What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-26 compared with 2023-02-16 · 283 added, 216 removed, 468 unchanged (52% of the section changed)

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Introduction:

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

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®, GGB®, Philadelphia Gear®, Cone Drive®, Rollon®, Nadella®, Diamond®, Drives®, Groeneveld®, BEKA®, Des-Case®, Lovejoy® and Lagersmit®.

Timken posted $4.8 billion in sales in 2023 and employs more than 19,000 people globally, operating in 45 countries.

The Company has historically operated under two reportable segments:

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

The Company operates under two reportable segments:

(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 or mounted bearings.

The Engineered Bearings portfolio features the Timken®, GGB® and Fafnir® 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, filtration systems 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, including Philadelphia Gear®, Cone Drive®, Spinea®, Rollon®, Nadella®, Groeneveld®, BEKA®, Des-Case®, Diamond®, Drives®, Timken® Belts, Lovejoy®, PT Tech® and Lagersmit®.

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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Profitable Growth.

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.

The Company intends to expand into new and existing markets by leveraging its collective knowledge of materials science, friction management and power transmission to create value for Timken customers.

Using a highly collaborative technical selling approach, the Company places particular emphasis on creating unique solutions for challenging and/or demanding applications.

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Timken operates with a relentless drive for exceptional results and a passion for superior execution.

The Company embraces a continuous improvement culture that is charged with increasing efficiency, lowering costs, eliminating waste, encouraging organizational agility and building greater brand equity to fuel growth.

The Company embraces a continuous improvement culture that is charged with increasing efficiency, lowering costs, eliminating waste, driving organizational advancement and agility, and building greater brand equity to fuel growth.

This requires the Company’s ongoing commitment to attract, retain and develop the best talent across the world.

Capital Deployment to Drive Shareholder Value.

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

The Company is 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 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;

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

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

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As part of this framework, the Company may also restructure, reposition or divest underperforming product lines or assets.

The following items highlight certain of the Company's more significant strategic accomplishments in 2022:

• On November 4, 2022, the Company completed the acquisition of GGB Bearing Technology ("GGB"), a global supplier of highly engineered and customized plain bearings and a leader in metal polymer bearings.

With expected annual sales of approximately $200 million at the time of acquisition, GGB will bolster the Company's engineered bearings portfolio.

• On May 31, 2022, the Company completed the acquisition of Spinea, s.r.o.

("Spinea"), which e xpanded its robotics and automation offering in attractive end market sectors.

Spinea is a technology leader in highly engineered cycloidal reduction gears and actuators.

• On November 1, 2022, the Company completed the divestiture of Timken Aerospace Drives Systems, LLC ("ADS").

ADS is a supplier of drive system components and sub-assemblies for military and civil rotorcraft applications.

At the time of the divestiture, ADS had revenue of approximately $40 million in 2022.

• On September 1, 2022, the Company completed the divestiture of Timken-Rus Service Company ooo ("Timken Russia").

Refer to Russia operations in Management's Discussion and Analysis for additional information.

• The Company repurchased 3.25 million common shares, or over 4 percent of its outstanding common shares, and increased its quarterly dividend in the second quarter.

In addition, the Company achieved 100 years of paying quarterly dividends and marked its ninth consecutive year of higher annual dividends.

In total, the Company returned $303 million to shareholders during the year through dividends and share repurchases.

The following items highlight some of the Company's accomplishments in 2023:

• In September, Timken issued its annual CSR report, including an update on progress towards its 2030 environmental emissions target, as well as its ongoing efforts to improve the lives of individuals and communities and build a more efficient and resilient world.

• Throughout the year, the Company continued to advance its manufacturing footprint initiatives to support growth, and improve competitiveness and customer service.

Timken began construction of a new facility on its manufacturing campus in Guanajuato, Mexico.

The increased capacity will allow for the introduction of industrial motion operations, specifically belt manufacturing, to complement existing engineered bearing capabilities at the site.

The Company also began construction of a new manufacturing facility to produce spherical and cylindrical roller bearings on its Bharuch, India, campus.

Both facilities are expected to begin operations in 2025.

• Timken enhanced its industry-leading engineered bearings portfolio through the acquisitions of American Roller Bearing Company ("ARB") in January and Engineered Solutions Group ("iMECH") in November.

◦ ARB is a U.S.-based manufacturer of industrial bearings that boasts a large U.S.

installed base and strong aftermarket business.

ARB reported revenues of approximately $40 million for the full year of 2023.

◦ iMECH is a North America-based manufacturer of thrust bearings, radial bearings, specialty coatings and other components primarily used in the energy industry.

iMECH's full year 2023 revenues were approximately $25 million.

• The Company continued to scale and expand its industrial motion portfolio through the acquisitions of Leonardo Top S.a.r.l.

("Nadella") in April, Rosa Sistemi S.p.A.

("Rosa") and D-C Filtration Holdings Corp.

("Des-Case") in September, and Lagersmit Holding B.V.

("Lagersmit") in December.

◦ Nadella is a Europe-based manufacturer of linear guides, telescopic rails, actuators and systems and other specialized industrial motion solutions.

Nadella reported full year 2023 revenues of approximately $105 million.

◦ Rosa is a Europe-based designer and manufacturer of roller guideways, linear bearings, customized linear systems and actuators, commercialized ball guideways and precision ball screws.

Rosa had full year 2023 revenues of approximately $15 million.

◦ Des-Case is a U.S.-based manufacturer of specialty filtration products for industrial lubricants.

Des-Case had full year 2023 revenues of approximately $40 million.

◦ Lagersmit is a Europe-based manufacturer of highly engineered sealing solutions for marine, dredging, water, tidal energy and other industrial applications.

Lagersmit had full year 2023 revenues of approximately $40 million.

• Timken increased its quarterly dividend by 6% in the second quarter and paid its 406th consecutive quarterly dividend in the fourth quarter.

The Company achieved ten straight years of higher annual dividends in 2023.

Timken also repurchased 3.2 million common shares, or over 4% of its outstanding common shares, during the year.

• The Company deployed over $1.1 billion of capital in 2023 across capital expenditures, acquisitions, dividends and share repurchases to advance its strategy and create shareholder value.

• Throughout 2023, Timken received third-party recognition for the role it plays as a global industrial leader, responsible corporate citizen, innovator and employer of choice.

The Company was named one of America’s Best Large Employers by Forbes , one of the World's Most Ethical Companies® for the 12th time by Ethisphere, and one of America's Most Innovative Companies by Fortune magazine and market and consumer data provider Statista.

RESULTS OF OPERATIONS

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Average number of diluted shares 72,081,884 74,323,839 — (3.0 %)

The increase in net sales was primarily driven by strong organic growth (including pricing) and the net benefit of acquisitions and divestitures, partially offset by the unfavorable impact of foreign currency exchange rate changes.

The increase in net income was primarily due to favorable price/mix and the impact of higher volume, partially offset by higher material, logistics and other operating costs, an increase in impairment, restructuring and acquisition-related charges, an increase in net interest expense, and a higher tax rate.

The Company expects 2023 full-year revenue to be up approximately 6% at the midpoint compared to 2022, driven by modest organic growth and the net benefit of acquisitions and divestitures, partially offset by the net unfavorable impact of foreign currency exchange rates.

The Company's earnings are expected to be up in 2023 compared with 2022, primarily due to the favorable impact of price/mix and lower material and logistics costs, partially offset by higher manufacturing costs and selling, general and administrative expenses, and higher interest expense.

The Company expects to generate a 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%).

The increase in net sales was primarily driven by the benefit of acquisitions net of divestitures and higher organic sales (favorable pricing, lower volume), partially offset by the unfavorable impact of foreign currency exchange rate changes.

The decrease in net income was primarily due to the impact of lower volume, higher operating costs, the unfavorable impact of foreign currency exchange rate changes, higher pension remeasurement charges, and an increase in net interest expense, partially offset by favorable price/mix.

The Company expects 2024 full-year revenue to be down in the range of 2.5% to 4.5% in total compared to 2023, as the benefit of acquisitions net of divestitures completed during 2023 is expected to be more than offset by lower anticipated organic revenue based on the current demand environment.

The Company's earnings are expected to be down in 2024 compared with 2023, primarily due to the impact of lower sales volume, offset partially by lower anticipated pension remeasurement and impairment charges and the favorable impact of acquisitions, including reduced acquisition related charges.

The Company expects to generate a higher amount of cash from operating activities in 2024 compared to 2023, driven by improved working capital performance and lower cash taxes.

The Company expects capital expenditures for 2024 to be similar in amount to 2023 and in the range of 4% of sales.

THE STATEMENTS OF INCOME

Operating Income:

Twelve Months Ended

2023 2022 $ Change Change

Net sales $ 4,769.0 $ 4,496.7 $ 272.3 6.1%

Net sales increased in 2022 compared with 2021, primarily due to strong organic growth of $478 million and the net benefit of acquisitions and divestitures of $28 million, partially offset by the unfavorable impact of foreign currency exchange rate changes of $142 million.

The higher organic revenue was driven by higher demand across both segments, and higher net pricing.

Gross Profit:

2022 2021 $ Change Change

Gross profit $ 1,288.1 $ 1,102.5 $ 185.6 16.8 %

Gross profit % to net sales 28.6 % 26.7 % — 190 bps

Gross profit increased in 2022 compared with 2021, primarily due to favorable price/mix of $305 million and the impact of higher volume of $102 million, partially offset by higher material and logistics costs of $126 million, unfavorable manufacturing performance of $67 million, the unfavorable impact of foreign currency exchange rate changes of $17 million and the inventory step-up impact from acquisitions of $8 million.

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

2022 2021 $ Change Change

Cost of products sold 3,259.9 3,164.7 95.2 3.0%

Selling, general and administrative expenses 740.8 637.1 103.7 16.3%

Selling, general and administrative expenses % to net

14.2 % 14.0 % — 20 bps

The increase in SG&A expenses in 2022 compared with 2021 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 65.7 43.9 21.8 49.7%

Impairment and restructuring charges 45.5 44.1 1.4 3.2%

2022 2021 $ Change

Impairment charges $ 38.3 $ 4.5 $ 33.8

Severance and related benefit costs 4.2 2.6 1.6

Exit costs 1.6 1.8 (0.2)

Total $ 44.1 $ 8.9 $ 35.2

Impairment and restructuring charges of $44.1 million in 2022 were primarily due to impairment charges recorded in advance of the ADS divestiture, which was completed in the fourth quarter, and impairment charges recorded against 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.

Impairment and restructuring charges of $8.9 million in 2021 were comprised primarily of severance and related benefits associated with the planned closures of the Company's Villa Carcina, Italy bearing plant and Indianapolis, Indiana chain plant.

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

In addition, impairment and restructuring during 2021 included impairment charges 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 to value to zero.

Operating income $ 657.1 $ 606.9 50.2 8.3%

Operating income % to net sales 13.8 % 13.5 % 30 bps

Net sales increased in 2023 compared to 2022 primarily due to the favorable impact of acquisitions (net of divestitures) of $246 million and higher organic sales of $50 million (favorable pricing, lower volume), partially offset by the unfavorable impact of foreign currency exchange rate changes of $23 million.

Operating income increased in 2023 compared to 2022 due to favorable impact of higher sales net of cost of products sold, partially offset by higher selling, general and administrative ("SG&A") expenses, increased amortization expense and higher impairment and restructuring charges.

• Cost of products sold increased in 2023 compared to 2022 due to the incremental cost of goods sold from recent acquisitions (net of divestitures) of $180 million and the impact of foreign currency exchange rate changes of $3 million, partially offset by lower material and logistics costs of $85 million and lower manufacturing costs, including lower volume and the impact of favorable mix, of $3 million.

• SG&A expenses increased in 2023 compared to 2022 due to the incremental SG&A expense associated with recent acquisitions (net of divestitures), higher compensation costs and increased spending to support ongoing business projects and initiatives, including acquisitions.

• Amortization of intangible assets increased in 2023 compared to 2022 due to the addition of intangible assets from the six acquisitions that were completed during 2023, as well as the GGB Bearing Technology ("GGB") acquisition, which was completed in the fourth quarter of 2022.

Refer to Note 2 - Acquisitions and Divestitures in the Notes to the Consolidated Financial Statements for additional information.

• Impairment and restructuring charges were relatively unchanged in 2023 compared to 2022.

The current period included the impairment of goodwill and restructuring costs related to ongoing plant rationalization initiatives.

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

As a result of this analysis, a pretax impairment loss of $28.3 million was recorded in the first quarter of 2023.

The prior period included impairment charges of $29.3 million related to the sale of the Timken Aerospace Drives Systems, LLC ("ADS") business, which was completed in the fourth quarter of 2022, as well as restructuring costs related to ongoing plant rationalization initiatives.

Interest Expense and Income:

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Interest income 9.3 3.8 5.5 144.7 %

Interest expense increased in 2022 compared to 2021, primarily due to higher average debt outstanding and rising interest rates.

During the year, the Company issued $350 million of 10-year fixed-rate unsecured senior notes ("2032 Notes").

Proceeds from the 2032 Notes were used for general corporate purposes, which included repayment of other borrowings 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.

Interest expense increased in 2023 compared to 2022, primarily due to increased debt levels and higher average interest rates.

Other Income (Expense):

2023 2022 $ Change % Change

Non-service pension and other postretirement income $ 9.3 $ 18.3 $ (9.0) (49.2 %)

Other income, net 5.5 0.8 4.7 587.5 %

The decrease in non-service pension and other postretirement income was primarily due to lower expected returns on pension assets, as well as higher net actuarial losses in 2022 compared to 2021.

In 2022, $2.9 million of net actuarial losses were recognized, compared to $0.3 million of net actuarial losses in 2021.

Non-service pension and other postretirement

(expense) income $ (24.0) $ 9.3 $ (33.3) (358.1 %)

Other (expense) income, net (1.2) 5.5 (6.7) (121.8 %)

The change in non-service pension and other postretirement expense and income was primarily due to higher net actuarial losses ("mark-to-market" charges) recorded in 2023 compared to 2022, as well as lower expected returns on pension assets and higher interest expense.

In 2023, $20.6 million of mark-to-market charges were recognized, compared to $2.9 million of mark-to-market charges in 2022.

Refer to Note 17 - Retirement Benefit Plans and Note 18 - Other Postretirement Benefit Plans in the Notes to the Consolidated Financial Statements for more information .

The increase in other income is primarily due to sale of the Company's Villa Carcina, Italy bearing plant upon its closure in 2022.

Refer to Note 15 - Impairment and Restructuring Charges in the Notes to the Consolidated Financial Statements for more information .

The change in other (expense) income was due to net foreign currency transaction losses recognized in 2023, compared to net foreign currency transaction gains in 2022.

In addition, the current period includes a gain on the divestiture of S.E.

Setco Service Company, LLC ("SE Setco"), a 50%-owned joint venture.

Income Tax Expense:

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The effective tax rate for 2023 was 23.1%, which was unfavorable compared to the U.S.

federal statutory rate of 21%, primarily due to the unfavorable impact of earnings in foreign jurisdictions where the effective tax rate was higher than 21% and withholding taxes accrued on planned dividend distributions expected in 2024.

This was partially offset by the favorable impact of U.S.

foreign tax credit utilization from acquisition integration structuring.

The effective tax rate for 2022 was 24.3%, which was unfavorable compared to the U.S.

federal statutory rate of 21%, primarily due to the unfavorable impact of earnings in foreign jurisdictions where the effective tax rate was higher than 21%.

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permanent book-tax differences.

The effective tax rate for 2021 was 20.0%, which was favorable compared to the U.S.

federal statutory rate of 21%, primarily due to the release of accruals for uncertain tax positions, favorable U.S.

permanent book-tax differences and the release of a valuation allowance on certain non-U.S.

deferred tax assets.

This was partially offset by the unfavorable impact of earnings in foreign jurisdictions where the effective tax rate was higher than 21%.

The change in the effective rate for 2022 compared with 2021 was an increase of 4.3%.

The increase was primarily due to the unfavorable impact of earnings in foreign jurisdictions with relatively higher tax rates and the net unfavorable impact of discrete tax items, including discrete tax benefits in the prior year related to the release of valuation allowance on certain non-U.S.

deferred tax assets and lower U.S.

permanent book-tax differences.

The change in the effective rate for 2023 compared with 2022 was a decrease of 1.2%.

The decrease was primarily due to the favorable impact of U.S.

foreign tax credit utilization from acquisition integration structuring which was partially offset by withholding taxes accrued on planned dividend distributions expected in 2024 and prior year discrete release of accruals for uncertain tax positions.

Refer to Note 5 - Income Taxes in the Notes to the Consolidated Financial Statements for more information on the computation of the income tax expense in interim periods.

For a discussion of changes in our results from 2021 to 2020, refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.

For a discussion of changes in consolidated results from 2022 to 2021, refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

BUSINESS SEGMENTS

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

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

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

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.

The Company has historically operated under two reportable segments:

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

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

After evaluation of the organizational changes and other factors, the Company has concluded that it will operate under two new reportable segments, Engineered Bearings and Industrial Motion, beginning with the first quarter of 2023.

Effective January 1, 2023, the Company began operating under new reportable segments.

The Company operates under two reportable segments:

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

Segment results for 2022 and 2021 have been revised to conform to the 2023 presentation of 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 effects of acquisitions, divestitures and foreign currency exchange rate changes on net sales are removed to allow investors and the Company to meaningfully evaluate the percentage change in net sales on a comparable basis from period to period.

The following items highlight the Company ' s acquisitions and divestitures completed in 2022 and 2021 by segment based on the customers and underlying markets served:

The following items highlight the Company ' s acquisitions and divestitures completed in 2023 and 2022:

• The Company a cquired Lagersmit during the fourth quarter of 2023.

Results for Lagersmit are reported in the Industrial Motion segment.

• The Company acquired iMECH during the fourth quarter of 2023.

Results for iMECH are reported in the Engineered Bearings segment.

• The Company completed the sale of Jiangsu TWB Bearings Co., Ltd.

("TWB") during the fourth quarter of 2023.

Results for TWB were reported in the Engineered Bearings segment.

• The Company acquired Rosa and Des-Case during the third quarter of 2023.

Results for Rosa and Des-Case are reported in the Industrial Motion segment.

• The Company acquired Nadella during the second quarter of 2023.

Results for Nadella are reported in the Industrial Motion segment.

• 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.

R esults for GGB were reported in the Mobile Industries and Process Industries segments based on customers and underlying market sectors served.

Results for GGB are reported in the Engineered Bearings segment.

• The Company completed the sale of ADS during the fourth quarter of 2022.

The majority of the results for ADS are reported in the Mobile Industries segment.

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, s.r.o.

("Spinea") during the second quarter of 2022.

Results for Spinea are reported in the Industrial Motion segment.

Engineered Bearings Segment:

2023 2022 $ Change Change

Net sales $ 3,257.7 $ 3,092.6 $ 165.1 5.3 %

EBITDA $ 661.7 $ 615.8 $ 45.9 7.5 %

EBITDA margin 20.3 % 19.9 % — 40 bps

2023 2022 $ Change % Change

Net sales $ 3,257.7 $ 3,092.6 $ 165.1 5.3 %

Acquisitions 196.4 — 196.4 NM

Divestitures (10.6) — (10.6) NM

Currency (24.1) — (24.1) NM

Net sales, excluding the impact of acquisitions, divestitures and currency $ 3,096.0 $ 3,092.6 $ 3.4 0.1 %

The Engineered Bearings segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, increased $3.4 million or 0.1% in 2023 compared with 2022, as higher pricing across the segment was almost fully offset by lower sales volumes.

Within the sectors, sales volumes were higher in rail and heavy industries compared to 2022, relatively flat in renewable energy, and lower in distribution, off highway, on-highway auto/truck, and general industrial.

EBITDA increased in 2023 by $45.9 million or 7.5% compared with 2022, primarily due to favorable price/mix, lower material and logistics costs and the benefit of acquisitions net of divestitures, partially offset by higher manufacturing and SG&A costs, lower volume, and the unfavorable impact of foreign currency exchange rate changes.

Industrial Motion Segment:

2023 2022 $ Change Change

Net sales $ 1,511.3 $ 1,404.1 $ 107.2 7.6 %

EBITDA $ 262.0 $ 222.8 $ 39.2 17.6 %

EBITDA margin 17.3 % 15.9 % — 140 bps

2023 2022 $ Change % Change

Net sales $ 1,511.3 $ 1,404.1 $ 107.2 7.6 %

Acquisitions 99.5 — 99.5 NM

Divestitures (39.7) — (39.7) NM

Currency 1.1 — 1.1 NM

Net sales, excluding the impact of acquisitions, divestitures and currency $ 1,450.4 $ 1,404.1 $ 46.3 3.3 %

The Industrial Motion segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, increased $46.3 million or 3.3% in 2023 compared with 2022.

The increase reflects higher pricing across the segments, as well as higher sales volume.

Within the segment's platforms, sales volumes were higher in drive systems and services and automatic lubrication systems, and lower in belts and chain, linear motion, and couplings, clutches and brakes.

EBITDA increased $39.2 million or 17.6% in 2023 compared with 2022 primarily due to favorable price/mix, lower material and logistics costs, partially offset by higher SG&A expenses.

Unallocated Corporate:

2023 2022 $ Change Change

Unallocated corporate expense $ (69.9) $ (50.0) $ (19.9) 39.8 %

Unallocated corporate expense % to net sales (1.5 %) (1.1 %) — (40) bps

Unallocated corporate expense increased in 2023 compared with 2022 primarily due to the unfavorable impact of foreign currency transaction gains and losses and the increased spending for professional and other services.

RESULTS OF OPERATIONS:

BUSINESS 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.

GAAP to net sales adjusted to remove the effects of acquisitions and divestitures completed in 2022 and 2021 and foreign currency exchange rate changes.

The following items highlight the Company ' s acquisitions and divestitures completed in 2022 and 2021:

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

R esults for GGB are reported in the Engineered Bearings segment.

• The Company completed the sale of ADS during the fourth quarter of 2022.

The results for ADS were reported in the Industrial Motion segment.

• 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.

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 Intelligent Machine Solutions (“iMS”) during the third quarter of 2021.The majority of the results for iMS are reported in the Process Industries segment.

Mobile Industries Segment:

The results for Spinea are reported in the Industrial Motion segment.

• The Company acquired Intelligent Machine Solutions (“iMS”) during the third quarter of 2021.

The results for iMS are reported in the Industrial Motion segment.

Engineered Bearings Segment:

2022 2021 $ Change Change

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Net sales, excluding the impact of acquisitions, divestitures and currency $ 3,168.1 $ 2,815.1 $ 353.0 12.5 %

The Mobile Industries segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, increased $201.1 million or 10.2% in 2022 compared with 2021, reflecting increased shipments in the off-highway, rail, heavy truck and automotive sectors, as well as higher net pricing.

EBITDA decreased in 2022 by $23.0 million or 9.6% compared with 2021, primarily due to higher operating costs, as well as higher impairment and restructuring charges, partially offset by favorable price/mix and the impact of higher volume.

Process Industries Segment:

The Engineered Bearings segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, increased $353.0 million or 12.5% in 2022 compared with 2021, reflecting higher demand and higher pricing across most of the segment, partially offset by lower sales volume in the aerospace sector.

EBITDA increased in 2022 by $102.4 million or 19.9% compared with 2021, primarily due to favorable price/mix and the impact of higher sales volume, partially offset by higher operating costs and higher impairment and restructuring charges.

Industrial Motion Segment:

2022 2021 $ Change Change

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Net sales, excluding the impact of acquisitions, divestitures and currency $ 1,442.8 $ 1,317.8 $ 125.0 9.5 %

The Process Industries segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, increased $276.9 million or 12.8% in 2022 compared with 2021.

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

EBITDA increased $115.2 million or 22.8% in 2022 compared with 2021 primarily due to favorable price/mix and the impact of higher volume, partially offset by higher operating costs and acquisition-related expenses.

The Industrial Motion segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, increased $125.0 million or 9.5% in 2022 compared with 2021, reflecting higher pricing and higher sales volume in the drive systems and services, coupling, clutches and brakes, linear motion, and lubrication platforms.

EBITDA decreased in 2022 by $10.2 million or 4.4% compared with 2021, primarily due to higher operating costs, higher impairment charges and the unfavorable impact of foreign currency exchange rate changes, partially offset by favorable price/mix and higher volume.

Unallocated Corporate:

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Net cash used in investing activities (806.5) (573.3) (233.2)

Net cash provided by (used in) financing activities 206.8 (269.3) 476.1

Net cash provided by financing activities 347.1 206.8 140.3

Effect of exchange rate changes on cash (7.2) (14.5) 7.3

Increase (decrease) in cash, cash equivalents and restricted cash $ 82.8 $ (63.2) $ 146.0

Increase in cash, cash equivalents and restricted cash $ 78.6 $ 82.8 $ (4.2)

Operating Activities:

The increase in net cash provided by operating activities in 2022 compared with 2021 was primarily due to higher net income of $35.5 million, a net increase in non-cash charges of $44.0 million included in net income, including impairment charges and stock-based compensation expense, and the favorable impact of income taxes of $19.3 million, partially offset by an increase in the cash used for working capital items of $29.9 million.

The increase in net cash provided by operating activities in 2023 compared with 2022 was primarily due to the favorable impact of working capital items of $161.6 million, as well as the benefit of other items, partially offset by the unfavorable impact of income taxes on cash of $132.7 million due to higher tax payments and a decrease in net income of $9.0 million.

Refer to the table below for additional detail of the impact of each line on net cash provided by operating activities.

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Investing Activities:

The increase in net cash used in investing activities in 2022 compared with 2021 was primarily due to an increase in cash used for acquisitions of $446.2 million, partially offset by proceeds from divestitures of $33.9 million.

The increase in net cash used in investing activities in 2023 compared with 2022 was primarily due to an increase in cash used for acquisitions of $185.1 million, a decrease in the proceeds from divestitures of $20.4 million, an increase in cash used for net investments in short-term marketable securities of $8.9 million, and an increase in capital expenditures of $9.4 million.

Financing Activities:

The change in net cash provided by financing activities in 2022 compared with 2021 was primarily due to a decrease in net payments of $598.7 million on outstanding debt, partially offset by an increase in the purchase of treasury shares of $118.6 million.

The change in net cash provided by financing activities in 2023 compared with 2022 was primarily due to cash proceeds of $284.8 million from the sale of shares of TIL, a subsidiary of the Company, in the second quarter of 2023, partially offset by a decrease in net borrowings of $105.0 million and an increase in the purchase of treasury shares of $39.3 million.

LIQUIDITY AND CAPITAL RESOURCES

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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 December 5, 2022 the Company entered into the Fifth Amended and Restated Credit Agreement ("Credit Agreement"), which is comprised of the $750.0 million unsecured revolving credit facility ("Senior Credit Facility") and a $400 million unsecured term loan facility ("2027 Term Loan") that mature on December 5, 2027.

The Credit Amendment amended and restated the Company's previous revolving credit agreement, dated as of June 25, 2019, and replaced the $350 million term loan that was set to mature on September 11, 2023 ("2023 Term Loan").

The Credit Agreement also replaced interest rates based on LIBOR with interest rates based on Secured Overnight Financing Rate ("SOFR").

At December 31, 2022, the Senior Credit Facility had outstanding borrowings of $8.5 million, which reduced the availability to $741.5 million.

On December 5, 2022 the Company entered into the Fifth Amended and Restated Credit Agreement ("Credit Agreement"), which is comprised of a $750.0 million unsecured revolving credit facility ("Senior Credit Facility") and a $400 million unsecured term loan facility ("2027 Term Loan") that each mature on December 5, 2027.

The Credit Amendment amended and restated the Company's previous revolving credit agreement that was set to mature on June 25, 2024, and replaced the $350 million term loan that was set to mature on September 11, 2023 ("2023 Term Loan").

The Credit Agreement also replaced interest rates based on London Inter-Bank Offered Rate ("LIBOR") with interest rates based on the Secured Overnight Financing Rate ("SOFR").

At December 31, 2023, the Senior Credit Facility had outstanding borrowings of $247.4 million and $1.3 million of letters of credit, which reduced the availability to $501.3 million.

The Credit Agreement h as two financial covenants:

a consolidated leverage ratio and a consolidated interest coverag e ratio.

The maximum consolidated leverage ratio permitted under the Senior Credit Facility is 4.0 to 1.0 for the next four fiscal quarters as there was a leverage increase period following a qualified acquisition, after which it reverts to 3.5 to 1.0.

As of December 31, 2022, the Company's consolidated leverage ratio was 1.85 to 1.0.

a consolidated net leverage ratio and a consolidated interest coverag e ratio.

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

As of December 31, 2023, the Company's consolidated net leverage ratio was 2.09 to 1.0.

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

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

The Company has a $100.0 million Amended and Restated Asset Securitization Agreement (the "Accounts Receivable Facility"), which matures on November 30, 2024.

The Company renewed the Amended and Restated Asset Securitization Agreement (the "Accounts Receivable Facility") on December 6, 2023.

The $100.0 million Accounts Receivable Facility matures on November 30, 2026.

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

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As of December 31, 2023, there were $67.0 million outstanding borrowings under the Accounts Receivable Facility, which reduced the availability under this facility to $12.1 million.

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 $234.2 million.

At December 31, 2022, the Company had borrowings outstanding of $46.3 million and bank guarantees of $2.8 million, which reduced the aggregate availability under these facilities to approximately $185.1 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.

Other sources of liquidity include uncommitted short-term lines of credit for certain of the Company's foreign subsidiaries, which currently allows for borrowings of up to $232.2 million.

At December 31, 2023, the Company had borrowings outstanding of $25.4 million and bank guarantees of $2.1 million, which reduced the aggregate availability under these facilities to $204.7 million.

On March 28, 2022, the Company issued the fixed-rate unsecured senior notes (the "2032 Notes") in the aggregate principal amount of $350 million with an interest rate of 4.125%, maturing on April 1, 2032.

Proceeds from the 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 Company has outstanding fixed-rate unsecured notes ("2024 Notes") in the aggregate principal amount of $350.0 million with an interest rate of 3.875%, maturing on September 1, 2024.

The Company currently intends to refinance the 2024 Notes prior to their maturity.

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

Timken expects higher net interest expense in 2023 compared to 2022, due to higher average debt balances and increased interest rates.

The Company expects to generate a 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%).

The Company expects to generate a higher amount of cash from operating activities in 2024 compared to 2023, driven by improved working capital performance and lower cash taxes.

The Company expects capital expenditures for 2024 to be similar in amount to 2023 and in the range of 4% of sales.

FUTURE CONTRACTUAL AND OTHER PAYMENTS

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Interest payments $ 508.6 $ 104.9 $ 332.1 $ 71.6

Long-term debt 1,926.1 — 1,049.0 877.1

Short-term debt, including current portion of long-term debt 49.0 49.0 — —

Long-term debt, including current portion of long-term debt 2,159.2 359.4 1,441.0 358.8

Short-term debt 246.2 246.2 — —

Purchase commitments 77.4 59.7 17.7 —

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The amounts in the table above are based on actuarial estimates using current assumptions for, among other things, discount rates, expected return on assets and health care cost trend rates.

During 2022, the Company made cash contributions and payments of approximat ely $11.2 million to its global defined benefit pension plans and $3.4 million to its other postretirement benefit plans.

During 2023, the Company made cash contributions and payments of $27.1 million to its global defined benefit pension plans and $2.7 million to its other postretirement benefit plans.

Refer to Note 17 - Retirement Benefit Plans and Note 18 - Other Postretirement Benefit Plans in the Notes to the Consolidated Financial Statements for additional information.

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Inventories are valued at the lower of cost or market, with approximately 62% valued by the first-in, first-out ("FIFO") method and the remaining 38% valued by the last-in, first-out ("LIFO") method.

The majority of the Company’s domestic inventories are valued by the LIFO method, while all of the Company’s international inventories are valued by the FIFO method.

The majority of the Company’s domestic inventories are valued by the LIFO method, while substantially all of the Company’s international inventories are valued by the FIFO method.

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.

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Each interim period, the Company assesses whether or not an indicator of impairment is present that would necessitate a goodwill and indefinite-lived intangible assets impairment analysis be performed in an interim period other than during the fourth quarter.

As of December 31, 2022, the Company had $1,098.3 million of goodwill on its Consolidated Balance Sheet, of which $390.6 million was attributable to the Mobile Industries segment and $707.7 million was attributable to the Process Industries segment.

As of December 31, 2023, the Company had $1,369.6 million of goodwill on its Consolidated Balance Sheet, of which $692.3 million was attributable to the Engineered Bearings segment and $677.3 million was attributable to the Industrial Motion segment.

See Note 9 - Goodwill and Other Intangible Assets in the Notes to the Consolidated Financial Statements for movements in the carrying amount of goodwill by segment.

The Company reviews goodwill for impairment at the reporting unit level.

The Mobile Industries segment has three reporting units and the Process Industries segment has two reporting units.

The reporting units within the Mobile Industries segment are Mobile Industries, Lubrication Systems and Aerospace Bearing Inspection.

The reporting units within the Process Industries segment are Process Industries and Industrial Services.

The Engineered Bearings segment has one reporting unit and the Industrial Motion segment has six reporting units.

Accounting guidance permits an entity to first assess qualitative factors to determine whether additional indefinite-lived intangible asset impairment testing, including goodwill, is required.

The Company chose to utilize this qualitative assessment in the annual goodwill impairment testing for all reporting units.

The Company chose to utilize this qualitative assessment in the annual goodwill impairment testing for all reporting units in the fourth quarter of 2023.

Based on the qualitative assessment, the Company concluded that it was more likely than not that the fair value of these reporting units exceeded their respective carrying values.

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During the fourth quarter of 2023, the Company used discount rates for its indefinite-lived intangible assets in the range of 10.7% to 14.5%, royalty rates in the range of 1.0% to 6.0% and terminal growth rates in the range of 1.0% to 3.5%.

Based on the October 1, 2022 quantitative assessment of indefinite-lived intangible assets, there were four indefinite-lived intangibles with carrying values totaling $78.1 million in which the fair value exceeded the carrying value of the assets by 10% or less.

Management believes the future sales growth and EBITDA margins in the long-range plan and the discount rate used in the valuations requires significant use of judgment.

Based on the October 1, 2023 quantitative assessment of indefinite-lived intangible assets, there was one indefinite-lived intangible with a carrying value of $28.5 million in which the fair value exceeded the carrying value of this indefinite-lived intangible asset by 10% or less.

Management believes the future sales growth and EBITDA margins in the long-range plan and the discount rate used in the valuations requires use of judgment.

If any of the Company's reporting units or indefinite-lived intangible assets do not meet their long-range plan estimates or discount rates increase significantly, the Company could be required to perform an interim goodwill or indefinite-lived intangible asset impairment analysis and record impairment charges in future periods.

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Income Taxes:

Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, valuation allowances against deferred tax assets, and accruals for uncertain tax positions.

Management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, valuation allowances against deferred tax assets, and accruals for uncertain tax positions.

The Company, which is subject to income taxes in the U.S.

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The Company records interest and penalties related to uncertain tax positions as a component of income tax expense.

In 2022, the Company recorded $8.9 million of net tax benefit for uncertain tax positions, which consisted primarily of $14.6 million related to the net reversal of accruals for prior year uncertain tax positions and settlements with tax authorities.

This benefit was partially offset by $5.7 million of interest and increases to current and prior year uncertain tax positions.

During 2022, the Company recorded a $3.1 million decrease of uncertain tax positions related to foreign currency translation adjustments and deferred tax liabilities.

In 2023, the Company recorded $4.7 million of net tax expense for uncertain tax positions, which consisted primarily of $15.4 million related to increases to current and prior year uncertain tax positions and interest.

This expense was partially offset by $10.7 million of the net reversal of accruals for prior year uncertain tax positions and settlements with tax authorities.

During 2023, the Company recorded a $0.6 million increase of uncertain tax positions related to foreign currency translation adjustments and deferred tax liabilities.

The Company also recorded $5.9 million of uncertain tax positions related to prior years for acquisitions made during 2023.

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In determining these fair values, the Company utilized various forms of the income, cost and market approaches depending on the asset or liability being valued.

The Company used a discounted cash flow model to measure the trade names, customer relationship, and technology and know-how-related intangible assets.

The estimation of fair value required significant judgment related to future net cash flows based on assumptions related to revenue and EBITDA growth rates and discount rates.

For certain acquisitions, the Company used a benchmarking model to measure the trade names, customer relationship, and technology and know-how-related intangible assets.

The estimation of fair value required judgment related to future net cash flows based on assumptions related to revenue and EBITDA growth rates, customer attrition rates and discount rates.

Inputs were generally determined by taking into account competitive trends, market comparisons, independent appraisals, and historical data, among other factors, and were supplemented by current and anticipated market conditions.

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The Company recognized mark-to-market" charges of $21.6 million during 2023 compared to $16.0 million during 2022.

Mark-to-market charges during 2022 were primarily a result of the impact of lower than expected returns on plan assets of $220.6 million, the impact of experience losses of $33.0 million, the impact of inflation of $5.4 million and other actuarial losses of $0.2 million, partially offset by the net increase in the discount rate used to measure its defined benefit pension obligations of $243.2 million.

The impact of the net increase in the discount rate used to measure the Company's defined benefit pension obligations was primarily driven by a 257 basis point increase in the weighted-average discount rate used to measure its U.S.

plan obligations, which increased from 3.07% in 2021 to 5.64% in 2022.and a 301 basis point increase in the discount rate used to measure its U.K.

plan obligations, which increased from 1.80% in 2021 to 4.81% in 2022.

Mark-to-market charges during 2023 were primarily due to the impact of a net reduction in the discount rate used to measures the Company's defined benefit pension obligations of $17.6 million and the impact of experience losses of $10.3 million, partially offset by changes in mortality of $6.0 million primarily related to the Company's United Kingdom ("U.K.") plan obligations and other actuarial gains of $0.3 million.

The impact of the net reduction in the discount rate used to measure the Company's defined benefit pension obligations was primarily driven by a 24 basis point reduction in the weighted-average discount rate used to measure its U.S.

plan obligations, which decreased from 5.64% in 2022 to 5.40% in 2023, and a 33 basis point decrease in the discount rate used to measure its U.K.

plan obligations, which decreased from 4.81% in 2022 to 4.48% in 2023.

Returns on plan assets had no impact on actuarial losses for 2023.

Excluding mark-to-market charges, net period benefit cost was higher in 2023 due to higher interest costs and lower expected return on plan assets.

In 2024, the Company expects net periodic benefit cost to be approximately $13 million for defined benefit pension plans, compared with net periodic benefit cost of $33.8 million in 2023.

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A 25 basis point increase in the discount rate will decrease the PBO by $15.2 million and increase income before income taxes through the recognition of actuarial gains of $15.2 million.

In addition, a 25 basis point decrease in returns on pension assets will decrease income before income taxes by $1.0 million, and a 25 basis point increase in return on pension assets will increase income before income taxes by $1.0 million.

Other Postretirement Benefit Plans:

The Company recognized net periodic benefit credit of $7.3 million during 2023 for other postretirement benefit plans, compared to net periodic benefit credit of $21.6 million during 2022.

The Company recognized mark-to-market gains of $13.1 million during 2022 compared to mark-to-market gains of $4.1 million during 2021 .

Mark-to-market gains in 2022 were primarily due to the impact of a 276 basis point increase in the discount rate used to measure the Company's defined benefit postretirement obligations, which increased from 2.99% in 2021 to 5.75% in 2022 .

The increase in the discount rate resulted in a $8.4 million gain.

In addition to the gain from the discount rate increases, the Company recognized actuarial gains of $3.0 million due to the impact of a reduction in the rate for Medicare Advantage plans and $1.9 million due to lower than expected benefit payments.

These actuarial gains were offset by $0.2 million of changes to other assumptions .

The Company recognized actuarial gains of $1.0 million during 2023 compared to $13.1 million in 2022.

Ac tuarial gains of $1.0 million during 2023 were primarily due to lower than expected benefit payments of $1.4 million and $0.1 million due to changes in other actuarial assumptions.

These actuarial gains were partially offset a $0.5 million loss due to the impact of a 20 basis point decrease in the discount rate used to measure the Company's defined benefit postretirement obligations, which decreased from 5.75% in 2022 to 5.55% in 2023.

In 2024, the Company expects net periodic benefit credit of approximately $6 million for other postretirement benefit plans, compared to net periodic benefit credit of $7.3 million in 2023.

Net periodic benefit credit f or 2023 does not include mark-to-market charges that will be recognized immediately through earnings in the fourth quarter of 2023, or on an interim basis if specific events trigger a remeasurement.

Excluding the mark-to-market gains of $13.1 million recognized in 2022, the net periodic benefit credit was $8.5 million i n 2022.

Net periodic benefit credit for 2024 does not include actuarial gains that will be recognized immediately through earnings in the fourth quarter of 2024, or on an interim basis if specific events trigger a remeasurement.

Excluding the mark-to-market gains of $1.0 million recognized in 2023, the net periodic benefit credit was $6.3 million in 2023.

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

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Discount rate .25% $ 0.6

In the table above, a 25 basis point decrease in the discount rate will increase the APBO by $0.6 million and decrease income before income taxes through the recognition of actuarial losses of $0.6 million.

I n the table above, a 25 basis point decrease in the discount rate will increase the APBO by $0.6 million and decrease income before income taxes through the recognition of actuarial losses of $0.6 million.

A 25 basis point increase in the discount rate will decrease the APBO by $0.6 million and increase income before income taxes through the recognition of actuarial gains of $0.6 million.

For measurement purposes, the Company assumed a weighted-average annual rate of increase in the per capita cost (health care cost trend rate) for medical benefits of 6.25% for 2024, declining gradually to 5.0% in 2029 and thereafter for medical and prescription drug benefits.

For Medicare Advantage benefits, actual contract rates have been set for 2023, and are assumed to increase by $5 for 2026 to 2028 and then 6.0% for 2028 , declining gradually to 5.0% in 2032 and thereafter.

For Medicare Advantage benefits, actual contract rates have been set for 2024 through 2026, and are assumed to increase by $5 for 2027 to 2028 and then 6.0% for 2028 , declining gradually to 5.0% in 2032 and thereafter .

The assumed health care cost trend rate may have a significant effect on the amounts reported.

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A one percentage point decrease would provide corresponding reductions of $0.1 million and $0.6 million, respectively.

Other loss reserves:

The Company has a number of loss exposures that are incurred in the ordinary course of business such as environmental clean-up, product liability, product warranty, litigation, compliance and accounts receivable reserves.

Establishing loss reserves for these matters requires management’s judgment with regards to estimating risk exposure and ultimate liability or realization.

These loss reserves are reviewed periodically and adjustments are made to reflect the most recent facts and circumstances.

NON-GAAP MEASURES

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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 the amortization of intangible assets related to acquisitions, 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.

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.

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Net Income Attributable to The Timken Company 394.1 407.4 369.1 284.5 362.1

Impairment, restructuring and

reorganization charges (1)

Net Income Attributable to The Timken Company as a Percentage of Sales 8.3% 9.1% 8.9% 8.1% 9.6%

Acquisition intangible amortization 65.7 43.9 46.8 47.3 46.7

Impairment, restructuring and reorganization

51.6 39.5 15.1 29.0 9.8

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Russia-related charges (5)

(Gain) loss on divestitures and sale of real

8.5 15.6 — — —

Gain on divestitures and sale of certain assets (6)

(5.2) (2.9) — (0.4) (4.5)

Property losses (recoveries) and related

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200.5 164.0 167.0 164.0 159.9

Acquisition intangible amortization 65.7 43.9 46.8 47.3 46.7

Noncontrolling interest (2.1) (5.3) — (0.1) (0.5)

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Twelve Months Ended December 31, 2023

Mobile Process Unallocated Corporate Total

Engineered Bearings Industrial Motion Unallocated Corporate Total

Net Sales $ 3,257.7 $ 1,511.3 $ — $ 4,769.0

EBITDA 661.7 262.0 (90.5) 833.2

Impairment, restructuring and reorganization

Impairment, restructuring and reorganization charges (1)

14.3 36.5 — 50.8

Corporate pension and other postretirement

benefit related expense (2)

Corporate pension and other postretirement benefit

related expense (2)

— — 20.6 20.6

Acquisition-related charges (3)

1 unchanged sentence

Russia-related charges (5)

16.8 (1.2) — 15.6

Gain on divestitures and sale of real estate (6)

(Gain) loss on divestitures and sale of certain assets (6)

(5.5) 0.3 — (5.2)

Tax indemnification and related items 0.3 — — 0.3

Adjusted EBITDA $ 682.6 $ 319.8 $ (62.7) $ 939.7

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Twelve Months Ended December 31, 2022

Mobile Process Unallocated Corporate Total

Engineered Bearings Industrial Motion Unallocated Corporate Total

Net Sales $ 3,092.6 $ 1,404.1 $ — $ 4,496.7

EBITDA 615.8 222.8 (52.9) 785.7

Impairment, restructuring and reorganization

Impairment, restructuring and reorganization charges (1)

4.4 35.1 — 39.5

Corporate pension and other postretirement

benefit related expense (2)

Corporate pension and other postretirement benefit

related expense (2)

Acquisition-related charges (3)

6.2 4.9 3.7 14.8

Acquisition-related gain (4)

Russia-related charges (5)

15.6 — — 15.6

(Gain) loss on divestitures and sale of certain assets (6)

(3.5) 0.6 — (2.9)

Tax indemnification and related items — 0.3 — 0.3

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(iii) severance related to cost reduction initiatives;

(iv) impairment of assets held for sale;

(iv) impairment of assets;

and (v) related depreciation and amortization.

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

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

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(4) The acquisition-related gain represents a bargain purchase gain on the acquisition of the assets of Aurora Bearing Company ("Aurora") that closed on November 30, 2020.

(5) Russia-related charges include impairments or 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.

(5) Russia-related charges include impairments or allowances recorded against certain property, plant and equipment, inventory and trade receivables and write-down of a 51%-owned joint ventur e ("Russian JV") 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.

Refer to Russia Operations in Management Discussion and Analysis within the Company's annual report on Form 10-K for additional information .

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

Refer to Russia Operations in Management Discussion and Analysis below for additional information.

(6) Represents the net loss (gain) resulting from divestitures and sale of certain assets.

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

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$ 50.8 $ 39.5

Corporate pension and other postretirement benefit related expense (2)

Corporate pension and other postretirement related expense (2)

Acquisition-related charges (3)

Acquisition-related gain (4)

Russia-related charges (4)

Gain on divestitures and the sale of real estate, net (6)

Gain on divestitures and sale of certain assets (5)

Tax indemnification and related items — 0.3

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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 2022 included $29.3 million related to the sale of ADS.

and (iv) impairment of assets.

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

In addition, impairment, restructuring and reorganization charges for the twelve months ended December 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) income represents actuarial losses and (gains) that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions or experience.

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

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

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

(4) The acquisition-related gain represents a bargain purchase gain on the acquisition of the assets of Aurora that closed on November 30, 2020.

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

The Company recognizes actuarial 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) Russia-related charges include impairments or allowances recorded against certain property, plant and equipment, inventory and trade receivables and write-down of Russian JV 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.

Refer to Russia Operations in Management Discussion and Analysis within the Company's annual report on Form 10-K for additional information .

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

Refer to Russia Operations in Management Discussion and Analysis below for additional information.

(5) Represents the net gain resulting from divestitures and sale of certain assets.

Return on Invested Capital:

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$ 939.7 $ 855.9 $ 718.0 $ 658.9 $ 726.3

Acquisition intangible amortization 65.7 43.9 46.8 47.3 46.7

depreciation and amortization expense (2)

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Total debt $ 2,395.9 $ 1,963.2 $ 1,464.9 $ 1,564.6 $ 1,730.1 $ 1,681.6

cash and cash equivalents 418.9 331.6 257.1 320.3 209.5 132.5

Net debt 1,977.0 1,631.6 1,207.8 1,244.3 1,520.6 1,549.1

Total equity 2,702.4 2,352.9 2,377.7 2,225.2 1,954.8 1,642.7

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

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

For the year ended December 31, 2022, the Company recorded a negative non-cash foreign currency translation adjustment of $155.4 million that decreased shareholders’ equity, compared with a negative non-cash foreign currency translation adjustment of $62.3 million that decreased shareholders’ equity for the year ended December 31, 2021.

The foreign currency translation adjustments for the year ended December 31, 2022 were negatively impacted by the strengthening of the U.S.

Net of related derivative activity, the Company recognized a foreign currency exchange loss resulting from transactions of $14.8 million for the year ended December 31, 2023, and recognized a gain of $15.4 million and a loss of $9.4 million for the years ended December 31, 2022 and 2021, respectively.

For the year ended December 31, 2023, the Company recorded a positive non-cash foreign currency translation adjustment of $35.3 million that increased shareholders’ equity, compared with a negative non-cash foreign currency translation adjustment of $155.4 million that decreased shareholders’ equity for the year ended December 31, 2022.

The foreign currency translation adjustments for the year ended December 31, 2023 were positively impacted by the weakening of the U.S.

dollar relative to other currencies as of December 31, 2023 compared to December 31, 2022.

Russia Operations :

At the beginning of 2022, the Company had two subsidiaries in Russia, Timken Russia, which was 100% owned by Timken, and a 51%-owned joint venture company to serve the Russian rail market ("Rail JV").

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 Russian 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 year ended December 31, 2022.

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 December 31, 2022, the Company has net assets (net of noncontrolling interest of $5.9 million), totaling $7.7 million on its Consolidated Balance Sheet related to its Rail JV.

Net assets related to the Company's Russia operations include $8.5 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.

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

During third quarter of 2023, the Company recorded impairment charges of $3.9 million related to property, plant and equipment and operating leased assets at the Russian JV.

During the fourth quarter of 2023, after evaluating various plans for the Russian JV and the Company's ability to control and influence the Russian JV, the Company concluded it should deconsolidate its Russian JV, and it wrote-down its remaining net investment of $4.7 million to $0.

Trade Law Enforcement:

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The quarterly dividend will be paid on March 6, 2024 to shareholders of record as of February 20, 2024.

This will be the 403 rd consecutive quarterly dividend paid on the common shares of the Company.

This will be the 407 th consecutive quarterly dividend paid on the common shares of the Company.

Forward-Looking Statements

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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:

(a) 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 or recession, terrorism, or hostilities.

This includes:

political risks associated with the potential instability of governments and legal systems in countries in which the Company or its customers or suppliers conduct business, changes in currency valuations and recent world events that have increased the risks posed by international trade disputes, tariffs and sanctions;

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

political risks associated with the potential instability of governments and legal systems in countries in which the Company or its customers or suppliers conduct business, changes in currency valuations, strained geopolitical relations between countries in which we have significant operations, and recent world events that have increased the risks posed by international trade disputes, tariffs and sanctions;

(b) negative impacts to the Company's business, results of operations, financial position or liquidity, disruption to the Company's supply chains, negative impacts to customer demand or operations, and availability and health of employees, and governmental restrictions on travel and manufacturing operations;

(c) the effects of fluctuations in customer demand on sales, product mix and prices in the industries in which the Company operates.

This includes:

the ability of the Company to respond to rapid changes in customer demand, disruptions to the Company's supply chain, logistical issues associated with port closures or congestion, delays or increased costs , the effects of customer or supplier bankruptcies or liquidations, the impact of changes in industrial business cycles, the effects of distributor inventory corrections reflecting de-stocking of the supply chain and whether conditions of fair trade continue in the Company's markets;

the ability of the Company to respond to rapid changes in customer demand, disruptions to the Company's supply chain, logistical issues associated with port closures or congestion, delays or increased costs , the effects of customer or supplier bankruptcies or liquidations, the impact of changes in industrial business cycles, the ability of the Company to effectively adjust the prices for its products in response to changing dynamics, the effects of distributor inventory corrections reflecting de-stocking of the supply chain and whether conditions of fair trade continue in the Company's markets;

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

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disruptions to the Company's supply chain and logistical issues associated with port closures or congestion, delays or increased costs;

changes in the expected costs associated with product warranty claims;

changes in the expected costs associated with product warranty claims especially in industry segments with potential high claim values;

changes in the global regulatory landscape;

changes resulting from inventory management and cost reduction initiatives;

the effects of unplanned plant shutdowns;

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

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

and changes in the cost of labor and benefits;

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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;

(h) 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;

(i) unanticipated litigation, claims, investigations or assessments.

(h) the Company’s ability to maintain appropriate relations with unions or works councils that represent Company employees in certain locations in order to avoid disruptions of business;

(i) the continued attraction, retention and development of management, other key employees, and other skilled personnel at all levels of the organization, the successful development and execution of succession plans and management of other human capital matters;

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

(j) 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;

(k) 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;

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

(m) those items identified under Item 1A.

claims, investigations or problems related to intellectual property, product liability or warranty, foreign export, sanctions and trade laws, government procurement regulations, competition and anti-bribery laws, climate change, environmental or health and safety issues, data privacy and taxes;

(k) 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 high 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;

(l) 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;

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

(n) those items identified under Item 1A.

Risk Factors on pages 8 through 19 .

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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-K

Item 7. Management’s Discussion and Analysis