~and favorable U.S. permanent book-tax differences. This is partially offset by the projected mix of earnings in international jurisdictions with relatively higher tax rates.~~

~~The effective tax rate of 17.9% for~~during the three months ended March 31, ~~2021 was lower~~ than the rate for the three months ended March 31, 2020 primarily due to the release of accruals for uncertain tax positions and favorable U.S. permanent book-tax differences, including new elective Global Intangible Low Tax Income ("GILTI") high tax exemption rules.

2021.

Note 76 - Earnings Per Share

The following table sets forth the reconciliation of the numerator and the denominator of basic earnings per share and diluted earnings per share for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively:


		Three Months Ended March 31,				Three Months Ended March 31,
		2021		2020				2022		2021
Numerator:	Numerator:						Numerator:
Net income attributable to The Timken Company	Net income attributable to The Timken Company	$	113.3	$	80.7		Net income attributable to The Timken Company	$	118.2	$	113.3
Less: undistributed earnings allocated to nonvested stock	Less: undistributed earnings allocated to nonvested stock	0		0			Less: undistributed earnings allocated to nonvested stock	—		—
Net income available to common shareholders for basic and diluted earnings per share	Net income available to common shareholders for basic and diluted earnings per share	$	113.3	$	80.7		Net income available to common shareholders for basic and diluted earnings per share	$	118.2	$	113.3
Denominator:	Denominator:						Denominator:
Weighted average number of shares outstanding - basic	Weighted average number of shares outstanding - basic	75,820,157		75,461,254			Weighted average number of shares outstanding - basic	74,782,153		75,820,157
Effect of dilutive securities:	Effect of dilutive securities:						Effect of dilutive securities:
Stock options and awards - based on the treasury stock method	Stock options and awards - based on the treasury stock method	1,444,484		847,302			Stock options and awards - based on the treasury stock method	763,512		1,444,484
Weighted average number of shares outstanding assuming dilution of stock options and awards	Weighted average number of shares outstanding assuming dilution of stock options and awards	77,264,641		76,308,556			Weighted average number of shares outstanding assuming dilution of stock options and awards	75,545,665		77,264,641
Basic earnings per share	Basic earnings per share	$	1.49	$	1.07		Basic earnings per share	$	1.58	$	1.49
Diluted earnings per share	Diluted earnings per share	$	1.47	$	1.06		Diluted earnings per share	$	1.56	$	1.47

The ~~exercise prices for certain~~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 ~~Company has awarded exceeded~~exercise price exceeds the average market price of the Company’s common shares during ~~certain~~the periods presented. ~~Such stock options are antidilutive and~~There were ~~not included in the computation of diluted earnings per share. The~~no antidilutive stock options outstanding during the three months ended March 31, ~~2021~~2022 and ~~2020 were~~ 0 ~~and~~ ~~1,367,821,~~ ~~respectively.~~2021.

Note 87 - Inventories

The components of inventories at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 were as follows:


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Manufacturing supplies	Manufacturing supplies	$	35.2	$	34.8	Manufacturing supplies	$	39.3	$	38.0
Raw materials	Raw materials	107.3		99.5		Raw materials	132.6		121.8
Work in process	Work in process	332.9		320.3		Work in process	466.6		418.4
Finished products	Finished products	444.4		441.2		Finished products	533.3		527.8
Subtotal	Subtotal	919.8		895.8		Subtotal	1,171.8		1,106.0
Allowance for obsolete and surplus inventory	Allowance for obsolete and surplus inventory	(55.0)		(54.5)		Allowance for obsolete and surplus inventory	(59.2)		(63.3)
Total Inventories, net		$	864.8	$	841.3
Total inventories, net						Total inventories, net	$	1,112.6	$	1,042.7

Inventories are valued at net ~~realizable~~realizable value, with approximately ~~61%~~58% valued on the first-in, first-out ("FIFO") method and the remaining ~~39% valued~~42% valued on the last-in, first-out ("LIFO") method. The majority of the Company's domestic inventories are valued on the LIFO method, and all the Company's international inventories are valued on the FIFO method.

The LIFO reserve at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 was ~~$179.6~~$211.7 million and ~~$172.1~~$199.4 million, respectively. An actual valuation of the inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations ~~must be~~are based on management’s estimates of expected year-end inventory levels and costs. Because these calculations are subject to many factors beyond management’s control, annual results may differ from interim results as they are subject to the final year-end LIFO inventory valuation.

Note 98 - Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the three months ended March 31, ~~2021~~2022 were as follows:

Mobile
Industries Process
Industries Total
Beginning balance $ 384.6 $ 663.0 $ 1,047.6
Foreign currency translation adjustments and other changes (8.1) (11.1) (19.2)
Ending balance $ 376.5 $ 651.9 $ 1,028.4


	Mobile Industries		Process Industries		Total
Beginning balance	$	371.7	$	651.0	$	1,022.7


Foreign currency translation adjustments and other changes	(5.6)		(6.7)		(12.3)
Ending balance	$	366.1	$	644.3	$	1,010.4

The following table displays intangible assets as of March 31, ~~2021~~2022 and December 31, ~~2020:~~2021:


		Balance at March 31, 2021						Balance at December 31, 2020							Balance at March 31, 2022						Balance at December 31, 2021
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible assets subject to amortization:	Intangible assets subject to amortization:													Intangible assets subject to amortization:
Customer relationships	Customer relationships	$	523.6	$	(168.6)	$	355.0	$	532.2	$	(161.9)	$	370.3	Customer relationships	$	512.3	$	(194.5)	$	317.8	$	518.1	$	(189.3)	$	328.8
Technology and know-how	Technology and know-how	272.4		(75.3)		197.1		277.2		(72.0)		205.2		Technology and know-how	267.5		(90.0)		177.5		270.7		(86.6)		184.1
Trade names	Trade names	14.2		(9.0)		5.2		14.2		(8.8)		5.4		Trade names	12.9		(8.4)		4.5		14.3		(9.6)		4.7
Capitalized software	Capitalized software	276.5		(256.1)		20.4		276.4		(254.6)		21.8		Capitalized software	281.7		(262.8)		18.9		280.0		(261.3)		18.7
Other	Other	4.6		(3.8)		0.8		4.7		(3.7)		1.0		Other	3.8		(3.0)		0.8		4.7		(3.6)		1.1
		$	1,091.3	$	(512.8)	$	578.5	$	1,104.7	$	(501.0)	$	603.7		$	1,078.2	$	(558.7)	$	519.5	$	1,087.8	$	(550.4)	$	537.4
Intangible assets not subject to amortization:	Intangible assets not subject to amortization:													Intangible assets not subject to amortization:
Trade names	Trade names	$	125.4			$	125.4	$	129.0			$	129.0	Trade names	$	120.4			$	120.4	$	122.7			$	122.7
FAA air agency certificates	FAA air agency certificates	8.7				8.7		8.7				8.7		FAA air agency certificates	8.7				8.7		8.7				8.7
		$	134.1			$	134.1	$	137.7			$	137.7		$	129.1			$	129.1	$	131.4			$	131.4
Total intangible assets	Total intangible assets	$	1,225.4	$	(512.8)	$	712.6	$	1,242.4	$	(501.0)	$	741.4	Total intangible assets	$	1,207.3	$	(558.7)	$	648.6	$	1,219.2	$	(550.4)	$	668.8

Amortization expense for intangible assets was ~~$14.1~~$12.7 million and ~~$14.2~~$14.1 million for the three months ended March 31, 2022 and 2021, respectively. Amortization expense included $10.9 millionand ~~2020,~~$12.1 million related to intangible assets acquired as part of a business combination for the three months ended March 31, 2022 and 2021, respectively. Amortization expense for intangible assets is projected to ~~be $55.7~~be $50.9 million in ~~2021; $48.7 million in 2022; $45.6~~2022; $45.5 million in 2023; ~~$43.1~~$43.5 million in 2024; ~~and $42.5~~$42.1 million in ~~2025.~~2025; and $40.8 million in 2026. Substantially all amortization expense for intangible assets is recorded in Cost of product sold on the Consolidated Statement of Income.

Note 9 - Other Current Liabilities

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


	March 31,		December 31,
(Dollars in millions)	2022		2021
Sales rebates	$	54.7	$	70.3
Product warranty	13.0		11.7
Operating lease liabilities	25.7		26.2
Professional fees	11.2		10.8
Restructuring	7.0		7.0
Taxes other than income and payroll taxes	21.5		16.0
Interest	8.3		10.8
Other	119.4		97.8
Total other current liabilities	$	260.8	$	250.6

Note 10 - Financing Arrangements

Short-term debt at March 31, ~~2021~~2022 and December 31, ~~2020~~2021 was as follows:

March 31,
2021 December 31,
2020
Variable-rate Accounts Receivable Facility with an interest rate of 0.96% at March 31, 2021 and of 0.96% at December 31, 2020 $ 100.0 $ 58.0
Borrowings under lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 0.50% to 1.75% at March 31, 2021 and 0.24% to 1.75% at December 31, 2020
67.5 61.8
Short-term debt $ 167.5 $ 119.8


	March 31, 2022		December 31, 2021

Borrowings under lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 0.50% to 2.10% at March 31, 2022 and 0.50% to 2.00% at December 31, 2021	$	29.9	$	42.6
Short-term debt	$	29.9	$	42.6

The lines of credit for certain of the Company's foreign subsidiaries provide for short-term borrowings up to $268.4 million in the aggregate. Most of these lines of credit are uncommitted. At March 31, 2022, the Company’s foreign subsidiaries had borrowings outstanding of $29.9 million and bank guarantees of $0.3 million, which reduced the aggregate availability under these facilities to $238.2 million.

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


	March 31, 2022		December 31, 2021
Variable-rate Senior Credit Facility with an average interest rate on U.S. Dollar of 1.17% and Euro of 1.00% at March 31, 2022 and U.S. Dollar of 1.09% and Euro of 1.00% at December 31, 2021	$	8.8	$	9.0


Variable-rate Term Loan(1), maturing on September 11, 2023, with an interest rate of 1.58% at March 31, 2022 and 1.23% at December 31, 2021	319.0		321.1
Fixed-rate Senior Unsecured Notes(1), maturing on September 1, 2024, with an interest rate of 3.875%	349.6		349.5
Fixed-rate Euro Senior Unsecured Notes(1), maturing on September 7, 2027, with an interest rate of 2.02%	165.8		170.3
Fixed-rate Senior Unsecured Notes(1), maturing on December 15, 2028, with an interest rate of 4.50%	396.9		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%	154.7		154.7
Fixed-rate Senior Unsecured Notes(1), maturing on April 1, 2032, with an interest rate of 4.125%	341.7		—
Fixed-rate Euro Bank Loan, maturing on June 30, 2033, with an interest rate of 2.15%	15.4		15.8
Other	6.4		5.0
Total debt	$	1,758.3	$	1,422.3
Less: Current maturities	11.1		11.2
Long-term debt	$	1,747.2	$	1,411.1

(1) Net of discounts and fees

The Company has a $100 million Amended and Restated Asset Securitization Agreement (the "Accounts Receivable Facility"), which matures on November 30, ~~2021. The Company currently intends to renew or replace the Accounts Receivable Facility prior to its maturity.~~2024. Under the terms of the Accounts Receivable Facility, the Company sells, on an ongoing basis, certain domestic trade receivables to Timken Receivables Corporation, a wholly-owned consolidated subsidiary that, in turn, uses the trade receivables to secure borrowings that are funded through a vehicle that issues commercial paper in the short-term market. Borrowings under the Accounts Receivable Facility may be limited to certain borrowing base limitations; however, availability under the Accounts Receivable Facility was not reduced by any such borrowing base limitations at March 31, ~~2021.~~2022. As of March 31, ~~2021,~~2022, there were no outstanding ~~borrowings of $100 million under the Accounts Receivable Facility, which reduced the availability under this facility to 0. All of the~~ borrowings under the Accounts Receivable ~~Facility were classified as short-term due to its upcoming maturity in November 2021.~~Facility. The cost of this facility, which is the prevailing commercial paper rate plus facility fees, is considered a financing cost and is included in interest expense in the Consolidated Statements of Income.

The lines of credit for certain of the Company's foreign subsidiaries provide for short-term borrowings up to $270.6 million in the aggregate. Most of these lines of credit are uncommitted. At March 31, 2021, the Company’s foreign subsidiaries had borrowings outstanding of $67.5 million and bank guarantees of $0.5 million, which reduced the aggregate availability under these facilities to $202.6 million.

~~Long-term debt at March 31, 2021 and December 31, 2020 was as follows:~~

March 31,
2021 December 31,
2020
Variable-rate Senior Credit Facility with an average interest rate on U.S. Dollar of 1.43% and Euro of 1.48% at March 31, 2021 and U.S. Dollar of 2.01% and Euro of 1.48% at December 31, 2020 $ 9.3 $ 9.7
Variable-rate Term Loan(1), maturing on September 11, 2023, with an interest rate of 1.63% at March 31, 2021 and 1.63% at December 31, 2020
327.5 329.6
Fixed-rate Senior Unsecured Notes(1), maturing on September 1, 2024, with an interest rate of 3.875%
349.2 349.0
Fixed-rate Euro Senior Unsecured Notes(1), maturing on September 7, 2027, with an interest rate of 2.02%
175.6 182.9
Fixed-rate Senior Unsecured Notes(1), maturing on December 15, 2028, with an interest rate of 4.50%
396.6 396.5
Fixed-rate Medium-Term Notes, Series A(1), maturing at various dates through May 2028, with interest rates ranging from 6.74% to 7.76%
154.7 154.7
Fixed-rate Bank Loan, maturing on June 30, 2033, with an interest rate of 2.15% 17.7 18.8
Other 3.9 3.6
1,434.5 1,444.8
Less: Current maturities 10.8 10.9
Long-term debt $ 1,423.7 $ 1,433.9

~~(1)~~ ~~Net of discounts and fees~~

109

Note 10 - Financing Arrangements (continued)

The Company entered into the Fourth Amended and Restated Credit Agreement ("Senior Credit Facility") on June 25, 2019. The Senior Credit Facility is a $650.0 million unsecured revolving credit facility, which matures on June 25, 2024. At March 31, ~~2021,~~2022, the Co~~mpany~~Company had ~~$9.3~~$8.8 million of outstanding borrowings under the Senior Credit Facility, which reduced the availability under this facility to ~~$640.7 million~~.$641.2 million. The Senior Credit Facility has two financial covenants: a consolidated leverage ratio and a consolidated interest coverage ratio.

On ~~May 27, 2020,~~March 28, 2022, the ~~Senior Credit Facility was amended~~Company issued fixed-rate unsecured senior notes ("2032 Notes") in the aggregate principal amount of $350 million with an interest rate of 4.125%, maturing on April 1, 2032. Proceeds from the notes were used to among other things, effectively increase the limit with respect to the consolidated leverage ratio. As amended, the consolidated leverage ratio is calculated using a net debt construct, netting unrestricted cash in excess of $25 million, instead of total debt. This change to the consolidated leverage ratio calculation is effective through June 30, 2021, after which the calculation of the consolidated leverage ratiorepay borrowings under the Senior Credit Facility ~~will revert back to using a total debt construct.~~and the Accounts Receivable Facility outstanding at the time of issuance, and for general corporate purposes.

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

On September 11, 2018, the Company entered into a $350 million variable-rate term loan that matures on September 11, 2023 (the "2023 Term Loan"). Proceeds from the 2023 Term Loan were used to fund the acquisitions of Apiary Investments Holding Limited and Rollon S.p.A., which closed on September 1, 2018 and September 18, 2018, respectively. On July 12, 2019, the Company amended the 2023 Term Loan agreement to, among other things, align covenants and other terms with the Senior Credit Facility. ~~On May 27, 2020, the 2023 Term Loan agreement was further amended to align the calculation of the consolidated leverage ratio and other terms with the Senior Credit Facility.~~

At March 31, ~~2021,~~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 March 31, ~~2021,~~2022, outstanding letters of credit ~~tot~~totaled $42.8 million, ~~aled $41.2 million,~~ most with expiration dates within 12 months.

The maturities of long-term debt (including $3.8 million of finance leases) subsequent to March 31, 2022 are as follows:


Year
2022	$	8.8
2023	317.6
2024	360.5
2025	1.7
2026	11.5
2027	192.2
Thereafter	866.0

Note 11 - Contingencies

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

On December 28, 2004, the United States Environmental Protection Agency (“USEPA”) sent Lovejoy, Inc. ("Lovejoy") a Special Notice Letter that identified Lovejoy as a potentially responsible party, together with at least 14 other companies, at the Ellsworth Industrial Park Site, Downers Grove, DuPage County, Illinois (the “Site”). The Company acquired Lovejoy in 2016. Lovejoy’s Downers Grove property is situated within the Ellsworth Industrial Complex. The USEPA and the Illinois Environmental Protection Agency (“IEPA”) allege there have been one or more releases or threatened releases of hazardous substances, allegedly including, but not limited to, a release or threatened release on or from Lovejoy's property, at the Site. The relief sought by the USEPA and IEPA includes further investigation and potential remediation of the Site and reimbursement of response costs. Lovejoy’s allocated share of past and future costs related to the Site, including for investigation and/or remediation, could be significant. All previously pending property damage and personal injury lawsuits against Lovejoy related to the Site were settled or dismissed prior to our acquisition of Lovejoy.

The Company had total environmental accruals of ~~$5.3~~$6.4 million and $6.0 million for various known environmental matters that are probable and reasonably estimable at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, which includes the Lovejoy matter ~~discussed~~described above. These accruals were recorded based upon the best estimate of costs to be incurred in light of the progress made in determining the magnitude of remediation costs, the timing and extent of remedial actions required by governmental authorities and the amount of the Company’s liability in proportion to other responsible parties.

Product Warranties:

In addition to the contingencies above, the Company provides limited warranties on certain of its products. The product warranty liability included in "Other current liabilities" on the Consolidated Balance Sheets was ~~$10.2~~$13.0 million and ~~$9.4~~$11.7 million at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The increase in the liability ~~since year end~~ primarily relates to accruals that are based on the best estimate of costs for future claims based on products sold that are still under warranty. The estimate of these accruals is based on historical claims and expected trends that continue to mature. Any significant change to these assumptions may be material to the results of operations in any particular period in which that change occurs.

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


	March 31, 2022		December 31, 2021
Beginning balance, January 1	$	11.7	$	9.4
Expense	2.2		10.1
Payments	(0.9)		(7.8)
Ending balance	$	13.0	$	11.7

Note 12 - Equity

The following tables present the changes in the components of equity for the three months ended March 31, 2022 and 2021, ~~and 2020,~~ respectively:

The Timken Company Shareholders
Total Stated
Capital Other
Paid-In
Capital Retained Earnings Accumulated
Other
Comprehensive
Income (Loss) Treasury
Stock Non
controlling
Interest
Balance at December 31, 2020 $ 2,225.2 $ 40.7 $ 740.7 $ 1,339.5 $ 41.3 $ (9.3) $ 72.3
Net income 116.0 113.3 2.7
Foreign currency translation adjustment (44.4) (44.0) (0.4)
Pension and other postretirement liability
   adjustments (net of income tax benefit
   of $0.6 million)
(1.6) (1.6)
Change in fair value of derivative financial
   instruments, net of reclassifications 2.2 2.2
Dividends – $0.29 per share (23.8) (23.8)
Stock-based compensation expense 6.5 6.5
Stock purchased at fair market value (26.3) (26.3)
Stock option exercise activity 14.1 14.1
Payments related to tax withholding for
   stock-based compensation (17.8) (17.8)
Balance at March 31, 2021 $ 2,250.1 $ 40.7 $ 761.3 $ 1,429.0 $ (2.1) $ (53.4) $ 74.6


				The Timken Company Shareholders															The Timken Company Shareholders
		Total		Stated Capital		Other Paid-In Capital		Earnings Invested in the Business		Accumulated Other Comprehensive (Loss)		Treasury Stock		Non controlling Interest			Total		Stated Capital		Other Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Non controlling Interest
Balance at December 31, 2019		$	1,954.8	$	53.1	$	937.6	$	1,907.4	$	(50.1)	$	(979.8)	$	86.6
Cumulative effect of ASU 2016-13 (net of income tax benefit of $0.2 million)		(0.4)						(0.4)
Balance at December 31, 2021																Balance at December 31, 2021	$	2,377.7	$	40.7	$	786.9	$	1,616.4	$	(23.0)	$	(126.1)	$	82.8
Net income	Net income	84.0						80.7						3.3		Net income	121.9						118.2						3.7
Foreign currency translation adjustment	Foreign currency translation adjustment	(78.8)								(71.3)				(7.5)		Foreign currency translation adjustment	(22.6)								(20.0)				(2.6)
Pension and other postretirement liability adjustments (net of income tax benefit of $0.5 million)	Pension and other postretirement liability adjustments (net of income tax benefit of $0.5 million)	(1.3)								(1.3)						Pension and other postretirement liability adjustments (net of income tax benefit of $0.5 million)	(1.5)								(1.5)
Unrealized loss on marketable securities		(0.4)								(0.4)

Change in fair value of derivative financial instruments, net of reclassifications	Change in fair value of derivative financial instruments, net of reclassifications	4.2								4.2						Change in fair value of derivative financial instruments, net of reclassifications	2.0								2.0
Change in ownership of noncontrolling interest		0.5												0.5
Dividends – $0.28 per share		(22.9)						(22.9)

Dividends – $0.30 per share																Dividends – $0.30 per share	(23.5)						(23.5)
Stock-based compensation expense	Stock-based compensation expense	5.6				5.6										Stock-based compensation expense	7.1				7.1
Stock purchased at fair market value	Stock purchased at fair market value	(42.3)										(42.3)				Stock purchased at fair market value	(100.0)										(100.0)
Stock option exercise activity	Stock option exercise activity	7.5				(0.9)						8.4				Stock option exercise activity	1.4				1.4
Restricted share activity		0				(22.2)						22.2

Payments related to tax withholding for stock-based compensation	Payments related to tax withholding for stock-based compensation	(10.2)										(10.2)				Payments related to tax withholding for stock-based compensation	(7.5)										(7.5)

Balance at March 31, 2020		$	1,900.3	$	53.1	$	920.1	$	1,964.8	$	(118.9)	$	(1,001.7)	$	82.9
Balance at March 31, 2022																Balance at March 31, 2022	$	2,355.0	$	40.7	$	795.4	$	1,711.1	$	(42.5)	$	(233.6)	$	83.9


			The Timken Company Shareholders
	Total		Stated Capital		Other Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Non controlling Interest
Balance at December 31, 2020	$	2,225.2	$	40.7	$	740.7	$	1,339.5	$	41.3	$	(9.3)	$	72.3
Net income	116.0						113.3						2.7
Foreign currency translation adjustment	(44.4)								(44.0)				(0.4)
Pension and other postretirement liability adjustments (net of income tax benefit of $0.6 million)	(1.6)								(1.6)
Change in fair value of derivative financial instruments, net of reclassifications	2.2								2.2

Dividends – $0.29 per share	(23.8)						(23.8)
Stock-based compensation expense	6.5				6.5
Stock purchased at fair market value	(26.3)										(26.3)
Stock option exercise activity	14.1				14.1

Payments related to tax withholding for stock-based compensation	(17.8)										(17.8)
Balance at March 31, 2021	$	2,250.1	$	40.7	$	761.3	$	1,429.0	$	(2.1)	$	(53.4)	$	74.6

1312

Note 13 - Impairment and Restructuring Charges

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

For the three months ended March 31, 2022:


	Mobile Industries		Process Industries		Total

Severance and related benefit costs	$	0.4	$	(0.1)	$	0.3
Exit costs	0.7		—		0.7
Total	$	1.1	$	(0.1)	$	1.0

For the three months ended March 31, 2021:


		Mobile Industries		Process Industries		Unallocated Corporate		Total			Mobile Industries		Process Industries		Total
Impairment charges	Impairment charges	$	0.1	$	3.3	$	0	$	3.4	Impairment charges	$	0.1	$	3.3	$	3.4
Severance and related benefit costs	Severance and related benefit costs	0		0.5		0		0.5		Severance and related benefit costs	—		0.5		0.5
Exit costs	Exit costs	0.1		0		0		0.1		Exit costs	0.1		—		0.1
Total	Total	$	0.2	$	3.8	$	0	$	4.0	Total	$	0.2	$	3.8	$	4.0

~~For the three months ended March 31, 2020:~~

Mobile Industries Process Industries Unallocated Corporate Total
Impairment charges $ 0 $ 0.1 $ 0 $ 0.1
Severance and related benefit costs 0.1 2.5 0.1 2.7
Exit costs 0.6 0.2 0 0.8
Total $ 0.7 $ 2.8 $ 0.1 $ 3.6

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

Mobile Industries:

On ~~October 16, 2019,~~July 19, 2021, the Company announced the ~~reorganization~~closure of its bearing ~~plant~~manufacturing facility in ~~Gaffney, South Carolina.~~Villa Carcina, Italy. The Company ~~transferred~~will be transferring the manufacturing of its ~~high-volume~~single-row tapered roller bearing ~~production and roller~~ production to other ~~Timken manufacturing~~bearing facilities in Europe, Asia and the ~~U.S.~~United States. The ~~transfer~~Company expects to complete the closure by June of ~~these operations was substantially completed by the end of the third quarter of 2020~~ 2022 and ~~affected~~is expected to affect approximately ~~150~~110 employees. The Company ~~expected~~expects to incur approximately $8$9 million to ~~$10~~$11 million of ~~pretax costs in total~~expenses related to this ~~reorganization.~~closure. During the ~~three~~three months ended March 31, ~~2020,~~2022, the Company ~~recognized~~recorded severance and related benefits of $0.4 million and exit costs of $0.6 million related to this ~~reorganization.~~ closure. The Company has incurred cumulative pretax costs related to this ~~reorganization~~closure of ~~$7.7~~$7.5 million as of March 31, ~~2021,~~2022, including rationalization costs recorded in cost of products sold.

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

Process Industries:

On February 4, 2020, the Company announced the closure of its chain ~~plant~~manufacturing facility in Indianapolis, Indiana. This ~~plant~~facility was part of the Diamond Chain Company ("Diamond Chain") acquisition completed on April 1, 2019. The Company will be transferring the manufacturing of its Diamond Chain product line to its chain facility in Fulton, Illinois. The chain plant is expected to ~~close~~cease operations by the end of the fourth quarter of ~~2021~~2022 and is expected to affect approximately 240 employees. The Company expects to hire approximately 130 full-time positions in Fulton, Illinois and expects to incur approximately ~~$10~~$11 million to ~~$12~~$14 million of expenses related to this closure. During the three months ended March 31, 2021, ~~and March 31, 2020,~~ the Company recorded severance and related benefit costs of $0.3 ~~million and $1.9~~ million, respectively, related to this closure. The Company has incurred cumulative pretax costs related to this closure of ~~$7.3~~$11.1 million as of March 31, ~~2021,~~2022, including rationalization costs recorded in cost of products sold.

In addition, the Company recorded impairment charges of $3.3 million related to certain engineering-related assets used in the business during the three months ended March 31, ~~2021.~~2021. Management concluded no further investment would be made in these assets and as a result, reduced the value to zero.

1413

Note 13 - Impairment and Restructuring Charges (continued)

Consolidated Restructuring Accrual:

The following is a rollforward of the consolidated restructuring accrual for the three months ended March 31, ~~2021~~2022 and twelve months ended December 31, ~~2020:~~2021:

March 31,
2021 December 31,
2020
Beginning balance, January 1 $ 8.0 $ 2.7
Expense 0.6 20.8
Payments (1.2) (15.5)
Ending balance $ 7.4 $ 8.0


	March 31, 2022		December 31, 2021
Beginning balance, January 1	$	7.0	$	8.0
Expense	1.0		4.4
Payments	(1.0)		(5.4)
Ending balance	$	7.0	$	7.0

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

Note 14 - Retirement Benefit Plans

The following table sets forth the net periodic benefit cost for the Company’s defined benefit pension plans. The amounts for the three months ended March 31, ~~2021~~2022 are based on calculations prepared by the Company's actuaries and represent the Company’s best estimate of that period’s proportionate share of the amounts to be recorded for the year ending December 31, ~~2021.~~2022.


		U.S. Plans				International Plans				Total					U.S. Plans				International Plans				Total
		Three Months Ended March 31,													Three Months Ended March 31,
		2021		2020		2021		2020		2021		2020			2022		2021		2022		2021		2022		2021
Components of net periodic benefit cost (credit):	Components of net periodic benefit cost (credit):													Components of net periodic benefit cost (credit):
Service cost	Service cost	$	2.5	$	2.7	$	0.5	$	0.4	$	3.0	$	3.1	Service cost	$	1.9	$	2.5	$	0.4	$	0.5	$	2.3	$	3.0
Interest cost	Interest cost	4.4		5.2		1.1		1.5		5.5		6.7		Interest cost	4.1		4.4		1.5		1.1		5.6		5.5
Expected return on plan assets	Expected return on plan assets	(6.1)		(6.3)		(2.5)		(2.2)		(8.6)		(8.5)		Expected return on plan assets	(5.2)		(6.1)		(2.5)		(2.5)		(7.7)		(8.6)
Amortization of prior service cost	Amortization of prior service cost	0.3		0.4		0		0		0.3		0.4		Amortization of prior service cost	0.3		0.3		—		—		0.3		0.3
Recognition of net actuarial losses	Recognition of net actuarial losses	0.9		0		0		0		0.9		0		Recognition of net actuarial losses	2.6		0.9		—		—		2.6		0.9

Net periodic benefit cost (credit)	Net periodic benefit cost (credit)	$	2.0	$	2.0	$	(0.9)	$	(0.3)	$	1.1	$	1.7	Net periodic benefit cost (credit)	$	3.7	$	2.0	$	(0.6)	$	(0.9)	$	3.1	$	1.1

The Company ~~currently~~ expects full year 2022 lump sum payments for one of its U.S. defined benefit pension plans to exceed annual interest and service costs. This expectation triggered a remeasurement of assets and obligations for the plan. As a result of this remeasurement, the Company recognized net actuarial losses ("Mark-to-Market Charges") of $2.6 million during the three months ended March 31, 2022.

For the three months ended March 31, 2021, the Company expected to make lump sum payments related to new retirees ~~in 2021~~ in excess of annual interest and service costs for three of the Company's U.S. defined benefit pension plans ~~as of March 31,~~in 2021. This expectation triggered a remeasurement of assets and obligations for these plans. As a result of this remeasurement, the Company recognized net actuarial losses of $0.9 million during the three months ended March 31, 2021.

Note 15 - Other Postretirement Benefit Plans

The following table sets forth the net periodic benefit cost for the Company’s other postretirement benefit plans. The amounts for the three months ended March 31, ~~2021~~2022 are based on calculations prepared by the Company's actuaries and represent the Company’s best estimate of that period’s proportionate share of the amounts to be recorded for the year ending December 31, ~~2021.~~2022.

Three Months Ended
March 31,
2021 2020
Components of net periodic benefit credit:
Interest cost $ 0.4 $ 0.5
Expected return on plan assets 0 (0.1)
Amortization of prior service credit (2.5) (2.4)
Net periodic benefit credit $ (2.1) $ (2.0)

In January 2021, the Company transferred the remaining $11.1 million in the existing Voluntary Employee Beneficiary Association ("VEBA") trust for certain retiree medical benefits to a second VEBA trust for the payment of certain active employees’ medical benefits. The Company utilized all of the assets in the second trust during the three months ended March 31, 2021.


	Three Months Ended March 31,
	2022		2021
Components of net periodic benefit credit:

Interest cost	$	0.4	$	0.4

Amortization of prior service credit	(2.5)		(2.5)



Net periodic benefit credit	$	(2.1)	$	(2.1)

Note 16 - Accumulated Other Comprehensive Income (Loss)

The following tables present details about components of accumulated other comprehensive income (loss) for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively:


		Foreign currency translation adjustments		Pension and other postretirement liability adjustments		Unrealized gain (loss) on marketable securities		Change in fair value of derivative financial instruments		Total			Foreign currency translation adjustments		Pension and other postretirement liability adjustments		Change in fair value of derivative financial instruments		Total
Balance at December 31, 2020		$	(18.0)	$	63.4	$	0	$	(4.1)	$	41.3
Balance at December 31, 2021												Balance at December 31, 2021	$	(80.3)	$	56.6	$	0.7	$	(23.0)
Other comprehensive (loss) income before reclassifications and income taxes	Other comprehensive (loss) income before reclassifications and income taxes	(44.4)		0		0		1.4		(43.0)		Other comprehensive (loss) income before reclassifications and income taxes	(22.6)		0.2		3.2		(19.2)
Amounts reclassified from accumulated other comprehensive (loss) income before income taxes	Amounts reclassified from accumulated other comprehensive (loss) income before income taxes	0		(2.2)		0		1.7		(0.5)		Amounts reclassified from accumulated other comprehensive (loss) income before income taxes	—		(2.2)		(0.9)		(3.1)
Income tax (expense) benefit		0		0.6		0		(0.9)		(0.3)
Income tax benefit (expense)												Income tax benefit (expense)	—		0.5		(0.3)		0.2
Net current period other comprehensive (loss) income, net of income taxes	Net current period other comprehensive (loss) income, net of income taxes	(44.4)		(1.6)		0		2.2		(43.8)		Net current period other comprehensive (loss) income, net of income taxes	(22.6)		(1.5)		2.0		(22.1)
Noncontrolling interest	Noncontrolling interest	0.4		0		0		0		0.4		Noncontrolling interest	2.6		—		—		2.6
Net current period comprehensive (loss) income, net of income taxes and noncontrolling interest	Net current period comprehensive (loss) income, net of income taxes and noncontrolling interest	(44.0)		(1.6)		0		2.2		(43.4)		Net current period comprehensive (loss) income, net of income taxes and noncontrolling interest	(20.0)		(1.5)		2.0		(19.5)
Balance at March 31, 2021		$	(62.0)	$	61.8	$	0	$	(1.9)	$	(2.1)
Balance at March 31, 2022												Balance at March 31, 2022	$	(100.3)	$	55.1	$	2.7	$	(42.5)


	Foreign currency translation adjustments		Pension and other postretirement liability adjustments		Change in fair value of derivative financial instruments		Total
Balance at December 31, 2020	$	(18.0)	$	63.4	$	(4.1)	$	41.3
Other comprehensive (loss) income before reclassifications and income taxes	(44.4)		—		1.4		(43.0)
Amounts reclassified from accumulated other comprehensive (loss) income before income taxes	—		(2.2)		1.7		(0.5)
Income tax (expense) benefit	—		0.6		(0.9)		(0.3)
Net current period other comprehensive (loss) income, net of income taxes	(44.4)		(1.6)		2.2		(43.8)
Noncontrolling interest	0.4		—		—		0.4
Net current period comprehensive (loss) income, net of income taxes and noncontrolling interest	(44.0)		(1.6)		2.2		(43.4)
Balance at March 31, 2021	$	(62.0)	$	61.8	$	(1.9)	$	(2.1)

Foreign currency translation adjustments Pension and other postretirement liability adjustments Unrealized gain (loss) on marketable securities Change in fair value of derivative financial instruments Total
Balance at December 31, 2019 $ (115.3) $ 66.9 $ 0 $ (1.7) $ (50.1)
Other comprehensive (loss) income before
   reclassifications and income taxes (78.8) 0.2 (0.5) 6.4 (72.7)
Amounts reclassified from accumulated other
   comprehensive (loss) income before income
   taxes 0 (2.0) 0 (0.6) (2.6)
Income tax (expense) benefit 0 0.5 0.1 (1.6) (1.0)
Net current period other comprehensive
   (loss) income, net of income taxes (78.8) (1.3) (0.4) 4.2 (76.3)
Noncontrolling interest 7.5 0 0 0 7.5
Net current period comprehensive (loss) income,
   net of income taxes and noncontrolling
   interest (71.3) (1.3) (0.4) 4.2 (68.8)
Balance at March 31, 2020 $ (186.6) $ 65.6 $ (0.4) $ 2.5 $ (118.9)

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

1716

Note 17 - Fair Value

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

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

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

Level 3 – Unobservable inputs for the asset or liability.

The following tables present the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of March 31, ~~2021~~2022 and December 31, ~~2020:~~2021:


		March 31, 2021									March 31, 2022
		Total		Level 1		Level 2		Level 3			Total		Level 1		Level 2		Level 3
Assets:	Assets:									Assets:
Cash and cash equivalents	Cash and cash equivalents	$	302.3	$	301.4	$	0.9	$	0	Cash and cash equivalents	$	407.0	$	404.4	$	2.6	$	—

Cash and cash equivalents measured at net asset value										Cash and cash equivalents measured at net asset value	17.5		—		—		—
Restricted cash	Restricted cash	0.8		0.8		0		0		Restricted cash	0.7		0.7		—		—
Short-term investments	Short-term investments	47.2		0		47.2		0		Short-term investments	57.8		—		57.8		—

Interest rate swap contract										Interest rate swap contract	2.6		—		2.6		—
Foreign currency forward contracts	Foreign currency forward contracts	1.1		0		1.1		0		Foreign currency forward contracts	6.6		—		6.6		—
Total Assets		$	351.4	$	302.2	$	49.2	$	0
Total assets										Total assets	$	492.2	$	405.1	$	69.6	$	—
Liabilities:	Liabilities:									Liabilities:
Foreign currency forward contracts	Foreign currency forward contracts	$	2.0	$	0	$	2.0	$	0	Foreign currency forward contracts	$	6.3	$	—	$	6.3	$	—

Total Liabilities		$	2.0	$	0	$	2.0	$	0
Total liabilities										Total liabilities	$	6.3	$	—	$	6.3	$	—

December 31, 2020
Total Level 1 Level 2 Level 3
Assets:
Cash and cash equivalents $ 320.3 $ 318.6 $ 1.7 $ 0
Restricted cash 0.8 0.8 0 0
Short-term investments 37.6 0 37.6 0
Foreign currency forward contracts 1.1 0 1.1 0
Total Assets $ 359.8 $ 319.4 $ 40.4 $ 0
Liabilities:
Foreign currency forward contracts $ 8.1 $ 0 $ 8.1 $ 0
Total Liabilities $ 8.1 $ 0 $ 8.1 $ 0


	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 the redemption value. Short-term investments are investments with maturities between four months and one year, and generally are valued at amortized cost, which ~~approximates~~approximates fair value. A portion of the cash and cash equivalents and short-term investments are valued based on net asset value. The Company uses publicly available market interest rates to measure the fair value of its interest rate swap contracts. The Company uses publicly available foreign currency fo~~rward~~forward and spot rates to measure the fair value of its foreign currency forward contracts.

Note 17 - Fair Value (continued)

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

No other material assets were measured at fair value on a nonrecurring basis during the three months ended March 31, 2022 and 2021, ~~and 2020,~~ respectively.

~~Note 17 - Fair Value (continued)~~

Financial Instruments:

The Company’s financial instruments consist primarily of cash and cash equivalents, short-term investments, accounts receivable, trade accounts payable, short-term borrowings and long-term debt. Due to their short-term nature, the carrying value of cash and cash equivalents, short-term investments, accounts receivable, trade accounts payable and short-term borrowings are a reasonable estimate of their fair value. Due to the nature of fair value calculations for variable-rate debt, the carrying value of the Company's long-term variable-rate debt is a reasonable ~~estimate~~estimate of its fair value. The fair value of the Company’s long-term fixed-rate debt, based on quoted market prices, was ~~$1,184.0~~$1,468.0 million and ~~$1,220.7~~$1,171.1 million at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The carrying value of this debt was ~~$1,096.7~~$1,424.5 million and ~~$1,103.2~~$1,087.5 million at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The fair value of long-term fixed-rate debt waswas measured using Level 2 inputs.

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

Note 18 - Derivative Instruments and Hedging Activities

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

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

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

On September 15, 2020, the Company designated €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.~~subsidiaries. The objective of the hedge transaction is to protect the net investment in the foreign operations against changes in the exchange rate between the USU.S. dollar and the Euro. The net impact for the three months ended March 31, ~~2021~~2022, respectively, was ~~to record~~ a gain of ~~$2.6~~$1.7 million to accumulated comprehensive ~~loss~~(loss) income with a corresponding offset to other ~~(expense)~~ income, which partially offsets the impact of the foreign currency adjustment on the 2027 Notes.

The Company entered into $350 million floating-to-fixed 10-year Treasury rate locks during the first quarter of 2022, prior to issuing the 2032 Notes. This fixed the 10-year Treasury yield and settled at pricing of the 2032 Notes, resulting in $6.4 million of cash proceeds received by the Company. This amount was recorded to accumulated comprehensive income and will be amortized as a reduction in interest expense over the 10-year tenor of the 2032 Notes.

The Company does not purchase or hold any ~~derivative~~derivative financial instruments for trading purposes. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had ~~$122.0~~$291.4 million a~~nd $173.2~~and $300.8 million, respectively, of outstanding foreign currency forward contracts at notional value. Refer to Note 17 - Fair Value for the fair value disclosure of derivative financial instruments.

Note 18 - Derivative Instruments and Hedging Activities (continued)

Cash Flow Hedging Strategy:

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

~~Note 18 - Derivative Instruments and Hedging Activities (continued)~~

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. Co~~nversely,~~nversely, 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 March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had ~~$82.9~~$83.5 million and ~~$86.9~~$80.0 million, respectively, of outstanding foreign currency forward contracts at notional value that were classified as cash flow hedges.

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

Purpose for Derivative Instruments not designated as Hedging Instruments:

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

As of March 31, ~~2021~~2022 and December 31, ~~2020~~,2021, the ~~Company~~Company had ~~$39.1~~$207.9 million and ~~$86.2~~$220.8 million, respectively, of outstanding foreign currency forward contracts at notional value that were not ~~designated~~designated as hedging instruments. The following table presents the impact of derivative instruments not designated as hedging instruments for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and the related location within the Consolidated Statements of Income:


			Amount of gain recognized in income							Amount of gain or (loss) recognized in income
			Three Months Ended March 31,				Three Months Ended March 31,
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:	Location of gain or (loss) recognized in income	2021		2020			Derivatives not designated as hedging instruments:	Location of gain or (loss) recognized in income	2022		2021

Foreign currency forward contracts	Foreign currency forward contracts	Other income (expense), net	$	0.2	$	5.5		Foreign currency forward contracts	Other income (expense), net	$	(1.0)	$	0.2

Note 19 - Subsequent Events

On April 29, 2022, the Company reached an agreement to acquire Spinea, s.r.o. (Spinea), a European technology leader and manufacturer of highly engineered cycloidal reduction gears and actuators. Spinea’s solutions primarily serve high-precision automation and robotics applications in the factory automation sector. Spinea is located in Presov, Slovakia, and is expected to have sales around $40 million for the full year of 2022. The transaction, which is subject to customary closing conditions, is expected to close in the second quarter and will be funded with cash and borrowings from existing credit facilities.

2019

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

(Dollars in millions, except per share data)

OVERVIEW

Introduction:

The Timken Company designs and manages a growing portfolio of engineered bearings and power transmission products. With more than a century of innovation and increasing knowledge, the Company continuously improves the reliability and efficiency of global machinery and equipment to move the world forward. The Company’s growing product and services portfolio features many strong industrial brands, such as Timken®, Philadelphia Gear®, Drives®, Cone Drive®, Rollon®, Lovejoy®, Diamond®, BEKA® and Groeneveld®. Timken employs more than ~~17,000~~ 18,000 people globally in 42 countries. The Company operates under two reportable segments: (1) Mobile Industries and (2) Process Industries. The following further describes these business segments:

•Mobile Industries serves OEM customers that manufacture off-highway equipment for the agricultural, mining and construction markets; on-highway vehicles including passenger cars, light trucks, and medium- and heavy-duty trucks; rail cars and locomotives; outdoor power equipment; rotorcraft and fixed-wing aircraft; and other mobile equipment. Beyond service parts sold to OEMs, aftermarket sales and services to individual end users, equipment owners, operators and maintenance shops are handled directly or through the Company's extensive network of authorized automotive and heavy-truck distributors.

•Process Industries serves OEM and end-user customers in industries that place heavy demands on the fixed operating equipment they make or use in heavy and other general industrial sectors. This includes metals, cement and aggregate production; power generation and renewable energy sources; oil and gas extraction and refining; pulp and paper and food processing; automation and robotics; and health and critical motion control equipment. Other applications include marine equipment, gear drives, cranes, hoists and conveyors. This segment also supports aftermarket sales and service needs through its global network of authorized industrial distributors and through the provision of services directly to end users.

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

The Company's strategy has three primary elements:

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

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

2120

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

Overview:


		Three Months Ended March 31,									Three Months Ended March 31,
		2021		2020		$ Change		% Change			2022		2021		$ Change		% Change
Net sales	Net sales	$	1,025.4	$	923.4	$	102.0	11.0	%	Net sales	$	1,124.6	$	1,025.4	$	99.2	9.7	%
Net income	Net income	116.0		84.0		32.0		38.1	%	Net income	121.9		116.0		5.9		5.1	%

Net income attributable to noncontrolling interest	Net income attributable to noncontrolling interest	2.7		3.3		(0.6)		(18.2)	%	Net income attributable to noncontrolling interest	3.7		2.7		1.0		37.0	%
Net income attributable to The Timken Company	Net income attributable to The Timken Company	$	113.3	$	80.7	$	32.6	40.4	%	Net income attributable to The Timken Company	$	118.2	$	113.3	$	4.9	4.3	%

Diluted earnings per share	Diluted earnings per share	$	1.47	$	1.06	$	0.41	38.7	%	Diluted earnings per share	$	1.56	$	1.47	$	0.09	6.1	%
Average number of shares – diluted	Average number of shares – diluted	77,264,641		76,308,556		—		1.3	%	Average number of shares – diluted	75,545,665		77,264,641		—		(2.2)	%

The increase in net sales for the three months ended March 31, ~~2021~~2022 compared with the three months ended March 31, ~~2020~~2021 was primarily driven by ~~higher~~strong organic ~~revenue across most market sectors, as well as~~growth (including positive pricing), partially offset by the ~~favorable~~unfavorable impact of foreign currency exchange rate ~~changes and the Aurora acquisition.~~changes. The increase in net income for the three months ended March 31, ~~2021~~2022 compared with the three months ended March 31, ~~2020~~ 2021 was primarily due to the favorable impact of higher volume and ~~related manufacturing performance, and lower selling, general and administrative ("SG&A") expenses,~~favorable price/mix, partially offset by ~~unfavorable mix~~higher material, logistics and other operating costs, a higher tax rate and higher ~~material and logistics costs. In addition, discrete tax items and the tax rate were favorable in 2021 compared to 2020.~~pension mark-to-market charges.

Outlook:

The world continues to be impacted by the COVID-19 pandemic. The Company is adhering to mandates and other guidance from local governments and health authorities, including the World Health Organization and the Centers for Disease Control and Prevention. Timken has implemented risk mitigation plans across the enterprise to protect employees and reduce the risk of spreading the virus, while continuing to operate where permitted and to the extent practicable. The Company’s main priority continues to be the health of its employees and others in the communities where it does business.

While the Company’s operations and financial results were adversely impacted during 2020 due to the COVID-19 pandemic, conditions began to improve in the second half of the year. During the first quarter of 2021, operations continued to be challenged by COVID-19 related supply chain disruptions and, in a few instances, staffing issues; however, revenue for the quarter was stronger than expected at the beginning of the year. The Company will continue to monitor, assess and seek to manage the uncertainty surrounding the COVID-19 pandemic. Timken’s outlook for 2021 assumes that COVID-19 conditions around the world will continue to improve as the year progresses.

The Company expects ~~2021~~2022 full-year revenue to be up approximately ~~18%~~8% compared to ~~2020,~~2021, primarily due to higher ~~organic revenue~~demand across ~~both the Mobile Industries and Process Industries segments, the impact from foreign currency exchange rates~~most end markets, positive pricing and the ~~benefit~~continued execution of ~~acquisitions.~~growth initiatives. The Company's earnings are expected to be up ~~significantly~~ in ~~2021~~2022 compared with ~~2020,~~2021, primarily due to the favorable impact of higher volume and price/mix, partially offset by higher material, logistics and other operating costs, as well as higher interest costs and a higher tax rate. In 2021, the Company experienced supply chain disruptions, inflation and staffing issues related to increased customer demand. Timken expects these headwinds to persist throughout 2022, or potentially worsen due to the impact of ~~higher volume~~Russia's invasion of Ukraine and ~~related manufacturing performance,~~ the ~~favorable impact of foreign currency exchange rate changes and lower restructuring and other special items (net), partially offset by unfavorable mix, higher material costs and higher SG&A expenses.~~

ongoing Coronavirus ("COVID-19") lockdowns in China.

The Company expects to generate cash from operating activities in ~~the range of $475 million to $500 million in~~2022 above 2021 ~~down from $577.6 million in 2020, as the impact of~~levels driven by higher earnings ~~is expected to be more than offset by the changes in working capital (i.e. a use of cash in 2021 versus a source of cash in 2020).~~and lower pension and other postretirement contributions and payments. The Company expects capital expenditures ~~to be approximately $150 million (approximately~~between 4.0% and 4.5% of sales in 2022, compared with 3.6% of ~~sales)~~sales ($148 million) in ~~2021, compared with $122 million in 2020.~~

2021.

2221

THE STATEMENT OF INCOME

Sales:

Three Months Ended
March 31,
2021 2020 $ Change % Change
Net Sales $ 1,025.4 $ 923.4 $ 102.0 11.0 %


	Three Months Ended March 31,
	2022		2021		$ Change		% Change
Net sales	$	1,124.6	$	1,025.4	$	99.2	9.7	%

Net sales increased for the three months ended March 31, ~~2021~~2022 compared with the three months ended March 31, ~~2020.~~2021. The increase was primarily due to ~~higher~~strong organic ~~revenue~~growth (including positive pricing) of ~~$69~~$113 million, partially offset by the ~~favorable~~unfavorable impact of foreign currency exchange rate changes of ~~$25 million and the benefit of the Aurora acquisition of $8~~$15 million. The higher organic revenue was driven by higher demand across ~~most end markets, led by the renewable energy and off-highway sectors.~~both segments.

Gross Profit:


		Three Months Ended March 31,											Three Months Ended March 31,
		2021			2020			$ Change		Change			2022			2021			$ Change		Change
Gross profit	Gross profit	$	299.2		$	278.9		$	20.3	7.3	%	Gross profit	$	327.4		$	299.2		$	28.2	9.4%
Gross profit % to net sales	Gross profit % to net sales	29.2		%	30.2		%			(100)	bps	Gross profit % to net sales	29.1		%	29.2		%			(10)	bps

Gross profit increased for the three months ended March 31, ~~2021~~2022 compared with the three months ended March 31, ~~2020,~~2021, primarily due to favorable price/mix of $45 million and the impact of higher volume of ~~$27~~$29 million, the favorable impact of foreign currency exchange rate changes of $7 million, favorable manufacturing performance of $9 million and the favorable impact of acquisitions of $6 million. These increases were partially offset by ~~unfavorable price/mix of $18 million and~~ higher material and logistics costs of ~~$11~~$45 million.

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


		Three Months Ended March 31,											Three Months Ended March 31,
		2021			2020			$ Change		Change			2022			2021			$ Change		Change
Selling, general and administrative expenses	Selling, general and administrative expenses	$	144.5		$	153.6		$	(9.1)	(5.9	%)	Selling, general and administrative expenses	$	154.1		$	144.5		$	9.6	6.6	%
Selling, general and administrative expenses % to net sales	Selling, general and administrative expenses % to net sales	14.1		%	16.6		%			(250)	bps	Selling, general and administrative expenses % to net sales	13.7		%	14.1		%			(40)	bps

SG&A expenses ~~decreased in~~increased for the three months ended March 31, ~~2021~~2022 compared with the three months ended March 31, ~~2020, primarily~~2021. The increase for the three months ended March 31, 2022, as compared to the year-ago period, was primarily due to ~~lower discretionary~~higher compensation and other ~~controllable spending.~~spending to support the higher sales levels.

2322

Impairment and Restructuring:


		Three Months Ended March 31,									Three Months Ended March 31,
		2021		2020		$ Change		% Change			2022		2021		$ Change		% Change
Impairment charges	Impairment charges	$	3.4	$	0.1	$	3.3	NM		Impairment charges	$	—	$	3.4	$	(3.4)	NM
Severance and related benefit costs	Severance and related benefit costs	0.5		2.7		(2.2)		(81.5)	%	Severance and related benefit costs	0.3		0.5		(0.2)		(40.0)	%
Exit costs	Exit costs	0.1		0.8		(0.7)		(87.5)	%	Exit costs	0.7		0.1		0.6		NM
Total	Total	$	4.0	$	3.6	$	0.4	11.1	%	Total	$	1.0	$	4.0	$	(3.0)	(75.0)	%

Impairment and restructuring charges of $1.0 million during the three months ended March 31, 2022 were comprised primarily of severance and related benefits and exit costs related to the planned closure of the Company's Villa Carcina, Italy bearing plant. This initiative is expected to reduce headcount and right-size the Company's manufacturing footprint.

Impairment and restructuring charges of $4.0 million during the three months ended March 31, 2021 were comprised primarily of impairment charges related to certain engineering-related assets used in the ~~business during the three months ended March 31, 2021.~~business. Management concluded no further investment would be made in these assets and, as a result, reduced the value to zero. In addition, severance and related benefits are associated with initiatives to reduce headcount and right-size the Company's manufacturing footprint, including the planned closure of the Company's Indianapolis, Indiana chain plant.

Impairment and restructuring charges of $3.6 million during the three months ended March 31, 2020 were comprised primarily of severance and related benefits associated with initiatives to reduce headcount and right-size the Company's manufacturing footprint, including planned closures of the Company's Indianapolis, Indiana chain plant and the reorganization of the Company's Gaffney, South Carolina bearing facility.

Refer to Note 13 - Impairment and Restructuring Charges in the Notes to the Consolidated Financial Statements for additional information.

Other Income (Expense):

Three Months Ended
March 31,
2021 2020 $ Change % Change
Non-service pension and other postretirement income $ 4.0 $ 3.4 $ 0.6 17.6 %
Other income 1.0 4.1 (3.1) (75.6) %
Total other income $ 5.0 $ 7.5 $ (2.5) (33.3) %


	Three Months Ended March 31,
	2022		2021		$ Change		% Change

Non-service pension and other postretirement income	$	1.3	$	4.0	$	(2.7)	(67.5)	%
Other income, net	0.2		1.0		(0.8)		(80.0)	%
Total other income	$	1.5	$	5.0	$	(3.5)	(70.0)	%

Non-service pension and other postretirement income ~~increased~~decreased for the three months ended March 31, 2022 compared with the three months ended March 31, 2021, ~~compared with the three months ended March 31, 2020. The increase was~~ primarily due to ~~lower interest costs for the Company's defined benefit pension plans. The increase was partially offset by actuarial losses due to~~higher pension remeasurement losses in ~~the three months ended March 31, 2021.~~2022. The ~~remeasurement was~~remeasurements were triggered by ~~the expectation that~~expected lump sum payments to new retirees ~~will exceed~~exceeding annual service and interest costs for ~~three~~one of the ~~Company’s~~Company's U.S. defined benefit pension plans. As a result of the remeasurements, the Company recognized net actuarial losses of $2.6 million and $0.9 million during the three months ended March 31, 2022 and March 31, 2021, respectively. The decrease was also due to a lower expected return on plan assets in 2022. Refer to Note 14 - Retirement Benefit Plans and Note 15 - Other Postretirement Benefit Plans in the Notes to the Consolidated Financial Statements for additional information.

Other income, net decreased for the three months ended March 31, ~~2021~~2022 compared with the three months ended March 31, ~~2020,~~2021, primarily due to ~~lower foreign currency exchange gains and lower insurance recoveries.~~

the bargain purchase gain on the acquisition of Aurora that was recognized in 2021.

2423

Income Tax Expense:


		Three Months Ended March 31,											Three Months Ended March 31,
		2021			2020			$ Change		% Change			2022			2021			$ Change		Change
Provision for income taxes	Provision for income taxes	$	25.3		$	29.6		$	(4.3)	(14.5)	%	Provision for income taxes	$	38.2		$	25.3		$	12.9	51.0	%
Effective tax rate	Effective tax rate	17.9		%	26.1		%			(820) bps		Effective tax rate	23.9		%	17.9		%			600	bps

Income tax expense ~~decreased $4.3~~increased $12.9 million for the three months ended March 31, ~~2021~~2022 compared with the three months ended March 31, ~~2020, primarily~~2021 due to higher pre-tax earnings and a discrete tax benefit in the prior year for release of accruals for uncertain tax positions from the settlement of the 2017 and 2018 U.S. federal tax years, and favorable U.S. permanent book-tax differences, including new elective GILTI high tax exemption rules. This impact was partially offset by increased income taxes due to higher pre-tax earnings. years.

Refer to Note 65 - Income Taxes for more information on the computation of the income tax expense in interim periods.

BUSINESS SEGMENTS

The Company's reportable segments are business units that serve different industry sectors. While the segments operate using shared infrastructure, each reportable segment is managed to address specific customer needs in these diverse market sectors. The primary measurement used by management to measure the financial performance of each segment is EBITDA. Refer to Note 54 - Segment Information in the Notes to the Consolidated Financial Statements for the reconciliation of EBITDA by segment to consolidated income before income taxes.

The presentation of segment results below includes a reconciliation of the changes in net sales for each segment reported in accordance with U.S. GAAP to net sales adjusted to remove the effects of acquisitions completed in 2021~~and2020~~ and foreign currency exchange rate changes. The effects of acquisitions and foreign currency exchange rate changes on net sales are removed to allow investors and the Company to meaningfully evaluate the percentage change in net sales on a comparable basis from period to period.

The following item ~~highlights~~represents the Company's ~~acquisition~~acquisitions completed in ~~2020by segment based on the customers and underlying markets served:~~2021:

•The Company acquired ~~Aurora~~Intelligent Machine Solutions ("iMS") during the ~~fourth~~third quarter of ~~2020. Results~~2021. The majority of the results for ~~Aurora~~iMS are reported in the ~~Mobile Industries and~~ Process Industries ~~segments based on customers and underlying market sectors served.~~

segment.

Mobile Industries Segment:


		Three Months Ended March 31,											Three Months Ended March 31,
		2021			2020			$ Change		Change			2022			2021			$ Change		Change
Net sales	Net sales	$	504.5		$	466.7		$	37.8	8.1	%	Net sales	$	540.4		$	504.5		$	35.9	7.1%
EBITDA	EBITDA	$	79.6		$	75.1		$	4.5	6.0	%	EBITDA	$	75.1		$	79.6		$	(4.5)	(5.7%)
EBITDA margin	EBITDA margin	15.8		%	16.1		%			(30)	bps	EBITDA margin	13.9		%	15.8		%			(190)	bps

Three Months Ended
March 31,
2021 2020 $ Change % Change
Net sales $ 504.5 $ 466.7 $ 37.8 8.1 %
Less: Acquisitions 4.2 — 4.2 NM
Currency 9.4 — 9.4 NM
Net sales, excluding the impact of acquisitions and currency $ 490.9 $ 466.7 $ 24.2 5.2 %


	Three Months Ended March 31,
	2022		2021		$ Change		% Change
Net sales	$	540.4	$	504.5	$	35.9	7.1	%


Less: Currency	(9.2)				(9.2)		NM
Net sales, excluding the impact of currency	$	549.6	$	504.5	$	45.1	8.9	%

The Mobile Industries segment's net sales, excluding the effects of ~~acquisitions and~~ foreign currency exchange rate changes, increased ~~$24.2~~$45.1 million or ~~5.2%~~8.9% in the three months ended March 31, ~~2021~~2022 compared with the three months ended March 31, ~~2020,~~2021, reflecting ~~organic growth~~increased shipments in the off-highway ~~heavy truck~~ and ~~automotive sectors. These increases were~~rail sectors, as well as higher net pricing, partially offset by lower shipments in the ~~rail and aerospace sectors.~~ automotive sector. EBITDA ~~increased~~decreased by $4.5 million or ~~6.0% in~~5.7% for the three months ended March 31, ~~2021~~2022 compared with the three months ended March 31, ~~2020,~~2021, primarily due tohigher material, logistics and other operating costs, partially offset by favorable price/mix and the impact of higher ~~volume and lower SG&A expenses, partially offset by unfavorable mix and higher materials and logistics costs.~~volume.

2625

Process Industries Segment:


		Three Months Ended March 31,											Three Months Ended March 31,
		2021			2020			$ Change		Change			2022			2021			$ Change		Change
Net sales	Net sales	$	520.9		$	456.7		$	64.2	14.1	%	Net sales	$	584.2		$	520.9		$	63.3	12.2%
EBITDA	EBITDA	$	131.0		$	107.5		$	23.5	21.9	%	EBITDA	$	155.6		$	131.0		$	24.6	18.8%
EBITDA margin	EBITDA margin	25.1		%	23.5		%			160 bps		EBITDA margin	26.6		%	25.1		%			150	bps


		Three Months Ended March 31,									Three Months Ended March 31,
		2021		2020		$ Change		% Change			2022		2021		$ Change		% Change
Net sales	Net sales	$	520.9	$	456.7	$	64.2	14.1	%	Net sales	$	584.2	$	520.9	$	63.3	12.2	%
Less: Acquisitions	Less: Acquisitions	3.7		—		3.7		NM		Less: Acquisitions	1.2				1.2		NM
Currency	Currency	15.9		—		15.9		NM		Currency	(6.0)				(6.0)		NM
Net sales, excluding the impact of acquisitions and currency	Net sales, excluding the impact of acquisitions and currency	$	501.3	$	456.7	$	44.6	9.8	%	Net sales, excluding the impact of acquisitions and currency	$	589.0	$	520.9	$	68.1	13.1	%

The Process Industries segment's net sales, excluding the effects of acquisitions and foreign currency exchange rate changes, increased ~~$44.6~~$68.1 million or ~~9.8%~~13.1% in the three months ended March 31, ~~2021~~2022 compared with the three months ended March 31, ~~2020.~~2021. The increase was primarily driven by increased demand in the ~~renewable energy,~~ distribution, ~~and~~ general industrial, ~~sectors. These increases were~~heavy industries, marine and services sectors, as well as higher net pricing, partially offset by lower ~~marine revenue.~~ revenue in the renewable energy sector. EBITDA increased ~~$23.5~~$24.6 million or ~~21.9% in~~18.8% for the three months ended March 31, ~~2021~~2022 compared with the three months ended March 31, ~~2020~~2021 primarily due to favorable price/mix and higher volume, ~~favorable manufacturing performance, and lower SG&A expenses,~~ partially offset by ~~unfavorable mix~~higher material, logistics and ~~higher materials and logistics~~other operating costs.

Unallocated Corporate:


		Three Months Ended March 31,										Three Months Ended March 31,
		2021			2020			$ Change		Change		2022			2021			$ Change		Change
Unallocated corporate expense	Unallocated corporate expense	$	(11.6)		$	(11.1)		$	(0.5)	4.5%	Unallocated corporate expense	$	(12.9)		$	(11.6)		$	(1.3)	11.2	%
Unallocated corporate expense % to net sales	Unallocated corporate expense % to net sales	(1.1)		%	(1.2)		%			10 bps	Unallocated corporate expense % to net sales	(1.1)		%	(1.1)		%			—	bps

~~Unallocated~~The increase in unallocated corporate expense ~~increased in~~for the three months ended March 31, 2022 compared with the three months ended March 31, 2021 ~~compared with the three months ended March 31, 2020, primarily~~was primarily due to ~~the unfavorable impact of foreign currency exchange rate changes.~~higher variable compensation expense.

2726

CASH FLOW

Three Months Ended March 31,
2021 2020 $ Change
Net cash provided by operating activities $ 31.7 $ 56.2 $ (24.5)
Net cash used in investing activities (39.4) (31.6) (7.8)
Net cash (used in) provided by financing activities (6.4) 166.5 (172.9)
Effect of exchange rate changes on cash (3.9) (13.3) 9.4
(Decrease) increase in cash, cash equivalents and restricted cash $ (18.0) $ 177.8 $ (195.8)


	Three Months Ended March 31,
	2022		2021		$ Change


Net cash (used in) provided by operating activities	$	(1.2)	$	31.7	$	(32.9)


Net cash used in investing activities	(35.0)		(39.4)		4.4


Net cash provided by (used in) financing activities	204.7		(6.4)		211.1
Effect of exchange rate changes on cash	(1.2)		(3.9)		2.7
Increase (decrease) in cash, cash equivalents and restricted cash	$	167.3	$	(18.0)	$	185.3

Operating Activities:

The ~~decrease~~change in net cash (used in) provided by operating activities for the first three months of ~~2021~~2022 compared with the first three months of ~~2020~~2021 was primarily due to an increase in cash used for working capital items of ~~$47.9~~$46.3 million, ~~and a reduction~~partially offset by an increase in the benefit of income taxes on cash of ~~$5.8~~$6.5 million ~~partially offset by~~and higher net income of ~~$32.0~~$5.9 million. Refer to the tables below for additional detail of the impact of each line item on net cash provided by operating activities.

The following table displays the impact of working capital items on cash during the three months of 2022 and 2021, ~~and 2020,~~ respectively:


		Three Months Ended March 31,							Three Months Ended March 31,
		2021		2020		$ Change			2022		2021		$ Change
Cash Provided (Used):
Cash (Used) Provided:								Cash (Used) Provided:
Accounts receivable	Accounts receivable	$	(138.9)	$	(47.6)	$	(91.3)	Accounts receivable	$	(118.2)	$	(138.9)	$	20.7
Unbilled receivables	Unbilled receivables	(2.5)		(8.3)		5.8		Unbilled receivables	16.1		(2.5)		18.6
Inventories	Inventories	(33.3)		0.3		(33.6)		Inventories	(70.2)		(33.3)		(36.9)
Trade accounts payable	Trade accounts payable	19.9		—		19.9		Trade accounts payable	7.7		19.9		(12.2)
Other accrued expenses	Other accrued expenses	17.0		(34.3)		51.3		Other accrued expenses	(19.5)		17.0		(36.5)
Cash used in working capital items	Cash used in working capital items	$	(137.8)	$	(89.9)	$	(47.9)	Cash used in working capital items	$	(184.1)	$	(137.8)	$	(46.3)

The following table displays the impact of income taxes on cash during the three months of 2022 and 2021, ~~and 2020,~~ respectively:


		Three Months Ended March 31,							Three Months Ended March 31,
		2021		2020		$ Change			2022		2021		$ Change
Accrued income tax expense	Accrued income tax expense	$	25.3	$	29.6	$	(4.3)	Accrued income tax expense	$	38.2	$	25.3	$	12.9
Income tax payments	Income tax payments	(16.5)		(20.8)		4.3		Income tax payments	(25.3)		(16.5)		(8.8)
Other miscellaneous items	Other miscellaneous items	(7.2)		(1.4)		(5.8)		Other miscellaneous items	(4.8)		(7.2)		2.4
Cash benefit from income taxes	Cash benefit from income taxes	$	1.6	$	7.4	$	(5.8)	Cash benefit from income taxes	$	8.1	$	1.6	$	6.5

Investing Activities:

~~Investing Activities:~~

The ~~increase~~decrease in net cash used in investing activities for the first three months of ~~2021~~2022 compared with the first three months of ~~2020~~2021 was primarily due to ~~an increase~~a decrease in cash used for investments in short-term marketable securities of ~~$10.1~~$9.1 million, partially offset by ~~a decrease~~an increase in capital expenditures of ~~$2.4~~$4.9 million.

Financing Activities:

The change in net cash provided by (used in) ~~provided by~~ financing activities for the first three months of ~~2021~~2022 compared with the first three months of ~~2020~~2021 was primarily due to ~~a decrease~~an increase in net borrowings of ~~$187.0 million. This change was~~$283.1 million, partially offset by ~~a decrease~~an increase in the ~~purchase~~purchases of treasury shares of ~~$16~~$73.7 million.

2827

LIQUIDITY AND CAPITAL RESOURCES

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

Net Debt:

March 31,
2021 December 31,
2020
Short-term debt $ 167.5 $ 119.8
Current portion of long-term debt 10.8 10.9
Long-term debt 1,423.7 1,433.9
Total debt $ 1,602.0 $ 1,564.6
Less: Cash and cash equivalents 302.3 320.3
Net debt $ 1,299.7 $ 1,244.3


	March 31, 2022		December 31, 2021
Short-term debt, including current portion of long-term debt	$	41.0	$	53.8

Long-term debt	1,747.2		1,411.1
Total debt	$	1,788.2	$	1,464.9
Less: Cash and cash equivalents	424.5		257.1
Net debt	$	1,363.7	$	1,207.8

Ratio of Net Debt to Capital:


		March 31, 2021			December 31, 2020				March 31, 2022			December 31, 2021
Net debt	Net debt	$	1,299.7		$	1,244.3		Net debt	$	1,363.7		$	1,207.8
Total equity	Total equity	2,250.1			2,225.2			Total equity	2,355.0			2,377.7
Net debt plus total equity (capital)	Net debt plus total equity (capital)	$	3,549.8		$	3,469.5		Net debt plus total equity (capital)	$	3,718.7		$	3,585.5
Ratio of net debt to capital	Ratio of net debt to capital	36.6		%	35.9		%	Ratio of net debt to capital	36.7		%	33.7		%

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

At March 31, ~~2021,~~2022, the Co~~mpany~~Company had strong liquidity with ~~$302.3~~$424.5 million of cash and cash equivalents on the Consolidated Balance ~~Sheet. $262.6~~Sheet, as well as $741.2 million of ~~its $302.3~~available resources of committed credit lines. Of the $424.5 million of cash and cash equivalents, $267.7 million resided in jurisdictions outside the ~~U.S.~~United States. Repatriation of non-U.S. cash could be subject to taxes and some portion may be subject to governmental restrictions. Part of the Company's strategy is to grow in attractive market sectors, many of which are outside the ~~U.S.~~United States. This strategy includes making investments in facilities, equipment and potential new acquisitions. The Company plans to fund these investments, as well as meet working capital requirements, with cash and cash equivalents and unused lines of credit within the geographic location of these investments where feasible.

On June 25, 2019, the Company entered into the Senior Credit Facility, which is a $650.0 million unsecured revolving credit facility that matures on June 25, 2024. At March 31, ~~2021,~~2022, the Senior Credit Facility had outstanding borrowings of ~~$9.3~~$8.8 million, which reduced the availability to ~~$640.7~~$641.2 million. The Senior Credit Facility has two financial covenants: a consolidated leverage ratio and a consolidated interest coverage ratio. The maximum consolidated leverage ratio permitted under the Senior Credit Facility is 3.5 to 1.0. As of March 31, ~~2021,~~2022, the Company's consolidated leverage ratio was ~~1.91~~2.45 to 1.0 (based on ~~the new net~~total debt ~~construct discussed further~~as described below). The minimum consolidated interest coverage ratio permitted under the Senior Credit Facility is 3.0 to 1.0. As of March 31, ~~2021,~~2022, the Company's consolidated interest coverage ratio was ~~10.79~~12.54 to 1.0.

On May 27, 2020, both the Senior Credit Facility and the 2023 Term Loan were amended to, among other things, effectively increase the limit with respect to the consolidated leverage ratio. As amended, the consolidated leverage ratio under both the Senior Credit Facility and the 2023 Term Loan is calculated using a net debt construct, netting unrestricted cash in excess of $25 million, instead of total debt. This change to the consolidated leverage ratio calculation will be effective through June 30, 2021, after which the calculation of the consolidated leverage ratio under the Senior Credit Facility and the 2023 Term Loan will revert back to a total debt construct.

The interest rate under the Senior Credit Facility is variable with a spread based on the Company's debt rating. The average rate on outstanding U.S. dollar borrowings was ~~1.43%~~1.17% and the average rate on outstanding Euro borrowings was ~~1.48%~~1.00% as of March 31, ~~2021.~~2022. In addition, the ~~Company~~Company pays a facility fee based on the applicable rate, which is variable with a spread based on the Company's debt rating, multiplied by the aggregate commitments of all of the lenders under the Senior Credit ~~Facility. The~~Facility. As of March 31, 2022, the Company ~~currently carries~~carried investment-grade credit ratings with ~~Standard and Poor's~~Moody's (Baa2), S&P Global (BBB-)~~, Moody's (Baa3)~~ and Fitch (BBB-).

The Company has a $100 million Accounts Receivable Facility, which matures on November 30, ~~2021.~~2024. The Accounts Receivable Facility is subject to certain borrowing base limitations and is secured by certain domestic trade accounts receivable of the Company. Borrowings under the Accounts Receivable Facility were not reduced by any such borrowing base limitations at March 31, ~~2021.~~2022. As of March 31, ~~2021,~~2022, the Company had ~~$100 million of~~no outstanding borrowings under the Accounts Receivable ~~Facility, which reduced the availability under this facility to 0.~~ ~~The Company currently intends to renew or replace the Accounts Receivable Facility prior to its maturity.~~Facility.

Other sources of liquidity include uncommitted short-term lines of credit for certain of the Company's foreign subsidiaries, which provide for borrowings of up to approximately ~~$270.6~~$268.4 million. At March 31, ~~2021,~~2022, the Company had borrowings outstanding of ~~$67.5~~$29.9 million and bank guarantees of ~~$0.5~~$0.3 million, which reduced the aggregate availability under these facilities to approximately ~~$202.6~~$238.2 million.

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

At March 31, ~~2021,~~2022, the Company was in full compliance with all applicable covenants on its outstanding ~~debt, and expects to remain in full compliance with its debt covenants.~~

debt.

2021.

Financing Obligations and Other Commitments:

During the first three months of ~~2021,~~2022, the Company made cash contributions and payments of ~~$1.8~~$4.3 million to its global defined benefit pension plans and ~~$0.7~~$0.9 million to its other postretirement benefit plans. The Company expects to make contributions to its global defined benefit plans of approximately ~~$15~~$10 million in ~~2021.~~2022. The Company expects to make payments of approximately $6$5 million to its other postretirement benefit plans in ~~2021.~~ 2022. Excluding mark-to-market charges, the Company expects lower pension and other ~~postretirement~~postretirement benefits expense in ~~2021.~~2022.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's financial statements are prepared in accordance with ~~accounting principles generally accepted in the~~ U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The Company reviews its critical accounting policies throughout the year. The Company has concluded that there have been no significant changes to its critical accounting policies or estimates, as described in its Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, during the three months ended March 31, ~~2021.~~

2022.

3029

OTHER MATTERS

Foreign Currency:

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

For the three months ended March 31, ~~2021, the~~2022, the Company recorded negative foreign currency translation adjustments of ~~$44.0~~ $20.0 million that decreased shareholders' equity, compared ~~with~~with negative foreign currency translation adjustments of ~~$71.3~~$44.0 million that decreased ~~shareholders'~~shareholders' equity for the three months ended March 31, ~~2020.~~2021. The foreign currency translation adjustments for the three months ended March 31, ~~2021 were~~ 2022 were negatively impacted by tthhee strengthening of the U.S. dollar relative to other foreign currencies, including the ~~Euro and Chinese Yuan.~~

Euro.

Foreign currency exchange gains and ~~losses,~~losses, net of hedging activity, resulting from transactions included in the Company's operating results for the three months ended March 31, ~~2021~~2022 totaled $2.2 million of net gains, compared with $2.1 million of net losses ~~compared with $0.1 million of net gains d~~durin~~uring~~g the three months ended March 31, ~~2020.~~2021.

Russia Operations:

The Company has two subsidiaries that operate in Russia, including a 51%-owned joint venture that produces bearings for the rail market in Russia. As a result of Russia's invasion of Ukraine (and associated sanctions), the Company recorded allowances of $3.5 million for trade receivables and other assets and recorded a $1.1 million write-down of inventory during the three months ended March 31, 2022. After giving effect to these allowances and write-downs, as of March 31, 2022, the Company has net assets (net of noncontrolling interest) and cumulative foreign currency translation adjustments totaling $21.9 million on its Consolidated Balance Sheet related to its Russia operations. Net assets related to the Company's Russia operations include $12.9 million of cash and cash equivalents. The Company will continue to monitor the events in Russia and Ukraine and may record additional asset impairments or write-offs in the future.

NON-GAAP MEASURES

Supplemental Non-GAAP ~~Measures~~

Measures:

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

Adjusted Net Income and Adjusted EBITDA:

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

business.

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

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


		Three Months Ended March 31,							Three Months Ended March 31,
		2021			2020				2022			2021
Net Sales	Net Sales	$	1,025.4		$	923.4		Net Sales	$	1,124.6		$	1,025.4
Net Income Attributable to The Timken Company	Net Income Attributable to The Timken Company	113.3			80.7			Net Income Attributable to The Timken Company	118.2			113.3
Impairment, restructuring and reorganization charges (1)	Impairment, restructuring and reorganization charges (1)	5.2			5.8			Impairment, restructuring and reorganization charges (1)	1.6			5.2
Corporate pension and other postretirement benefit related expense (2)	Corporate pension and other postretirement benefit related expense (2)	0.9			—			Corporate pension and other postretirement benefit related expense (2)	2.6			0.9
Acquisition-related charges (3)		(0.2)			3.3
Acquisition-related gain (4)		(0.6)			—
Property (recoveries) losses and related expenses (5)		—			(2.2)
Acquisition-related charges (gain) (3)								Acquisition-related charges (gain) (3)	1.1			(0.8)

Russia-related charges (4)								Russia-related charges (4)	4.6			—
Noncontrolling interest of above adjustments	Noncontrolling interest of above adjustments	0.2			—			Noncontrolling interest of above adjustments	(1.3)			0.2
Provision for income taxes (6)		(12.1)			(2.9)
Provision for income taxes (5)								Provision for income taxes (5)	(5.1)			(12.1)
Adjusted Net Income	Adjusted Net Income	$	106.7		$	84.7		Adjusted Net Income	$	121.7		$	106.7
Net income attributable to noncontrolling interest	Net income attributable to noncontrolling interest	2.7			3.3			Net income attributable to noncontrolling interest	3.7			2.7
Provision for income taxes (as reported)	Provision for income taxes (as reported)	25.3			29.6			Provision for income taxes (as reported)	38.2			25.3
Interest expense	Interest expense	14.9			17.1			Interest expense	14.3			14.9
Interest income	Interest income	(0.5)			(1.5)			Interest income	(0.6)			(0.5)
Depreciation and amortization expense (7)		42.7			40.9
Depreciation and amortization expense (6)								Depreciation and amortization expense (6)	41.4			42.7
Less: Noncontrolling interest	Less: Noncontrolling interest	0.2			—			Less: Noncontrolling interest	(1.3)			0.2
Less: Provision for income taxes (6)		(12.1)			(2.9)
Less: Provision for income taxes (5)								Less: Provision for income taxes (5)	(5.1)			(12.1)
Adjusted EBITDA	Adjusted EBITDA	$	203.7		$	177.0		Adjusted EBITDA	$	225.1		$	203.7
Adjusted EBITDA Margin (% of net sales)	Adjusted EBITDA Margin (% of net sales)	19.9		%	19.2		%	Adjusted EBITDA Margin (% of net sales)	20.0		%	19.9		%

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


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020			2022		2021
Diluted earnings per share (EPS)	Diluted earnings per share (EPS)	$	1.47	$	1.06	Diluted earnings per share (EPS)	$	1.56	$	1.47
Adjusted EPS	Adjusted EPS	$	1.38	$	1.11	Adjusted EPS	$	1.61	$	1.38
Diluted Shares	Diluted Shares	77,264,641		76,308,556		Diluted Shares	75,545,665		77,264,641

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


		Three Months Ended March 31, 2021												Three Months Ended March 31, 2022
		Mobile			Process			Unallocated Corporate		Total				Mobile			Process			Unallocated Corporate		Total
Net Sales	Net Sales	$	504.5		$	520.9		$	—	$	1,025.4		Net Sales	$	540.4		$	584.2		$	—	$	1,124.6
EBITDA	EBITDA	79.6			131.0			(11.9)		198.7			EBITDA	75.1			155.6			(15.5)		215.2
Impairment, restructuring and reorganization charges (1)	Impairment, restructuring and reorganization charges (1)	0.3			4.6			—		4.9			Impairment, restructuring and reorganization charges (1)	1.0			0.6			—		1.6
Corporate pension and other postretirement benefit related expense (2)	Corporate pension and other postretirement benefit related expense (2)	—			—			0.9		0.9			Corporate pension and other postretirement benefit related expense (2)	—						2.6
Acquisition-related charges (3)	Acquisition-related charges (3)	0.2			0.1			(1.1)		(0.8)			Acquisition-related charges (3)	—			0.4			0.7		1.1

Russia-related charges (4)													Russia-related charges (4)	$	3.1		$	1.5		—		$	4.6
Adjusted EBITDA	Adjusted EBITDA	$	80.1		$	135.7		$	(12.1)	$	203.7		Adjusted EBITDA	$	79.2		$	158.1		$	(12.2)	$	225.1
Adjusted EBITDA Margin (% of net sales)	Adjusted EBITDA Margin (% of net sales)	15.9		%	26.0		%	NM		19.9		%	Adjusted EBITDA Margin (% of net sales)	14.7		%	27.1		%	NM		20.0		%


		Three Months Ended March 31, 2020												Three Months Ended March 31, 2021
		Mobile			Process			Unallocated Corporate		Total				Mobile			Process			Unallocated Corporate		Total
Net Sales	Net Sales	$	466.7		$	456.7		$	—	$	923.4		Net Sales	$	504.5		$	520.9		$	—	$	1,025.4
EBITDA	EBITDA	75.1			107.5			(11.1)		171.5			EBITDA	79.6			131.0			(11.9)		198.7
Impairment, restructuring and reorganization charges (1)	Impairment, restructuring and reorganization charges (1)	1.2			3.1			0.1		4.4			Impairment, restructuring and reorganization charges (1)	0.3			4.6			—		4.9
Acquisition-related charges (3)		1.9			0.9			0.5		3.3
Property (recoveries) losses and related expenses (5)		(2.2)			—			—		(2.2)
Corporate pension and other postretirement benefit related expense (2)													Corporate pension and other postretirement benefit related expense (2)	—						0.9
Acquisition-related charges (gain) (3)													Acquisition-related charges (gain) (3)	0.2			0.1			(1.1)		(0.8)

Adjusted EBITDA	Adjusted EBITDA	$	76.0		$	111.5		$	(10.5)	$	177.0		Adjusted EBITDA	$	80.1		$	135.7		$	(12.1)	$	203.7
Adjusted EBITDA Margin (% of net sales)	Adjusted EBITDA Margin (% of net sales)	16.3		%	24.4		%	NM		19.2		%	Adjusted EBITDA Margin (% of net sales)	15.9		%	26.0		%	NM		19.9		%

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

(2)Corporate pension and other postretirement benefit related expense represents actuarial losses ~~and~~ (gains) that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions or experience. The Company recognizes actuarial losses and (gains) in connection with the annual remeasurement in the fourth quarter, or if specific events trigger a remeasurement. Refer to Note 14 - Retirement Benefit Plans and Note 15 - Other Postretirement Benefit Plans for additional discussion.

(3) ~~The acquisition-related~~Acquisition-related charges (gain) represent ~~transaction costs~~the contingent consideration related to the acquisition of iMS that closed on August 20, 2021, and ~~the~~deal-related expenses associated with completed and certain unsuccessful transactions, as well as any resulting inventory step-up impact.

~~(4)~~ ~~The~~ In addition, the 2021 acquisition-related gain ~~represents~~includes measurement period adjustments to the bargain purchase ~~price~~ gain on the acquisition of the assets of Aurora that closed on November 30, 2020.

(4) Russia-related charges include allowances or impairments recorded against certain trade receivables, inventory and other assets to reflect the current impact of Russia's invasion of Ukraine (and associated sanctions) on the Company's operations. Refer to Russia Operations on page 30 above for additional information.

(5) Represents property loss and related expenses during the period presented (net of insurance recoveries received in 2020) resulting from property loss that occurred during the first quarter of 2019 at one of the Company's warehouses in Knoxville, Tennessee and during the third quarter of 2019 at one of the Company's warehouses in Yantai, China.

~~(6)~~ Provision for income taxes includes the net tax impact on pre-tax adjustments (listed above), the impact of discrete tax items recorded during the respective periods as well as other adjustments to reflect the use of one overall effective tax rate on adjusted pre-tax income in interim periods.

~~(7)~~(6) Depreciation and amortization shown excludes depreciation recognized in reorganization charges, if any.

Free Cash Flow:

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

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

Three Months Ended March 31,
2021 2020
Net cash provided by operating activities $ 31.7 $ 56.2
Capital expenditures (29.4) (31.8)
Free cash flow $ 2.3 $ 24.4


	Three Months Ended March 31,
		2022		2021
Net cash (used in) provided by operating activities		$	(1.2)	$	31.7
Capital expenditures		(34.3)		(29.4)
Free cash flow		$	(35.5)	$	2.3

Ratio of Net Debt to Adjusted EBITDA:

The ratio of net debt to adjusted EBITDA for the trailing twelve months represents total debt less cash and cash equivalents divided by adjusted EBITDA for the trailing twelve months. The Company presents net debt to adjusted EBITDA because it believes it is more representative of the Company's financial position as it is reflective of the Company's ability to cover its net debt obligations with results from its core operations. Net income for the trailing twelve months ended March 31, ~~2021~~2022 and December 31, ~~2020~~2021 was ~~$324.4~~$387.4 million and ~~$292.4~~$381.5 million, respectively. Net debt to adjusted EBITDA for the trailing twelve months was ~~flat at 1.9~~1.8 at March 31, ~~2021,~~2022, compared with ~~1.9~~1.7 at December 31, ~~2020.~~2021.

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

Twelve Months Ended
March 31,
2021 December 31,
2020
Net income $ 324.4 $ 292.4
Provision for income taxes 99.6 103.9
Interest expense 65.4 67.6
Interest income (2.7) (3.7)
Depreciation and amortization 167.8 167.1
Consolidated EBITDA 654.5 627.3
Adjustments:
Impairment, restructuring and reorganization charges (1)
$ 26.4 $ 25.9
Corporate pension and other postretirement benefit related expense (2)
19.4 18.5
Acquisition-related charges (3)
0.2 3.7
Acquisition-related gain (4)
(11.7) (11.1)
Property (recoveries) losses and related expenses (5)
(0.4) (0.4)
Gain on real estate (3.3) (5.5)
Tax indemnification and related items 0.5 0.5
Total Adjustments 31.1 31.6
Adjusted EBITDA $ 685.6 $ 658.9
Net Debt $ 1,299.7 $ 1,244.3
Ratio of Net Debt to Adjusted EBITDA 1.9 1.9


	Twelve Months Ended
	March 31, 2022		December 31, 2021
Net income	$	387.4	$	381.5
Provision for income taxes	108.0		95.1
Interest expense	58.2		58.8
Interest income	(2.4)		(2.3)
Depreciation and amortization	166.2		167.8
Consolidated EBITDA	717.4		700.9
Adjustments:
Impairment, restructuring and reorganization charges (1)	$	11.0	$	14.3
Corporate pension and other postretirement benefit related expense (2)	2.0		0.3
Acquisition-related charges (3)	4.2		2.3



Russia-related charges (4)	4.6		—
Tax indemnification and related items	0.2		0.2
Total adjustments	22.0		17.1
Adjusted EBITDA	$	739.4	$	718.0
Net Debt	$	1,363.7	$	1,207.8
Ratio of Net Debt to Adjusted EBITDA	1.8		1.7

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

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

(3) ~~The acquisition-related~~Acquisition-related charges represent ~~transaction costs~~contingent consideration related to the acquisition of iMS that closed on August 20, 2021, and ~~the~~deal-related expenses associated with completed and certain unsuccessful transactions, as well as any resulting inventory step-up impact.

~~(4)~~ ~~The~~ Also included is the acquisition-related gain ~~represents a~~related to measurement period adjustments to the bargain purchase gain on the acquisition of the assets of Aurora that closed on November 30, 2020.

(4)
~~(5)~~ ~~Property losses (recoveries) represent property losses~~Russia-related charges include allowances or impairments recorded against certain trade receivables, inventory and ~~related expenses during~~other assets to reflect the ~~periods presented (net~~current impact of ~~insurance proceeds received) resulting from property loss that occurred during the first quarter~~Russia's invasion of ~~2019 at one of~~Ukraine (and associated sanctions) on the Company's ~~warehouses~~operations. Refer to Russia Operations on page 30 in ~~Knoxville, Tennessee~~Management Discussion and ~~during the third quarter of 2019 at one of the Company's warehouses in Yantai, China.~~

Analysis for additional information.

FORWARD-LOOKING STATEMENTS

Certain statements set forth in this Form 10-Q and in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 that are not historical in nature (including the Company's forecasts, beliefs and expectations) are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, Management's Discussion and Analysis contains numerous forward-looking statements. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “outlook,” “intend,” “may,” “possible,” “potential,” “predict,” “project” or other similar words, phrases or expressions. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Form 10-Q. The Company cautions readers that actual results may differ materially from those expressed or implied in forward-looking statements made by or on behalf of the Company due to a variety of factors, such as:

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

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

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

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

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

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

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

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

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

•changes in worldwide financial and capital markets, including availability of financing and interest rates on satisfactory terms, which affect the Company’s cost of funds and/or ability to raise capital, as well as

customer demand and the ability of customers to obtain financing to purchase the Company’s products or equipment that contain the Company’s products;

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

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

•those items identified under Item 1A. "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 or this Form 10-Q.

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Refer to information appearing under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q. Furthermore, a discussion of market risk exposures is included in Part II, Item 7A. Quantitative and Qualitative Disclosure about Market Risk, of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. There have been no material changes in reported market risk since the inclusion of this discussion in the Company’s Annual Report on Form 10-K referenced above.

ITEM 4. CONTROLS AND PROCEDURES

(a)Disclosure Controls and Procedures

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

(b)Changes in Internal Control Over Financial Reporting

During the Company’s ~~most recent~~ fiscal quarter ended March 31, 2022, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

The Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, included a detailed discussion of our risk factors. There have been no material changes to the risk factors included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2020.~~

2021. Investors should not interpret the disclosure of any risk factor to imply that the risk has not already materialized.

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

Issuer Purchases of Common Shares

The following table provides information about purchases by the Company of its common shares during the quarter ended March 31, ~~2021.~~2022.

Period
Total number
of shares
purchased (1)
Average
price paid
per share (2)
Total number
of shares
purchased as
part of publicly
announced
plans or
programs
Maximum
number of
shares that
may yet
be purchased
under the plans
or programs (3)
1/1/2021 - 1/31/2021 5,235 $ 80.48 — 4,257,042
2/1/2021 - 2/28/2021 505,441 74.34 300,000 —
3/1/2021 - 3/31/2021 79,002 79.28 50,000 9,950,000
Total 589,678 $ 75.06 350,000


Period	Total number of shares purchased (1)	Average price paid per share (2)		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs (3)
1/1/2022 - 1/31/2022	451,275	$	71.42	450,000	8,600,000
2/1/2022 - 2/28/2022	583,758	66.88		475,000	8,125,000
3/1/2022 - 3/31/2022	576,354	62.82		575,000	7,550,000
Total	1,611,387	$	66.70	1,500,000	—

(1)Of the shares purchased in January, February and March, ~~5,235, 205,441~~1,275, 108,758 and ~~29,002,~~ 1,354 respectively, represent common shares of the Company that were owned and tendered by employees to exercise stock options and to satisfy withholding obligations in connection with the exercise of stock options or vesting of restricted shares.

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

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

Item 6. Exhibits










































































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

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

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

101			Financial statements from the quarterly report on Form 10-Q of The Timken Company for the quarter ended March 31, ~~2021~~2022 filed on ~~April 28, 2021,~~May 2, 2022, formatted in Inline XBRL: (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.

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