Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
THE TIMKEN COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
Three Months Ended
September 30, Nine Months Ended
September 30,
2024 2023 2024 2023
(Dollars in millions, except per share data)
Net sales $ 1,126.8 $ 1,142.7 $ 3,499.4 $ 3,677.8
Cost of products sold 782.4 787.1 2,383.8 2,500.0
Selling, general and administrative expenses 189.7 179.6 564.5 551.3
Amortization of intangible assets 19.7 17.5 58.7 48.3
Impairment and restructuring charges 2.5 8.9 8.1 40.3
Gain on sale of real estate ( 13.8 ) — ( 13.8 ) —
Operating Income 146.3 149.6 498.1 537.9
Interest expense ( 30.3 ) ( 27.5 ) ( 97.1 ) ( 79.9 )
Interest income 3.4 2.6 11.3 6.0
Non-service pension and other postretirement expense ( 0.9 ) ( 0.9 ) ( 2.9 ) ( 0.8 )
Other (expense) income, net ( 6.3 ) 0.4 ( 6.0 ) 5.8
Income Before Income Taxes 112.2 124.2 403.4 469.0
Provision for income taxes 24.6 33.3 103.2 122.9
Net Income 87.6 90.9 300.2 346.1
Less: Net income attributable to noncontrolling interest 5.8 3.0 18.7 10.7
Net Income Attributable to The Timken Company $ 81.8 $ 87.9 $ 281.5 $ 335.4
Net Income per Common Share Attributable to The Timken
Company Common Shareholders
Basic earnings per share $ 1.17 $ 1.24 $ 4.01 $ 4.68
Diluted earnings per share $ 1.16 $ 1.23 $ 3.98 $ 4.63
See accompanying Notes to the Consolidated Financial Statements.
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended
September 30, Nine Months Ended
September 30,
2024 2023 2024 2023
(Dollars in millions)
Net Income $ 87.6 $ 90.9 $ 300.2 $ 346.1
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 78.7 ( 65.1 ) ( 1.3 ) ( 65.3 )
Pension and postretirement liability adjustments ( 1.6 ) ( 1.4 ) ( 4.6 ) ( 4.5 )
Change in fair value of derivative financial instruments ( 1.6 ) 2.0 ( 1.3 ) 0.9
Other comprehensive income (loss), net of tax 75.5 ( 64.5 ) ( 7.2 ) ( 68.9 )
Comprehensive income, net of tax 163.1 26.4 293.0 277.2
Less: comprehensive income attributable to noncontrolling interest 5.2 1.2 17.6 8.9
Comprehensive income attributable to The Timken Company $ 157.9 $ 25.2 $ 275.4 $ 268.3
See accompanying Notes to the Consolidated Financial Statements.
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Consolidated Balance Sheets
(Unaudited)
(Dollars in millions) September 30,
2024 December 31,
2023
ASSETS
Current Assets
Cash and cash equivalents $ 412.7 $ 418.9
Restricted cash 0.7 0.4
Accounts receivable, less allowances (2024 – $ 19.0 million; 2023 – $ 17.1 million)
762.0 671.7
Unbilled receivables 162.6 144.5
Inventories, net 1,255.3 1,229.1
Deferred charges and prepaid expenses 41.9 41.5
Other current assets 96.7 128.8
Total Current Assets 2,731.9 2,634.9
Property, Plant and Equipment, net 1,314.8 1,311.9
Other Assets
Goodwill 1,465.5 1,369.6
Other intangible assets, net 1,059.5 1,031.4
Operating lease assets 119.7 119.7
Deferred income taxes 46.8 44.3
Other non-current assets 29.2 29.9
Total Other Assets 2,720.7 2,594.9
Total Assets $ 6,767.4 $ 6,541.7
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable, trade $ 344.6 $ 367.2
Short-term debt, including current portion of long-term debt 49.7 605.6
Salaries, wages and benefits 152.2 161.5
Income taxes payable 30.8 19.9
Other current liabilities 333.0 317.1
Total Current Liabilities 910.3 1,471.3
Non-Current Liabilities
Long-term debt 2,189.2 1,790.3
Accrued pension benefits 160.9 172.3
Accrued postretirement benefits 30.3 30.2
Long-term operating lease liabilities 75.5 78.7
Deferred income taxes 198.0 186.5
Other non-current liabilities 112.5 110.0
Total Non-Current Liabilities 2,766.4 2,368.0
Shareholders’ Equity
Class I and II Serial Preferred Stock, without par value:
Authorized – 10,000,000 shares each class, none issued
— —
Common shares, without par value:
Authorized – 200,000,000 shares
Issued (including shares in treasury) (2024 – 79,171,638 shares;
2023 – 78,680,164 shares)
Stated capital 40.7 40.7
Other paid-in capital 1,260.0 1,076.5
Retained earnings 2,441.5 2,232.2
Accumulated other comprehensive loss ( 147.4 ) ( 146.9 )
Treasury shares at cost (2024 – 9,054,863 shares; 2023 – 8,553,272 shares)
( 661.5 ) ( 620.1 )
Total Shareholders’ Equity 2,933.3 2,582.4
Noncontrolling Interest 157.4 120.0
Total Equity 3,090.7 2,702.4
Total Liabilities and Equity $ 6,767.4 $ 6,541.7
See accompanying Notes to the Consolidated Financial Statements.
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Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
2024 2023
(Dollars in millions)
CASH PROVIDED (USED)
Operating Activities
Net income $ 300.2 $ 346.1
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 165.6 149.0
Impairment charges 2.0 33.2
Gain on sale of assets ( 14.6 ) —
Gain on divestitures — ( 3.7 )
Deferred income tax (benefit) provision ( 8.5 ) 3.4
Stock-based compensation expense 16.7 22.9
Pension and other postretirement expense 4.9 2.6
Pension and other postretirement benefit contributions and payments ( 22.9 ) ( 24.1 )
Changes in operating assets and liabilities:
Accounts receivable ( 88.5 ) 13.0
Unbilled receivables ( 18.3 ) ( 32.3 )
Inventories ( 12.5 ) 47.6
Accounts payable, trade ( 16.7 ) ( 58.8 )
Other accrued expenses 11.1 ( 14.4 )
Income taxes ( 20.5 ) ( 66.6 )
Other, net ( 0.9 ) ( 1.0 )
Net Cash Provided by Operating Activities 297.1 416.9
Investing Activities
Capital expenditures ( 116.4 ) ( 134.9 )
Acquisitions, net of cash acquired ( 167.7 ) ( 464.7 )
Proceeds from disposal of property, plant and equipment 17.5 1.7
Proceeds from divestitures, net of cash divested 0.3 4.5
Investments in short-term marketable securities, net 16.5 ( 5.6 )
Other, net ( 0.2 ) ( 0.1 )
Net Cash Used in Investing Activities ( 250.0 ) ( 599.1 )
Financing Activities
Cash dividends paid to shareholders ( 72.2 ) ( 70.8 )
Purchase of treasury shares ( 31.4 ) ( 218.4 )
Proceeds from exercise of stock options 5.5 21.3
Payments related to tax withholding for stock-based compensation ( 10.0 ) ( 16.4 )
Borrowings on accounts receivable facility 257.0 82.0
Payments on accounts receivable facility ( 252.0 ) ( 89.0 )
Proceeds from long-term debt 1,515.9 1,192.3
Payments on long-term debt ( 1,475.2 ) ( 1,151.2 )
Deferred financing costs ( 5.5 ) ( 0.5 )
Short-term debt activity, net ( 216.3 ) 202.1
Noncontrolling interest dividends paid ( 1.1 ) ( 0.6 )
Proceeds from the sale of shares in Timken India Limited 232.3 284.8
Other ( 1.2 ) —
Net Cash (Used in) Provided by Financing Activities ( 54.2 ) 235.6
Effect of exchange rate changes on cash 1.2 ( 19.0 )
(Decrease) Increase in Cash, Cash Equivalents and Restricted Cash ( 5.9 ) 34.4
Cash, cash equivalents and restricted cash at beginning of year 419.3 340.7
Cash, Cash Equivalents and Restricted Cash at End of Period $ 413.4 $ 375.1
See accompanying Notes to the Consolidated Financial Statements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in millions, except per share data)
Note 1 - Basis of Presentation
The accompanying Consolidated Financial Statements (unaudited) for The Timken Company (the "Company" or "Timken") have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by the accounting principles generally accepted in the United States ("U.S. GAAP") for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to the Consolidated Financial Statements and accompanying Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Note 2 - Significant Accounting Policies
The Company's significant accounting policies are detailed in " Note 1 - Significant Accounting Policies" of the Annual Report on Form 10-K for the year ended December 31, 2023.
Recent Accounting Pronouncements:
New Accounting Guidance Issued and Not Yet Adopted:
In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-09, Income Taxes (Topic 40). ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments in this update require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. The amendments require that all entities disclose on an annual basis the amount of income taxes paid disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. For public entities, the new guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is preparing to adopt this guidance in 2025.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280). ASU 2023-07 requires that a public entity disclose: (1) on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss; (2) on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition; and (3) the title and position of the CODM and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. The other segment items category is the difference between segment revenue less the segment expenses disclosed and each reported measure of segment profit or loss. For public entities, the new guidance is effective for annual periods beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. The Company is preparing to adopt the new disclosure requirements beginning with its Annual Report on Form 10-K for the year ended December 31, 2024.
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Note 3 - Acquisitions and Divestitures
Acquisitions:
On September 9, 2024, the Company acquired 100 % of the capital stock of CGI, Inc. ("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. The acquisition of CGI enhances the Company's product portfolio. The total purchase price for this acquisition was $ 167.4 million, net of cash acquired of $ 8.9 million, subject to customary post-closing adjustments. Results for CGI are reported in the Industrial Motion segment. The Company incurred acquisition-related costs of $ 1.4 million to complete this acquisition.
The following table presents the purchase price allocation at fair value for the CGI acquisition as of September 30, 2024:
Initial Purchase
Price Allocation
Assets:
Accounts receivable $ 4.2
Inventories 13.4
Other current assets 0.2
Property, plant and equipment 10.0
Operating lease assets 1.8
Goodwill 79.8
Other intangible assets 88.4
Other non-current assets 3.0
Total assets acquired $ 200.8
Liabilities:
Accounts payable, trade $ 0.6
Salaries, wages and benefits 1.4
Other current liabilities 2.8
Deferred income taxes 23.4
Other non-current liabilities 5.2
Total liabilities assumed $ 33.4
Net assets acquired $ 167.4
The following table summarizes the preliminary purchase price allocation at fair valu e for identifiable intangible assets acquired in 2024:
2024
Weighted-
Average Life
Trade names $ 17.6 19 years
Technology and know-how 21.6 15 years
Customer relationships 49.2 15 years
Total intangible assets $ 88.4
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Note 3 - Acquisitions and Divestitures (continued)
In determining the fair value of amounts above, the Company utilized a benchmarking approach based on the Company's prior acquisitions to determine the preliminary fair values for identified intangibles assets and inventory. Upon completion of the final valuation and purchase price allocation, the final fair values of the assets acquired, liabilities assumed and resulting goodwill may differ materially from the preliminary assessment. Any changes to the initial estimates of the fair value of the assets acquired and liabilities assumed will be recorded to those assets and liabilities and any residual amounts will be allocated to goodwill.
The amounts in the table above represent the preliminary purchase price allocation for CGI. This purchase price allocation, including the residual amount allocated to goodwill, is subject to change as additional information concerning final asset and liability valuations are obtained and management completes its reassessment of the measurement period procedures based on the results of the preliminary valuation. Given the proximity of the acquisition date to September 30, 2024, no elements of the purchase price allocation have been finalized as of September 30, 2024. During the applicable measurement period, the Company will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values for those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments has been completed on the acquisition date.
During 2023, Timken completed six acquisitions, which enhanced the Company's capabilities and product portfolio. On December 20, 2023, the Company completed the acquisition of 100 % of the capital stock of Lagersmit Holding B.V. ("Lagersmit"), a Netherlands-based manufacturer of highly engineered sealing solutions for marine, dredging, water, tidal energy and other industrial applications. On November 1, 2023, the Company acquired Engineered Solutions Group ("iMECH"). The Company acquired 100 % of the capital stock in the United States and substantially all of the assets in Canada. iMECH manufactures thrust bearings, radial bearings, specialty coatings and other components primarily used in the energy industry. iMECH has facilities in Houston, Texas and Alberta, Canada. On September 29, 2023, the Company acquired 100 % of the capital stock of Rosa Sistemi S.p.A. ("Rosa"), a European designer and manufacturer of roller guideways, linear bearings, customized linear systems and actuators, commercialized ball guideways and precision ball screws. Rosa has its headquarters, R&D and high-precision manufacturing facility in Milan, Italy. On September 1, 2023, the Company acquired 100 % of the capital stock of D-C Filtration Holdings Corp. ("Des-Case"), a Tennessee-based manufacturer of specialty filtration products for industrial lubricants. Des-Case has manufacturing facilities in Tennessee and the Netherlands. On April 4, 2023, the Company acquired 100 % of the capital stock of Leonardo Top S.a.r.l. ("Nadella"), a leading European manufacturer of linear guides, telescopic rails, actuators and systems and other specialized industrial motion solutions. Based in Italy, Nadella operates manufacturing facilities in Europe and China. On January 31, 2023, the Company acquired substantially all of the assets of American Roller Bearing Company ("ARB"), a North Carolina-based manufacturer of industrial bearings. ARB, which boasts a large U.S. installed base and strong aftermarket business, operates manufacturing facilities in Hiddenite and Morganton, North Carolina. The total purchase price for these six acquisitions was $ 641.4 million (including working capital adjustments paid in 2024), net of cash acquired of $ 30.8 million. Results for Lagersmit, Rosa, Des-Case and Nadella are reported in the Industrial Motion segment, and results for iMECH and ARB are reported in the Engineered Bearings segment. The Company incurred acquisition-related costs of $ 6.7 million in total to complete these six acquisitions in 2023.
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Note 3 - Acquisitions and Divestitures (continued)
The following table presents the updated purchase price allocation at fair value, net of cash acquired, for the 2023 acquisitions, as of December 31, 2023 and September 30, 2024:
Purchase Price Allocation at December 31, 2023 2024
Adjustments Updated Purchase Price Allocation at September 30, 2024
Assets:
Accounts receivable $ 44.7 $ ( 0.8 ) $ 43.9
Inventories 111.8 1.7 113.5
Other current assets 5.0 — 5.0
Property, plant and equipment 47.7 0.2 47.9
Operating lease assets 7.3 ( 0.1 ) 7.2
Goodwill 285.6 6.3 291.9
Other intangible assets 306.7 ( 7.2 ) 299.5
Other non-current assets 6.7 ( 1.6 ) 5.1
Total assets acquired $ 815.5 $ ( 1.5 ) $ 814.0
Liabilities:
Accounts payable, trade $ 24.0 $ 0.2 $ 24.2
Salaries, wages and benefits 16.9 ( 2.0 ) 14.9
Income taxes payable 5.5 — 5.5
Other current liabilities 10.7 ( 0.7 ) 10.0
Short-term debt 4.7 0.4 5.1
Long-term debt 6.0 — 6.0
Accrued pension benefits 3.6 — 3.6
Long-term operating lease liabilities 7.0 — 7.0
Deferred income taxes 83.3 ( 0.9 ) 82.4
Other non-current liabilities 7.6 — 7.6
Total liabilities assumed $ 169.3 $ ( 3.0 ) $ 166.3
Noncontrolling interest acquired 5.2 1.1 6.3
Net assets acquired $ 641.0 $ 0.4 $ 641.4
The following table summarizes the preliminary purchase price allocation at fair value for identifiable intangible assets acquired in 2023:
2023
Weighted-
Average Life
Trade names $ 25.6 17 years
Technology and know-how 70.5 15 years
Customer relationships 201.8 14 years
Non-compete agreements 1.0 3 years
Capitalized software 0.6 2 years
Total intangible assets $ 299.5
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Note 3 - Acquisitions and Divestitures (continued)
In determining the fair value of the amounts above, the Company utilized various forms of the income, cost and market approaches depending on the asset or liability being valued. The estimation of fair value required judgment related to future net cash flows, discount rates, competitive trends, market comparisons and other factors. As a result, the Company utilized third-party valuation specialists to assist in determining the fair value of certain assets. Inputs were generally determined by considering independent appraisals and historical data, supplemented by current and anticipated market conditions.
The amounts in the table above represent the purchase price allocation for the 2023 acquisitions as of the dates noted above. This purchase price allocation, including the residual amount allocated to goodwill, has been adjusted as additional information concerning final asset and liability valuations have been obtained, and management has completed its reassessment of the measurement period procedures. The purchase price allocation for Lagersmit is preliminary with respect to the valuation of inventory and intangible assets and any impact to the related deferred taxes, as well as changes to the residual amount allocated to goodwill. The purchase price allocations for iMECH, Rosa, Des-Case, Nadella and ARB are complete. During the applicable measurement period, the Company will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values for those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments had been completed on the acquisition date.
Divestitures:
On September 20, 2023, the Company entered into a definitive agreement to sell Jiangsu TWB Bearings Co., Ltd. ("TWB"). During the third quarter of 2023, the business met the held for sale criteria, and the Company reclassified its assets and liabilities accordingly. As a result of the carrying value of the legal entity exceeding the estimated sales price less costs to sell, the Company recorded an impairment charge of $ 1.0 million for the three months ended September 30, 2023. The impairment charge is included in the impairment and restructuring line on the Consolidated Statement of Income. The sale of TWB was completed on October 16, 2023.
On February 28, 2023, the Company completed the sale of all of its membership interest in S.E. Setco Services Company, LLC ("SE Setco"), a 50 % owned joint venture. The Company had accounted for SE Setco as an equity method investment prior to the sale. The Company received $ 5.7 million in cash proceeds for SE Setco and recognized a pretax gain of $ 4.8 million on the sale. The gain was reflected in other income, net in the Consolidated Statement of Income.
Sale of Other Assets:
On September 30, 2024, the Company completed the sale of its former bearing plant in Gaffney, South Carolina. The Company received $ 16.0 million in cash proceeds for the Gaffney plant and recognized a pretax gain of $ 13.8 million on the sale. The gain was reflected in gain on sale of real estate in the Consolidated Statement of Income.
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Note 4 - Segment Information
The primary measurement used by management to measure the financial performance of each segment is earnings before interest, taxes, depreciation and amortization ("EBITDA").
Three Months Ended
September 30, Nine Months Ended
September 30,
2024 2023 2024 2023
Net sales:
Engineered Bearings $ 740.7 $ 775.6 $ 2,326.6 $ 2,533.5
Industrial Motion 386.1 367.1 1,172.8 1,144.3
Net sales $ 1,126.8 $ 1,142.7 $ 3,499.4 $ 3,677.8
Segment EBITDA:
Engineered Bearings $ 150.0 $ 148.2 $ 492.0 $ 538.7
Industrial Motion 70.9 70.3 223.8 199.4
Total EBITDA, for reportable segments $ 220.9 $ 218.5 $ 715.8 $ 738.1
Unallocated corporate expense ( 25.7 ) ( 17.0 ) ( 61.0 ) ( 47.9 )
Corporate pension and other postretirement
benefit related (expense) income (1)
— ( 0.2 ) — 1.7
Depreciation and amortization ( 56.1 ) ( 52.2 ) ( 165.6 ) ( 149.0 )
Interest expense ( 30.3 ) ( 27.5 ) ( 97.1 ) ( 79.9 )
Interest income 3.4 2.6 11.3 6.0
Income before income taxes $ 112.2 $ 124.2 $ 403.4 $ 469.0
(1) Corporate pension and other postretirement benefit related income represents actuarial (losses) and gains that resulted from the remeasurement of pension and other postretirement plan assets and obligations as a result of changes in assumptions or experience.
September 30,
2024 December 31, 2023
Total Assets by Segment:
Engineered Bearings $ 3,273.4 $ 3,296.8
Industrial Motion 3,004.7 2,744.5
Corporate (2)
489.3 500.4
$ 6,767.4 $ 6,541.7
(2) Corporate assets include corporate buildings and cash and cash equivalents.
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Note 5 - Revenue
The following table presents details deemed most relevant to the users of the financial statements about total revenue for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended Three Months Ended
September 30, 2024 September 30, 2023
Engineered Bearings Industrial Motion Total Engineered Bearings Industrial Motion Total
United States $ 310.4 $ 202.4 $ 512.8 $ 307.4 $ 190.6 $ 498.0
Americas excluding the United States 95.5 28.1 123.6 96.1 26.5 122.6
Europe / Middle East / Africa 139.9 124.0 263.9 158.6 125.9 284.5
China 81.2 20.3 101.5 110.7 18.3 129.0
Asia-Pacific excluding China 113.7 11.3 125.0 102.8 5.8 108.6
Net sales $ 740.7 $ 386.1 $ 1,126.8 $ 775.6 $ 367.1 $ 1,142.7
Nine Months Ended Nine Months Ended
September 30, 2024 September 30, 2023
Engineered Bearings Industrial Motion Total Engineered Bearings Industrial Motion Total
United States $ 981.4 $ 598.6 $ 1,580.0 $ 965.9 $ 603.7 $ 1,569.6
Americas excluding the United States 286.5 79.2 365.7 284.3 82.3 366.6
Europe / Middle East / Africa 460.4 401.8 862.2 518.1 376.3 894.4
China 233.8 59.6 293.4 425.6 57.5 483.1
Asia-Pacific excluding China 364.5 33.6 398.1 339.6 24.5 364.1
Net sales $ 2,326.6 $ 1,172.8 $ 3,499.4 $ 2,533.5 $ 1,144.3 $ 3,677.8
When reviewing revenue by sales channel, the Company separates net sales to original equipment manufacturers ("OEMs") from sales to distributors and end users. The following table presents the approximate percent of revenue by sales channel for the nine months ended September 30, 2024 and 2023:
Nine Months Ended Nine Months Ended
Revenue by sales channel September 30, 2024 September 30, 2023
Original equipment manufacturers 55 % 60 %
Distribution/end users 45 % 40 %
In addition to disaggregating revenue by segment, geography and by sales channel as shown above, the Company believes information about the timing of transfer of goods or services and type of customer is also relevant. During the nine months ended September 30, 2024 and September 30, 2023, approximately 10 % and 9 %, respectively, of total net sales were recognized over-time because of the continuous transfer of control to the customer, with the remainder recognized as of a point in time. Finally, business with the United States ("U.S.") government or its contractors represented approximately 6 % of total net sales during the nine months ended September 30, 2024 and September 30, 2023.
Remaining Performance Obligations:
Remaining performance obligations represent the transaction price of orders meeting the definition of a contract for which work has not been performed and excludes unexercised contract options. Performance obligations having a duration of more than one year are concentrated in contracts for certain products and services provided to the U.S. government or its contractors. The aggregate amount of the transaction price allocated to remaining performance obligations for such contracts with a duration of more than one year was approximately $ 178.0 million at September 30, 2024.
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Note 5 - Revenue (continued)
Unbilled Receivables:
The following table contains a rollforward of unbilled receivables for the nine months ended September 30, 2024 and the twelve months ended December 31, 2023:
September 30,
2024 December 31,
2023
Beginning balance, January 1 $ 144.5 $ 103.9
Additional unbilled revenue recognized 301.3 424.1
Less: amounts billed to customers ( 283.2 ) ( 383.5 )
Ending balance $ 162.6 $ 144.5
There were no impairment losses recorded on unbilled receivables for the nine months ended September 30, 2024 and the twelve months ended December 31, 2023.
Deferred Revenue:
The following table contains a rollforward of deferred revenue for the nine months ended September 30, 2024 and the twelve months ended December 31, 2023:
September 30,
2024 December 31,
2023
Beginning balance, January 1 $ 45.4 $ 54.3
Acquisitions 0.6 1.4
Revenue received or billed in advance of recognition 133.3 165.2
Less: revenue recognized ( 119.0 ) ( 175.5 )
Ending balance $ 60.3 $ 45.4
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Note 6 - Income Taxes
The Company's provision for income taxes in interim periods is computed by applying the estimated annual effective tax rates to income or loss before income taxes for the period. In addition, non-recurring or discrete items are recorded during the period(s) in which they occur.
Three Months Ended
September 30, Nine Months Ended
September 30,
2024 2023 2024 2023
Provision for income taxes $ 24.6 $ 33.3 $ 103.2 $ 122.9
Effective tax rate 21.9 % 26.8 % 25.6 % 26.2 %
Income tax expense for the three and nine months ended September 30, 2024 was calculated using forecasted multi-jurisdictional annual effective tax rates to determine a blended annual effective tax rate. The effective tax rate differs from the U.S. federal statutory rate of 21% due to the actual and projected mix of earnings in non-U.S. jurisdictions with relatively higher tax rates, U.S. state and local income taxes, and other permanent differences (net).
The effective tax rate of 21.9 % and 25.6 % for the three and nine months ended September 30, 2024, respectively, was lower than the effective tax rate for the three and nine months ended September 30, 2023, respectively, primarily due to the net favorable impact of discrete items versus the year ago periods.
On December 20, 2021, the Organization for Economic Co-operation and Development (“OECD”) released Pillar Two model rules defining the global minimum tax, which calls for the taxation of large corporations at a minimum rate of 15%. Certain jurisdictions, in which the Company operates, enacted, or announced their intention to enact, legislation consistent with one or more OECD Pillar Two model rules. The model rules include minimum domestic top-up taxes, income inclusion rules, and undertaxed profit rules all aimed to ensure that multinational companies pay a minimum effective corporate tax rate of 15% in each jurisdiction in which they operate, with some rules effective in 2024. Management does not expect Pillar Two legislation to materially impact the Company's annual effective tax rate in 2024.
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Note 7 - Earnings Per Share
The following table sets forth the reconciliation of the numerator and the denominator of basic earnings per share and diluted earnings per share for the three and nine months ended September 30, 2024 and 2023:
Three Months Ended
September 30, Nine Months Ended
September 30,
2024 2023 2024 2023
Numerator:
Net income attributable to The Timken Company $ 81.8 $ 87.9 $ 281.5 $ 335.4
Denominator:
Weighted average number of shares outstanding - basic 70,120,860 70,878,673 70,246,103 71,740,846
Effect of dilutive securities:
Stock options and awards - based on the treasury
stock method 542,881 656,936 546,983 716,003
Weighted average number of shares outstanding assuming
dilution of stock options and awards 70,663,741 71,535,609 70,793,086 72,456,849
Basic earnings per share $ 1.17 $ 1.24 $ 4.01 $ 4.68
Diluted earnings per share $ 1.16 $ 1.23 $ 3.98 $ 4.63
The dilutive effect of performance-based restricted stock units is taken into account once they have met minimum performance thresholds. The dilutive effect of stock options includes all outstanding stock options except stock options that are considered antidilutive. Stock options are antidilutive when the exercise price exceeds the average market price of the Company’s common shares during the periods presented. There were no antidilutive stock options outstanding during the three and nine months ended September 30, 2024 and 2023.
Note 8 - Inventories
The components of inventories at September 30, 2024 and December 31, 2023 were as follows:
September 30,
2024 December 31,
2023
Manufacturing supplies $ 44.1 $ 41.9
Raw materials 154.0 145.6
Work in process 517.5 496.1
Finished products 630.5 619.2
Subtotal 1,346.1 1,302.8
Allowance for obsolete and surplus inventory ( 90.8 ) ( 73.7 )
Total inventories, net $ 1,255.3 $ 1,229.1
Inventories are valued at net realizable value, with approximately 61 % valued on the first-in, first-out ("FIFO") method and the remaining 39 % valued on the last-in, first-out ("LIFO") method. The majority of the Company's U.S. inventories are valued on the LIFO method. The Company's non-U.S. inventories are valued on the FIFO method.
The LIFO reserves as of September 30, 2024 and December 31, 2023 were $ 251.7 million and $ 232.1 million, respectively. An actual valuation of the inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on current inventory levels and costs. Because these calculations are subject to many factors beyond management’s control, annual results may differ from interim results as they are subject to the final year-end LIFO inventory valuation.
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Note 9 - Goodwill and Other Intangible Assets
The Company tests goodwill and indefinite-lived intangible assets for impairment at least annually, performing its annual impairment test as of October 1 st . Goodwill and indefinite-lived intangible assets are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
The Company reviews goodwill for impairment at the reporting unit level. The Engineered Bearings segment has one reporting unit and the Industrial Motion segment has six reporting units.
During the first three months of 2023, the Company reviewed goodwill for impairment for its reporting units due to the change in reporting segments that went into effect January 1, 2023. The Company utilized both an income approach and a market approach in testing goodwill for impairment. The Company utilized updated forecasts for the income approach as part of the goodwill impairment review. Based on the earnings and cash flow forecasts for the Belts & Chain reporting unit within the Industrial Motion segment, the Company determined that the reporting unit could not support the carrying value of its goodwill. As a result, the Company recorded a pretax impairment loss of $ 28.3 million during the first three months of 2023, which was reported in impairment and restructuring charges on the Consolidated Statement of Income.
The changes in the carrying amount of goodwill for the nine months ended September 30, 2024 were as follows:
Engineered Bearings Industrial Motion Total
Beginning balance, January 1 $ 692.3 $ 677.3 $ 1,369.6
Acquisitions — 79.8 79.8
Foreign currency translation adjustments and other changes 8.2 7.9 16.1
Ending balance $ 700.5 $ 765.0 $ 1,465.5
The acquisition of CGI added goodwill of $ 79.8 million in 2024. Goodwill arising from this acquisition is attributed to the expected synergies, including future cost savings, and other benefits expected to be generated by combining the companies. The goodwill related to CGI is not deductible for tax purposes.
The following table displays intangible assets as of September 30, 2024 and December 31, 2023:
Balance at September 30, 2024 Balance at December 31, 2023
Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Amount Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Amount
Intangible assets
subject to amortization:
Customer relationships $ 832.8 $ ( 260.8 ) $ 572.0 $ 776.5 $ ( 222.8 ) $ 553.7
Technology and know-how 369.5 ( 117.5 ) 252.0 343.3 ( 100.9 ) 242.4
Trade names 124.3 ( 16.0 ) 108.3 71.3 ( 11.2 ) 60.1
Capitalized software 302.8 ( 275.5 ) 27.3 299.5 ( 272.8 ) 26.7
Other 11.6 ( 10.3 ) 1.3 10.8 ( 8.7 ) 2.1
$ 1,641.0 $ ( 680.1 ) $ 960.9 $ 1,501.4 $ ( 616.4 ) $ 885.0
Intangible assets not subject to amortization:
Trade names $ 89.9 $ 89.9 $ 137.7 $ 137.7
FAA air agency certificates 8.7 8.7 8.7 8.7
$ 98.6 $ 98.6 $ 146.4 $ 146.4
Total intangible assets $ 1,739.6 $ ( 680.1 ) $ 1,059.5 $ 1,647.8 $ ( 616.4 ) $ 1,031.4
Amortization expense for intangible assets was $ 64.2 million and $ 53.1 million for the nine months ended September 30, 2024 and 2023, respectively. Amortization expense for intangible assets is projected to be approximately $ 86 million in 2024; $ 84 million in 2025; $ 81 million in 2026; $ 78 million in 2027; and $ 77 million in 2028.
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Note 10 - Other Current Liabilities
The following table displays other current liabilities as of September 30, 2024 and December 31, 2023:
September 30,
2024 December 31,
2023
Sales rebates $ 67.1 $ 79.0
Deferred revenue 60.3 45.4
Operating lease liabilities 29.6 25.9
Interest 24.8 16.4
Taxes other than income and payroll taxes 21.2 17.8
Product warranty 17.1 15.2
Freight and duties 16.5 13.4
Professional fees 13.8 12.5
Current derivative liability 5.4 11.4
Restructuring 3.3 5.8
Other 73.9 74.3
Total other current liabilities $ 333.0 $ 317.1
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Note 11 - Financing Arrangements
Short-term debt at September 30, 2024 and December 31, 2023 was as follows:
September 30,
2024 December 31,
2023
Variable-rate Term Loan, originally due to mature on August 16, 2024; redeemed on May 29, 2024 $ — $ 220.8
Borrowings under lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 4.00 % to 4.45 % at September 30, 2024 and 4.35 % to 7.33 % at December 31, 2023
25.9 25.4
Short-term debt $ 25.9 $ 246.2
On August 16, 2023, the Company entered into a € 200 million variable-rate term loan ("2024 Term Loan"), maturing on August 16, 2024. The Company repaid the 2024 Term Loan during the second quarter of 2024.
Lines of credit for certain of the Company's foreign subsidiaries provide for short-term borrowings. Most of these lines of credit are uncommitted. At September 30, 2024, the Company’s foreign subsidiaries had borrowings outstanding of $ 25.9 million and bank guarantees of $ 2.4 million.
Long-term debt at September 30, 2024 and December 31, 2023 was as follows:
September 30,
2024 December 31,
2023
Variable-rate Senior Credit Facility with an average interest rate on U.S. Dollar of 6.48 % and Euro of 4.85 % at December 31, 2023
$ — $ 247.4
Variable-rate Accounts Receivable Facility with an interest rate of 6.20 % at September 30, 2024 and 6.42 % at December 31, 2023
72.0 67.0
Variable-rate Term Loan (1) , maturing on December 5, 2027, with an interest rate of 6.07 % at September 30, 2024 and 6.58 % at December 31, 2023
399.5 399.3
Fixed-rate Senior Unsecured Notes (1) , originally due to mature on September 1, 2024; redeemed on June 24, 2024.
— 350.0
Fixed-rate Euro Senior Unsecured Notes (1) , maturing on September 7, 2027, with an interest rate of 2.02 %
167.0 165.5
Fixed-rate Euro Senior Unsecured Notes (1) , maturing on May 23, 2034, with an interest rate of 4.125 %
655.9 —
Fixed-rate Senior Unsecured Notes (1) , maturing on December 15, 2028, with an interest rate of 4.50 %
398.0 397.7
Fixed-rate Medium-Term Notes, Series A (1) , maturing at various dates through May 2028, with interest rates ranging from 6.74 % to 7.76 %
154.8 154.8
Fixed-rate Senior Unsecured Notes (1) , maturing on April 1, 2032, with an interest rate of 4.125 %
344.8 343.7
Fixed-rate Euro Bank Loan, maturing on June 30, 2033, with an interest rate of 2.15 %
11.8 12.7
Other 9.2 11.6
Total debt $ 2,213.0 $ 2,149.7
Less: current maturities 23.8 359.4
Long-term debt $ 2,189.2 $ 1,790.3
(1) Net of discounts and fees
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Note 11 - Financing Arrangements (continued)
The Company is party to a $ 100 million Amended and Restated Asset Securitization Agreement (the "Accounts Receivable Facility"), which matures on November 30, 2026. Under the terms of the Accounts Receivable Facility, the Company sells, on an ongoing basis, certain domestic trade receivables to Timken Receivables Corporation, a wholly-owned consolidated subsidiary that, in turn, uses the trade receivables to secure borrowings that are funded through a vehicle that issues commercial paper in the short-term market. Borrowings under the Accounts Receivable Facility may be limited by certain borrowing base limitations; however, availability under the Accounts Receivable Facility was not reduced by any such borrowing base limitations at September 30, 2024. As of September 30, 2024, there were $ 72 million outstanding borrowings under the Accounts Receivable Facility, which reduced the availability under this facility to $ 28 million. The cost of this facility, which is the prevailing commercial paper rate plus facility fees, is considered a financing cost and is included in interest expense in the Consolidated Statements of Income.
On December 5, 2022, the Company entered into the Fifth Amended and Restated Credit Agreement ("Credit Agreement"), which is comprised of a $ 750 million unsecured revolving credit facility ("Senior Credit Facility") and a $ 400 million unsecured term loan facility ("2027 Term Loan") that each mature on December 5, 2027. The interest rates under the Credit Agreement are based on Secured Overnight Financing Rate ("SOFR"). At September 30, 2024, the Company had no outstanding borrowings under the Senior Credit Facility. The Credit Agreement has two financial covenants: a consolidated net leverage ratio and a consolidated interest coverage ratio.
On May 23, 2024, the Company issued fixed-rate unsecured senior notes ("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 Company's outstanding fixed-rate unsecured senior notes ("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 issuance.
At September 30, 2024, the Company was in full compliance with all applicable covenants on its outstanding debt.
In the ordinary course of business, the Company utilizes standby letters of credit issued by financial institutions to guarantee certain obligations, most of which relate to certain insurance contracts and indirect taxes. At September 30, 2024, outstanding letters of credit totaled $ 58.2 million, most with expiration dates within 12 months.
The maturities of long-term debt (including $ 8.7 million of finance leases) subsequent to September 30, 2024 are as follows:
Year
2024 $ 7.8
2025 29.1
2026 125.7
2027 524.6
2028 521.4
2029 1.4
Thereafter 1,023.0
The table above excludes $ 20.0 million of unamortized discounts and fees that are netted against long-term debt at September 30, 2024.
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Note 12 - Supply Chain Financing
The Company offers a supplier finance program with two different financial institutions where suppliers may receive early payment from the financial institutions on invoices issued to the Company. The Company and each financial institution entered into arrangements whereby the Company pays the financial institution per the terms of any supplier invoice paid early under the program and pays an annual fee for the supplier finance platform subscription and related support. The Company or the financial institutions may terminate participation in the program with 90 days’ written notice. The supplier finance programs are unsecured and are not guaranteed by the Company. The financial institutions enter into separate arrangements with suppliers directly to participate in the program. The Company does not determine the terms or conditions of such arrangements or participate in the transactions between the suppliers and the financial institutions. The supplier invoice terms under the program typically require payment in full within 90 days of the invoice date.
The following table is a rollforward of the outstanding obligations for the Company’s supplier finance program for the nine months ended September 30, 2024 and twelve months ended December 31, 2023:
September 30,
2024 December 31,
2023
Confirmed obligations outstanding, January 1 $ 21.3 $ 14.4
Invoices confirmed 82.7 97.1
Confirmed invoices paid ( 86.4 ) ( 90.2 )
Confirmed obligations outstanding, ending balance $ 17.6 $ 21.3
The obligations outstanding at September 30, 2024 and December 31, 2023 were included in accounts payable, trade on the Consolidated Balance Sheet.
Note 13 - Contingencies
The Company is responsible for environmental remediation at various manufacturing facilities presently or formerly operated by the Company. On December 28, 2004, the United States Environmental Protection Agency (“USEPA”) sent Lovejoy, LLC ("Lovejoy") a Special Notice Letter that identified Lovejoy as a potentially responsible party, for investigation and remediation obligations at the Ellsworth Industrial Park Site, Downers Grove, DuPage County, Illinois (the “Site”) under the Comprehensive Environmental Response, Compensation and Liability Act, known as the Superfund, or similar state laws. Claims for investigation and remediation have been asserted against Lovejoy and at least 14 unrelated parties, which are believed to be financially solvent and are expected to fulfill their proportionate share of the obligation. The Company acquired Lovejoy in 2016. Lovejoy’s Downers Grove property is situated within the Ellsworth Industrial Complex. The USEPA and the Illinois Environmental Protection Agency (“IEPA”) allege there have been one or more releases or threatened releases of hazardous substances, including, but not limited to, a release or threatened release on or from Lovejoy's property at the Site. Lovejoy’s allocated share of past and future costs related to the Site, including for investigation and/or remediation, could be significant. All previously pending property damage and personal injury lawsuits against Lovejoy related to the Site were settled or dismissed prior to our acquisition of Lovejoy.
In addition, governmental authorities in the United States and the European Union are increasingly focused on regulating per- and polyfluoroalkyl substances (“PFAS”). PFAS regulations are applicable to portions of the Company's products, and conditions may develop, arise or be discovered that create environmental compliance or remediation liabilities at certain of its facilities.
The Company had total environmental accruals of $ 4.5 million and $ 4.7 million for various known environmental matters that are probable and reasonably estimable at September 30, 2024 and December 31, 2023, respectively, which includes the Lovejoy matter described above. These accruals were recorded based upon the best estimate of costs to be incurred considering the progress made in determining the magnitude of remediation costs, the timing and extent of remedial actions required by governmental authorities and the amount of the Company’s liability in proportion to other responsible parties. The ultimate resolution of these matters could result in actual costs that exceed amounts accrued.
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Note 13 - Contingencies (continued)
Legal Matter:
On June 11, 2024, the Company's subsidiary, Timken India Limited ("TIL"), received a government order claiming damages (penalties and interest) totaling approximately $ 12.4 million. The order relates to the closure of TIL’s retirement trust for employees and subsequent transfer of trust assets to the government-administered Employees’ Provident Fund Organization ("EFPO"). The order alleges that the surrender of trust assets did not follow applicable EFPO timing guidelines. TIL believes it fully complied with EFPO requirements and guidelines under the circumstances. TIL is disputing the merits of the order and has filed an appeal with the high court in India having jurisdiction over the matter. Management believes that relief will be provided to TIL once the matter is fully adjudicated; accordingly, no liability has been recorded. While no assurance can be given as to the ultimate outcome of this matter, the Company does not believe that the final resolution will have a material effect on the Company's consolidated financial position or liquidity; however, the effect of any future outcome may be material to the results of operations of any particular period in which costs, if any, are recognized.
Product Warranties:
In addition to the contingencies above, the Company provides limited warranties on certain of its products. The product warranty liability included in "Other current liabilities" on the Consolidated Balance Sheets was $ 17.1 million and $ 15.2 million at September 30, 2024 and December 31, 2023, respectively. The balances at the end of each respective period represent the best estimates of costs for existing and future claims for products that are still under warranty. The liability primarily relates to accruals for products sold into the automotive and wind energy sectors. Accrual estimates are based on actual claims and expected trends that continue to mature. In addition, the Company continues to evaluate claims raised by certain customers with respect to the performance of bearings sold into the wind energy and automotive sectors. Management believes that the outcome of these claims will not have a material effect on the Company's consolidated financial position; however, the effect of a change in our assessment may be material to the results of operations of any particular period in which such change occurs.
The following is a rollforward of the consolidated product warranty accrual for the nine months ended September 30, 2024 and twelve months ended December 31, 2023:
September 30,
2024 December 31,
2023
Beginning balance, January 1 $ 15.2 $ 23.5
Expense 5.9 5.9
Payments ( 4.0 ) ( 14.2 )
Ending balance $ 17.1 $ 15.2
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Note 14 - Equity
The following tables present the changes in the components of equity for the three and nine months ended September 30, 2024 and 2023, respectively:
The Timken Company Shareholders
Total Stated
Capital Other
Paid-In
Capital Retained Earnings Accumulated
Other
Comprehensive
Loss Treasury
Stock Non
controlling
Interest
Balance at June 30, 2024 $ 2,950.1 $ 40.7 $ 1,255.9 $ 2,383.5 $ ( 223.5 ) $ ( 659.8 ) $ 153.3
Net income 87.6 81.8 5.8
Foreign currency translation adjustment 78.7 79.3 ( 0.6 )
Pension and other postretirement liability
adjustments (net of income tax benefit
of $ 0.6 million)
( 1.6 ) ( 1.6 )
Change in fair value of derivative financial
instruments, net of reclassifications ( 1.6 ) ( 1.6 )
Dividends declared to noncontrolling interest ( 1.1 ) ( 1.1 )
Dividends - $ 0.34 per share
( 23.8 ) ( 23.8 )
Sale of shares of Timken India Limited ( 1.2 ) ( 1.2 )
Stock-based compensation expense 5.2 5.2
Stock purchased at fair market value ( 1.7 ) ( 1.7 )
Stock option exercise activity 0.1 0.1
Balance at September 30, 2024 $ 3,090.7 $ 40.7 $ 1,260.0 $ 2,441.5 $ ( 147.4 ) $ ( 661.5 ) $ 157.4
The Timken Company Shareholders
Total Stated
Capital Other
Paid-In
Capital Retained Earnings Accumulated
Other
Comprehensive
Loss Treasury
Stock Non
controlling
Interest
Balance at December 31, 2023 $ 2,702.4 $ 40.7 $ 1,076.5 $ 2,232.2 $ ( 146.9 ) $ ( 620.1 ) $ 120.0
Net income 300.2 281.5 18.7
Foreign currency translation adjustment ( 1.3 ) ( 0.2 ) ( 1.1 )
Pension and other postretirement liability
adjustments (net of income tax benefit
of $ 1.5 million)
( 4.6 ) ( 4.6 )
Change in fair value of derivative financial
instruments, net of reclassifications ( 1.3 ) ( 1.3 )
Dividends - $ 1.01 per share
( 72.2 ) ( 72.2 )
Dividends declared to noncontrolling interest ( 1.1 ) ( 1.1 )
Sale of shares of Timken India Limited 186.8 161.3 5.6 19.9
Noncontrolling interest acquired 1.0 1.0
Stock-based compensation expense 16.7 16.7
Stock purchased at fair market value ( 31.4 ) ( 31.4 )
Stock option exercise activity 5.5 5.5
Payments related to tax withholding for
stock-based compensation ( 10.0 ) ( 10.0 )
Balance at September 30, 2024 $ 3,090.7 $ 40.7 $ 1,260.0 $ 2,441.5 $ ( 147.4 ) $ ( 661.5 ) $ 157.4
On May 28, 2024, the Company completed the sale of 5.0 million shares of TIL, generating net proceeds of $ 187 million after income taxes of $ 45 million and transaction costs. The sale reduced the Company’s ownership in TIL from 57.70 percent to 51.05 percent. The India market remains strategically important to Timken, and the Company is currently not planning any further sale transactions.
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Note 14 - Equity (continued)
The Timken Company Shareholders
Total Stated
Capital Other
Paid-In
Capital Retained Earnings Accumulated
Other
Comprehensive
Loss Treasury
Stock Non
controlling
Interest
Balance at June 30, 2023 $ 2,650.0 $ 40.7 $ 1,058.4 $ 2,132.2 $ ( 178.2 ) $ ( 521.8 ) $ 118.7
Net income 90.9 87.9 3.0
Foreign currency translation adjustment ( 65.1 ) ( 63.3 ) ( 1.8 )
Pension and other postretirement liability
adjustments (net of income tax benefit of
$ 0.5 million)
( 1.4 ) ( 1.4 )
Change in fair value of derivative financial
instruments, net of reclassifications 2.0 2.0
Dividends declared to noncontrolling interest ( 0.6 ) ( 0.6 )
Dividends - $ 0.33 per share
( 23.4 ) ( 23.4 )
Stock-based compensation expense 5.8 5.8
Stock purchased at fair market value ( 63.9 ) ( 63.9 )
Stock option exercise activity 4.1 4.1
Payments related to tax withholding for
stock-based compensation ( 1.3 ) ( 1.3 )
Balance at September 30, 2023 $ 2,597.1 $ 40.7 $ 1,068.3 $ 2,196.7 $ ( 240.9 ) $ ( 587.0 ) $ 119.3
The Timken Company Shareholders
Total Stated
Capital Other
Paid-In
Capital Retained Earnings Accumulated
Other
Comprehensive Loss Treasury
Stock Non
controlling
Interest
Balance at December 31, 2022 $ 2,352.9 $ 40.7 $ 829.6 $ 1,932.1 $ ( 181.9 ) $ ( 352.2 ) $ 84.6
Net income 346.1 335.4 10.7
Foreign currency translation adjustment ( 65.3 ) ( 63.5 ) ( 1.8 )
Pension and other postretirement liability
adjustments (net of income tax benefit
of $ 1.5 million)
( 4.5 ) ( 4.5 )
Change in fair value of derivative financial
instruments, net of reclassifications 0.9 0.9
Dividends declared to noncontrolling interest ( 0.6 ) ( 0.6 )
Dividends - $ 0.97 per share
( 70.8 ) ( 70.8 )
Sale of shares of Timken India Limited 229.0 194.5 8.1 26.4
Stock-based compensation expense 22.9 22.9
Stock purchased at fair market value ( 218.4 ) ( 218.4 )
Stock option exercise activity 21.3 21.3
Payments related to tax withholding for
stock-based compensation ( 16.4 ) ( 16.4 )
Balance at September 30, 2023 $ 2,597.1 $ 40.7 $ 1,068.3 $ 2,196.7 $ ( 240.9 ) $ ( 587.0 ) $ 119.3
On June 20, 2023, the Company completed the sale of 7.6 million shares of TIL, generating net proceeds of $ 229 million after income taxes of $ 55 million and transaction costs. The sale reduced the Company’s ownership in TIL from 67.80 percent to 57.70 percent.
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Note 15 - Impairment and Restructuring Charges
Impairment and restructuring charges by segment are comprised of the following:
For the three months ended September 30, 2024:
Engineered Bearings Industrial Motion Total
Impairment charges $ 0.1 $ — $ 0.1
Severance and related benefit costs 0.1 1.3 1.4
Exit costs 0.9 0.1 1.0
Total $ 1.1 $ 1.4 $ 2.5
For the nine months ended September 30, 2024:
Engineered Bearings Industrial Motion Total
Impairment charges $ 2.0 $ — $ 2.0
Severance and related benefit costs 0.9 3.8 4.7
Exit costs 1.2 0.2 1.4
Total $ 4.1 $ 4.0 $ 8.1
For the three months ended September 30, 2023:
Engineered Bearings Industrial Motion Total
Impairment charges $ 4.9 $ — $ 4.9
Severance and related benefit costs $ 1.6 $ 1.8 $ 3.4
Exit costs 0.4 0.2 0.6
Total $ 6.9 $ 2.0 $ 8.9
For the nine months ended September 30, 2023:
Engineered Bearings Industrial Motion Total
Impairment charges $ 4.9 $ 28.3 $ 33.2
Severance and related benefit costs 3.8 2.5 6.3
Exit costs 0.6 0.2 0.8
Total $ 9.3 $ 31.0 $ 40.3
The following discussion explains the more significant impairment and restructuring charges recorded for the periods presented; however, it is not intended to reflect a comprehensive discussion of all amounts included in the tables above.
Engineered Bearings:
On January 16, 2023, the Company announced the closure of its bearing plant in Gaffney, South Carolina. The Company has transferred its remaining operations to other bearing manufacturing facilities. The facility ceased operations at the end of the fourth quarter of 2023, which affected approximately 225 employees. During the nine months ended September 30, 2024, the Company recorded exit costs of $ 1.2 million, related to this closure. During the three and nine months ended September 30, 2023, the Company recorded severance and related benefits of $ 1.4 million and $ 3.1 million, respectively, related to this closure. The Company has incurred cumulative pretax costs related to this closure of $ 16.2 million as of September 30, 2024, including rationalization costs recorded in cost of products sold.
During the nine months ended September 30, 2024, the Company recorded impairment charges of $ 2.0 million related to certain engineering-related assets used in the business. Management concluded no further investment would be made in these assets and as a result, reduced the value to zero.
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Note 15 - Impairment and Restructuring Charges (continued)
As a result of Russia's invasion of Ukraine (and associated international sanctions), the Company suspended its operations in Russia in 2022. During the three months ended September 30, 2023, the Company recorded impairment charges of $ 3.9 million related to certain assets of its joint venture in Russia.
During the three months ended September 30, 2023, the Company classified TWB as assets held for sale and recorded impairment charges of $ 1.0 million. The Company completed the sale of TWB on October 16, 2023.
Industrial Motion:
On November 30, 2023, the Company announced the closure of its belts manufacturing facility in Fort Scott, Kansas. The Company expects to transfer its operations to other belts manufacturing facilities. The closure of this facility is expected to occur by the end of the second quarter of 2025 and is expected to affect approximately 155 employees. The Company expects to incur approximately $ 10 million to $ 12 million of pretax costs in total related to this closure. During the three and nine months ended September 30, 2024, the Company recorded severance and related benefits of $ 0.6 million and $ 2.1 million, respectively, related to this closure. The Company has incurred cumulative pretax costs related to this closure of $ 5.5 million as of September 30, 2024, including rationalization costs recorded in cost of products sold.
Effective January 1, 2023, the Company began operating under two new reportable segments, Engineered Bearings and Industrial Motion. In conjunction with this change in segmented results, the Company reallocated its goodwill to new reporting units under these two segments. In addition, the Company was required to review goodwill for impairment under these new reporting units. As a result of this goodwill impairment review, the Company recognized a pretax goodwill impairment loss of $ 28.3 million during the six months ended September 30, 2023.
In addition, during the three and nine months ended September 30, 2023, the Company recorded severance and related benefits of $ 0.8 million and $ 1.1 million, respectively, related to one of its automatic lubrication systems facilities in Europe.
Consolidated Restructuring Accrual:
The following is a rollforward of the consolidated restructuring accrual for the nine months ended September 30, 2024 and twelve months ended December 31, 2023:
September 30,
2024 December 31,
2023
Beginning balance, January 1 $ 5.8 $ 3.1
Expense 6.1 12.3
Payments ( 8.6 ) ( 9.6 )
Ending balance $ 3.3 $ 5.8
The restructuring accrual at September 30, 2024 and December 31, 2023 was included in other current liabilities on the Consolidated Balance Sheets.
23
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Note 16 - Retirement Benefit Plans
The following table sets forth the net periodic benefit cost for the Company’s defined benefit pension plans. The amounts for the three and nine months ended September 30, 2024 are based on calculations prepared by the Company's actuaries and represent the Company’s best estimate of that period’s proportionate share of the amounts to be recorded for the year ending December 31, 2024.
U.S. Plans International Plans Total
Three Months Ended
September 30, Three Months Ended
September 30, Three Months Ended
September 30,
2024 2023 2024 2023 2024 2023
Components of net periodic benefit cost (credit):
Service cost $ 0.1 $ 0.2 $ 0.5 $ 0.3 $ 0.6 $ 0.5
Interest cost 4.3 4.4 2.6 2.4 6.9 6.8
Expected return on plan assets ( 1.9 ) ( 2.1 ) ( 2.4 ) ( 2.5 ) ( 4.3 ) ( 4.6 )
Amortization of prior service cost — 0.1 — — — 0.1
Recognition of net actuarial losses — 0.2 — — — 0.2
Net periodic benefit cost (credit) $ 2.5 $ 2.8 $ 0.7 $ 0.2 $ 3.2 $ 3.0
U.S. Plans International Plans Total
Nine Months Ended
September 30, Nine Months Ended
September 30, Nine Months Ended
September 30,
2024 2023 2024 2023 2024 2023
Components of net periodic benefit cost (credit):
Service cost $ 0.5 $ 0.6 $ 1.4 $ 1.1 $ 1.9 $ 1.7
Interest cost 12.8 13.4 7.7 7.7 20.5 21.1
Expected return on plan assets ( 5.7 ) ( 6.3 ) ( 7.2 ) ( 7.8 ) ( 12.9 ) ( 14.1 )
Amortization of prior service cost 0.1 0.2 0.1 0.1 0.2 0.3
Recognition of net actuarial gains — ( 1.7 ) — — — ( 1.7 )
Net periodic benefit cost (credit) $ 7.7 $ 6.2 $ 2.0 $ 1.1 $ 9.7 $ 7.3
For the three and nine months ended September 30, 2023, lump sum payments related to new retirees exceeded annual service and interest costs for one of the Company's U.S. defined benefit pension plans, triggering a remeasurement of assets and obligations for this plan. As a result of this remeasurement, the Company recognized a net actuarial ("mark-to-market") loss of $ 0.2 million and a gain of $ 1.7 million during the three and nine months ended September 30, 2023 , respectively.
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Note 17 - Other Postretirement Benefit Plans
The following table sets forth the net periodic benefit cost for the Company’s other postretirement benefit plans. The amounts for the three and nine months ended September 30, 2024 are based on calculations prepared by the Company's actuaries and represent the Company’s best estimate of that period’s proportionate share of the amounts to be recorded for the year ending December 31, 2024.
Three Months Ended
September 30, Nine Months Ended
September 30,
2024 2023 2024 2023
Net periodic benefit credit:
Service cost $ 0.1 $ 0.1 $ 0.1 $ 0.1
Interest cost 0.4 0.4 1.3 1.4
Amortization of prior service credit ( 2.1 ) ( 2.0 ) ( 6.2 ) ( 6.2 )
Net periodic benefit credit $ ( 1.6 ) $ ( 1.5 ) $ ( 4.8 ) $ ( 4.7 )
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Note 18 - Accumulated Other Comprehensive Income (Loss)
The following tables present details about components of accumulated other comprehensive (loss) income for the three and nine months ended September 30, 2024 and 2023, respectively:
Foreign currency translation adjustments Pension and other postretirement liability adjustments Change in fair value of derivative financial instruments Total
Balance at June 30, 2024 $ ( 267.7 ) $ 41.7 $ 2.5 $ ( 223.5 )
Other comprehensive income (loss) before
reclassifications and income taxes 78.7 ( 0.1 ) ( 1.8 ) 76.8
Amounts reclassified from accumulated other
comprehensive loss before income
taxes — ( 2.1 ) ( 0.4 ) ( 2.5 )
Income tax benefit — 0.6 0.6 1.2
Net current period other comprehensive income
(loss), net of income taxes 78.7 ( 1.6 ) ( 1.6 ) 75.5
Noncontrolling interest 0.6 — — 0.6
Net current period other comprehensive income
(loss), net of income taxes and noncontrolling
interest 79.3 ( 1.6 ) ( 1.6 ) 76.1
Balance at September 30, 2024 $ ( 188.4 ) $ 40.1 $ 0.9 $ ( 147.4 )
Foreign currency translation adjustments Pension and other postretirement liability adjustments Change in fair value of derivative financial instruments Total
Balance at December 31, 2023 $ ( 193.8 ) $ 44.7 $ 2.2 $ ( 146.9 )
Sale of shares of Timken India Limited 5.6 — — 5.6
Other comprehensive loss (income) before
reclassifications and income taxes ( 1.3 ) ( 0.1 ) 0.6 ( 0.8 )
Amounts reclassified from accumulated other
comprehensive loss before income taxes — ( 6.0 ) ( 2.2 ) ( 8.2 )
Income tax benefit — 1.5 0.3 1.8
Net current period other comprehensive loss,
net of income taxes ( 1.3 ) ( 4.6 ) ( 1.3 ) ( 7.2 )
Noncontrolling interest 1.1 — — 1.1
Net current period other comprehensive income
(loss), net of income taxes, noncontrolling
interest and sale of shares of Timken India
Limited 5.4 ( 4.6 ) ( 1.3 ) ( 0.5 )
Balance at September 30, 2024 $ ( 188.4 ) $ 40.1 $ 0.9 $ ( 147.4 )
Foreign currency translation adjustments at September 30, 2024 included cumulative losses of $ 15.3 million related to net investment hedges. Refer to Note 20 - Derivative Instruments and Hedging Activities for additional information on the net investment hedges.
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Note 18 - Accumulated Other Comprehensive Income (Loss) (continued)
Foreign currency translation adjustments Pension and other postretirement liability adjustments Change in fair value of derivative financial instruments Total
Balance at June 30, 2023 $ ( 227.8 ) $ 47.7 $ 1.9 $ ( 178.2 )
Other comprehensive loss (income) before
reclassifications and income taxes ( 65.1 ) — 2.1 ( 63.0 )
Amounts reclassified from accumulated other
comprehensive (loss) income before income
taxes — ( 1.9 ) 0.8 ( 1.1 )
Income tax benefit (expense) 0.5 ( 0.9 ) ( 0.4 )
Net current period other comprehensive (loss)
income, net of income taxes ( 65.1 ) ( 1.4 ) 2.0 ( 64.5 )
Noncontrolling interest 1.8 — — 1.8
Net current period other comprehensive (loss)
income, net of income taxes and noncontrolling
interest ( 63.3 ) ( 1.4 ) 2.0 ( 62.7 )
Balance at September 30, 2023 $ ( 291.1 ) $ 46.3 $ 3.9 $ ( 240.9 )
Foreign currency translation adjustments Pension and other postretirement liability adjustments Change in fair value of derivative financial instruments Total
Balance at December 31, 2022 $ ( 235.7 ) $ 50.8 $ 3.0 $ ( 181.9 )
Sale of shares of Timken India Limited 8.1 — — 8.1
Other comprehensive loss (income) before
reclassifications and income taxes ( 65.3 ) ( 0.1 ) 0.4 ( 65.0 )
Amounts reclassified from accumulated other
comprehensive (loss) income before income
taxes — ( 5.9 ) 0.9 ( 5.0 )
Income tax benefit (expense) — 1.5 ( 0.4 ) 1.1
Net current period other comprehensive (loss)
income, net of income taxes ( 65.3 ) ( 4.5 ) 0.9 ( 68.9 )
Noncontrolling interest 1.8 — — 1.8
Net current period other comprehensive (loss)
income, net of income taxes, noncontrolling
interest and sale of shares of Timken India
Limited ( 55.4 ) ( 4.5 ) 0.9 ( 59.0 )
Balance at September 30, 2023 $ ( 291.1 ) $ 46.3 $ 3.9 $ ( 240.9 )
Other comprehensive (loss) income before reclassifications and income taxes includes the effect of foreign currency.
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Note 19 - Fair Value
Fair value is defined as the price that would be expected to be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The FASB provides accounting rules that classify the inputs used to measure fair value into the following hierarchy:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3 – Unobservable inputs for the asset or liability.
The following tables present the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023:
September 30, 2024
Total Level 1 Level 2 Level 3
Assets:
Cash and cash equivalents $ 378.3 $ 376.9 $ 1.4 $ —
Cash and cash equivalents measured at net asset value 34.4
Restricted cash 0.7 0.7 — —
Short-term investments 15.1 — 15.1 —
Foreign currency forward contracts 2.2 — 2.2 —
Total assets $ 430.7 $ 377.6 $ 18.7 $ —
Liabilities:
Foreign currency forward contracts $ 5.4 $ — $ 5.4 $ —
Total liabilities $ 5.4 $ — $ 5.4 $ —
December 31, 2023
Total Level 1 Level 2 Level 3
Assets:
Cash and cash equivalents $ 384.4 $ 381.0 $ 3.4 $ —
Cash and cash equivalents measured at net asset value 34.5
Restricted cash 0.4 0.4 — —
Short-term investments 31.6 — 31.6 —
Foreign currency forward contracts 3.3 — 3.3 —
Total assets $ 454.2 $ 381.4 $ 38.3 $ —
Liabilities:
Foreign currency forward contracts $ 11.4 $ — $ 11.4 $ —
Total liabilities $ 11.4 $ — $ 11.4 $ —
Cash and cash equivalents include highly liquid investments with maturities of 90 days or less when purchased that are valued at redemption value. Short-term investments are investments with maturities between 91 days and one year, and generally are valued at amortized cost, which approximates fair value. A portion of the cash and cash equivalents and short-term investments are valued based on net asset value. The Company uses publicly available foreign currency forward and spot rates to measure the fair value of its foreign currency forward contracts.
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Note 19 - Fair Value (continued)
In addition, the Company remeasures certain assets at fair value, using Level 3 inputs, as a result of the occurrence of triggering events such as purchase accounting for acquisitions or goodwill impairment.
During the nine months ended September 30, 2024, certain engineering-related assets used in the business, with a carrying value of $ 2.0 million, were written down to their fair value of zero , resulting in an impairment charge of $ 2.0 million. The fair value for these assets was determined based on an estimate of the best price that would be received in a current transaction to sell the assets to a third party less the cost to sell the assets.
No other material assets were measured at fair value on a nonrecurring basis during the nine months ended September 30, 2024 and 2023.
Financial Instruments:
The Company’s financial instruments consist primarily of cash and cash equivalents, short-term investments, accounts receivable, trade accounts payable, short-term borrowings and long-term debt. Due to their short-term nature, the carrying value of cash and cash equivalents, short-term investments, accounts receivable, trade accounts payable and short-term borrowings are a reasonable estimate of their fair value. Due to the nature of fair value calculations for variable-rate debt, the carrying value of the Company's long-term variable-rate debt is a reasonable estimate of its fair value. The fair value of the Company’s long-term fixed-rate debt, based on Level 2 inputs (quoted market prices), was $ 1,737.4 million and $ 1,387.7 million at September 30, 2024 and December 31, 2023, respectively. The carrying value of this debt was $ 1,734.4 million and $ 1,424.3 million at September 30, 2024 and December 31, 2023, respectively. The difference between fair value and carrying value primarily reflects the net impact of changes in prevailing interest rates and credit spreads since the fixed-rate debt was issued.
The Company does not believe it has significant concentrations of risk associated with the counterparties to its financial instruments.
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Note 20 - Derivative Instruments and Hedging Activities
The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are foreign currency exchange rate risk and interest rate risk. Forward contracts on various foreign currencies are entered into in order to manage the foreign currency exchange rate risk associated with certain of the Company's commitments denominated in foreign currencies. From time to time, interest rate swaps are used to manage interest rate risk associated with the Company’s fixed and floating-rate borrowings.
The Company designates certain foreign currency forward contracts as cash flow hedges of forecasted revenues and certain interest rate hedges as cash flow hedges of fixed-rate borrowings.
On May 23, 2024, the Company designated its 2034 Notes as a hedge against its net investment in one of its European subsidiaries. The objective of the hedge transaction is to protect the net investment in the foreign operations against change in the exchange rate between the U.S. dollar and the Euro. The net impact for the three and nine months ended September 30, 2024 was a loss of $ 25.3 million and $ 19.2 million to accumulated comprehensive (loss) income, respectively.
On September 15, 2020, the Company designated € 54.5 million of its € 150.0 million fixed-rate senior unsecured notes, maturing on September 7, 2027, as a hedge against its net investment in one of its European subsidiaries. The objective of the hedge transaction is to protect the net investment in the foreign operations against changes in the exchange rate between the U.S. dollar and the Euro. The net impact for the three and nine months ended September 30, 2024 was a loss of $ 2.3 million and $ 0.5 million to accumulated comprehensive (loss) income, respectively.
The Company does not purchase or hold any derivative financial instruments for trading purposes. As of September 30, 2024 and December 31, 2023, the Company had $ 734.3 million and $ 591.8 million, respectively, of outstanding foreign currency forward contracts at notional value. Refer to Note 19 - Fair Value for the fair value disclosure of derivative financial instruments.
Cash Flow Hedging Strategy:
For certain derivative instruments that are designated and qualify as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings.
To protect against a reduction in the value of forecasted foreign currency cash flows resulting from export sales, the Company has instituted a foreign currency cash flow hedging program. The Company hedges portions of its forecasted cash flows denominated in certain foreign currencies with forward contracts. When the dollar strengthens significantly against these foreign currencies, the decline in the present value of future foreign currency revenue is offset by gains in the fair value of the forward contracts designated as hedges. Conversely, when the dollar weakens, the increase in the present value of future foreign currency cash flows is offset by losses in the fair value of the forward contracts. As of September 30, 2024 and December 31, 2023, the Company had $ 69.1 million and $ 73.8 million, respectively, of outstanding foreign currency forward contracts at notional value that were classified as cash flow hedges.
The maximum length of time over which the Company hedges its exposure to the variability in future cash flows for forecast transactions is generally eighteen months or less.
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Note 20 - Derivative Instruments and Hedging Activities (continued)
Purpose for Derivative Instruments not designated as Hedging Instruments:
For derivative instruments that are not designated as hedging instruments, the instruments are typically forward contracts. In general, the practice is to reduce volatility by selectively hedging transaction exposures including intercompany loans, accounts payable and accounts receivable. Intercompany loans between entities with different functional currencies typically are hedged with a forward contract at the inception of the loan with a maturity date corresponding to the maturity of the loan. The revaluation of these contracts, as well as the revaluation of the underlying balance sheet items, is recorded directly to the income statement so the adjustment generally offsets the revaluation of the underlying balance sheet items to protect cash payments and reduce income statement volatility.
As of September 30, 2024 and December 31, 2023, the Company had $ 665.2 million and $ 518.0 million, respectively, of outstanding foreign currency forward contracts at notional value that were not designated as hedging instruments. The following table presents the impact of derivative instruments not designated as hedging instruments for the three and nine months ended September 30, 2024 and 2023, respectively, and the related location within the Consolidated Statements of Income:
Amount of gain or (loss) recognized in income Amount of gain or (loss) recognized in income
Three Months Ended
September 30, Nine Months Ended September 30, 2024
Derivatives not designated as hedging instruments: Location of gain or (loss) recognized in income 2024 2023 2024 2023
Foreign currency forward contracts Other expense (income), net $ 2.6 $ 0.3 $ ( 7.4 ) $ ( 16.2 )
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.