TIMKEN CO [TKR] Filings

10-Q 1 tkr-20240630.htm 10-Q tkr-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-1169

THE TIMKEN COMPANY

(Exact name of registrant as specified in its charter)


Ohio		34-0577130
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4500 Mount Pleasant Street NW
North Canton	Ohio	44720-5450
(Address of principal executive offices)		(Zip Code)

234.262.3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Shares, without par value

TKR

The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer's classes of common shares, as of the latest practicable date.

Class

Outstanding at June 30, 2024

Common Shares, without par value

70,134,716 shares

Table of Contents

THE TIMKEN COMPANY

INDEX TO FORM 10-Q REPORT


			PAGE
I.	PART I.
	Item 1.	Financial Statements	1
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	53
	Item 4.	Controls and Procedures	53
II.	PART II.
	Item 1.	Legal Proceedings	54
	Item1A.	Risk Factors	54
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
	Item 5.	Other Information	55
	Item 6.	Exhibits	55

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE TIMKEN COMPANY AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
(Dollars in millions, except per share data)
Net sales	$	1,182.3	$	1,272.3	$	2,372.6	$	2,535.1
Cost of products sold	808.7		866.9		1,601.4		1,712.9

Selling, general and administrative expenses	184.1		184.9		374.8		371.7

Amortization of intangible assets	19.0		17.3		39.0		30.8
Impairment and restructuring charges	3.3		2.5		5.6		31.4

Operating Income	167.2		200.7		351.8		388.3
Interest expense	(34.6)		(28.3)		(66.8)		(52.4)
Interest income	5.1		1.9		7.9		3.4


Non-service pension and other postretirement (expense) income	(1.0)		—		(2.0)		0.1
Other income, net	1.2		2.3		0.3		5.4
Income Before Income Taxes	137.9		176.6		291.2		344.8
Provision for income taxes	35.9		47.1		78.6		89.6
Net Income	102.0		129.5		212.6		255.2
Less: Net income attributable to noncontrolling interest	5.8		4.3		12.9		7.7
Net Income Attributable to The Timken Company	$	96.2	$	125.2	$	199.7	$	247.5

Net Income per Common Share Attributable to The Timken Company Common Shareholders
Basic earnings per share	$	1.37	$	1.74	$	2.84	$	3.43

Diluted earnings per share	$	1.36	$	1.73	$	2.82	$	3.39

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
(Dollars in millions)
Net Income	$	102.0	$	129.5	$	212.6	$	255.2
Other comprehensive loss, net of tax:
Foreign currency translation adjustments	(29.3)		(27.9)		(80.0)		(0.2)
Pension and postretirement liability adjustments	(1.5)		(1.6)		(3.0)		(3.1)

Change in fair value of derivative financial instruments	(0.8)		(0.3)		0.3		(1.1)
Other comprehensive loss, net of tax	(31.6)		(29.8)		(82.7)		(4.4)
Comprehensive income, net of tax	70.4		99.7		129.9		250.8
Less: comprehensive income attributable to noncontrolling interest	5.7		4.0		12.4		7.7
Comprehensive income attributable to The Timken Company	$	64.7	$	95.7	$	117.5	$	243.1

See accompanying Notes to the Consolidated Financial Statements.

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Consolidated Balance Sheets


	(Unaudited)
(Dollars in millions)	June 30, 2024		December 31, 2023
ASSETS
Current Assets
Cash and cash equivalents	$	469.9	$	418.9
Restricted cash	1.1		0.4
Accounts receivable, less allowances (2024 – $15.7 million; 2023 – $17.1 million)	789.8		671.7
Unbilled receivables	148.1		144.5
Inventories, net	1,233.3		1,229.1
Deferred charges and prepaid expenses	45.0		41.5
Other current assets	85.9		128.8

Total Current Assets	2,773.1		2,634.9
Property, Plant and Equipment, net	1,290.2		1,311.9
Other Assets
Goodwill	1,349.7		1,369.6
Other intangible assets, net	967.7		1,031.4
Operating lease assets	120.1		119.7


Deferred income taxes	47.6		44.3
Other non-current assets	27.5		29.9

Total Other Assets	2,512.6		2,594.9
Total Assets	$	6,575.9	$	6,541.7
LIABILITIES AND EQUITY
Current Liabilities


Accounts payable, trade	$	369.6	$	367.2
Short-term debt, including current portion of long-term debt	46.5		605.6
Salaries, wages and benefits	133.8		161.5
Income taxes payable	76.3		19.9

Other current liabilities	314.5		317.1

Total Current Liabilities	940.7		1,471.3
Non-Current Liabilities
Long-term debt	2,129.9		1,790.3
Accrued pension benefits	160.1		172.3
Accrued postretirement benefits	30.4		30.2
Long-term operating lease liabilities	78.0		78.7
Deferred income taxes	182.1		186.5
Other non-current liabilities	104.6		110.0

Total Non-Current Liabilities	2,685.1		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 – 79,169,579 shares; 2023 – 78,680,164 shares)
Stated capital	40.7		40.7
Other paid-in capital	1,255.9		1,076.5
Retained earnings	2,383.5		2,232.2
Accumulated other comprehensive loss	(223.5)		(146.9)
Treasury shares at cost (2024 – 9,034,863 shares; 2023 – 8,553,272 shares)	(659.8)		(620.1)
Total Shareholders’ Equity	2,796.8		2,582.4
Noncontrolling Interest	153.3		120.0
Total Equity	2,950.1		2,702.4
Total Liabilities and Equity	$	6,575.9	$	6,541.7

See accompanying Notes to the Consolidated Financial Statements.

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Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended June 30,
	2024		2023
(Dollars in millions)
CASH PROVIDED (USED)
Operating Activities
Net income	$	212.6	$	255.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	109.5		96.8
Impairment charges	1.9		28.3
(Gain) loss on sale of assets	(1.1)		1.2

Gain on divestitures	—		(3.6)

Deferred income tax (benefit) provision	(5.2)		2.8
Stock-based compensation expense	11.5		17.1
Pension and other postretirement expense	3.3		1.1
Pension and other postretirement benefit contributions and payments	(16.1)		(7.2)


Changes in operating assets and liabilities:
Accounts receivable	(131.2)		(87.4)
Unbilled receivables	(3.8)		(17.7)
Inventories	(20.6)		15.3
Accounts payable, trade	13.8		(14.9)
Other accrued expenses	(20.5)		(29.1)
Income taxes	31.7		(32.3)
Other, net	(11.9)		(3.0)


Net Cash Provided by Operating Activities	173.9		222.6
Investing Activities
Capital expenditures	(81.4)		(91.3)
Acquisitions, net of cash acquired	(0.4)		(324.6)
Proceeds from disposal of property, plant and equipment	1.5		0.3
Proceeds from divestitures, net of cash divested	0.3		4.5
Investments in short-term marketable securities, net	20.8		(0.8)
Other, net	(0.2)		(0.1)


Net Cash Used in Investing Activities	(59.4)		(412.0)
Financing Activities
Cash dividends paid to shareholders	(48.4)		(47.4)
Purchase of treasury shares	(29.7)		(154.5)
Proceeds from exercise of stock options	5.4		17.2
Payments related to tax withholding for stock-based compensation	(10.0)		(15.1)
Borrowings on accounts receivable facility	55.0		29.0
Payments on accounts receivable facility	(122.0)		(29.0)
Proceeds from long-term debt	1,306.5		768.9
Payments on long-term debt	(1,221.3)		(643.5)
Deferred financing costs	(5.5)		—
Short-term debt activity, net	(213.1)		(1.4)

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	(52.0)		209.0
Effect of exchange rate changes on cash	(10.8)		(8.0)
Increase in Cash, Cash Equivalents and Restricted Cash	51.7		11.6
Cash, cash equivalents and restricted cash at beginning of year	419.3		340.7
Cash, Cash Equivalents and Restricted Cash at End of Period	$	471.0	$	352.3

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 this guidance later in 2024 (annual period) and in 2025 (interim periods).

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Note 3 - Acquisitions and Divestitures

Acquisitions:

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 June 30, 2024:


	Purchase Price Allocation at December 31, 2023		2024 Adjustments		Updated Purchase Price Allocation at June 30, 2024
Assets:

Accounts receivable	$	44.7	$	(0.9)	$	43.8
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		—		7.3
Goodwill	285.6		5.0		290.6
Other intangible assets	306.7		(6.2)		300.5
Other assets	6.7		(1.6)		5.1
Total assets acquired	$	815.5	$	(1.8)	$	813.7
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		0.5		11.2
Short-term debt	4.7		—		4.7
Long-term debt	6.0		—		6.0
Accrued pension benefits	3.6		—		3.6
Long-term operating lease liabilities	7.0		(0.8)		6.2
Deferred income taxes	83.3		(1.1)		82.2
Other non-current liabilities	7.6		—		7.6
Total liabilities assumed	$	169.3	$	(3.2)	$	166.1
Noncontrolling interest acquired	5.2		1.0		6.2
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	202.8		14 years
Non-compete agreements	1.0		3 years
Capitalized software	0.6		2 years
Total intangible assets	$	300.5

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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 taking into account 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, is based on preliminary information in most cases and 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. The purchase price allocations for Lagersmit, iMECH, Rosa and Des-Case are preliminary. The purchase price allocations for 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 of 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.

Divestitures:

On February 28, 2023, the Company completed the sale of all of its membership interests 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.

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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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net sales:
Engineered Bearings	$	783.4	$	857.2	$	1,585.9	$	1,757.9
Industrial Motion	398.9		415.1		786.7		777.2
Net sales	$	1,182.3	$	1,272.3	$	2,372.6	$	2,535.1
Segment EBITDA:
Engineered Bearings	$	163.3	$	185.5	$	342.0	$	390.5
Industrial Motion	75.6		80.9		152.9		129.1
Total EBITDA, for reportable segments	$	238.9	$	266.4	$	494.9	$	519.6
Unallocated corporate expense	(17.3)		(13.2)		(35.3)		(30.9)
Corporate pension and other postretirement benefit related income (1)	—		1.0		—		1.9

Depreciation and amortization	(54.2)		(51.2)		(109.5)		(96.8)
Interest expense	(34.6)		(28.3)		(66.8)		(52.4)
Interest income	5.1		1.9		7.9		3.4
Income before income taxes	$	137.9	$	176.6	$	291.2	$	344.8

(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.


	June 30, 2024		December 31, 2023
Assets by Segment:
Engineered Bearings	$	3,323.8	$	3,296.8
Industrial Motion	2,712.3		2,744.5
Corporate (2)	539.8		500.4
	$	6,575.9	$	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 six months ended June 30, 2024 and 2023:


	Three Months Ended						Three Months Ended
	June 30, 2024						June 30, 2023
	Engineered Bearings		Industrial Motion		Total		Engineered Bearings		Industrial Motion		Total
United States	$	335.9	$	203.5	$	539.4	$	317.6	$	218.8	$	536.4
Americas excluding the United States	96.3		26.5		122.8		96.0		27.9		123.9
Europe / Middle East / Africa	151.0		135.2		286.2		175.6		136.6		312.2
China	80.9		23.0		103.9		156.5		22.9		179.4
Asia-Pacific excluding China	119.3		10.7		130.0		111.5		8.9		120.4
Net sales	$	783.4	$	398.9	$	1,182.3	$	857.2	$	415.1	$	1,272.3

	Six Months Ended						Six Months Ended
	June 30, 2024						June 30, 2023
	Engineered Bearings		Industrial Motion		Total		Engineered Bearings		Industrial Motion		Total
United States	$	671.0	$	396.2	$	1,067.2	$	658.5	$	413.1	$	1,071.6
Americas excluding the United States	191.0		51.1		242.1		188.2		55.8		244.0
Europe / Middle East / Africa	320.5		277.8		598.3		359.5		250.4		609.9
China	152.6		39.3		191.9		314.9		39.2		354.1
Asia-Pacific excluding China	250.8		22.3		273.1		236.8		18.7		255.5
Net sales	$	1,585.9	$	786.7	$	2,372.6	$	1,757.9	$	777.2	$	2,535.1

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 six months ended June 30, 2024 and 2023:


	Six Months Ended	Six Months Ended
Revenue by sales channel	June 30, 2024	June 30, 2023
Original equipment manufacturers	60%	60%
Distribution/end users	40%	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, type of customer and distinguishing service revenue from product sales is also relevant. During the six months ended June 30, 2024 and June 30, 2023, approximately 7% and 8%, 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. Approximately 5% and 4% of total net sales represented service revenue during the six months ended June 30, 2024 and June 30, 2023, respectively. Finally, business with the United States ("U.S.") government or its contractors represented approximately 6% of total net sales during the six months ended June 30, 2024 and June 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 $129.0 million at June 30, 2024.

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Note 5 - Revenue (continued)

Unbilled Receivables:

The following table contains a rollforward of unbilled receivables for the six months ended June 30, 2024 and the twelve months ended December 31, 2023:


	June 30, 2024		December 31, 2023
Beginning balance, January 1	$	144.5	$	103.9
Additional unbilled revenue recognized	158.6		424.1
Less: amounts billed to customers	(155.0)		(383.5)


Ending balance	$	148.1	$	144.5

There were no impairment losses recorded on unbilled receivables for the six months ended June 30, 2024 and the twelve months ended December 31, 2023.

Deferred Revenue:

The following table contains a rollforward of deferred revenue for the six months ended June 30, 2024 and the twelve months ended December 31, 2023:


	June 30, 2024		December 31, 2023
Beginning balance, January 1	$	45.4	$	54.3
Acquisitions	—		1.4
Revenue (cash) received in advance	78.8		165.2
Less: revenue recognized	(72.5)		(175.5)
Ending balance	$	51.7	$	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 June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Provision for income taxes	$	35.9		$	47.1		$	78.6		$	89.6
Effective tax rate	26.0		%	26.7		%	27.0		%	26.0		%

Income tax expense for the three and six months ended June 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% primarily due to the actual and projected mix of earnings in non-U.S. jurisdictions with relatively higher tax rates.

The effective tax rate of 26.0% for the three months ended June 30, 2024 was lower than the effective tax rate for the three months ended June 30, 2023 primarily due to the net favorable impact of discrete items versus the year ago period. The effective tax rate of 27.0% for the six months ended June 30, 2024 was higher than the effective tax rate for the six months ended June 30, 2023 primarily due to an increase in the mix of earnings in non-U.S. jurisdictions with relatively higher tax rates and the net unfavorable impact of discrete items versus the year ago period.

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 six months ended June 30, 2024 and 2023:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Numerator:
Net income attributable to The Timken Company	$	96.2	$	125.2	$	199.7	$	247.5


Denominator:
Weighted average number of shares outstanding - basic	70,364,539		71,882,843		70,301,757		72,162,267
Effect of dilutive securities:
Stock options and awards - based on the treasury stock method	484,715		630,148		549,035		745,537
Weighted average number of shares outstanding assuming dilution of stock options and awards	70,849,254		72,512,991		70,850,792		72,907,804
Basic earnings per share	$	1.37	$	1.74	$	2.84	$	3.43
Diluted earnings per share	$	1.36	$	1.73	$	2.82	$	3.39

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 six months ended June 30, 2024 and 2023.

Note 8 - Inventories

The components of inventories at June 30, 2024 and December 31, 2023 were as follows:


	June 30, 2024		December 31, 2023
Manufacturing supplies	$	43.6	$	41.9
Raw materials	153.1		145.6
Work in process	501.4		496.1
Finished products	621.6		619.2
Subtotal	1,319.7		1,302.8
Allowance for obsolete and surplus inventory	(86.4)		(73.7)
Total inventories, net	$	1,233.3	$	1,229.1

Inventories are valued at net realizable value, with approximately 60% valued on the first-in, first-out ("FIFO") method and the remaining 40% 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 June 30, 2024 and December 31, 2023 were $240.6 million and $234.7 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 management’s estimates of expected year-end 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 1st. Furthermore, goodwill and indefinite-lived intangible assets are 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 six months ended June 30, 2024 were as follows:


	Engineered Bearings		Industrial Motion		Total
Beginning balance	$	692.3	$	677.3	$	1,369.6


Foreign currency translation adjustments and other changes	4.1		(24.0)		(19.9)
Ending balance	$	696.4	$	653.3	$	1,349.7

The following table displays intangible assets as of June 30, 2024 and December 31, 2023:


	Balance at June 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	$	764.7	$	(243.9)	$	520.8	$	776.5	$	(222.8)	$	553.7
Technology and know-how	340.4		(110.1)		230.3		343.3		(100.9)		242.4
Trade names	103.8		(14.4)		89.4		71.3		(11.2)		60.1
Capitalized software	301.7		(273.6)		28.1		299.5		(272.8)		26.7
Other	11.2		(9.3)		1.9		10.8		(8.7)		2.1
	$	1,521.8	$	(651.3)	$	870.5	$	1,501.4	$	(616.4)	$	885.0
Intangible assets not subject to amortization:
Trade names	$	88.5			$	88.5	$	137.7			$	137.7
FAA air agency certificates	8.7				8.7		8.7				8.7
	$	97.2			$	97.2	$	146.4			$	146.4
Total intangible assets	$	1,619.0	$	(651.3)	$	967.7	$	1,647.8	$	(616.4)	$	1,031.4

Amortization expense for intangible assets was $42.6 million and $33.9 million for the six months ended June 30, 2024 and 2023, respectively. Amortization expense for intangible assets is projected to be approximately $80 million in 2024; $77 million in 2025; $74 million in 2026; $71 million in 2027; and $69 million in 2028.

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Note 10 - Other Current Liabilities

The following table displays other current liabilities as of June 30, 2024 and December 31, 2023:


(Dollars in millions)	June 30, 2024		December 31, 2023
Sales rebates	$	69.4	$	79.0
Deferred revenue	51.7		45.4
Operating lease liabilities	27.1		25.9
Taxes other than income and payroll taxes	23.1		17.8
Product warranty	17.5		15.2
Freight and duties	15.4		13.4
Interest	13.2		16.4
Professional fees	11.6		12.5
Current derivative liability	7.5		11.4
Restructuring	3.5		5.8
Other	74.5		74.3
Total other current liabilities	$	314.5	$	317.1

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Note 11 - Financing Arrangements

Short-term debt at June 30, 2024 and December 31, 2023 was as follows:


	June 30, 2024		December 31, 2023
Variable-rate Term Loan, maturing on August 16, 2024, with an interest rate of 5.11% at December 31, 2023	$	—	$	220.8
Borrowings under lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 4.28% to 4.73% at June 30, 2024 and 4.35% to 7.33% at December 31, 2023	27.7		25.4
Short-term debt	$	27.7	$	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 June 30, 2024, the Company’s foreign subsidiaries had borrowings outstanding of $27.7 million and bank guarantees of $2.1 million.

Long-term debt at June 30, 2024 and December 31, 2023 was as follows:


	June 30, 2024		December 31, 2023
Variable-rate Senior Credit Facility with an average interest rate on U.S. Dollar of 6.42% and Euro of 4.80% at June 30, 2024 and U.S. Dollar of 6.48% and Euro of 4.85% at December 31, 2023	$	40.7	$	247.4
Variable-rate Accounts Receivable Facility with an interest rate of 6.42% at December 31, 2023	—		67.0
Variable-rate Term Loan(1), maturing on December 5, 2027, with an interest rate of 6.57% at June 30, 2024 and 6.58% at December 31, 2023	399.5		399.3
Fixed-rate Senior Unsecured Notes(1), maturing on September 1, 2024, with an interest rate of 3.875%	—		350.0
Fixed-rate Euro Senior Unsecured Notes(1), maturing on September 7, 2027, with an interest rate of 2.02%	160.6		165.5
Fixed-rate Euro Senior Unsecured Notes(1), maturing on May 23, 2034, with an interest rate of 4.125%	630.0		—
Fixed-rate Senior Unsecured Notes(1), maturing on December 15, 2028, with an interest rate of 4.50%	397.9		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%	344.4		343.7
Fixed-rate Euro Bank Loan, maturing on June 30, 2033, with an interest rate of 2.15%	11.6		12.7

Other	9.2		11.6
Total debt	$	2,148.7	$	2,149.7
Less: current maturities	18.8		359.4
Long-term debt	$	2,129.9	$	1,790.3

(1) Net of discounts and fees

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Note 11 - Financing Arrangements (continued)

The Company has 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 to certain borrowing base limitations; however, availability under the Accounts Receivable Facility was not reduced by any such borrowing base limitations at June 30, 2024. As of June 30, 2024, there were no outstanding borrowings under the Accounts Receivable Facility. 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 June 30, 2024, the Company had $40.7 million outstanding borrowings under the Senior Credit Facility, which reduced the availability under this facility to $709.3 million. The Credit Agreement has two financial covenants: a consolidated 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 June 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 insurance contracts and certain indirect taxes. At June 30, 2024, outstanding letters of credit totaled $60.6 million, most with expiration dates within 12 months.

The maturities of long-term debt (including $8.7 million of finance leases) subsequent to June 30, 2024 are as follows:


Year
2024	$	7.8
2025	28.9
2026	53.4
2027	558.9
2028	521.9
2029	1.5
Thereafter	997.5

The table above excludes $21.2 million of unamortized discounts and fees that are netted against long-term debt at June 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 six months ended June 30, 2024 and twelve months ended December 31, 2023:


	June 30, 2024		December 31, 2023
Confirmed obligations outstanding, January 1	$	21.3	$	14.4
Invoices confirmed	59.1		97.1
Confirmed invoices paid	(61.8)		(90.2)
Confirmed obligations outstanding, ending balance	$	18.6	$	21.3

The obligations outstanding at June 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 $4.6 million and $4.7 million for various known environmental matters that are probable and reasonably estimable at June 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 $17.5 million and $15.2 million at June 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. The Company continues to evaluate potential claims raised by certain customers with respect to the performance of bearings sold into the automotive and wind energy 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 six months ended June 30, 2024 and twelve months ended December 31, 2023:


	June 30, 2024		December 31, 2023
Beginning balance, January 1	$	15.2	$	23.5
Expense	4.9		5.9
Payments	(2.6)		(14.2)
Ending balance	$	17.5	$	15.2

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Note 14 - Equity

The following tables present the changes in the components of equity for the three and six months ended June 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 March 31, 2024	$	2,735.0	$	40.7	$	1,083.0	$	2,311.2	$	(197.6)	$	(629.0)	$	126.7
Net income	102.0						96.2						5.8
Foreign currency translation adjustment	(29.3)								(29.2)				(0.1)
Pension and other postretirement liability adjustments (net of income tax benefit of $0.4 million)	(1.5)								(1.5)

Change in fair value of derivative financial instruments, net of reclassifications	(0.8)								(0.8)

Dividends - $0.34 per share	(23.9)						(23.9)
Sale of shares of Timken India Limited	188.0				162.5				5.6				19.9
Noncontrolling interest acquired	1.0												1.0
Stock-based compensation expense	7.0				7.0
Stock purchased at fair market value	(29.7)										(29.7)
Stock option exercise activity	3.4				3.4

Payments related to tax withholding for stock-based compensation	(1.1)										(1.1)
Balance at June 30, 2024	$	2,950.1	$	40.7	$	1,255.9	$	2,383.5	$	(223.5)	$	(659.8)	$	153.3



			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, 2023	$	2,702.4	$	40.7	$	1,076.5	$	2,232.2	$	(146.9)	$	(620.1)	$	120.0
Net income	212.6						199.7						12.9
Foreign currency translation adjustment	(80.0)								(79.5)				(0.5)
Pension and other postretirement liability adjustments (net of income tax benefit of $0.9 million)	(3.0)								(3.0)
Change in fair value of derivative financial instruments, net of reclassifications	0.3								0.3
Dividends - $0.67 per share	(48.4)						(48.4)

Sale of shares of Timken India Limited	188.0				162.5				5.6				19.9
Noncontrolling interest acquired	1.0												1.0
Stock-based compensation expense	11.5				11.5
Stock purchased at fair market value	(29.7)										(29.7)
Stock option exercise activity	5.4				5.4


Payments related to tax withholding for stock-based compensation	(10.0)										(10.0)
Balance at June 30, 2024	$	2,950.1	$	40.7	$	1,255.9	$	2,383.5	$	(223.5)	$	(659.8)	$	153.3

On May 28, 2024, the Company completed the sale of 5.0 million shares of TIL, generating net proceeds of $188 million after estimated income taxes of $44 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 not planning on any further sale transactions.

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			The Timken Company Shareholders
	Total		Stated Capital		Other Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Non controlling Interest
Balance at March 31, 2023	$	2,436.3	$	40.7	$	853.3	$	2,030.8	$	(156.8)	$	(420.0)	$	88.3
Net income	129.5						125.2						4.3
Foreign currency translation adjustment	(27.9)								(27.6)				(0.3)
Pension and other postretirement liability adjustments (net of income tax benefit of $0.5 million)	(1.6)								(1.6)
Change in fair value of derivative financial instruments, net of reclassifications	(0.3)								(0.3)

Dividends - $0.33 per share	(23.8)						(23.8)
Sale of shares of Timken India Limited	229.0				194.5				8.1				26.4
Stock-based compensation expense	6.1				6.1
Stock purchased at fair market value	(100.5)										(100.5)
Stock option exercise activity	4.5				4.5

Payments related to tax withholding for stock-based compensation	(1.3)										(1.3)
Balance at June 30, 2023	$	2,650.0	$	40.7	$	1,058.4	$	2,132.2	$	(178.2)	$	(521.8)	$	118.7


			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	255.2						247.5						7.7
Foreign currency translation adjustment	(0.2)								(0.2)
Pension and other postretirement liability adjustments (net of income tax benefit of $1.0 million)	(3.1)								(3.1)
Change in fair value of derivative financial instruments, net of reclassifications	(1.1)								(1.1)

Dividends - $0.64 per share	(47.4)						(47.4)
Sale of shares of Timken India Limited	229.0				194.5				8.1				26.4
Stock-based compensation expense	17.1				17.1
Stock purchased at fair market value	(154.5)										(154.5)
Stock option exercise activity	17.2				17.2

Payments related to tax withholding for stock-based compensation	(15.1)										(15.1)
Balance at June 30, 2023	$	2,650.0	$	40.7	$	1,058.4	$	2,132.2	$	(178.2)	$	(521.8)	$	118.7

On June 20, 2023, the Company completed the sale of 7.6 million shares of TIL, generating net proceeds of $229 million after estimated 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 June 30, 2024:


	Engineered Bearings		Industrial Motion		Total
Impairment charges	$	1.9	$	—	$	1.9
Severance and related benefit costs	0.2