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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
tkr-20220930_g1.jpg
FORM 10-Q  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to                          
Commission file number: 1-1169
THE TIMKEN COMPANY
(Exact name of registrant as specified in its charter)
 
Ohio34-0577130
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
4500 Mount Pleasant Street NW
North CantonOhio 44720-5450
(Address of principal executive offices) (Zip Code)
234.262.3000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Shares, without par valueTKRThe New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   
 Yes      No  
Indicate the number of shares outstanding of each of the issuer's classes of common shares, as of the latest practicable date.
Class
Outstanding at September 30, 2022
Common Shares, without par value72,743,592 shares


THE TIMKEN COMPANY
INDEX TO FORM 10-Q REPORT



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
THE TIMKEN COMPANY AND SUBSIDIARIES

Consolidated Statements of Income
(Unaudited)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2022202120222021
(Dollars in millions, except per share data)
Net sales$1,136.4 $1,037.3 $3,414.7 $3,125.6 
Cost of products sold813.6 769.4 2,422.7 2,256.2 
Gross Profit322.8 267.9 992.0 869.4 
Selling, general and administrative expenses159.8 140.7 469.8 434.2 
Impairment and restructuring charges31.3 2.9 42.3 8.2 
Operating Income131.7 124.3 479.9 427.0 
Interest expense(19.3)(14.8)(51.9)(45.0)
Interest income1.1 0.5 2.7 1.7 
Non-service pension and other postretirement income (expense)1.3 0.5 (5.3)5.9 
Other income, net2.3 1.5 1.4 0.3 
Income Before Income Taxes117.1 112.0 426.8 389.9 
Provision for income taxes26.7 20.4 108.9 75.1 
Net Income90.4 91.6 317.9 314.8 
Less: Net income attributable to noncontrolling interest3.4 3.5 7.7 8.6 
Net Income Attributable to The Timken Company$87.0 $88.1 $310.2 $306.2 
Net Income per Common Share Attributable to The Timken
    Company Common Shareholders
Basic earnings per share$1.19 $1.16 $4.20 $4.03 
Diluted earnings per share$1.18 $1.14 $4.16 $3.97 
See accompanying Notes to the Consolidated Financial Statements.


Consolidated Statements of Comprehensive Income
(Unaudited) 
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2022202120222021
(Dollars in millions)
Net Income$90.4 $91.6 $317.9 $314.8 
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments(136.8)(32.9)(272.5)(54.1)
Pension and postretirement liability adjustments(1.4)(1.5)(4.3)(4.8)
Change in fair value of derivative financial instruments1.8 2.5 6.0 4.5 
Other comprehensive loss, net of tax(136.4)(31.9)(270.8)(54.4)
Comprehensive income (loss), net of tax(46.0)59.7 47.1 260.4 
Less: comprehensive income attributable to noncontrolling interest0.1 3.7 2.9 7.8 
Comprehensive income (loss) attributable to
     The Timken Company
$(46.1)$56.0 $44.2 $252.6 
See accompanying Notes to the Consolidated Financial Statements.
1

Consolidated Balance Sheets
(Unaudited)
(Dollars in millions)September 30,
2022
December 31,
2021
ASSETS
Current Assets
Cash and cash equivalents$300.9 $257.1 
Restricted cash0.7 0.8 
Accounts receivable, less allowances (2022 – $16.1 million; 2021 – $16.9 million)
735.5 626.4 
Unbilled receivables83.6 104.5 
Inventories, net1,132.6 1,042.7 
Deferred charges and prepaid expenses40.1 32.2 
Other current assets160.1 149.8 
Total Current Assets2,453.5 2,213.5 
Property, Plant and Equipment, net1,069.0 1,055.3 
Other Assets
Goodwill979.1 1,022.7 
Other intangible assets594.7 668.8 
Operating lease assets102.4 118.9 
Deferred income taxes56.7 67.6 
Other non-current assets26.5 23.9 
Total Other Assets1,759.4 1,901.9 
Total Assets$5,281.9 $5,170.7 
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable, trade373.4 430.0 
Short-term debt, including current portion of long-term debt371.8 53.8 
Salaries, wages and benefits142.8 136.0 
Income taxes payable27.6 26.2 
Other current liabilities293.4 250.6 
Total Current Liabilities1,209.0 896.6 
Non-Current Liabilities
Long-term debt1,411.3 1,411.1 
Accrued pension benefits162.0 155.6 
Accrued postretirement benefits44.2 45.8 
Long-term operating lease liabilities67.1 77.6 
Deferred income taxes114.0 121.4 
Other non-current liabilities95.5 84.9 
Total Non-Current Liabilities1,894.1 1,896.4 
Shareholders’ Equity
Class I and II Serial Preferred Stock, without par value:
Authorized – 10,000,000 shares each class, none issued
  
Common shares, without par value:
Authorized – 200,000,000 shares
Issued (including shares in treasury) (2022 – 77,665,364 shares;
     2021 – 77,090,104 shares)
Stated capital40.7 40.7 
Other paid-in capital817.2 786.9 
Retained earnings1,857.4 1,616.4 
Accumulated other comprehensive loss(289.0)(23.0)
Treasury shares at cost (2022 – 4,921,772 shares; 2021 – 1,715,282 shares)
(332.7)(126.1)
Total Shareholders’ Equity2,093.6 2,294.9 
Noncontrolling Interest85.2 82.8 
Total Equity2,178.8 2,377.7 
Total Liabilities and Equity$5,281.9 $5,170.7 
See accompanying Notes to the Consolidated Financial Statements.
2

Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months Ended
September 30,
 20222021
(Dollars in millions)
CASH PROVIDED (USED)
Operating Activities
Net income$317.9 $314.8 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization122.0 126.5 
Impairment charges38.3 4.5 
Loss on sale of assets1.0 1.0 
Loss on divestiture2.1  
Acquisition-related gain (0.9)
Deferred income tax provision (benefit) 4.1 (6.4)
Stock-based compensation expense22.3 15.6 
Pension and other postretirement expense11.9 2.9 
Pension and other postretirement benefit contributions and payments(11.5)(18.2)
Changes in operating assets and liabilities:
Accounts receivable(157.0)(127.5)
Unbilled receivables(5.2)25.1 
Inventories(147.1)(144.2)
Accounts payable, trade(12.6)60.5 
Other accrued expenses45.8 50.2 
Income taxes3.2 (0.3)
Other, net(12.9)(19.0)
Net Cash Provided by Operating Activities222.3 284.6 
Investing Activities
Capital expenditures(122.5)(103.6)
Acquisitions, net of cash acquired of $0.2 million
(152.4)(7.2)
Proceeds from disposal of property, plant and equipment3.3  
Proceeds from divestitures, net of cash divested1.0  
Investments in short-term marketable securities, net27.8 (5.4)
Other, net0.8 0.3 
Net Cash Used in Investing Activities(242.0)(115.9)
Financing Activities
Cash dividends paid to shareholders(69.2)(69.5)
Purchase of treasury shares(193.3)(56.6)
Proceeds from exercise of stock options4.2 25.4 
Payments related to tax withholding for stock-based compensation(9.5)(23.5)
Borrowings on accounts receivable facility197.0 186.1 
Payments on accounts receivable facility(197.0)(244.1)
Proceeds from long-term debt684.5 215.0 
Payments on long-term debt(347.7)(224.4)
Deferred financing costs(3.5) 
Short-term debt activity, net17.0 (30.3)
Noncontrolling interest dividends paid(0.5)(0.5)
Other6.5  
Net Cash Provided by (Used in) Financing Activities88.5 (222.4)
Effect of exchange rate changes on cash(25.1)(4.8)
Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash43.7 (58.5)
Cash, cash equivalents and restricted cash at beginning of year257.9 321.1 
Cash, Cash Equivalents and Restricted Cash at End of Period$301.6 $262.6 
See accompanying Notes to the Consolidated Financial Statements.
3

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, 2021.
Note 2 - Significant Accounting Policies
The Company's significant accounting policies are detailed in "Note 1 - Significant Accounting Policies" of the Annual Report on Form 10-K for the year ended December 31, 2021.

Recent Accounting Pronouncements:

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

New Accounting Guidance Issued and Not Yet Adopted:

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

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


4

Note 2 - Significant Accounting Policies (continued)
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ASU 2020-04 is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022. The Company is currently assessing which of its various contracts will require an update for a new reference rate and will determine the timing for implementation of this guidance after completing that analysis. The Company continues to monitor future amendments, such as the current proposal by the FASB to defer the sunset date of reference rate reform relief by two years to December 31, 2024, after which entities would no longer be permitted to apply the relief in Topic 848.


Note 3 - Acquisitions and Divestitures
Acquisitions:
On May 31, 2022, the Company completed the acquisition of Spinea, s.r.o. ("Spinea"), a European technology leader and manufacturer of highly engineered cycloidal reduction gears and actuators, with estimated 2022 full year sales of approximately $40.0 million. Spinea’s solutions primarily serve high-precision automation and robotics applications in the factory automation sector. Spinea is located in Presov, Slovakia. The purchase price for this acquisition was $152.4 million, net of cash acquired of $0.2 million, subject to customary post-closing adjustments. Based on markets and customers served, results for Spinea are reported in the Process Industries segment.
The following table presents the purchase price allocation at fair value, for the Spinea acquisition as of September 30, 2022.
Initial Purchase
Price Allocation
Assets:
Accounts receivable$2.1 
Inventories20.9 
Other current assets2.9 
Property, plant and equipment82.0 
Goodwill39.2 
Other intangible assets32.1 
   Total assets acquired$179.2 
Liabilities:
Accounts payable, trade$7.4 
Salaries, wages and benefits 1.5 
Other current liabilities1.2 
Long-term debt0.2 
Deferred income taxes1.0 
Other non-current liabilities15.5 
   Total liabilities assumed$26.8 
   Net assets acquired$152.4 
5

Note 3 - Acquisitions and Divestitures (continued)
The following table summarizes the preliminary purchase price allocation for identifiable intangible assets acquired in 2022:
Preliminary Purchase Price Allocation
Weighted - Average Life
Trade names$8.2 20 years
Technology and know-how6.1 6 years
Customer relationships17.2 17 years
Capitalized software0.6 2 years
Total intangible assets$32.1 
In determining the fair value of the amounts above, the Company utilized various forms of the income, cost and market approaches depending on the asset or liability being valued. The estimation of fair value required judgement related to future net cash flows, discount rates, competitive trends, market comparisons and other factors. Inputs were generally determined by taking into account independent appraisals and historical data, supplemented by current and anticipated market conditions.
The amounts in the table above represent the preliminary purchase price allocation for Spinea. This purchase price allocation, including the residual amount allocated to goodwill, is based on preliminary information and is subject to change as additional information concerning final asset and liability valuations are obtained. As of September 30, 2022, no elements of the purchase price allocation have been finalized. During the applicable measurement period, the Company will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments has been completed on the acquisition date.
On August 20, 2021, the Company completed the acquisition of the assets of Intelligent Machine Solutions ("iMS"), a manufacturer of industrial robotics and automation solutions, with annual sales of approximately $6.0 million. iMS is headquartered in Norton Shores, Michigan. The total purchase price for this acquisition was $7.7 million, including post-closing adjustments. In addition, the seller has the opportunity to earn $3.0 million of contingent performance-based consideration between January 1, 2022 and June 30, 2024. This additional component will be accounted for as compensation expense over that period. Based on markets and customers served, results for iMS are primarily reported in the Process Industries segment.

The following table presents the final purchase price allocation at fair value for the iMS acquisition:
Final Purchase Price Allocation
Total assets acquired$9.8 
Total liabilities assumed2.1 
Net assets acquired$7.7 
On September 6, 2022, the Company entered into an agreement to acquire GGB Bearing Technology ("GGB Bearings"), a division of Enpro, Industries and a global technology and market leader of premium engineered metal-polymer plain bearings for $305 million subject to customary post-closing adjustments. GGB Bearings revenue is estimated to be $200 million for the full year 2022. GGB Bearings' products are used mainly in industrial applications, and the acquisition has manufacturing facilities across the United States, Europe and China. The transaction, which is subject to customary closing conditions, is expected to close in the fourth quarter of 2022 and will be funded with cash on hand and borrowings from existing credit facilities.




6



Note 3 - Acquisitions and Divestitures (continued)
Divestitures:
On September 1, 2022, the Company completed the divestiture of Timken-Rus Service Company ooo ("Timken Russia"), one of its two subsidiaries in Russia. Timken Russia had net sales of $4.8 million and $19.6 million in 2022 and 2021, respectively. The results of operations of Timken Russia were reported in the Mobile Industries and Process Industries segments based on customers and underlying market sectors served. The Company recorded proceeds of $1.0 million, net of cash divested of $5.3 million, and recognized a loss of $2.1 million on the sale of the business. The loss was reflected in other income, net in the Consolidated Statement of Income.

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

The following table provides the major captions of assets and liabilities held for sale at September 30, 2022:
Assets:
Accounts receivable, net$6.0 
Unbilled receivables25.4 
Inventories, net13.4 
Property, plant and equipment, net4.4 
Operating lease assets3.7 
Intangible assets, net16.2 
Other assets0.3 
Total assets69.4 
Less: impairment charge(29.3)
   Assets held for sale$40.1 
Liabilities:
Accounts payable, trade$2.1 
Salaries, wages and benefits1.1 
Other current liabilities1.0 
Long-term operating lease liabilities3.1 
   Liabilities held for sale$7.3 
7

Note 4 - Revenue
The following table presents details deemed most relevant to the users of the financial statements about total revenue for the three and nine months ended September 30, 2022 and 2021, respectively:
Three Months EndedThree Months Ended
September 30, 2022September 30, 2021
MobileProcessTotalMobileProcessTotal
United States$276.3 $238.7 $515.0 $235.3 $194.2 $429.5 
Americas excluding the United States59.2 65.1 124.3 54.9 47.4 102.3 
Europe / Middle East / Africa105.2 124.7 229.9 118.2 137.5 255.7 
China30.4 129.5 159.9 27.7 125.9 153.6 
Asia-Pacific excluding China55.8 51.5 107.3 51.2 45.0 96.2 
Net sales$526.9 $609.5 $1,136.4 $487.3 $550.0 $1,037.3 
Nine Months EndedNine Months Ended
September 30, 2022September 30, 2021
MobileProcessTotalMobileProcessTotal
United States$808.8 $695.2 $1,504.0 $715.6 $582.0 $1,297.6 
Americas excluding the United States181.0 184.8 365.8 156.0 139.7 295.7 
Europe / Middle East / Africa352.7 402.1 754.8 369.6 401.9 771.5 
China92.3 373.9 466.2 94.3 388.6 482.9 
Asia-Pacific excluding China176.1 147.8 323.9 150.5 127.4 277.9 
Net sales$1,610.9 $1,803.8 $3,414.7 $1,486.0 $1,639.6 $3,125.6 

When reviewing revenue by sales channel, the Company separates net sales to original equipment manufacturers ("OEMs") from sales to distributors and end users. The following table presents the percent of revenue by sales channel for the nine months ended September 30, 2022 and 2021, respectively:
Nine Months EndedNine Months Ended
Revenue by sales channelSeptember 30, 2022September 30, 2021
Original equipment manufacturers60%61%
Distribution/end users40%39%
In addition to disaggregating revenue by segment, geography and by sales channel as shown above, the Company believes information about the timing of transfer of goods or services, type of customer and distinguishing service revenue from product sales is also relevant. During the nine months ended September 30, 2022 and September 30, 2021, approximately 9% and 8%, respectively, of total net sales were recognized on an over-time basis because of the continuous transfer of control to the customer, with the remainder recognized as of a point in time. Approximately 4% and 4% of total net sales represented service revenue during the nine months ended September 30, 2022 and September 30, 2021, respectively. Finally, business with the United States ("U.S.") government or its contractors represented approximately 7% of total net sales during each of the nine months ended September 30, 2022 and September 30, 2021.

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

8

Note 4 - Revenue (continued)
Unbilled Receivables:
The following table contains a rollforward of unbilled receivables for the nine months ended September 30, 2022 and the twelve months ended December 31, 2021:
September 30,
2022
December 31,
2021
Beginning balance, January 1$104.5 $110.9 
Additional unbilled revenue recognized301.9 383.0 
Less: amounts billed to customers(297.4)(389.4)
Less: unbilled receivables reclassified to assets held for sale(25.4) 
Ending balance$83.6 $104.5 
There were no impairment losses recorded on unbilled receivables for the nine months ended September 30, 2022 and September 30, 2021.
9

Note 5 - Segment Information
The primary measurement used by management to measure the financial performance of each segment is earnings before interest, taxes, depreciation and amortization ("EBITDA").
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2022202120222021
Net sales:
Mobile Industries$526.9 $487.3 $1,610.9 $1,486.0 
Process Industries609.5 550.0 1,803.8 1,639.6 
Net sales$1,136.4 $1,037.3 $3,414.7 $3,125.6 
Segment EBITDA:
Mobile Industries$20.0 $53.2 $164.2 $200.1 
Process Industries165.3 129.7 484.4 401.9 
Total EBITDA, for reportable segments$185.3 $182.9 $648.6 $602.0 
Unallocated corporate expense(9.1)(11.7)(35.4)(34.9)
Corporate pension and other postretirement benefit related expense (1)
(1.0)(3.9)(15.2)(8.3)
Acquisition-related gain (2)
 0.3  0.9 
Depreciation and amortization(39.9)(41.3)(122.0)(126.5)
Interest expense(19.3)(14.8)(51.9)(45.0)
Interest income1.1 0.5 2.7 1.7 
Income before income taxes$117.1 $112.0 $426.8 $389.9 
(1) Corporate pension and other postretirement benefit related expense represents actuarial (losses) and gains that resulted from the remeasurement of pension and other postretirement plan assets and obligations as a result of changes in assumptions or experience.
(2) The acquisition-related gain represents measurement period adjustments to the bargain purchase gain on the acquisition of Aurora Bearing Company ("Aurora"), which closed on November 30, 2020.
Note 6 - Income Taxes
The Company's provision for income taxes in interim periods is computed by applying the estimated annual effective tax rates to income or loss before income taxes for the period. In addition, non-recurring or discrete items are recorded during the period(s) in which they occur.
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2022202120222021
Provision for income taxes$26.7 $20.4 $108.9 $75.1 
Effective tax rate22.8 %18.2 %25.5 %19.3 %
Income tax expense for the three and nine months ended September 30, 2022 was calculated using forecasted multi-jurisdictional annual effective tax rates to determine a blended annual effective tax rate. The effective tax rate differs from the U.S. federal statutory rate of 21% primarily due to the projected mix of earnings in international jurisdictions with relatively higher tax rates.
The effective tax rate of 22.8% for the three months ended September 30, 2022 was higher than the rate for the three months ended September 30, 2021 primarily due to the net unfavorable impact of discrete tax items in comparison to the year ago period.
The effective tax rate of 25.5% for the nine months ended September 30, 2022 was higher than the rate for the nine months ended September 30, 2021 primarily due to an unfavorable mix of earnings in higher tax rate jurisdictions, the net unfavorable impact of discrete tax items, including a discrete tax benefits in the year ago period in connection with the settlement of the 2017 and 2018 U.S. federal tax years during the nine months ended September 30, 2021, and lower deductions for stock-based compensation.
10

Note 7 - Earnings Per Share
The following table sets forth the reconciliation of the numerator and the denominator of basic earnings per share and diluted earnings per share for the three and nine months ended September 30, 2022 and 2021, respectively:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022202120222021
Numerator:
Net income attributable to The Timken Company$87.0 $88.1 $310.2 $306.2 
Less: undistributed earnings allocated to nonvested stock    
Net income available to common shareholders for basic
   and diluted earnings per share
$87.0 $88.1 $310.2 $306.2 
Denominator:
Weighted average number of shares outstanding - basic73,177,956 76,068,582 73,890,483 75,980,355 
Effect of dilutive securities:
Stock options and awards - based on the treasury
   stock method
688,787 955,391 658,228 1,177,259 
Weighted average number of shares outstanding assuming
   dilution of stock options and awards
73,866,743 77,023,973 74,548,711 77,157,614 
Basic earnings per share$1.19 $1.16 $4.20 $4.03 
Diluted earnings per share $1.18 $1.14 $4.16 $3.97 
The dilutive effect of stock options and awards includes all outstanding stock options and awards except stock options that are considered antidilutive. Stock options are antidilutive when the exercise price exceeds the average market price of the Company’s common shares during the periods presented. There were no antidilutive stock options outstanding during the three and nine months ended September 30, 2022 and 2021.
Note 8 - Inventories
The components of inventories at September 30, 2022 and December 31, 2021 were as follows:
September 30,
2022
December 31,
2021
Manufacturing supplies$39.7 $38.0 
Raw materials115.9 121.8 
Work in process454.8 418.4 
Finished products588.2 527.8 
     Subtotal1,198.6 1,106.0 
Allowance for obsolete and surplus inventory(66.0)(63.3)
     Total inventories, net$1,132.6 $1,042.7 
Inventories are valued at net realizable value, with approximately 56% valued on the first-in, first-out ("FIFO") method and the remaining 44% valued on the last-in, first-out ("LIFO") method. The majority of the Company's domestic inventories are valued on the LIFO method, and all the Company's international inventories are valued on the FIFO method.

The LIFO reserve at September 30, 2022 and December 31, 2021 was $229.1 million and $199.4 million, respectively. An actual valuation of the inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs. Because these calculations are subject to many factors beyond management’s control, annual results may differ from interim results as they are subject to the final year-end LIFO inventory valuation.
11

Note 9 - Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the nine months ended September 30, 2022 were as follows:
Mobile
Industries
Process
Industries
Total
Beginning balance$371.7 $651.0 $1,022.7 
Acquisitions 39.2 39.2 
Foreign currency translation adjustments and other changes(33.8)(49.0)(82.8)
Ending balance$337.9 $641.2 $979.1 
The acquisition of Spinea added $39.2 million of goodwill. The goodwill is expected to be 100% tax deductible.
The following table displays intangible assets as of September 30, 2022 and December 31, 2021:
 Balance at September 30, 2022Balance at December 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Intangible assets
subject to amortization:
Customer relationships$459.4 $(172.0)$287.4 $518.1 $(189.3)$328.8 
Technology and know-how230.7 (74.2)156.5 270.7 (86.6)184.1 
Trade names18.5 (7.3)11.2 14.3 (9.6)4.7 
Capitalized software283.6 (264.3)19.3 280.0 (261.3)18.7 
Other3.1 (2.4)0.7 4.7 (3.6)1.1 
$995.3 $(520.2)$475.1 $1,087.8 $(550.4)$537.4 
Intangible assets not subject to amortization:
Trade names$110.9 $110.9 $122.7 $122.7 
FAA air agency certificates8.7 8.7 8.7 8.7 
$119.6 $119.6 $131.4 $131.4 
Total intangible assets$1,114.9 $(520.2)$594.7 $1,219.2 $(550.4)$668.8 
Amortization expense for intangible assets was $37.4 million and $41.7 million for the nine months ended September 30, 2022 and 2021, respectively. Amortization expense included $32.2 million and $35.8 million related to intangible assets acquired as part of a business combination for the nine months ended September 30, 2022 and 2021, respectively. Amortization expense for intangible assets is projected to be $49.7 million in 2022; $42.2 million in 2023; $40.3 million in 2024; $38.3 million in 2025; and $36.9 million in 2026. Substantially all amortization expense for intangible assets is recorded in Cost of product sold on the Consolidated Statement of Income.
12

Note 10 - Other Current Liabilities
The following table displays other current liabilities as of September 30, 2022 and December 31, 2021:
(Dollars in millions)September 30,
2022
December 31,
2021
Sales rebates$67.7 $70.3 
Freight and duties24.5 25.5 
Operating lease liabilities22.2 26.2 
Product warranty19.6 11.7 
Professional fees16.4 10.8 
Restructuring4.1 7.0 
Taxes other than income and payroll taxes