What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-05 compared with 2024-07-31 · 179 added, 122 removed, 438 unchanged (41% of the section changed)

4 unchanged sentences

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 employs more than 19,000 people globally in 45 countries.

10 unchanged sentences

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.

20 unchanged sentences

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

The following items highlight some of the Company's more significant strategic accomplishments during the nine months ended September 30, 2024:

• On September 9, 2024, the Company acquired CGI, a Nevada-based manufacturer of precision drive systems serving a broad range of automation markets with a concentration in medical robotics.

CGI employs approximately 130 people and has its headquarters and manufacturing facilities in Carson City, Nevada.

CGI will further Timken's strategy to expand and scale its leading industrial motion product portfolio.

• The Company paid its 409 th consecutive quarterly dividend in the third quarter.

During the second quarter, Timken increased its quarterly dividend by 3%.

The Company also repurchased 0.4 million common shares during the nine months ended September 30, 2024.

Three Months Ended

September 30,

2024 2023 $ Change % Change

5 unchanged sentences

Average number of shares – diluted 70,663,741 71,535,609 — (1.2) %

Six Months Ended

Nine Months Ended

September 30,

2024 2023 $ Change % Change

5 unchanged sentences

Average number of shares – diluted 70,793,086 72,456,849 — (2.3) %

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.

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

The decrease was primarily driven by lower organic demand in China and Europe, and the unfavorable impact of foreign currency exchange rate changes, partially offset by the benefit of acquisitions (net of divestitures) and favorable pricing.

Net income decreased for the three months ended September 30, 2024 compared with the three months ended September 30, 2023 primarily due to the impact of lower volume, higher logistics costs, the unfavorable impact of foreign currency exchange rate changes, and higher selling, general, and administrative (SG&A) costs, partially offset by the gain on the sale of a former bearing manufacturing plant, favorable price/mix, lower impairment and restructuring charges and the benefit of acquisitions (net of divestitures).

Net income decreased for the nine months ended September 30, 2024 compared with the nine months ended September 30, 2023 primarily due to the impact of lower volume, the unfavorable impact of foreign currency exchange rate changes, and higher interest expense, partially offset by favorable price/mix, lower impairment charges, the benefit of acquisitions (net of divestitures), the gain on the sale of a former bearing manufacturing plant, and lower manufacturing and SG&A costs.

The Company expects 2024 full-year revenue to be down approximately 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, higher interest expense and a higher income tax rate, partially offset by favorable price/mix, lower impairment and pension remeasurement charges, and the benefit of acquisitions (net of divestitures).

The Company expects to generate a lower amount of cash from operating activities in 2024 compared to 2023 primarily due to lower expected net income.

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%).

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Three Months Ended

September 30,

2024 2023 $ Change Change

4 unchanged sentences

Impairment and restructuring charges 2.5 8.9 (6.4) (71.9%)

Gain on sale of real estate (13.8) — (13.8) NM

Operating income $ 146.3 $ 149.6 (3.3) (2.2%)

Operating income % to net sales 13.0 % 13.1 % (10) bps

Six Months Ended

Nine Months Ended

September 30,

2024 2023 $ Change Change

4 unchanged sentences

Impairment and restructuring charges 8.1 40.3 (32.2) (79.9%)

Gain on sale of real estate (13.8) — (13.8) NM

Operating income $ 498.1 $ 537.9 (39.8) (7.4%)

Operating income % to net sales 14.2 % 14.6 % (40) 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.

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

The decrease was driven by lower organic revenue of $33 million and $247 million, respectively (lower volume partially offset by favorable pricing) and the unfavorable impact of foreign currency exchange rate changes of $3 million and $23 million, respectively, partially offset by the favorable impact of acquisitions (net of divestitures) of $21 million and $92 million, respectively.

The lower demand in the three and nine months ended September 30, 2024 was experienced across both the Engineered Bearings and Industrial Motion segments.

Operating income decreased for the three months ended September 30, 2024 compared with the three months ended September 30, 2023, due to the unfavorable impact of lower sales net of cost of products sold, higher SG&A expenses, and increased amortization expense, offset partially by the gain on the sale of a former bearing manufacturing plant and lower impairment and restructuring charges.

Operating income decreased for the nine months ended September 30, 2024 compared with the nine months ended September 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 and the gain on the sale of a former bearing manufacturing plant.

• Cost of products sold decreased for the three months ended September 30, 2024 compared with the three months ended September 30, 2023, due to the impact of lower volume of $20 million, partially offset by higher net material and logistics costs of $8 million and the incremental cost of goods sold from acquisitions (net of divestitures) of $6 million.

Cost of products sold decreased for the nine months ended September 30, 2024 compared with the nine months ended September 30, 2023, due to the impact of lower volume of $138 million, the impact of foreign currency exchange rate changes of $16 million, partially offset by the incremental cost of goods sold from acquisitions (net of divestitures) of $40 million and unfavorable net material and logistics costs of $4 million.

• SG&A expenses increased for the three months ended September 30, 2024 compared with the three months ended September 30, 2023, primarily due to the impact of acquisitions and bad debt expense.

SG&A expenses increased for the nine months ended September 30, 2024 compared with the nine months ended September 30, 2023, primarily due to the impact of acquisitions and bad debt expense, partially offset by the reduced discretionary spending to align with the lower demand levels, and reduced compensation expense.

• Amortization of intangible assets increased for the three and nine months ended September 30, 2024 compared with the three and nine months ended September 30, 2023, primarily due to the addition of intangible assets from the six acquisitions that were completed during 2023, as well as the CGI acquisition, which was completed in the third quarter of 2024.

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

• 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.

• Impairment and restructuring charges were lower for the three months ended September 30, 2024 compared with the three months ended September 30, 2023, primarily due to impairment charges for the closure of the plant in Gaffney, South Carolina, during the three months ended September 30, 2023.

Impairment and restructuring charges were lower for the nine months ended September 30, 2024 compared with the nine months ended September 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 quarter of 2023, partially offset by the impairment of certain engineering-related assets used in the Engineered Bearing Segment during the second quarter of 2024.

• Gain on sale of real estate for the three and nine months ended September 30, 2024 was due to a gain of $13.8 million on the sale of a former bearing manufacturing plant in Gaffney, South Carolina during the three months ended September 30, 2024.

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

Interest Income and Expense:

Three Months Ended

September 30,

2024 2023 $ Change % Change

1 unchanged sentence

Interest income 3.4 2.6 $ 0.8 30.8 %

Six Months Ended

Interest expense, net $ (26.9) $ (24.9) $ (2.0) 8.0 %

Nine Months Ended

September 30,

2024 2023 $ Change % Change

1 unchanged sentence

Interest income 11.3 6.0 $ 5.3 88.3 %

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.

Interest expense, net $ (85.8) $ (73.9) $ (11.9) 16.1 %

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

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

The increase in interest income for the three and nine months ended September 30, 2024 compared with the three and nine months ended September 30, 2023 was due to increased cash levels and higher average interest rates.

Other Income (Expense):

Three Months Ended

September 30,

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

Non-service pension and other postretirement expense $ (0.9) $ (0.9) $ — — %

Other (expense) income (6.3) 0.4 (6.7) NM

Total other expense, net $ (7.2) $ (0.5) $ (6.7) NM

Nine Months Ended

September 30,

2024 2023 $ Change % Change

Non-service pension and other postretirement

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

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

Non-service pension and other postretirement expense $ (2.9) $ (0.8) $ (2.1) 262.5 %

Other (expense) income (6.0) 5.8 (11.8) (203.4) %

Total other (expense) income $ (8.9) $ 5.0 $ (13.9) (278.0) %

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.

The increase in non-service pension and other postretirement expense for the nine months ended September 30, 2024 compared with the nine months ended September 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 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.

The change in other (expense) income for the three and nine months ended September 30, 2024 compared with the three and nine months ended September 30, 2023 was primarily driven by net foreign currency losses in the current year periods of $5.4 million and $11.0 million, respectively.

In addition, a gain of $4.8 million on the divestiture of SE Setco, a 50% owned joint venture, was recognized during the nine months ended September 30, 2023.

Income Tax Expense:

Three Months Ended

September 30,

2024 2023 $ Change Change

1 unchanged sentence

Effective tax rate 21.9 % 26.8 % (490) bps

Six Months Ended

Nine Months Ended

September 30,

2024 2023 $ Change Change

1 unchanged sentence

Effective tax rate 25.6 % 26.2 % (60) 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.

Income tax expense decreased $8.7 million and $19.7 million for the three and nine months ended September 30, 2024 compared with the three and nine months ended September 30, 2023, respectively, due to lower pre-tax earnings and the net favorable 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 2023 and foreign currency exchange rate changes.

GAAP to net sales adjusted to remove the effects of acquisitions and divestitures completed in 2024 and 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.

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

The following item represents the Company's acquisitions and divestitures completed in 2024 and 2023:

• The Company acquired CGI during the third quarter of 2024.

Results for CGI are reported in the Industrial Motion segment.

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

2 unchanged sentences

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.

• The Company completed the sale of TWB during the fourth quarter of 2023.

Results for TWB were reported in the Engineered Bearings segment.

7 unchanged sentences

Three Months Ended

September 30,

2024 2023 $ Change Change

3 unchanged sentences

Three Months Ended

September 30,

2024 2023 $ Change % Change

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divestitures and currency $ 747.4 $ 775.6 $ (28.2) (3.6 %)

Six Months Ended

Nine Months Ended

September 30,

2024 2023 $ Change Change

2 unchanged sentences

EBITDA margin 21.1 % 21.3 % (20) bps

Six Months Ended

Nine Months Ended

September 30,

2024 2023 $ Change % Change

5 unchanged sentences

divestitures and currency $ 2,352.7 $ 2,533.5 $ (180.8) (7.1 %)

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.

The Engineered Bearings segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, decreased $28.2 million or 3.6% in the three months ended September 30, 2024 compared with the three months ended September 30, 2023.

The decrease was primarily driven by lower demand in the renewable energy, off-highway, auto/truck and general & heavy industrial sectors, partially offset by growth in the industrial distribution, rail and aerospace sectors.

EBITDA increased by $1.8 million or 1.2% for the three months ended September 30, 2024 compared with the three months ended September 30, 2023, primarily due to the gain on the sale of a former bearing manufacturing facility in Gaffney, South Carolina, the impact of favorable price/mix and lower impairment charges, offset by the impact of lower volume and higher logistics and manufacturing costs.

The Engineered Bearings segment's net sales, excluding the effects of acquisitions, divestitures and foreign currency exchange rate changes, decreased $180.8 million or 7.1% in the nine months ended September 30, 2024 compared with the nine months ended September 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 & heavy industrial market sectors, partially offset by higher volume in the rail, aerospace and industrial distribution sectors, and higher pricing.

EBITDA decreased by $46.7 million or 8.7% for the nine months ended September 30, 2024 compared with the nine months ended September 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, improved operating cost performance, the gain on the sale of a former bearing manufacturing facility, lower impairment charges, and the benefit of acquisitions.

Industrial Motion Segment:

Three Months Ended

September 30,

2024 2023 $ Change Change

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Three Months Ended

September 30,

2024 2023 $ Change % Change

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and currency $ 362.1 $ 367.1 $ (5.0) (1.4) %

Six Months Ended

Nine Months Ended

September 30,

2024 2023 $ Change Change

2 unchanged sentences

EBITDA margin 19.1 % 17.4 % 170 bps

Six Months Ended

Nine Months Ended

September 30,

2024 2023 $ Change % Change

4 unchanged sentences

and currency $ 1,077.7 $ 1,144.3 $ (66.6) (5.8) %

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 Industrial Motion segment's net sales, excluding the effects of acquisitions and foreign currency exchange rate changes, decreased $5.0 million or 1.4% in the three months ended September 30, 2024 compared with the three months ended September 30, 2023.

The decrease reflects lower demand across most platforms, with lubrication systems experiencing the largest decline, partially offset by growth in the drive systems platform, and favorable pricing.

EBITDA increased $0.6 million or 0.9% for the three months ended September 30, 2024 compared with the three months ended September 30, 2023 primarily due to the benefit of acquisitions, partially offset by the impact of lower volume and higher operating costs.

The Industrial Motion segment's net sales, excluding the effects of acquisitions and foreign currency exchange rate changes, decreased $66.6 million or 5.8% in the nine months ended September 30, 2024 compared with the nine months ended September 30, 2023.

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

EBITDA increased $24.4 million or 12.2% for the nine months ended September 30, 2024 compared with the nine months ended September 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.

1 unchanged sentence

Three Months Ended

September 30,

2024 2023 $ Change Change

1 unchanged sentence

Unallocated corporate expense % to net sales (2.3) % (1.5) % (80) bps

Six Months Ended

Nine Months Ended

September 30,

2024 2023 $ Change Change

1 unchanged sentence

Unallocated corporate expense % to net sales (1.7) % (1.3) % (40) 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

Unallocated corporate expense increased for the three and nine months ended September 30, 2024 compared with the three and nine months ended September 30, 2023 primarily due to unfavorable foreign currency losses in the current year periods of $5.4 million and $11.0 million, respectively.

Nine Months Ended

September 30,

2024 2023 $ Change

6 unchanged sentences

Op erating Activities:

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.

The decrease in net cash provided by operating activities for the first nine months of 2024 compared with the first nine months of 2023 was due to the unfavorable impact of working capital items of $80.0 million, a decrease in net income of $45.9 million, lower non-cash impairment charges of $31.2 million, and higher gains from sales of assets of $14.6 million, partially offset by the favorable impact of income taxes on cash of $34.2 million and higher depreciation and amortization of $16.6 million.

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

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

Six Months Ended

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

Nine Months Ended

September 30,

2024 2023 $ Change

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Cash used in working capital items $ (124.9) $ (44.9) $ (80.0)

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

Six Months Ended

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

Nine Months Ended

September 30,

2024 2023 $ Change

4 unchanged sentences

Investing Activities:

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.

The decrease in net cash used in investing activities for the first nine months of 2024 compared with the first nine months of 2023 was due to a decrease in cash used for acquisitions of $297.0 million, an increase in cash from the net liquidation of short-term marketable securities of $22.1 million, lower capital expenditures of $18.5 million, and higher proceeds from disposals of fixed assets of $15.8 million, offset partially by lower proceeds from divestitures of $4.2 million.

Financing Activities:

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.

The change in net cash used in/provided by financing activities for the first nine months of 2024 compared with the first nine months of 2023 was due to a decrease in net borrowings of $406.8 million and lower proceeds from the sale of shares of TIL during the 2024 period compared to the 2023 period in the amount of $52.5 million, and the impact of other items (net), partially offset by a decrease in the purchase of treasury shares of $187.0 million.

LIQUIDITY AND CAPITAL RESOURCES

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

September 30,

2024 December 31,

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Ratio of Net Debt to Capital:

September 30,

2024 December 31,

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

At 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.

At September 30, 2024, the Company had strong liquidity with $412.7 million of cash and cash equivalents on the Consolidated Balance Sheet, as well as $778.0 million available under committed credit lines.

Of the $412.7 million of cash and cash equivalents, $381.2 million resided in jurisdictions outside the United States.

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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.

At September 30, 2024, the Company had no outstanding borrowings under the Senior Credit Facility.

The Credit Agreement has two financial covenants:

a consolidated leverage ratio and a consolidated interest coverage ratio.

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

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

a consolidated net leverage ratio and a consolidated interest coverage ratio.

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

As of September 30, 2024, the Company's consolidated net leverage ratio was 2.14 to 1.0.

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

As of June 30, 2024, the Company's consolidated interest coverage ratio was 7.72 to 1.0.

As of September 30, 2024, the Company's consolidated interest coverage ratio was 7.48 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 6.42% and the average rate on outstanding Euro borrowings was 4.80% as of June 30, 2024.

dollar borrowings was 6.24% and the average rate on outstanding Euro borrowings was 4.63% as of September 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 June 30, 2024, the Company carried investment-grade credit ratings with both Moody's (Baa2) and S&P Global (BBB-).

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

The Accounts Receivable Facility had no borrowing base limitations at September 30, 2024.

As of September 30, 2024, the Company had $72 million of outstanding borrowings under the Accounts Receivable Facility, which reduced the availability to $28 million.

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 $231.5 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.

At September 30, 2024, the Company had borrowings outstanding of $25.9 million and bank guarantees of $2.4 million, which reduced the aggregate availability under these facilities to $203.2 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.

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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.

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

The Company expects to generate a lower amount of cash from operating activities in 2024 compared to 2023 primarily due to lower expected net income.

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 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.

During the first nine months of 2024, the Company made cash contributions and payments of $21.7 million to its global defined benefit pension plans and $1.2 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.

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The Company reviews its critical accounting policies throughout the year.

The Company has concluded that there have been no significant changes to its critical accounting policies or estimates, as described in its Annual Report on Form 10-K for the year ended December 31, 2023, during the six months ended June 30, 2024.

OTHER MATTERS

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

For the 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.

For the nine months ended September 30, 2024, the Company recorded negative foreign currency translation adjustments of $0.2 million that decreased shareholders' equity, compared with negative foreign currency translation adjustments of $63.5 million that decreased shareholders' equity for the nine months ended September 30, 2023.

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

dollar relative to other foreign currencies, including the 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 September 30, 2024 totaled $6.3 million of net losses, compared with $5.2 million of net losses during the three months ended September 30, 2023.

Foreign currency exchange gains and losses, net of hedging activity, resulting from transactions included in the Company's operating results for the nine months ended September 30, 2024 totaled $9.9 million of net losses, compared with $6.5 million of net losses during the nine months ended September 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.

On September 5, 2024, the Board of Directors (the "Board") of the Company appointed Tarak Mehta President and Chief Executive Officer ("CEO") of the Company and appointed Richard G.

Kyle Advisor to the CEO.

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.

He succeeds Richard G.

Kyle, who has served as Timken’s President and CEO since 2014.

Kyle will continue to act as the Company’s principal executive officer through this filing of the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2024, after which Mr.

Mehta will assume such role.

Kyle will serve as Advisor to the CEO until his scheduled retirement as an employee of the Company on February 15, 2025.

NON-GAAP MEASURES

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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3.4 11.6 12.8 47.9

Corporate pension and other postretirement benefit related income (2)

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

— 0.2 — (1.7)

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3.1 4.3 10.8 12.8

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

Gain on divestitures and sale of certain assets (4)

(13.8) (1.5) (14.7) (5.9)

Property losses and related expenses (5)

CEO succession expenses (6)

Noncontrolling interest of above adjustments (0.1) (1.8) (0.2) (2.0)

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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

Three Months Ended June 30, 2024

Three Months Ended September 30, 2024

Engineered Bearings Industrial Motion Unallocated Corporate Total

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(13.8) — — (13.8)

Property losses and related expenses (5)

CEO succession expenses (6)

Adjusted EBITDA $ 138.4 $ 74.2 $ (22.6) $ 190.0

Adjusted EBITDA Margin (% of net sales) 18.7 % 19.2 % NM 16.9 %

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Engineered Bearings Industrial Motion Unallocated Corporate Total

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Corporate pension and other postretirement benefit related income (2)

— — (1.0) (1.0)

Acquisition-related charges (3)

0.9 2.5 0.9 4.3

Loss divestitures and sale of certain assets (4)

Gain divestitures and sale of certain assets (4)

(1.4) (0.1) — (1.5)

Adjusted EBITDA $ 156.7 $ 75.2 $ (16.1) $ 215.8

Adjusted EBITDA Margin (% of net sales) 20.2 % 20.5 % NM 18.9 %

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

Engineered Bearings Industrial Motion Unallocated Corporate Total

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(14.7) — — (14.7)

Property losses and related expenses (5)

CEO succession expenses (6)

Adjusted EBITDA $ 486.0 $ 236.0 $ (55.4) $ 666.6

Adjusted EBITDA Margin (% of net sales) 20.9 % 20.1 % NM 19.0 %

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Engineered Bearings Industrial Motion Unallocated Corporate Total

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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.

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

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

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

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

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

(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.

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

(Gain) loss on divestitures and sale of certain assets for the third quarter of 2024 included $13.8 million gain related to the sale of the Gaffney, South Carolina plant.

(5) Represents property loss and related expenses incurred during the periods presented resulting from property loss that occurred during the second quarter of 2024 at one of the Company's plants in Slovakia.

(6) 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.

CEO succession expenses include the acceleration of certain stock compensation awards for Mr.

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

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

(8) 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.

Free Cash Flow:

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

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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 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.

Net income for the trailing twelve months ended September 30, 2024 and December 31, 2023 was $362.1 million and $408.0 million, respectively.

Net debt to adjusted EBITDA for the trailing twelve months was 2.1 at September 30, 2024 and December 31, 2023.

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

Twelve Months Ended

September 30,

2024 December 31,

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Gain on divestitures and sale of certain assets (4)

Property losses and related expenses (5)

CEO succession expenses (6)

Total adjustments 65.9 106.5

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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.

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.

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

Gain on divestitures and sale of certain assets for the third quarter of 2024 included $13.8 million gain related to the sale of the Gaffney, South Carolina plant.

(6) 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.

CEO succession expenses include the acceleration of certain stock compensation awards for Mr.

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

FORWARD-LOOKING STATEMENTS

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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;

• 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, availability and health of employees, and governmental restrictions on travel and manufacturing operations;

• 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;

• 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 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;

the ability of the Company to respond to rapid changes in customer demand, disruptions to the Company's supply chain, 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;

• 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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changes in costs associated with varying levels of operations and manufacturing capacity;

availability and cost of raw materials and energy;

availability and cost of raw materials, energy and fuel;

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

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and changes in the cost of labor and benefits;

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

• the success of the Company’s operating plans, announced programs, initiatives and capital investments;

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• 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;

• 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;

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

• unanticipated litigation, claims, investigations, remediation or assessments.

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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-Q

Item 2. Management’s Discussion and Analysis