What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-03 compared with 2022-10-26 · 159 added, 324 removed, 292 unchanged (62% of the section changed)

2 unchanged sentences

Introduction:

The Timken Company designs and manages a growing portfolio of engineered bearings and power transmission products.

With more than a century of innovation and increasing knowledge, the Company continuously improves the reliability and efficiency of global machinery and equipment to move the world forward.

The Company’s growing product and services portfolio features many strong industrial brands, such as Timken®, Philadelphia Gear®, Drives®, Cone Drive®, Rollon®, Lovejoy®, Diamond®, BEKA®, Groeneveld® and Spinea®.

The Timken Company designs and manufactures a growing portfolio of engineered bearings and industrial motion products, and related services.

With more than a century of knowledge and innovation, 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®, GGB®, Drives®, Cone Drive®, Rollon®, Lovejoy®, Diamond®, BEKA®, Groeneveld®, Nadella® and Spinea®.

Timken employs more than 19,000 people globally in 46 countries.

The Company operates under two reportable segments:

(1) Mobile Industries and (2) Process Industries.

(1) Engineered Bearings and (2) Industrial Motion.

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’s Engineered Bearings segment features a broad range of product designs serving original equipment manufacturers (OEMs) and end-users worldwide.

Timken is a leading authority on tapered roller bearings and leverages its position by applying engineering know-how and technology across its entire bearing portfolio, which includes tapered, spherical and cylindrical roller bearings;

plain bearings, metal-polymer bearings and rod end bearings;

thrust and specialty ball bearings;

and housed bearings.

The Engineered Bearings portfolio features Timken® and GGB® brands and serves customers across global industries, including wind energy, agriculture, construction, food and beverage, metals and mining, automotive and truck, aerospace, rail and more.

• Timken’s Industrial Motion segment includes a diverse and growing portfolio of engineered products, including industrial drives, automatic lubrication systems, linear motion products and systems, chains, belts, couplings and industrial clutches and brakes that keep systems running efficiently.

Industrial Motion also includes industrial drivetrain services, which return equipment to like-new condition.

The Industrial Motion portfolio features many strong brands:

Philadelphia Gear®, Cone Drive®, Spinea®, Rollon®, Nadella®, Groeneveld®, BEKA®, Diamond®, Drives®, Timken® Belts, Lovejoy® and PT Tech®.

Industrial Motion products are used across a broad range of industries, including solar energy, automation, construction, agriculture and turf, passenger rail, marine, aerospace, packaging and logistics, medical and more.

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.

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Timken focuses its international efforts and footprint in regions of the world where strong macroeconomic factors such as urbanization, infrastructure development and sustainability create demand for its products and services.

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

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.

The Company intends to expand into new and existing markets by leveraging its collective knowledge of metallurgy, friction management and industrial motion 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.

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The Company is intently focused on providing the highest returns for shareholders through its capital allocation framework, which includes:

(1) investing in the core business through capital expenditures, research and development, and other initiatives to drive profitable organic growth;

(2) pursuing strategic acquisitions to broaden its portfolio and capabilities across diverse markets, with a focus on bearings, adjacent power transmission products and related services;

(1) investing in the core business through capital expenditures, research and development and initiatives to drive profitable organic growth;

(2) pursuing strategic acquisitions to broaden its portfolio and capabilities across diverse markets, with a focus on bearings, adjacent industrial motion products and related services;

(3) returning capital to shareholders through dividends and share repurchases;

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Three Months Ended

September 30,

2023 2022 $ Change % Change

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Average number of shares – diluted 73,360,854 75,545,665 — (2.9) %

Nine Months Ended

September 30,

2022 2021 $ Change % Change

Net sales $ 3,414.7 $ 3,125.6 $ 289.1 9.2 %

Net income 317.9 314.8 3.1 1.0 %

Net income attributable to noncontrolling interest 7.7 8.6 (0.9) (10.5) %

Net income attributable to The Timken Company $ 310.2 $ 306.2 $ 4.0 1.3 %

Diluted earnings per share $ 4.16 $ 3.97 $ 0.19 4.8 %

Average number of shares – diluted 74,548,711 77,157,614 — (3.4) %

The increase in net sales for the three months ended September 30, 2022 compared with the three months ended September 30, 2021 was primarily driven by strong organic growth (including positive pricing), partially offset by the unfavorable impact of foreign currency exchange rate changes.

The slight decrease in net income for the three months ended September 30, 2022 compared with the three months ended September 30, 2021 was primarily due to higher material, logistics and other operating costs, higher impairment and restructuring charges and a higher tax rate, partially offset by favorable price/mix and the impact of higher volume.

The higher impairment and restructuring charges were primarily related to the anticipated divestiture of the Company's ADS business.

The increase in net sales for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021 was primarily driven by strong organic growth (including positive pricing), partially offset by the unfavorable impact of foreign currency exchange rate ch anges.

The increase in net income for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021 was primarily due to favorable price/mix and the impact of higher volume, partially offset by higher material, logistics and other operating costs, higher impairment and restructuring charges, higher pension mark-to-market charges and a higher tax rate.

The Company expects 2022 full-year revenue to be up approximately 9% compared to 2021, primarily due to higher demand across most end markets, positive pricing and the continued execution of growth initiatives, partially offset by the net unfavorable impact of foreign currency exchange rates.

The Company's earnings are expected to be up in 2022 compared with 2021, primarily due to the favorable impact of price/mix and higher volume, partially offset by higher material, logistics and other operating costs, as well as higher interest costs and a higher tax rate.

The Company expects to generate cash from operating activities in 2022 above 2021 levels driven by higher earnings.

The Company expects capital expenditures of roughly 4.0% of sales in 2022, compared with 3.6% of sales ($148 million) in 2021.

The increase in net sales for the three months ended March 31, 2023 compared with the three months ended March 31, 2022 was driven by strong organic growth in both the Engineered Bearings and Industrial Motion segments and the favorable impact of acquisitions (net of divestitures), partially offset by the unfavorable impact of foreign currency exchange rate changes.

The increase in net income for the three months ended March 31, 2023 compared with the three months ended March 31, 2022 was primarily due to the favorable price/mix and the impact of higher volume, partially offset by higher operating costs and higher impairment and restructuring charges.

The Company expects 2023 full-year revenue to be up between 8% and 11% compared to 2022, driven by organic growth and the benefit of acquisitions (net of divestitures).

The Company's earnings are expected to be up in 2023 compared with 2022, due to the favorable impact of price/mix and higher sales volume, as well as lower material and logistics costs, partially offset by higher operating costs, higher impairment and restructuring charges, the unfavorable impact of foreign currency exchange rate changes and higher interest expense.

The Company expects to generate a higher amount of cash from operating activities in 2023 compared to 2022, primarily driven by higher earnings and improved working capital performance.

The Company expects higher capital expenditures in 2023 compared to 2022, but relatively in line with 2022 spending as a percentage of sales (4.0%).

THE STATEMENT OF INCOME

Operating Income:

Three Months Ended

September 30,

2023 2022 $ Change Change

Net sales $ 1,262.8 $ 1,124.6 $ 138.2 12.3%

Nine Months Ended

September 30,

2022 2021 $ Change % Change

Net sales $ 3,414.7 $ 3,125.6 $ 289.1 9.2 %

Net sales increased for the three months ended September 30, 2022 compared with the three months ended September 30, 2021.

The increase was primarily due to strong organic growth of $141 million and the benefit of acquisitions of $5 million, partially offset by the unfavorable impact of foreign currency exchange rate changes of $47 million.

The higher organic revenue was driven by higher demand in the Mobile and Process Industries segments, and higher net pricing.

Net sales increased for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021.

The increase was primarily due to strong organic growth of $376 million and the benefit of acquisitions of $10 million, partially offset by the unfavorable impact of foreign currency exchange rate changes of $97 million.

The higher organic revenue was driven by higher demand in the Mobile and Process Industries segments, and higher net pricing.

Gross Profit:

Three Months Ended

September 30,

2022 2021 $ Change Change

Gross profit $ 322.8 $ 267.9 $ 54.9 20.5%

Gross profit % to net sales 28.4 % 25.8 % 260 bps

Nine Months Ended

September 30,

2022 2021 $ Change Change

Gross profit $ 992.0 $ 869.4 $ 122.6 14.1%

Gross profit % to net sales 29.1 % 27.8 % 130 bps

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

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

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

Three Months Ended

September 30,

2022 2021 $ Change Change

Selling, general and administrative expenses $ 159.8 $ 140.7 $ 19.1 13.6 %

Selling, general and administrative expenses % to net sales 14.1 % 13.6 % 50 bps

Nine Months Ended

September 30,

2022 2021 $ Change Change

Cost of products sold 846.0 786.3 59.7 7.6%

Selling, general and administrative expenses 186.8 154.1 32.7 21.2%

Selling, general and administrative expenses % to net sales 13.8 % 13.9 % (10) bps

SG&A expenses increased for the three and nine months ended September 30, 2022 compared with the three and nine months ended September 30, 2021.

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

Impairment and Restructuring:

Three Months Ended

September 30,

2022 2021 $ Change % Change

Impairment charges $ 29.5 $ — $ 29.5 NM

Severance and related benefit costs 1.4 2.5 (1.1) NM

Exit costs 0.4 0.4 — — %

Total $ 31.3 $ 2.9 $ 28.4 NM

Nine Months Ended

September 30,

2022 2021 $ Change % Change

Impairment charges $ 38.3 $ 4.5 $ 33.8 751.1 %

Severance and related benefit costs 2.8 3.1 (0.3) (9.7) %

Exit costs 1.2 0.6 0.6 100.0 %

Total $ 42.3 $ 8.2 $ 34.1 415.9 %

Impairment and restructuring charges of $31.3 million during the three months ended September 30, 2022 were primarily due to impairment charges of $29.3 million related to the anticipated divestiture of the Company's ADS business.

In addition, the Company incurred severance and related benefits, and exit costs associated with the closure of the Company's Villa Carcina, Italy bearing plant during the three months ended September 30, 2022.

This initiative was undertaken to reduce headcount and continue to right-size the Company's manufacturing footprint.

Impairment and restructuring charges of $42.3 million during the nine months ended September 30, 2022 were comprised primarily of impairment charges related to the anticipated divestiture of the ADS business and property, plant and equipment at the Company's joint venture in Russia.

In addition, the Company incurred severance and related benefits, and exit costs associated with the closure of the Company's Villa Carcina, Italy bearing plant during the nine months ended September 30, 2022.

Impairment and restructuring charges of $2.9 million and $8.2 million during the three and nine months ended September 30, 2021 were comprised primarily of severance and related benefits related to the planned closures of the Company's Villa Carcina, Italy bearing plant and Indianapolis, Indiana chain plant.

These initiatives were expected to reduce headcount and right-size the Company's manufacturing footprint.

In addition, impairment charges during the nine September 30, 2021 were related to certain engineering-related assets used in the business.

Management concluded no further investment would be made in the engineering-related assets and as a result, reduced the value to zero.

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

Amortization of intangible assets 13.5 10.9 2.6 23.9%

Impairment and restructuring charges 28.9 1.0 27.9 NM

Operating income $ 187.6 $ 172.3 15.3 8.9%

Operating income % to net sales 14.9 % 15.3 % (40) bps

Net sales increased for the three months ended March 31, 2023 compared with the three months ended March 31, 2022.

The increase was driven by strong organic growth of $123 million and the benefit of acquisitions (net of divestitures) of $45 million, partially offset by the unfavorable impact of foreign currency exchange rate changes of $30 million.

The higher organic revenue was driven by higher demand and positive pricing in both the Engineered Bearings and Industrial Motion segments.

Operating income increased for the three months ended March 31, 2023 compared with the three months ended March 31, 2022, due to the favorable net impact of higher sales volume (including pricing), less cost of products sold, partially offset by higher selling, general and administrative ("SG&A") expenses, higher impairment and restructuring charges and increased amortization expense.

• Cost of products sold increased for the three months ended March 31, 2023 compared with the three months ended March 31, 2022, due to higher manufacturing costs, net of favorable mix impact, of $57 million, and the incremental cost of goods sold from acquisitions (net of divestitures) of $34 million, partially offset by the impact of foreign currency exchange rate changes of $16 million and lower material and logistics costs of $14 million.

The higher manufacturing costs reflect continued labor and input cost inflation, as well as the impact of reduced inventory build in the current quarter compared to a year ago.

• SG&A expenses increased for the three months ended March 31, 2023 compared with the three months ended March 31, 2022.

The increase for the three months ended March 31, 2023, as compared to the year-ago period was primarily due to higher compensation costs (including incentive-based compensation) and increased spending to support the higher sales and business activity levels.

• Amortization of intangible assets increased for the three months ended March 31, 2023 compared with the three months ended March 31, 2022, primarily due to the addition of intangible assets from the GGB acquisition, which was completed in the fourth quarter of 2022.

• Impairment and restructuring charges were higher for the three months ended March 31, 2023 compared with the three months ended March 31, 2022 primarily due to the impairment of goodwill.

During the first quarter of 2023, the Company reviewed goodwill for impairment for its reporting units due to the change in reporting segments that went into effect January 1, 2023.

As a result of this analysis the Company determined that one of the new reporting units within the Industrial Motion segment could not support the carrying value of its goodwill, and subsequently recorded a pretax impairment loss of $28.3 million in the first quarter of 2023.

Interest Income and Expense:

Three Months Ended

September 30,

2023 2022 $ Change % Change

1 unchanged sentence

Interest income 1.5 0.6 $ 0.9 150.0 %

Nine Months Ended

September 30,

2022 2021 $ Change % Change

Interest expense $ (51.9) $ (45.0) $ (6.9) 15.3 %

Interest income 2.7 1.7 $ 1.0 58.8 %

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

Proceeds from the 2032 Notes were used for general corporate purposes, which included repayment of borrowings under the Senior Credit Facility and the Accounts Receivable Facility outstanding at the time of issuance.

In addition, a portion of the proceeds from the 2032 Notes was used to fund the Spinea acquisition, which closed in the second quarter of 2022.

The increase in interest expense for the three months ended March 31, 2023 compared with the three months ended March 31, 2022 was due to increased debt levels and higher average interest rates.

Other Income (Expense):

Three Months Ended

September 30,

2023 2022 $ Change % Change

Non-service pension and other postretirement

income $ 1.3 $ 0.5 $ 0.8 NM

Other income, net 2.3 1.5 0.8 53.3 %

Total other income $ 3.6 $ 2.0 $ 1.6 NM

Nine Months Ended

September 30,

2022 2021 $ Change % Change

Non-service pension and other postretirement

(expense) income $ (5.3) $ 5.9 $ (11.2) (189.8) %

Other income, net 1.4 0.3 1.1 366.7 %

Total other (expense) income $ (3.9) $ 6.2 $ (10.1) (162.9) %

Non-service pension and other postretirement income increased for the three months ended September 30, 2022 compared with the three months ended September 30, 2021, primarily due to lower pension remeasurement losses in 2022.

Non-service pension and other postretirement (expense) income decreased for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021, primarily due to higher pension remeasurement losses in 2022.

The rem easurements were triggered by expected lump sum payments to new retirees exceeding annual service and interest costs for two of the Company's U.S.

defined benefit pension plans in 2022.

As a result of the remeasurements, the Company recognized net actuarial losses of $1.0 million and $3.9 million during the three months ended September 30, 2022 and September 30, 2021, respectively, and $15.2 million and $8.3 million during the nine months ended September 30, 2022 and September 30, 2021, respectively.

In addition, the decrease was due to a lower expected return on plan assets in 2022.

Refer to Note 15 - Retirement Benefit Plans and Note 16 - Other Postretirement Benefit Plans in the Notes to the Consolidated Financial Statements for additional information.

Non-service pension and other postretirement income $ 0.1 $ 1.3 $ (1.2) (92.3) %

Other income, net 3.1 0.2 2.9 NM

Total other income $ 3.2 $ 1.5 $ 1.7 113.3 %

Non-service pension and other postretirement income decreased for the three months ended March 31, 2023 compared with the three months ended March 31, 2022, primarily due to a lower expected return on pension plan assets and higher interest expense on pension plan obligations.

In addition, the Company recognized a pension remeasurement gain in 2023, compared to pension remeasurement loss in 2022.

R efer to Note 16 - Retirement Benefit Plans and Note 17 - Other Postretirement Benefit Plans in the Notes to the Consolidated Financial Statements for additional information.

Other income, net increased for the three months ended March 31, 2023 compared with the three months ended March 31, 2022, due to gains on divestitures of $4.0 million primarily related to the sale of SE Setco , a 50% owned joint venture, partially offset foreign currency losses of $0.2 million, net of derivative activity, during the three months ended March 31, 2023, compared to foreign currency gains of $0.5 million, net of derivative activity, during the three months ended March 31, 2022.

Income Tax Expense:

Three Months Ended

September 30,

2023 2022 $ Change Change

1 unchanged sentence

Effective tax rate 25.3 % 23.9 % 140 bps

Nine Months Ended

September 30,

2022 2021 $ Change Change

Provision for income taxes $ 108.9 $ 75.1 $ 33.8 45.0 %

Effective tax rate 25.5 % 19.3 % 620 bps

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

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

Income tax expense increased $4.3 million for the three months ended March 31, 2023 compared with the three months ended March 31, 2022 primarily due to an increase in the mix of earnings in international jurisdictions with relatively higher tax rates.

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

BUSINESS SEGMENTS

The Company ' s reportable segments are business units that serve different industry sectors.

While the segments operate using shared infrastructure, each reportable segment is managed to address specific customer needs in these diverse market sectors.

The Company ' s reportable segments are product-based business groups that serve customers in diverse industrial markets.

The primary measurement used by management to measure the financial performance of each segment is EBITDA.

Refer to Note 4 - Segment Information in the Notes to the Consolidated Financial Statements for the reconciliation of EBITDA by segment to consolidated income before income taxes.

In August 2022, the Company announced organizational changes, which included the appointment of executive leaders for its Engineered Bearings and Industrial Motion product groups.

The Company is currently evaluating whether these changes will affect its reportable segments.

The presentation of segment results below includes a reconciliation of the changes in net sales for each segment reported in accordance with U.S.

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The following item represents the Company's acquisitions and divestitures completed in 2023 and 2022:

• The Company completed the sale of Timken Russia during the third quarter of 2022.

Results for Timken Russia were reported in the Mobile Industries and Process Industries segments based on customers and underlying market sectors served.

• The Company acquired ARB during the first quarter of 2023.

Results for ARB are reported in the Engineered Bearings segment.

• The Company acquired GGB during the fourth quarter of 2022.

Results for GGB are reported in the Engineered Bearings segment.

• The Company completed the sale of Timken Aerospace Drive Systems ("ADS") during the fourth quarter of 2022.

Results for ADS were reported in the Industrial Motion segment.

• The Company completed the sale of Timken-Rus Service Company ooo ("Timken Russia") during the third quarter of 2022.

Results for Timken Russia were reported in the Engineered Bearings segment.

• The Company acquired Spinea during the second quarter of 2022.

The majority of the results for Spinea are reported in the Process Industries segment.

• The Company acquired iMS during the third quarter of 2021.

The majority of the results for iMS are reported in the Process Industries segment.

Mobile Industries Segment:

Results for Spinea are reported in the Industrial Motion segment.

Engineered Bearings Segment:

Three Months Ended

September 30,

2023 2022 $ Change Change

3 unchanged sentences

Three Months Ended

September 30,

2023 2022 $ Change % Change

Net sales $ 900.7 $ 772.4 $ 128.3 16.6 %

Divestitures (0.3) — (0.3) NM

Currency (20.1) — (20.1) NM

Net sales, excluding the impacts of divestitures and currency $ 547.3 $ 487.3 $ 60.0 12.3 %

Nine Months Ended

September 30,

2022 2021 $ Change Change

Net sales $ 1,610.9 $ 1,486.0 $ 124.9 8.4%

EBITDA $ 164.2 $ 200.1 $ (35.9) (17.9%)

EBITDA margin 10.2 % 13.5 % (710) bps

Nine Months Ended

September 30,

2022 2021 $ Change % Change

Net sales $ 1,610.9 $ 1,486.0 $ 124.9 8.4 %

Acquisitions 55.7 55.7 NM

Divestitures (3.5) (3.5) NM

Currency (22.1) (22.1) NM

Net sales, excluding the impacts of divestitures and currency $ 1,656.2 $ 1,486.0 $ 170.2 11.5 %

The Mobile Industries segment's net sales, excluding the effects of divestitures and foreign currency exchange rate changes, increased $60.0 million or 12.3% in the three months ended September 30, 2022 compared with the three months ended September 30, 2021, reflecting increased shipments in the off-highway and automotive sectors, as well as higher net pricing.

EBITDA decreased by $33.2 million or 62.4% for the three months ended September 30, 2022 compared with the three months ended September 30, 2021, primarily due to higher impairment and restructuring charges, higher material, logistics and other operating costs, partially offset by favorable price/mix and the impact of higher volume .

The Mobile Industries segment's net sales, excluding the effects of divestitures and foreign currency exchange rate changes, increased $170.2 million or 11.5% in the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021, reflecting increased shipments in the off-highway, heavy truck, rail and automotive and aerospace sectors, as well as higher net pricing.

EBITDA decreased by $35.9 million or 17.9% for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021, primarily due to higher material, logistics and other operating costs, higher impairment and restructuring charges, partially offset by favorable price/mix and the impact of higher volume.

Process Industries Segment:

Net sales, excluding the impacts of acquisitions, divestitures

and currency $ 811.4 $ 772.4 $ 39.0 5.0 %

The Engineered Bearings segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, increased $39.0 million or 5.0% in the three months ended March 31, 2023 compared with the three months ended March 31, 2022.

The increase reflects organic growth (including pricing) across most sectors, led by renewable energy, distribution, rail and heavy industries.

EBITDA increased by $36.7 million or 21.8% for the three months ended March 31, 2023 compared with the three months ended March 31, 2022, primarily due to favorable price/mix, the impact of higher sales volume, lower material and logistics costs and the benefit of acquisitions, partially offset by higher manufacturing costs and SG&A expenses, and the unfavorable impact of foreign currency exchange rate changes.

Industrial Motion Segment:

Three Months Ended

September 30,

2023 2022 $ Change Change

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Three Months Ended

September 30,

2023 2022 $ Change % Change

5 unchanged sentences

divestitures and currency $ 377.1 $ 352.2 $ 24.9 7.1 %

Nine Months Ended

September 30,

2022 2021 $ Change Change

Net sales $ 1,803.8 $ 1,639.6 $ 164.2 10.0%

EBITDA $ 484.4 $ 401.9 $ 82.5 20.5%

EBITDA margin 26.9 % 24.5 % 240 bps

Nine Months Ended

September 30,

2022 2021 $ Change % Change

Net sales $ 1,803.8 $ 1,639.6 $ 164.2 10.0 %

Acquisitions 12.1 — 12.1 NM

Divestitures (1.5) — (1.5) NM

Currency (52.1) — (52.1) NM

Net sales, excluding the impact of acquisitions,

divestitures and currency $ 1,845.3 $ 1,639.6 $ 205.7 12.5 %

The Process Industries segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, increased $81.1 million or 14.7% in the three months ended September 30, 2022 compared with the three months ended September 30, 2021 .

The increase was primarily driven by increased demand in the distribution, heavy industries, general industrial and marine sectors, as well as higher net pricing, partially offset by lower revenue in the renewable energy sector.

EBITDA increased $35.6 million or 27.4% for the three months ended September 30, 2022 compared with the three months ended September 30, 2021 primarily due to favorable price/mix and the impact of higher volume, partially offset by higher material, logistics and other operating costs.

The Process Industries segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, increased $205.7 million or 12.5% in the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021 .

The increase was primarily driven by increased demand in the distribution, general industrial, heavy industries, marine and services sectors, as well as higher net pricing, partially offset by lower revenue in the renewable energy sector.

EBITDA increased $82.5 million or 20.5% for the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021 primarily due to favorable price/mix and the impact of higher volume, partially offset by higher material, logistics and other operating costs.

The Industrial Motion segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, increased $24.9 million or 7.1% in the three months ended March 31, 2023 compared with the three months ended March 31, 2022 .

The increase reflects organic growth (including pricing) across the portfolio, with the automatic lubrication systems platform posting the strongest growth.

EBITDA decreased $14.2 million or 22.8% for the three months ended March 31, 2023 compared with the three months ended March 31, 2022 primarily due to higher impairment and restructuring charges, as well as higher manufacturing costs and SG&A expenses, partially offset by favorable price/mix and the impact of higher sales volume.

The higher impairment and restructuring charges were primarily related to the impairment of goodwill for one of the segment's reporting units.

Unallocated Corporate

Three Months Ended

September 30,

2023 2022 $ Change Change

1 unchanged sentence

Unallocated corporate expense % to net sales (1.4) % (1.1) % (30) bps

Nine Months Ended

September 30,

2022 2021 $ Change Change

Unallocated corporate expense $ (35.4) $ (34.9) $ (0.5) 1.4 %

Unallocated corporate expense % to net sales (1.0) % (1.1) % 10 bps

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

Nine Months Ended

September 30,

The increase in unallocated corporate expense for the three months ended March 31, 2023 compared with the three months ended March 31, 2022 was primarily due to higher compensation expense and other spending to support increased business activity levels.

Three Months Ended

2023 2022 $ Change

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

Net cash provided by (used in) operating activities $ 78.6 $ (1.2) $ 79.8

Net cash used in investing activities (64.5) (35.0) (29.5)

Net cash provided by (used in) financing activities 88.5 (222.4) 310.9

Net cash (used in) provided by financing activities (17.5) 204.7 (222.2)

Effect of exchange rate changes on cash 1.8 (1.2) 3.0

Increase (decrease) in cash and cash equivalents

and restricted cash $ 43.7 $ (58.5) $ 102.2

(Decrease) Increase in cash and cash equivalents and restricted cash $ (1.6) $ 167.3 $ (168.9)

Op erating Activities:

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

The increase in net cash provided by operating activities for the first three months of 2023 compared with the first three months of 2022 was primarily due to a decrease in cash used for working capital items of $74.6 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 nine months of 2022 and 2021, respectively:

Nine Months Ended

September 30,

The following table displays the impact of working capital items on cash during the three months of 2023 and 2022, respectively:

Three Months Ended

2023 2022 $ Change

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Cash used in working capital items $ (109.5) $ (184.1) $ 74.6

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

Nine Months Ended

September 30,

The following table displays the impact of income taxes on cash during the first three months of 2023 and 2022, respectively:

Three Months Ended

2023 2022 $ Change

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Investing Activities:

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

The increase in net cash used in investing activities for the first three months of 2023 compared with the first three months of 2022 was primarily due to an increase in cash used for acquisitions of $29.2 million.

Financing Activities:

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

The change in net cash used in financing activities for the first three months of 2023 compared with the first three months of 2022 was primarily due to an increase in net borrowings of $269.3 million, partially offset by an decrease in the purchases of treasury shares of $46.0 million.

LIQUIDITY AND CAPITAL RESOURCES

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

September 30,

2023 December 31,

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Ratio of Net Debt to Capital:

September 30,

2023 December 31,

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

At September 30, 2022, the Company had strong liquidity with $300.9 million of cash and cash equivalents on the Consolidated Balance Sheet, as well as $742.2 million of available resources from committed credit lines.

At March 31, 2023, the Company had strong liquidity with $330.5 million of cash and cash equivalents on the Consolidated Balance Sheet, as well as $686.4 million available under committed credit lines.

Of the $330.5 million of cash and cash equivalents, $327.9 million resided in jurisdictions outside the United States.

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cash could be subject to taxes and some portion may be subject to governmental restrictions.

As of September 30, 2022, Timken had $10.6 million of cash in Russia, which the Company is presently unable to repatriate.

Part of the Company's strategy is to grow in attractive market sectors, many of which are outside the United States.

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The Company plans to fund these investments, as well as meet working capital requirements, with cash and cash equivalents and unused lines of credit within the geographic location of these investments where feasible.

On June 25, 2019, the Company entered into the Senior Credit Facility, which is a $650.0 million unsecured revolving credit facility that matures on June 25, 2024.

At September 30, 2022, the Senior Credit Facility had outstanding borrowings of $7.8 million, which reduced the availability to $642.2 million.

The Senior Credit Facility has two financial covenants:

On December 5, 2022, the Company entered into the Credit Agreement, which is comprised of the $750.0 million Senior Credit Facility and the $400.0 million 2027 Term Loan that each mature on December 5, 2027.

The Credit Agreement amended and restated the Company's previous revolving credit agreement that was set to mature on June 25, 2024, and replaced the $350.0 million 2023 Term Loan.

The Credit Agreement also replaced interest rates based on LIBOR with interest rates based on SOFR.

At March 31, 2023, the Company had $63.6 million of outstanding borrowings under the Senior Credit Facility, which reduced the availability under this facility to $686.4 million.

The Credit Agreement has two financial covenants:

a consolidated leverage ratio and a consolidated interest coverage ratio.

The maximum consolidated leverage ratio permitted under the Senior Credit Facility is 3.5 to 1.0.

As of September 30, 2022, the Company's consolidated leverage ratio was 2.22 to 1.0.

As of March 31, 2023, the Company's consolidated leverage ratio was 1.84 to 1.0.

The minimum consolidated interest coverage ratio permitted under the Senior Credit Facility is 3.0 to 1.0.

As of September 30, 2022, the Company's consolidated interest coverage ratio was 12.45 to 1.0.

As of March 31, 2023, the Company's consolidated interest coverage ratio was 11.33 to 1.0.

The interest rate under the Senior Credit Facility is variable with a spread based on the Company's debt rating.

The average rate on outstanding Euro borrowings was 1.00% as of September 30, 2022.

The average rate on outstanding U.S.

dollar borrowings was 5.72% and the average rate on outstanding Euro borrowings was 3.46% as of March 31, 2023.

In addition, the Company pays a facility fee based on the applicable rate, which is variable with a spread based on the Company's debt rating, multiplied by the aggregate commitments of all of the lenders under the Senior Credit Facility.

As of September 30, 2022, the Company carried investment-grade credit ratings with both Moody's (Baa2) and S&P Global (BBB-).

As of March 31, 2023, the Company carried investment-grade credit ratings with both Moody's (Baa2) and S&P Global (BBB-).

The Company has a $100 million Accounts Receivable Facility, which matures on November 30, 2024.

The Accounts Receivable Facility is subject to certain borrowing base limitations and is secured by certain domestic trade accounts receivable of the Company.

As of September 30, 2022, the Company had no outstanding borrowings under the Accounts Receivable Facility and no borrowing base limitations.

Availability under the Accounts Receivable Facility was $100 million as of September 30, 2022.

Other sources of liquidity include uncommitted short-term lines of credit for certain of the Company's foreign subsidiaries, which provide for borrowings of up to approximately $235.8 million.

At September 30, 2022, the Company had borrowings outstanding of $50.9 million and bank guarantees of $2.6 million, which reduced the aggregate availability under these facilities to approximately $182.3 million.

As of March 31, 2023, the Company had $100 million outstanding borrowings under the Accounts Receivable Facility and no borrowing base limitations.

There was no availability under the Accounts Receivable Facility as of March 31, 2023.

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 $237.4 million.

At March 31, 2023, the Company had borrowings outstanding of $38.7 million and bank guarantees of $3.7 million, which reduced the aggregate availability under these facilities to $195.0 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.

In addition, a portion of the proceeds from the 2032 Notes was used to fund the Spinea acquisition, which closed in the second quarter of 2022.

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

The Company expects to generate cash from operating activities in 2022 above 2021 levels driven by higher earnings.

The Company expects capital expenditures of roughly 4.0% of sales in 2022, compared with 3.6% of sales ($148 million) in 2021.

At March 31, 2023, the Company was in full compliance with all applicable covenants on its outstanding debt.

The Company expects to generate higher amount of cash from operating activities in 2023 compared to 2022, driven by higher earnings and improved working capital performance.

The Company expects higher capital expenditures in 2023 compared to 2022, but relatively in line with 2022 spending as a percentage of sales (4.0%).

Financing Obligations and Other Commitments:

During the first nine months of 2022, the Company made cash contributions and payments of $8.9 million to its global defined benefit pension plans and $2.7 million to its other postretirement benefit plans.

During the first three months of 2023, the Company made cash contributions and payments of $4.4 million to its global defined benefit pension plans and $0.4 million to its other postretirement benefit plans.

The Company expects to make contributions to its global defined benefit plans of approximately $25 million in 2023.

The Company expects to make payments of approximately $4 million to its other postretirement benefit plans in 2023.

Excluding mark-to-market charges, the Company expects higher pension and other postretirement benefits expense in 2022 compared to 2021 primarily due to lower expected returns on pension plan assets and higher interest expense, partially offset by lower service costs.

Excluding mark-to-market charges, the Company expects higher pension and other postretirement benefits expense in 2023 compared to 2022 primarily due to lower expected returns on pension plan assets.

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

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The Company reviews its critical accounting policies throughout the year.

The Company has concluded that there have been no significant changes to its critical accounting policies or estimates, as described in its Annual Report on Form 10-K for the year ended December 31, 2021, during the nine months ended September 30, 2022.

OTHER MATTERS

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Foreign currency gains and losses resulting from transactions, and the related hedging activity, are included in the Consolidated Statements of Income.

For the nine months ended September 30, 2022, the Company recorded negative foreign currency translation adjustments of $267.7 million that decreased shareholders' equity, compared with negative foreign currency translation adjustments of $53.3 million that decreased shareholders' equity for the nine months ended September 30, 2021.

The foreign currency translation adjustments for the nine months ended September 30, 2022 were negatively impacted by the strengthening of the U.S.

dollar relative to other foreign currencies, including the Euro, Chinese Yuan and Indian Rupee.

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

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

For the three months ended March 31, 2023, the Company recorded positive foreign currency translation adjustments of $27.4 million that increased shareholders' equity, compared with negative foreign currency translation adjustments of $20.0 million that decreased shareholders' equity for the three months ended March 31, 2022.

The foreign currency translation adjustments for the three months ended March 31, 2023 were favorably impacted by the weakening of the U.S.

dollar relative to other foreign currencies, including the Euro, Mexican Peso and Chinese Yuan.

Foreign currency exchange gains and losses, net of hedging activity, resulting from transactions included in the Company's operating results for the three months ended March 31, 2023 totaled $3.0 million of net losses, compared with $2.2 million of net gains during the three months ended March 31, 2022.

Russia Operations:

The Company had two subsidiaries in Russia, including Timken Russia, which was 100% owned by Timken and a 51%-owned joint venture to serve the Russian rail market ("Rail JV").

As a result of Russia's invasion of Ukraine (and associated sanctions), the Company suspended operations and recorded property, plant and equipment impairment charges of $9.0 million and inventory write-downs of $4.1 million during the nine months ended September 30, 2022.

The Company had two subsidiaries in Russia prior to Russia's invasion of Ukraine in February 2022, including Timken Russia, which was 100% owned by Timken and a 51%-owned joint venture to serve the Russian rail market ("Rail JV").

During the third quarter of 2022, the Company sold its Timken Russia business resulting in a loss of $2.7 million on the sale.

After giving effect to these impairments and write-downs, as well as the sale of Timken Russia, as of September 30, 2022, the Company has net assets (net of noncontrolling interest of $7.4 million), totaling $8.1 million on its Consolidated Balance Sheet related to its Rail JV.

Net assets include $10.6 million of cash and cash equivalents.

During the first quarter of 2023, the Company recorded additional inventory write-downs of $0.4 million.

After giving effect to these impairments and write-downs, as well as the sale of Timken Russia, as of March 31, 2023, the Company has net assets (net of noncontrolling interest of $5.2 million), totaling $7.2 million on its Consolidated Balance Sheet related to its Rail JV.

Net assets include $7.9 million of cash and cash equivalents that the Company has classified as restricted as the Company is presently unable to repatriate these funds to one of its subsidiaries outside of Russia.

The Company will continue to monitor the events in Russia and Ukraine and may record additional asset impairments or write-offs in the future.

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Adjusted Net Income and Adjusted EBITDA:

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

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

Management believes adjusted net income and adjusted earnings per share are useful to investors as they are representative of the Company's core operations and are used in the management of the business.

Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization, adjusted for items that are not part of the Company's core operations.

These items include impairment, restructuring and reorganization charges, acquisition costs, including transaction costs and the amortization of the inventory step-up, property losses and recoveries, actuarial gains and losses associated with the remeasurement of the Company's defined benefit pension and other postretirement benefit plans, gains and losses on the sale of real estate, gains and losses on divestitures, and other items from time to time that are not part of the Company's core operations.

These items include intangible amortization, impairment, restructuring and reorganization charges, acquisition costs, including transaction costs and the amortization of the inventory step-up, property losses and recoveries, actuarial gains and losses associated with the remeasurement of the Company's defined benefit pension and other postretirement benefit plans, gains and losses on the sale of real estate, gains and losses on divestitures, and other items from time to time that are not part of the Company's core operations.

Management believes adjusted EBITDA is useful to investors as it is representative of the Company's core operations and is used in the management of the business, including decisions concerning the allocation of resources and assessment of performance.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net Sales $ 1,262.8 $ 1,124.6

Net Income Attributable to The Timken Company 122.3 118.2

Impairment, restructuring and reorganization

32.1 5.9 35.7 13.3

Corporate pension and other postretirement benefit

related expense (2)

1.0 3.9 15.2 8.3

Net Income Attributable to The Timken Company as a Percentage of Sales 9.7 % 10.5 %

Acquisition intangible amortization 13.5 10.9

Impairment, restructuring and reorganization charges (1)

Corporate pension and other postretirement benefit related (income) expense (2)

Russia-related charges (3)

Acquisition-related charges (4)

3.0 1.5 5.7 2.1

Gain on divestitures and sale of real estate (5)

Noncontrolling interest of above adjustments (0.2) (1.3)

Provision for income taxes (6)

(12.9) (8.4) (18.2) (26.3)

Adjusted Net Income $ 153.5 $ 129.7

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Depreciation and amortization expense (7)

39.9 41.0 122.0 125.7

Acquisition intangible amortization 13.5 10.9

Noncontrolling interest (0.2) (1.3)

Provision for income taxes (6)

(12.9) (8.4) (18.2) (26.3)

Adjusted EBITDA $ 265.5 $ 225.1

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Diluted earnings per share (EPS) $ 1.67 $ 1.56

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

Three Months Ended September 30, 2022

Mobile Process Unallocated Corporate Total

Net Sales $ 526.9 $ 609.5 $ — $ 1,136.4

EBITDA 20.0 165.3 (10.1) 175.2

Impairment, restructuring and reorganization

31.0 1.1 — 32.1

Corporate pension and other postretirement benefit

related expense (2)

Russia-related charges (3)

4.1 (1.8) — 2.3

Acquisition-related charges (4)

— 2.1 0.9 3.0

Adjusted EBITDA $ 55.1 $ 166.7 $ (8.2) $ 213.6

Adjusted EBITDA Margin (% of net sales) 10.5 % 27.4 % NM 18.8 %

Three Months Ended September 30, 2021

Mobile Process Unallocated Corporate Total

Net Sales $ 487.3 $ 550.0 $ — $ 1,037.3

EBITDA 53.2 129.7 (15.3) 167.6

Impairment, restructuring and reorganization

4.8 0.8 — 5.6

Corporate pension and other postretirement

benefit related expense (2)

Acquisition-related charges (3)

0.2 0.2 1.1 1.5

Adjusted EBITDA $ 58.2 $ 130.7 $ (10.3) $ 178.6

Adjusted EBITDA Margin (% of net sales) 11.9 % 23.7 % NM 17.2 %

Nine Months Ended September 30, 2022

Mobile Process Unallocated Corporate Total

Three Months Ended March 31, 2023

Engineered Bearings Industrial Motion Unallocated Corporate Total

Net Sales $ 900.7 $ 362.1 $ — $ 1,262.8

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Corporate pension and other postretirement benefit

related expense (2)

related income (2)

— — (0.9) (0.9)

Russia-related charges (3)

16.6 (1.3) — 15.3

Acquisition-related charges (4)

2.2 — 2.5 4.7

Gain on divestitures and sale of real estate (5)

(4.8) — — (4.8)

Adjusted EBITDA $ 203.8 $ 76.9 $ (15.2) $ 265.5

Adjusted EBITDA Margin (% of net sales) 22.6 % 21.2 % NM 21.0 %

Nine Months Ended September 30, 2021

Mobile Process Unallocated Corporate Total

Three Months Ended March 31, 2022

Engineered Bearings Industrial Motion Unallocated Corporate Total

Net Sales $ 772.4 $ 352.2 $ — $ 1,124.6

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benefit related expense (2)

Russia-related charges (3)

Acquisition-related charges (4)

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(iii) severance related to cost reduction initiatives;

and (iv) impairment of assets held for sale.

Impairment, restructuring and reorganization charges for the third quarter of 2022 included $29.3 million related to ADS.

and (iv) impairment of assets.

Impairment, restructuring and reorganization charges for 2023 included $28.3 million related to the impairment of goodwill.

The Company re-assesses its operating footprint and cost structure periodically, and makes adjustments as needed that result in restructuring charges.

However, management believes these actions are not representative of the Company’s core operations .

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

The Company recognizes actuarial losses and (gains) in connection with the annual remeasurement in the fourth quarter, or if specific events trigger a remeasurement.

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

The Company recognizes actuarial (gains) and losses in connection with the annual remeasurement in the fourth quarter, or if specific events trigger a remeasurement.

Refer to Note 16 - Retirement Benefit Plans and Note 17 - Other Postretirement Benefit Plans for additional discussion.

(3) Russia-related charges include impairments and allowances recorded against certain property, plant and equipment, inventory and trade receivables to reflect the current impact of Russia's invasion of Ukraine (and associated sanctions) on the Company's operations.

In addition to impairments and allowances recorded, the Company recorded a loss on the divestiture of its Timken Russia business during the third quarter of 2022.

In addition to impairments and allowances recorded, the Company recorded a loss on the divestiture of its Timken Russia business during the fourth quarter of 2022.

Refer to Russia Operations on page 34 above for additional information.

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

In addition, the 2021 acquisition-related charges includes measurement period adjustments to the bargain purchase gain on the acquisition of the assets of Aurora that closed on November 30, 2020.

(4) Acquisition-related charges represent deal-related expenses associated with completed transactions and any resulting inventory step-up impact.

(5) Represents the net gain resulting from divestitures and the sale of real estate.

(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.

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Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net cash provided by operating activities $ 145.2 $ 105.8 $ 222.3 $ 284.6

Net cash provided by (used in) operating activities $ 78.6 $ (1.2)

Capital expenditures (41.7) (34.3)

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T he Company presents net debt to adjusted EBITDA because it believes it is more representative of the Company's financial position as it is reflective of the Company's ability to cover its net debt obligations with results from its core operations.

Net income for the trailing twelve months ended September 30, 2022 and December 31, 2021 was $384.6 million and $381.5 million, respectively.

Net debt to adjusted EBITDA for the trailing twelve months was 1.8 at September 30, 2022, compared with 1.7 at December 31, 2021.

Net income for the trailing twelve months ended March 31, 2023 and December 31, 2022 was $420.8 million and $417.0 million, respectively.

Net debt to adjusted EBITDA for the trailing twelve months was 1.9 at March 31, 2023 and December 31, 2022.

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

Twelve Months Ended

September 30,

2023 December 31,

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$ 67.7 $ 39.5

Corporate pension and other postretirement benefit related expense (2)

Corporate pension and other postretirement benefit related (income) expense (2)

Acquisition-related charges (3)

Gain on divestitures and sale of real estate (4)

Russia-related charges (5)

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(iii) severance related to cost reduction initiatives;

and (iv) impairment of assets held for sale.

Impairment, restructuring and reorganization charges for the twelve months ended September 30, 2022 included $29.3 million related to ADS.

and (iv) impairment of assets.

Impairment, restructuring and reorganization charges for the twelve months ended December 31, 2022 and March 31, 2023 included $29.3 million related to the sale of ADS.

In addition, impairment, restructuring and reorganization charges for the twelve months ended March 31, 2023 included $28.3 million related to the impairment of goodwill.

The Company re-assesses its operating footprint and cost structure periodically, and makes adjustments as needed that result in restructuring charges.

However, management believes these actions are not representative of the Company’s core operations.

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

The Company recognizes actuarial losses and (gains) in connection with the annual remeasurement in the fourth quarter, or if specific events trigger a remeasurement.

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

Also included is the acquisition-related gain related to measurement period adjustments to the bargain purchase gain on the acquisition of the assets of Aurora that closed on November 30, 2020.

The Company recognizes actuarial (gains) and losses in connection with the annual remeasurement in the fourth quarter, or if specific events trigger a remeasurement.

(3) Acquisition-related charges represent deal-related expenses associated with completed transactions and any resulting inventory step-up impact.

(4) Represents the net gain resulting from divestitures and the sale of real estate.

(5) Russia-related charges include allowances and impairments recorded against certain trade receivables, inventory and other assets to reflect the current impact of Russia's invasion of Ukraine (and associated sanctions) on the Company's operations.

In addition to impairments and allowances recorded, the Company recorded a loss on the divestiture of its Timken Russia business during the third quarter of 2022.

In addition to impairments and allowances recorded, the Company recorded a loss on the divestiture of its Timken Russia business during the fourth quarter of 2022.

Refer to Russia Operations on page 34 in Management Discussion and Analysis for additional information.

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The Company cautions readers that actual results may differ materially from those expressed or implied in forward-looking statements made by or on behalf of the Company due to a variety of factors, such as:

• deterioration in world economic conditions, or in economic conditions in any of the geographic regions in which the Company or its customers or suppliers conduct business, including adverse effects from a global economic slowdown, recession, terrorism, or hostilities.

This includes:

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the effects of unplanned plant shutdowns;

the effects of government-imposed restrictions and commercial requirements meant to address climate change;

the effects of government-imposed restrictions, commercial requirements and Company goals associated with climate change and emissions or other waste reduction initiatives;

and changes in the cost of labor and benefits;

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• 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;

the ability to integrate acquired companies and to address material issues both identified and not uncovered during the Company's due diligence review;

and the ability of acquired companies to achieve satisfactory operating results, including results being accretive to earnings, realization of synergies and expected cash flow generation;

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

• 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;

the continued attraction, retention and development of management and other key employees, the successful development and execution of succession plans and management of other human capital matters;

• 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 in a rising interest rate environment, which affect the Company’s cost of funds and/or ability to raise capital, as well as customer demand and the ability of customers to obtain financing to purchase the Company’s products or equipment that contain the Company’s products;

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, climate change, environmental or health and safety issues, data privacy and taxes;

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

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

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis