What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-07-31 compared with 2024-04-30 · 194 added, 75 removed, 366 unchanged (42% of the section changed)

44 unchanged sentences

Net income 102.0 129.5 (27.5) (21.2) %

Net income attributable to noncontrolling interest 7.1 3.4 3.7 NM

Net income attributable to noncontrolling interest 5.8 4.3 1.5 34.9 %

Net income attributable to The Timken Company $ 96.2 $ 125.2 $ (29.0) (23.2) %

1 unchanged sentence

Average number of shares – diluted 70,849,254 72,512,991 — (2.3) %

The decrease in net sales for the three months ended March 31, 2024 compared with the three months ended March 31, 2023 was driven by lower organic sales (lower volume offset by favorable pricing) and the unfavorable impact of foreign currency exchange rate changes, partially offset by the benefit of acquisitions (net of divestitures).

The decrease in net income for the three months ended March 31, 2024 compared with the three months ended March 31, 2023 was primarily due to the impact of lower volume, higher interest expense and higher intangible amortization expense, partially offset by lower impairment charges, favorable price/mix, lower operating costs, favorable material costs, and the benefit of acquisitions (net of divestitures).

The Company expects 2024 full-year revenue to be down 2% to 4% compared to 2023, driven by lower demand, partially offset by the favorable impact from acquisitions (net of divestitures) and slightly higher pricing.

The Company's net earnings are expected to be down in 2024 compared with 2023, primarily due to the impact of lower sales volume and higher income tax rate, partially offset by lower impairment charges, favorable price/mix, lower operating costs and the benefit of acquisitions (net of divestitures), including reduced acquisition related charges.

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

Six Months Ended

2024 2023 $ Change % Change

Net sales $ 2,372.6 $ 2,535.1 $ (162.5) (6.4) %

Net income 212.6 255.2 (42.6) (16.7) %

Net income attributable to noncontrolling interest 12.9 7.7 5.2 67.5 %

Net income attributable to The Timken Company $ 199.7 $ 247.5 $ (47.8) (19.3) %

Diluted earnings per share $ 2.82 $ 3.39 $ (0.57) (16.8) %

Average number of shares – diluted 70,850,792 72,907,804 — (2.8) %

The decrease in net sales for the three and six months ended June 30, 2024 compared with the three and six months ended June 30, 2023 was driven by lower organic sales and the unfavorable impact of foreign currency exchange rate changes, partially offset by the benefit of acquisitions (net of divestitures).

The decrease in net income for the three months ended June 30, 2024 compared with the three months ended June 30, 2023 was primarily due to the impact of lower volume, higher interest expense, and the unfavorable impact of foreign currency exchange rate changes, partially offset by favorable price/mix, lower operating costs, and the benefit of acquisitions (net of divestitures).

The decrease in net income for the six months ended June 30, 2024 compared with the six months ended June 30, 2023 was primarily due to the impact of lower volume, higher interest expense, and the unfavorable impact of foreign currency exchange rate changes, partially offset by lower operating costs, favorable price/mix, lower impairment charges, and the benefit of acquisitions (net of divestitures).

The Company expects 2024 full-year revenue to be down 3% to 4% compared to 2023, driven by lower demand and unfavorable currency impact, partially offset by the favorable impact from acquisitions (net of divestitures) and favorable pricing.

The Company's net earnings are expected to be down in 2024 compared with 2023, primarily due to the impact of lower sales volume, higher operating costs, and a higher income tax rate, partially offset by lower impairment and pension remeasurement charges, favorable price/mix, and the benefit of acquisitions (net of divestitures).

The Company expects to generate a comparable amount of cash from operating activities in 2024 compared to 2023.

The Company expects capital expenditures to remain flat in 2024 compared to 2023, and relatively in line with 2023 spending as a percentage of sales (4.0%).

10 unchanged sentences

Operating income % to net sales 14.1 % 15.8 % (170) bps

Net sales decreased for the three months ended March 31, 2024 compared with the three months ended March 31, 2023.

The decrease was driven by lower organic sales of $115 million (lower volume partially offset by favorable pricing), including a significant decline in renewable energy market sector, and the unfavorable impact of foreign currency exchange rate changes of $7 million, partially offset by the favorable impact of acquisitions (net of divestitures) of $50 million.

Operating income decreased for the three months ended March 31, 2024 compared with the three months ended March 31, 2023, due to the unfavorable impact of lower sales net of cost of products sold, increased amortization expense, and higher selling, general and administrative ("SG&A") expenses, partially offset by lower impairment and restructuring charges.

• Cost of products sold decreased for the three months ended March 31, 2024 compared with the three months ended March 31, 2023, due to the impact of lower volume of $70 million, favorable material and logistics costs of $6 million and the impact of foreign currency exchange rate changes of $5 million, partially offset by the incremental cost of goods sold from acquisitions (net of divestitures) of $26 million.

• SG&A expenses increased for the three months ended March 31, 2024 compared with the three months ended March 31, 2023, primarily due to the impact of acquisitions, partially offset by lower compensation expense and reduced discretionary spending to align with the lower demand levels.

• Amortization of intangible assets increased for the three months ended March 31, 2024 compared with the three months ended March 31, 2023, primarily due to the addition of intangible assets from the six acquisitions that were completed during 2023.

Six Months Ended

2024 2023 $ Change Change

Net sales $ 2,372.6 $ 2,535.1 $ (162.5) (6.4%)

Cost of products sold 1,601.4 1,712.9 (111.5) (6.5%)

Selling, general and administrative expenses 374.8 371.7 3.1 0.8%

Amortization of intangible assets 39.0 30.8 8.2 26.6%

Impairment and restructuring charges 5.6 31.4 (25.8) (82.2%)

Operating income $ 351.8 $ 388.3 (36.5) (9.4%)

Operating income % to net sales 14.8 % 15.3 % (50) bps

Net sales decreased for the three and six months ended June 30, 2024 compared with the three and six months ended June 30, 2023.

The decrease was driven by lower organic sales of $98 and $214 million, respectively (lower volume partially offset by favorable pricing), including a significant decline in the renewable energy market sector, and the unfavorable impact of foreign currency exchange rate changes of $14 and $20 million, respectively, partially offset by the favorable impact of acquisitions (net of divestitures) of $22 and $72 million, respectively.

Operating income decreased for the three months ended June 30, 2024 compared with the three months ended June 30, 2023, due to the unfavorable impact of lower sales net of cost of products sold, increased amortization expense, and higher impairment charges, offset partially by lower SG&A expenses.

Operating income decreased for the six months ended June 30, 2024 compared with the six months ended June 30, 2023, due to the unfavorable impact of lower sales net of cost of products sold, higher SG&A expenses, and increased amortization expense, partially offset by lower impairment and restructuring charges.

• Cost of products sold decreased for the three months ended June 30, 2024 compared with the three months ended June 30, 2023, due to the impact of lower volume of $54 million and the impact of foreign currency exchange rate changes of $8 million, partially offset by the incremental cost of goods sold from acquisitions (net of divestitures) of $8 million.

Cost of products sold decreased for the six months ended June 30, 2024 compared with the six months ended June 30, 2023, due to the impact of lower volume of $126 million, the impact of foreign currency exchange rate changes of $13 million, and favorable net material and logistics costs of $6 million, partially offset by the incremental cost of goods sold from acquisitions (net of divestitures) of $34 million.

• SG&A expenses decreased for the three months ended June 30, 2024 compared with the three months ended June 30, 2023, primarily due to favorable impact from currency and reduced discretionary spending to align with the lower demand levels, partially offset by the impact of acquisitions and higher compensation expense.

SG&A expenses increased for the six months ended June 30, 2024 compared with the six months ended June 30, 2023, primarily due to the impact of acquisitions, partially offset by favorable impact from currency, lower compensation expense, and reduced discretionary spending to align with the lower demand levels.

• Amortization of intangible assets increased for the three and six months ended June 30, 2024 compared with the three and six months ended June 30, 2023, primarily due to the addition of intangible assets from the six acquisitions that were completed during 2023.

Refer to Note 3 - Acquisitions and Divestitures in the Notes to the Consolidated Financial Statements for additional information.

• Impairment and restructuring charges were lower for the three months ended March 31, 2024 compared with the three months ended March 31, 2023, primarily due to the impairment charges of $28.3 million related to the goodwill impairment recorded in the Industrial Motion segment during the first three months of 2023.

• Impairment and restructuring charges were higher for the three months ended June 30, 2024 compared with the three months ended June 30, 2023, primarily due to the impairment of certain engineering-related assets used in the Engineered Bearing Segment.

Impairment and restructuring charges were lower for the six months ended June 30, 2024 compared with the six months ended June 30, 2023, primarily due to impairment charges of $28.3 million related to the goodwill impairment recorded in the Industrial Motion segment during the first three months of 2023.

Interest Income and Expense:

3 unchanged sentences

Interest income 5.1 1.9 $ 3.2 168.4 %

The increase in net interest expense for the three months ended March 31, 2024 compared with the three months ended March 31, 2023 was due to increased debt levels and higher average interest rates.

Six Months Ended

2024 2023 $ Change % Change

Interest expense $ (66.8) $ (52.4) $ (14.4) 27.5 %

Interest income 7.9 3.4 $ 4.5 132.4 %

The increase in net interest expense for the three and six months ended June 30, 2024 compared with the three and six months ended June 30, 2023 was due to increased debt levels and higher average interest rates.

Other Income (Expense):

1 unchanged sentence

2024 2023 $ Change % Change

Non-service pension and other postretirement (expense) income $ (1.0) $ — $ (1.0) NM

Other income, net 1.2 2.3 (1.1) (47.8) %

Total other income, net $ 0.2 $ 2.3 $ (2.1) (91.3) %

Six Months Ended

2024 2023 $ Change % Change

Non-service pension and other postretirement

(expense) income $ (2.0) $ 0.1 $ (2.1) NM

Other (expense) income (0.9) 3.1 (4.0) (129.0) %

Other income, net 0.3 5.4 (5.1) (94.4) %

Total other (expense) income $ (1.7) $ 5.5 $ (7.2) (130.9) %

The change in non-service pension and other postretirement expense (income) for the three months ended March 31, 2024 compared with the three months ended March 31, 2023 was due to a pension remeasurement gain of $0.9 million recognized during the first three months of 2023.

The change in non-service pension and other postretirement expense (income) for the three and six months ended June 30, 2024 compared with the three and six months ended June 30, 2023 was due to pension remeasurement gains recognized during 2023.

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

The change in other (expense) income for the three months ended March 31, 2024 compared with the three months ended March 31, 2023 was due to a gain of $4.8 million on the divestiture of SE Setco, a 50% owned joint venture, during the three months ended March 31, 2023.

The change in other income, net, for the six months ended June 30, 2024 compared with the six months ended June 30, 2023 was primarily due to a gain of $4.8 million on the divestiture of SE Setco, a 50% owned joint venture, during the six months ended June 30, 2023.

Income Tax Expense:

3 unchanged sentences

Effective tax rate 26.0 % 26.7 % (70) bps

Income tax expense increased $0.2 million for the three months ended March 31, 2024 compared with the three months ended March 31, 2023.

The slight increase in expense reflects an increase in the mix of earnings in non-U.S.

jurisdictions with relatively higher tax rates and the net favorable impact of discrete items in the year ago period, which were mostly offset by lower pre-tax earnings.

Six Months Ended

2024 2023 $ Change Change

Provision for income taxes $ 78.6 $ 89.6 $ (11.0) (12.3) %

Effective tax rate 27.0 % 26.0 % 100 bps

Income tax expense decreased $11.2 million for the three months ended June 30, 2024 compared with the three months ended June 30, 2023 due to lower pre-tax earnings, a decrease in the mix of earnings in Non-U.S.

jurisdictions with relatively higher tax rates and the net favorable impact of discrete items in comparison to the year ago period.

Income tax expense decreased $11.0 million for the six months ended June 30, 2024 compared with the six months ended June 30, 2023 due to lower pre-tax earnings.

This was partially offset by the net unfavorable impact of discrete items in comparison to the year ago period.

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

4 unchanged sentences

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 2024 and 2023 and foreign currency exchange rate changes.

GAAP to net sales adjusted to remove the effects of acquisitions and divestitures completed in 2023 and foreign currency exchange rate changes.

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.

27 unchanged sentences

divestitures and currency $ 797.0 $ 857.2 $ (60.2) (7.0 %)

The Engineered Bearings segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, decreased $92.5 million or 10.3% in the three months ended March 31, 2024 compared with the three months ended March 31, 2023.

The decrease reflects lower volume across most market sectors, driven primarily by a significant decline in the renewable energy sector and lower shipments in the off-highway sector, partially offset by higher pricing and higher sales volume in the rail sector.

EBITDA decreased by $26.3 million or 12.8% for the three months ended March 31, 2024 compared with the three months ended March 31, 2023, primarily due to the impact of lower volume and the unfavorable impact of foreign currency exchange rate changes, partially offset by lower material costs, favorable price/mix, and the benefit of acquisitions (net of divestitures).

Six Months Ended

2024 2023 $ Change Change

Net sales $ 1,585.9 $ 1,757.9 $ (172.0) (9.8%)

EBITDA $ 342.0 $ 390.5 $ (48.5) (12.4%)

EBITDA margin 21.6 % 22.2 % (60) bps

Six Months Ended

2024 2023 $ Change % Change

Net sales $ 1,585.9 $ 1,757.9 $ (172.0) (9.8 %)

Acquisitions 13.3 13.3 NM

Divestitures (15.3) (15.3) NM

Currency (17.3) (17.3) NM

Net sales, excluding the impact of acquisitions,

divestitures and currency $ 1,605.2 $ 1,757.9 $ (152.7) (8.7 %)

The Engineered Bearings segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, decreased $60.2 million or 7.0% in the three months ended June 30, 2024 compared with the three months ended June 30, 2023.

The decrease was primarily driven by a significant volume decline in the renewable energy sector and lower volume in the off-highway and heavy industries sectors, partially offset by higher volume in the industrial distribution, aerospace, and rail sectors.

EBITDA decreased by $22.2 million or 12.0% for the three months ended June 30, 2024 compared with the three months ended June 30, 2023, primarily due to the impact of lower volume, partially offset by favorable price/mix and improved manufacturing cost performance.

The Engineered Bearings segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, decreased $152.7 million or 8.7% in the six months ended June 30, 2024 compared with the six months ended June 30, 2023.

The decrease was driven by a significant volume decline in the renewable energy sector, and lower volume in the off-highway and general industrial sectors, partially offset by higher volume in the rail sector, and higher pricing.

EBITDA decreased by $48.5 million or 12.4% for the six months ended June 30, 2024 compared with the six months ended June 30, 2023, primarily due to the impact of lower volume and the unfavorable impact of foreign currency exchange rate changes, partially offset by favorable price/mix and improved operating cost performance.

Industrial Motion Segment:

11 unchanged sentences

and currency $ 377.1 $ 415.1 $ (38.0) (9.2) %

The Industrial Motion segment's net sales, excluding the effects of acquisitions and foreign currency exchange rate changes, decreased $23.5 million or 6.5% in the three months ended March 31, 2024 compared with the three months ended March 31, 2023.

The decrease reflects lower volume across most platforms, with belts and chain experiencing the largest decline, partially offset by higher services revenue and higher pricing.

EBITDA increased $29.1 million or 60.4% for the three months ended March 31, 2024 compared with the three months ended March 31, 2023 primarily due to lower impairment charges, the benefit of acquisitions and favorable pricing, partially offset by the impact of lower volume.

The lower impairment charges were primarily due to the impairment charges related to the impairment of goodwill recorded in the quarter ended March 31, 2023.

Six Months Ended

2024 2023 $ Change Change

Net sales $ 786.7 $ 777.2 $ 9.5 1.2%

EBITDA $ 152.9 $ 129.1 $ 23.8 18.4%

EBITDA margin 19.4 % 16.6 % 280 bps

Six Months Ended

2024 2023 $ Change % Change

Net sales $ 786.7 $ 777.2 $ 9.5 1.2 %

Acquisitions 73.9 73.9 NM

Currency (2.9) (2.9) NM

Net sales, excluding the impact of acquisitions

and currency $ 715.7 $ 777.2 $ (61.5) (7.9) %

The Industrial Motion segment's net sales, excluding the effects of acquisitions and foreign currency exchange rate changes, decreased $38.0 million or 9.2% in the three months ended June 30, 2024 compared with the three months ended June 30, 2023.

The decrease reflects lower volume across most platforms, with drive systems and linear motion experiencing the largest declines, partially offset by higher pricing.

EBITDA decreased $5.3 million or 6.6% for the three months ended June 30, 2024 compared with the three months ended June 30, 2023 primarily due to the impact of lower volume, partially offset by the benefit of acquisitions and lower SG&A costs.

The Industrial Motion segment's net sales, excluding the effects of acquisitions and foreign currency exchange rate changes, decreased $61.5 million or 7.9% in the six months ended June 30, 2024 compared with the six months ended June 30, 2023.

The decrease reflects lower volume across most platforms, with drive systems, linear motion and belts and chain experiencing the largest decline, partially offset by higher services revenue and higher pricing.

EBITDA increased $23.8 million or 18.4% for the six months ended June 30, 2024 compared with the six months ended June 30, 2023 primarily due to lower impairment charges, the benefit of acquisitions, and favorable price/mix, partially offset by the impact of lower volume.

The lower impairment charges were primarily due to a goodwill impairment recorded in the quarter ended March 31, 2023.

Unallocated Corporate

3 unchanged sentences

Unallocated corporate expense % to net sales (1.5) % (1.0) % (50) bps

Unallocated corporate expense increased for the three months ended March 31, 2024 compared with the three months ended March 31, 2023 primarily due to the unfavorable impact of foreign currency exchange rate changes.

Three Months Ended

Six Months Ended

2024 2023 $ Change Change

Unallocated corporate expense $ (35.3) $ (30.9) $ (4.4) 14.2 %

Unallocated corporate expense % to net sales (1.5) % (1.2) % (30) bps

Unallocated corporate expense increased for the three and six months ended June 30, 2024 compared with the three and six months ended June 30, 2023 primarily due to the unfavorable impact of foreign currency exchange rate changes.

Six Months Ended

2024 2023 $ Change

1 unchanged sentence

Net cash used in investing activities (59.4) (412.0) 352.6

Net cash used in financing activities (15.0) (17.5) 2.5

Net cash (used in) provided by financing activities (52.0) 209.0 (261.0)

Effect of exchange rate changes on cash (10.8) (8.0) (2.8)

Increase (decrease) in cash and cash equivalents

Increase in cash and cash equivalents

and restricted cash $ 51.7 $ 11.6 $ 40.1

Op erating Activities:

The decrease in net cash provided by operating activities for the first three months of 2024 compared with the first three months of 2023 was primarily due to a decrease in net income of $15.1 million, lower non-cash impairment charges of $28.3 million, the unfavorable impact of working capital items of $8.7 million and higher pension and postretirement payments of $7.8 million, partially offset by the favorable impact of income taxes on cash of $32.7 million due to lower tax payments.

The decrease in net cash provided by operating activities for the first six months of 2024 compared with the first six months of 2023 was primarily due to a decrease in net income of $42.6 million, lower non-cash impairment charges of $26.4 million, the unfavorable impact of working capital items of $28.5 million and higher pension and postretirement payments of $8.9 million, partially offset by the favorable impact of income taxes on cash of $56.0 million due to lower tax payments.

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

The following table displays the impact of working capital items on cash during the three months of 2024 and 2023, respectively:

Three Months Ended

The following table displays the impact of working capital items on cash during the first six months of 2024 and 2023, respectively:

Six Months Ended

2024 2023 $ Change

6 unchanged sentences

Cash used in working capital items $ (162.3) $ (133.8) $ (28.5)

The following table displays the impact of income taxes on cash during the first three months of 2024 and 2023, respectively:

Three Months Ended

The following table displays the impact of income taxes on cash during the first six months of 2024 and 2023, respectively:

Six Months Ended

2024 2023 $ Change

4 unchanged sentences

Investing Activities:

The decrease in net cash used in investing activities for the first three months of 2024 compared with the first three months of 2023 was primarily due to a decrease in cash used for acquisitions of $29.0 million and an increase in cash from the net liquidation of short-term marketable securities of $18.9 million, partially offset by lower proceeds from divestitures of $5.7 million.

The decrease in net cash used in investing activities for the first six months of 2024 compared with the first six months of 2023 was primarily due to a decrease in cash used for acquisitions of $324.2 million, an increase in cash from the net liquidation of short-term marketable securities of $21.6 million and lower capital expenditures of $9.9 million, partially offset by lower proceeds from divestitures of $4.2 million.

Financing Activities:

The decrease in net cash used in financing activities for the first three months of 2024 compared with the first three months of 2023 was primarily due to a decrease in net borrowings of $44.8 million and a decrease in proceeds from the exercise of stock options of $10.7 million, partially offset by a decrease in the purchase of treasury shares of $54.0 million.

The decrease in net cash used in financing activities for the first six months of 2024 compared with the first six months of 2023 was primarily due to a decrease in net borrowings of $318.9 million, a decrease in the proceeds from the sale of shares of TIL of $52.5 million and a decrease in proceeds from the exercise of stock options of $11.8 million, partially offset by a decrease in the purchase of treasury shares of $124.8 million.

LIQUIDITY AND CAPITAL RESOURCES

13 unchanged sentences

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

At March 31, 2024, the Company had strong liquidity with $421.9 million of cash and cash equivalents on the Consolidated Balance Sheet, as well as $523.8 million available under committed credit lines.

At June 30, 2024, the Company had strong liquidity with $469.9 million of cash and cash equivalents on the Consolidated Balance Sheet, as well as $809.3 million available under committed credit lines.

Of the $469.9 million of cash and cash equivalents, $446.0 million resided in jurisdictions outside the United States.

4 unchanged sentences

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 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 interest rates under Credit Agreement are based on SOFR.

At March 31, 2024, the Company had $251.1 million of outstanding borrowings and $0.1 million of letters of credit under the Senior Credit Facility, which reduced the availability under this facility to $498.8 million.

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

The interest rates under the Credit Agreement are based on SOFR.

At June 30, 2024, the Company had $40.7 million of outstanding borrowings under the Senior Credit Facility, which reduced the availability under this facility to $709.3 million.

The Credit Agreement has two financial covenants:

1 unchanged sentence

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

As of March 31, 2024, the Company's consolidated leverage ratio was 2.20 to 1.0.

As of June 30, 2024, the Company's consolidated leverage ratio was 1.98 to 1.0.

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

As of March 31, 2024, the Company's consolidated interest coverage ratio was 8.24 to 1.0.

As of June 30, 2024, the Company's consolidated interest coverage ratio was 7.72 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 U.S.

dollar borrowings was 6.43% and the average rate on outstanding Euro borrowings was 4.86% as of March 31, 2024.

dollar borrowings was 6.42% and the average rate on outstanding Euro borrowings was 4.80% as of June 30, 2024.

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 March 31, 2024, the Company carried investment-grade credit ratings with both Moody's (Baa2) and S&P Global (BBB-).

As of June 30, 2024, 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, 2026.

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 March 31, 2024, the Company had $75 million of outstanding borrowings under the Accounts Receivable Facility and no borrowing base limitations.

There was $25 million of availability under the Accounts Receivable Facility as of March 31, 2024.

As of June 30, 2024, the Company had no outstanding borrowings under the Accounts Receivable Facility and no borrowing base limitations.

Other sources of liquidity include uncommitted short-term lines of credit for certain of the Company's foreign subsidiaries, which currently provide for borrowings of up to $223.9 million.

At March 31, 2024, the Company had borrowings outstanding of $26.8 million and bank guarantees of $1.7 million, which reduced the aggregate availability under these facilities to $198.9 million.

At June 30, 2024, the Company had borrowings outstanding of $27.7 million and bank guarantees of $2.1 million, which reduced the aggregate availability under these facilities to $194.1 million.

On May 23, 2024, the Company issued 2034 Notes in the aggregate principal amount of €600 million with an interest rate of 4.125%, maturing on May 23, 2034.

Proceeds from the 2034 Notes were used for the redemption of the 2024 Notes in the aggregate principal amount of $350 million that were due to mature on September 1, 2024, as well as the repayment of other debt outstanding at the time of the issuance.

On August 16, 2023, the Company entered into a €200 million 2024 Term Loan, maturing on August 16, 2024.

Proceeds from the 2024 Term Loan were used to repay borrowings on the Senior Credit Facility and Accounts Receivable Facility, as well as for general corporate purposes.

The Company also has 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 Term Loan and the 2024 Notes prior to their maturity.

At March 31, 2024, the Company was in full compliance with all applicable covenants on its outstanding debt.

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

The Company expects higher capital expenditures in 2024 compared to 2023, but relatively in line with 2023 spending as a percentage of sales (4.0%).

The Company repaid the 2024 Term Loan during the second quarter of 2024.

At June 30, 2024, the Company was in full compliance with all applicable covenants on its outstanding debt.

The Company expects to generate a comparable amount of cash from operating activities in 2024 compared to 2023.

The Company expects capital expenditures to remain relatively flat in 2024 compared to 2023 and in line with 2023 spending as a percentage of sales (4.0%).

Financing Obligations and Other Commitments:

During the first three months of 2024, the Company made cash contributions and payments of $11.9 million to its global defined benefit pension plans and $0.3 million to its other postretirement benefit plans.

During the first six months of 2024, the Company made cash contributions and payments of $15.5 million to its global defined benefit pension plans and $0.7 million to its other postretirement benefit plans.

The Company expects to make contributions to its global defined benefit plans of approximately $25 million in 2024.

6 unchanged sentences

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, 2023, during the three months ended March 31, 2024.

OTHER MATTERS

4 unchanged sentences

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

For the three months ended March 31, 2024, the Company recorded negative foreign currency translation adjustments of $50.3 million that decreased shareholders' equity, compared with positive foreign currency translation adjustments of $27.4 million that increased shareholders' equity for the three months ended March 31, 2023.

The foreign currency translation adjustments for the three months ended March 31, 2024 were negatively impacted by the strengthening of the U.S.

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

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, 2024 totaled $3.2 million of net losses, compared with $3.0 million of net losses during the three months ended March 31, 2023.

For the six months ended June 30, 2024, the Company recorded negative foreign currency translation adjustments of $79.5 million that decreased shareholders' equity, compared with negative foreign currency translation adjustments of $0.2 million that decreased shareholders' equity for the six months ended June 30, 2023.

The foreign currency translation adjustments for the six months ended June 30, 2024 was negatively impacted by the strengthening of the U.S.

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

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 June 30, 2024 totaled $0.4 million of net losses, compared with $1.7 million of net gains during the three months ended June 30, 2023.

Foreign currency exchange gains and losses, net of hedging activity, resulting from transactions included in the Company's operating results for the six months ended June 30, 2024 totaled $3.6 million of net losses, compared with $1.3 million of net losses during the six months ended June 30, 2023.

CEO Succession:

On March 26, 2024, the Company announced that it had reached an agreement with Tarak Mehta to become Timken’s next President and Chief Executive Officer.

Mehta is an accomplished industry veteran who most recently served as President of the Motion business and a member of the Group Executive Committee at ABB Ltd.

He will succeed Richard G.

Kyle, who has served as Timken’s President and Chief Executive Officer since 2014.

Mehta is expected to start his employment with the Company on September 5, 2024, at which time Mr.

Kyle will move into an advisory role to assist with the leadership transition.

Kyle is expected to retire as an employee of Timken on February 15, 2025, but will remain on the Company’s Board of Directors.

Mehta will also be appointed to the Board of Directors.

NON-GAAP MEASURES

13 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Net Sales $ 1,182.3 $ 1,272.3 $ 2,372.6 $ 2,535.1

4 unchanged sentences

Impairment, restructuring and reorganization charges (1)

6.0 6.0 10.8 36.3

Corporate pension and other postretirement benefit related income (2)

Russia-related charges (3)

— (1.0) — (1.9)

Acquisition-related charges (3)

Gain on divestitures and sale of certain assets (5)

3.0 3.8 7.7 8.5

(Gain) loss on divestitures and sale of certain assets (4)

(0.2) 0.4 (0.9) (4.4)

Noncontrolling interest of above adjustments — — (0.1) (0.2)

Provision for income taxes (6)

(8.8) (5.6) (15.3) (17.0)

Adjusted Net Income $ 115.2 $ 146.1 $ 240.9 $ 299.6

4 unchanged sentences

Depreciation and amortization expense (6)

54.0 50.8 108.9 96.2

Acquisition intangible amortization 19.0 17.3 39.0 30.8

1 unchanged sentence

Provision for income taxes (5)

(8.8) (5.6) (15.3) (17.0)

Adjusted EBITDA $ 230.2 $ 263.0 $ 476.6 $ 528.5

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Diluted earnings per share (EPS) $ 1.36 $ 1.73 $ 2.82 $ 3.39

2 unchanged sentences

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

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024

Engineered Bearings Industrial Motion Unallocated Corporate Total

5 unchanged sentences

0.3 2.2 0.5 3.0

(Gain) loss on divestitures and sale of certain assets (5)

Gain on divestitures and sale of certain assets (4)

(0.2) — — (0.2)

1 unchanged sentence

Adjusted EBITDA Margin (% of net sales) 21.2 % 20.0 % NM 19.5 %

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Engineered Bearings Industrial Motion Unallocated Corporate Total

5 unchanged sentences

— — (1.0) (1.0)

Russia-related charges (3)

Acquisition-related charges (3)

0.1 3.1 0.6 3.8

Loss divestitures and sale of certain assets (4)

Adjusted EBITDA $ 189.6 $ 85.9 $ (12.5) $ 263.0

Adjusted EBITDA Margin (% of net sales) 22.1 % 20.7 % NM 20.7 %

Six Months Ended June 30, 2024

Engineered Bearings Industrial Motion Unallocated Corporate Total

Net Sales $ 1,585.9 $ 786.7 $ — $ 2,372.6

EBITDA 342.0 152.9 (35.3) 459.6

Impairment, restructuring and reorganization

5.3 3.7 1.2 10.2

Acquisition-related charges (3)

1.2 5.2 1.3 7.7

Gain on divestitures and sale of certain assets (4)

(0.9) — — (0.9)

Adjusted EBITDA $ 347.6 $ 161.8 $ (32.8) $ 476.6

Adjusted EBITDA Margin (% of net sales) 21.9 % 20.6 % NM 20.1 %

Six Months Ended June 30, 2023

Engineered Bearings Industrial Motion Unallocated Corporate Total

Net Sales $ 1,757.9 $ 777.2 $ — $ 2,535.1

EBITDA 390.5 129.1 (29.0) 490.6

Impairment, restructuring and reorganization

5.4 30.2 0.1 35.7

Corporate pension and other postretirement benefit related income (2)

— — (1.9) (1.9)

Acquisition-related charges (3)

2.3 3.1 3.1 8.5

(Gain) loss divestitures and sale of certain assets (4)

7 unchanged sentences

and (iv) impairment of assets.

On March 26, 2024, the Company announced that Richard G.

Kyle, President and CEO of the Company would be retiring from his position as CEO and that Tarak Mehta would be appointed CEO on September 5, 2024.

Impairment, restructuring and reorganization charges for 2024 include the acceleration of certain stock compensation awards for Mr.

Kyle and other one-time costs associated with the transition.

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

4 unchanged sentences

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

(3) 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.

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

(3) 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 sale of certain assets .

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

(5) 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.

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2024 2023 2024 2023

Net cash provided by operating activities $ 124.6 $ 144.0 $ 173.9 $ 222.6

4 unchanged sentences

The Company presents net debt to adjusted EBITDA because it believes it is more representative of the Company's financial position as it is reflective of the Company's ability to cover its net debt obligations with results from its core operations.

Net income for the trailing twelve months ended March 31, 2024 and December 31, 2023 was $392.9 million and $408.0 million, respectively.

Net debt to adjusted EBITDA for the trailing twelve months was 2.1 at March 31, 2024 and December 31, 2023.

Net income for the trailing twelve months ended June 30, 2024 and December 31, 2023 was $365.4 million and $408.0 million, respectively.

Net debt to adjusted EBITDA for the trailing twelve months was 1.9 at June 30, 2024 and December 31, 2023.

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

12 unchanged sentences

Gain on divestitures and sale of certain assets (4)

Russia-related charges (5)

Total adjustments 85.6 106.5

7 unchanged sentences

and (iv) impairment of assets.

On March 26, 2024, the Company announced that Richard G.

Kyle, President and Chief Executive Officer of the Company would be retiring from his position as CEO and that Tarak Mehta would be appointed CEO on September 5, 2024.

Impairment, restructuring and reorganization charges for the twelve months ending June 30, 2024 include the acceleration of certain stock compensation awards and professional fees associated with the transition.

Impairment, restructuring and reorganization charges for the twelve months ended December 31, 2023 included $29.3 million related to the sale of ADS and $28.3 million related to the impairment of goodwill.

5 unchanged sentences

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

(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 venture ("Russian JV") to reflect the current impact of Russia's invasion of Ukraine (and associated sanctions) on the Company's operations.

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

FORWARD-LOOKING STATEMENTS

44 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