Timken(TKR) - 2024 Q2 - Quarterly Report

Part I This section presents the unaudited consolidated financial statements and management's discussion and analysis for Q2 2024 ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited consolidated financial statements and detailed notes for Q2 2024 Consolidated Statements of Income This statement details the company's net sales, operating income, net income, and earnings per share for the periods | Metric (Dollars in millions, except per share data) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $1,182.3 | $1,272.3 | $2,372.6 | $2,535.1 | | Operating Income | $167.2 | $200.7 | $351.8 | $388.3 | | Income Before Income Taxes | $137.9 | $176.6 | $291.2 | $344.8 | | Net Income Attributable to The Timken Company | $96.2 | $125.2 | $199.7 | $247.5 | | Basic earnings per share | $1.37 | $1.74 | $2.84 | $3.43 | | Diluted earnings per share | $1.36 | $1.73 | $2.82 | $3.39 | Consolidated Statements of Comprehensive Income This statement presents net income and other comprehensive loss components, leading to total comprehensive income | Metric (Dollars in millions) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $102.0 | $129.5 | $212.6 | $255.2 | | Other comprehensive loss | $(31.6) | $(29.8) | $(82.7) | $(4.4) | | Comprehensive income | $70.4 | $99.7 | $129.9 | $250.8 | | Comprehensive income attributable to The Timken Company | $64.7 | $95.7 | $117.5 | $243.1 | Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time | Metric (Dollars in millions) | June 30, 2024 | December 31, 2023 | | :--------------------------- | :------------ | :---------------- | | Total Current Assets | $2,773.1 | $2,634.9 | | Total Assets | $6,575.9 | $6,541.7 | | Total Current Liabilities | $940.7 | $1,471.3 | | Total Non-Current Liabilities| $2,685.1 | $2,368.0 | | Total Equity | $2,950.1 | $2,702.4 | - Short-term debt, including current portion of long-term debt, significantly decreased from $605.6 million at December 31, 2023, to $46.5 million at June 30, 2024. This was offset by an increase in long-term debt from $1,790.3 million to $2,129.9 million[5] Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities | Metric (Dollars in millions) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--------------------------- | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | $173.9 | $222.6 | | Net Cash Used in Investing Activities | $(59.4) | $(412.0) | | Net Cash (Used in) Provided by Financing Activities | $(52.0) | $209.0 | | Increase in Cash, Cash Equivalents and Restricted Cash | $51.7 | $11.6 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) This section provides detailed explanations and disclosures supporting the consolidated financial statements Note 1 - Basis of Presentation The unaudited financial statements are prepared according to Form 10-Q and U.S. GAAP, with all necessary adjustments - The financial statements are unaudited and prepared in accordance with Form 10-Q and U.S. GAAP, with all necessary adjustments included as per management's opinion[7] Note 2 - Significant Accounting Policies Significant accounting policies are detailed in the 10-K, with planned adoption of ASU 2023-09 and ASU 2023-07 - The Company is preparing to adopt ASU 2023-09 (Income Taxes) in 2025, which requires enhanced disclosures for rate reconciliation and disaggregated income taxes paid[9] - The Company is preparing to adopt ASU 2023-07 (Segment Reporting) later in 2024 for annual periods and in 2025 for interim periods, requiring disclosure of significant segment expenses and CODM information[9] Note 3 - Acquisitions and Divestitures In 2023, Timken completed six acquisitions totaling $641.4 million and divested SE Setco for $5.7 million - Timken completed six acquisitions in 2023 (Lagersmit, iMECH, Rosa, Des-Case, Nadella, ARB) for a total purchase price of $641.4 million, net of cash acquired[11] - The acquisitions enhanced capabilities and product portfolios, with Lagersmit, Rosa, Des-Case, and Nadella reported in Industrial Motion, and iMECH and ARB in Engineered Bearings[11] - The Company divested its 50% owned joint venture, S.E. Setco Services Company, LLC, for $5.7 million in cash proceeds, recognizing a pretax gain of $4.8 million[16] Note 4 - Segment Information The Company operates two segments, Engineered Bearings and Industrial Motion, with EBITDA as the primary performance metric | Metric (Dollars in millions) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 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 | | Segment EBITDA: | | | | | | Engineered Bearings | $163.3 | $185.5 | $342.0 | $390.5 | | Industrial Motion | $75.6 | $80.9 | $152.9 | $129.1 | | Assets by Segment (Dollars in millions) | June 30, 2024 | December 31, 2023 | | :-------------------------------------- | :------------ | :---------------- | | Engineered Bearings | $3,323.8 | $3,296.8 | | Industrial Motion | $2,712.3 | $2,744.5 | | Corporate | $539.8 | $500.4 | | Total | $6,575.9 | $6,541.7 | Note 5 - Revenue Total net sales for Q2 2024 were $1,182.3 million, with 60% from OEMs and 40% from distribution | Revenue by Sales Channel | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------- | :----------------------------- | :----------------------------- | | Original equipment manufacturers | 60% | 60% | | Distribution/end users | 40% | 40% | - Approximately 7% of total net sales for the six months ended June 30, 2024, were recognized over-time, compared to 8% in the prior year[23] - Remaining performance obligations for contracts with a duration of more than one year totaled approximately $129.0 million at June 30, 2024, primarily for products and services to the U.S. government or its contractors[24] Note 6 - Income Taxes The Q2 2024 income tax provision was $35.9 million with a 26.0% effective rate, and six-month provision $78.6 million | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Provision for income taxes | $35.9 | $47.1 | $78.6 | $89.6 | | Effective tax rate | 26.0% | 26.7% | 27.0% | 26.0% | - The effective tax rate for the three months ended June 30, 2024, decreased to 26.0% from 26.7% in the prior year, primarily due to the net favorable impact of discrete items[30] - The effective tax rate for the six months ended June 30, 2024, increased to 27.0% from 26.0% in the prior year, mainly due to an increased mix of earnings in non-U.S. jurisdictions with higher tax rates and unfavorable discrete items[30] Note 7 - Earnings Per Share Basic EPS for Q2 2024 was $1.37 and diluted EPS was $1.36, with weighted average shares decreasing | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to The Timken Company | $96.2 | $125.2 | $199.7 | $247.5 | | Weighted average number of shares outstanding - basic | 70,364,539 | 71,882,843 | 70,301,757 | 72,162,267 | | Basic earnings per share | $1.37 | $1.74 | $2.84 | $3.43 | | Diluted earnings per share | $1.36 | $1.73 | $2.82 | $3.39 | Note 8 - Inventories Total net inventories increased to $1,233.3 million at June 30, 2024, with 60% FIFO and 40% LIFO valuation | Inventory Components (Dollars in millions) | 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 | - Approximately 60% of inventories are valued using the FIFO method, and 40% using the LIFO method, with the majority of U.S. inventories on LIFO[34] - LIFO reserves increased from $234.7 million at December 31, 2023, to $240.6 million at June 30, 2024[34] Note 9 - Goodwill and Other Intangible Assets Goodwill decreased to $1,349.7 million and net intangible assets to $967.7 million, with $42.6 million amortization | Goodwill (Dollars in millions) | 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 | | Intangible Assets (Dollars in millions) | June 30, 2024 Net Carrying Amount | December 31, 2023 Net Carrying Amount | | :-------------------------------------- | :-------------------------------- | :------------------------------------ | | Intangible assets subject to amortization | $870.5 | $885.0 | | Intangible assets not subject to amortization | $97.2 | $146.4 |\ | Total intangible assets | $967.7 | $1,031.4 | - Amortization expense for intangible assets was $42.6 million for the six months ended June 30, 2024, and is projected to be approximately $80 million for the full year 2024[38] Note 10 - Other Current Liabilities Total other current liabilities decreased to $314.5 million, with sales rebates, deferred revenue, and operating lease liabilities | Other Current Liabilities (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 | Note 11 - Financing Arrangements Short-term debt decreased to $27.7 million, while long-term debt increased to $2,129.9 million from new note issuance | Short-term debt (Dollars in millions) | June 30, 2024 | December 31, 2023 | | :------------------------------------ | :------------ | :---------------- | | Variable-rate Term Loan | $— | $220.8 | | Borrowings under lines of credit | $27.7 | $25.4 | | Short-term debt | $27.7 | $246.2 | | Long-term debt (Dollars in millions) | June 30, 2024 | December 31, 2023 | | :----------------------------------- | :------------ | :---------------- | | Total debt | $2,148.7 | $2,149.7 | | Less: current maturities | $18.8 | $359.4 | | Long-term debt | $2,129.9 | $1,790.3 | - On May 23, 2024, the Company issued €600 million fixed-rate unsecured senior notes (2034 Notes) to redeem $350 million of 2024 Notes and repay other debt[45] Note 12 - Supply Chain Financing Outstanding obligations under the supplier finance program decreased to $18.6 million at June 30, 2024 | Supplier Finance Program (Dollars in millions) | 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 | Note 13 - Contingencies The Company faces $4.6 million in environmental accruals, a $12.4 million disputed claim, and $17.5 million in product warranty - Total environmental accruals were $4.6 million at June 30, 2024, for various known environmental matters, including the Lovejoy matter[50] - Timken India Limited received a government order claiming $12.4 million in damages related to the closure of its retirement trust, which TIL is disputing, and no liability has been recorded[51] | Product Warranty Accrual (Dollars in millions) | 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 | Note 14 - Equity Total equity increased to $2,950.1 million driven by net income and the sale of 5.0 million TIL shares - Total equity increased from $2,702.4 million at December 31, 2023, to $2,950.1 million at June 30, 2024[55] - On May 28, 2024, the Company sold 5.0 million shares of Timken India Limited (TIL) for net proceeds of $188 million, reducing its ownership from 57.70% to 51.05%[55] - Retained earnings increased from $2,232.2 million at December 31, 2023, to $2,383.5 million at June 30, 2024[55] Note 15 - Impairment and Restructuring Charges Total impairment and restructuring charges were $3.3 million for Q2 2024 and $5.6 million for the six months, lower year-over-year | Impairment and Restructuring Charges (Dollars in millions) | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :--------------------------------------------------------- | :------------------------------- | :----------------------------- | :------------------------------- | :----------------------------- | | Impairment charges | $1.9 | $1.9 | $— | $28.3 | | Severance and related benefit costs | $1.4 | $3.3 | $2.3 | $2.9 | | Exit costs | $— | $0.4 | $0.2 | $0.2 | | Total | $3.3 | $5.6 | $2.5 | $31.4 | - The Company recorded $1.9 million in impairment charges for engineering-related assets in the Engineered Bearings segment during the three months ended June 30, 2024[61] - The six-month impairment and restructuring charges decreased significantly year-over-year due to a $28.3 million goodwill impairment recorded in the Industrial Motion segment in the first three months of 2023[62] Note 16 - Retirement Benefit Plans Net periodic benefit cost for retirement plans increased to $3.3 million for Q2 2024 and $6.5 million for the six months | Components of net periodic benefit cost (credit) (Dollars in millions) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Service cost | $0.7 | $0.7 | $1.3 | $1.2 | | Interest cost | $6.8 | $7.4 | $13.6 | $14.3 | | Expected return on plan assets | $(4.3) | $(4.9) | $(8.6) | $(9.5) | | Amortization of prior service cost | $0.1 | $0.1 | $0.2 | $0.2 | | Recognition of net actuarial gains | $— | $(1.0) | $— | $(1.9) |\ | Net periodic benefit cost (credit) | $3.3 | $2.3 | $6.5 | $4.3 | - The increase in net periodic benefit cost for both three and six months ended June 30, 2024, is largely due to the absence of net actuarial gains recognized in the prior year (2023)[66] Note 17 - Other Postretirement Benefit Plans Net periodic benefit credit for other postretirement plans remained stable at $(1.6) million for Q2 and $(3.2) million for six months | Net periodic benefit credit (Dollars in millions) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest cost | $0.4 | $0.5 | $0.9 | $1.0 | | Amortization of prior service credit | $(2.0) | $(2.1) | $(4.1) | $(4.2) |\ | Net periodic benefit credit | $(1.6) | $(1.6) | $(3.2) | $(3.2) | Note 18 - Accumulated Other Comprehensive Income (Loss) Accumulated other comprehensive loss increased to $(223.5) million, primarily due to $(80.0) million in foreign currency adjustments | Components of Accumulated Other Comprehensive Income (Loss) (Dollars in millions) | June 30, 2024 | December 31, 2023 | | :-------------------------------------------------------------------------------- | :------------ | :---------------- | | Foreign currency translation adjustments | $(267.7) | $(193.8) | | Pension and other postretirement liability adjustments | $41.7 | $44.7 | | Change in fair value of derivative financial instruments | $2.5 | $2.2 |\ | Total | $(223.5) | $(146.9) | - Net current period other comprehensive loss, net of income taxes, was $(82.7) million for the six months ended June 30, 2024, primarily due to foreign currency translation adjustments of $(80.0) million[72] Note 19 - Fair Value Financial assets and liabilities are measured at fair value using a three-level hierarchy, with total assets at $483.2 million | Assets (Dollars in millions) | Total June 30, 2024 | Level 1 June 30, 2024 | Level 2 June 30, 2024 | Level 3 June 30, 2024 | | :--------------------------- | :------------------ | :-------------------- | :-------------------- | :-------------------- | | Cash and cash equivalents | $437.6 | $434.7 | $2.9 | $— | | Restricted cash | $1.1 | $1.1 | $— | $— | | Short-term investments | $10.2 | $— | $10.2 | $— | | Foreign currency forward contracts | $2.0 | $— | $2.0 | $— |\ | Total assets | $483.2 | $435.8 | $15.1 | $— | | Liabilities (Dollars in millions) | Total June 30, 2024 | Level 1 June 30, 2024 | Level 2 June 30, 2024 | Level 3 June 30, 2024 | | :-------------------------------- | :------------------ | :-------------------- | :-------------------- | :-------------------- | | Foreign currency forward contracts | $7.5 | $— | $7.5 | $— |\ | Total liabilities | $7.5 | $— | $7.5 | $— | - The fair value of the Company's long-term fixed-rate debt was $1,655.6 million at June 30, 2024, compared to a carrying value of $1,699.4 million[83] Note 20 - Derivative Instruments and Hedging Activities The Company uses derivative instruments, primarily foreign currency forward contracts totaling $648.1 million notional value - The Company uses foreign currency forward contracts to manage foreign currency exchange rate risk and interest rate swaps for interest rate risk[86] - As of June 30, 2024, the Company had $648.1 million in outstanding foreign currency forward contracts at notional value[86] - For the three and six months ended June 30, 2024, derivative instruments not designated as hedging instruments resulted in net losses of $(3.9) million and $(10.0) million, respectively, recorded in other expense, net[90] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section reviews the Company's financial performance, strategic direction, and operational results, including segment analysis OVERVIEW The Timken Company operates two segments, Engineered Bearings and Industrial Motion, with a strategy focused on profitable growth, forecasting a 3-4% revenue decline - The Timken Company operates under two reportable segments: Engineered Bearings and Industrial Motion, offering a diverse portfolio of engineered products and services globally[92] - The Company's strategy includes profitable growth by leveraging technical expertise in attractive markets, operational excellence through continuous improvement, and capital deployment focused on core business investment, strategic acquisitions, shareholder returns, and maintaining a strong balance sheet[94][95] | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | $ Change | % Change | | :-------------------------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Net sales | $1,182.3 | $1,272.3 | $(90.0) | (7.1)% | | Net income attributable to The Timken Company | $96.2 | $125.2 | $(29.0) | (23.2)% | | Diluted earnings per share | $1.36 | $1.73 | $(0.37) | (21.4)% | - The Company expects 2024 full-year revenue to be down 3% to 4% compared to 2023, driven by lower demand and unfavorable currency impact, partially offset by acquisitions and favorable pricing[99] THE STATEMENT OF INCOME Net sales decreased by 7.1% for Q2 and 6.4% for the six months, with operating income down 16.7% and 9.4% respectively | Metric (Dollars in millions) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | $ Change | % Change | | :--------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Net sales | $1,182.3 | $1,272.3 | $(90.0) | (7.1)% | | Operating income | $167.2 | $200.7 | $(33.5) | (16.7)% | | Operating income % to net sales | 14.1% | 15.8% | | (170) bps| | Metric (Dollars in millions) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | $ Change | % Change | | :--------------------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Net sales | $2,372.6 | $2,535.1 | $(162.5) | (6.4)% | | Operating income | $351.8 | $388.3 | $(36.5) | (9.4)% | | Operating income % to net sales | 14.8% | 15.3% | | (50) bps | - Net sales decreased due to lower organic sales ($98 million for three months, $214 million for six months) and unfavorable foreign currency exchange rates ($14 million for three months, $20 million for six months), partially offset by acquisitions ($22 million for three months, $72 million for six months)[102] | Metric (Dollars in millions) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | $ Change | % Change | | :--------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Interest expense | $(34.6) | $(28.3) | $(6.3) | 22.3% | | Interest income | $5.1 | $1.9 | $3.2 | 168.4% | | Metric (Dollars in millions) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | $ Change | % Change | | :--------------------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Provision for income taxes | $78.6 | $89.6 | $(11.0) | (12.3)% | | Effective tax rate | 27.0% | 26.0% | | 100 bps | BUSINESS SEGMENTS Engineered Bearings' net sales decreased by 7.0% (Q2) and 8.7% (six months), while Industrial Motion's net sales decreased by 9.2% (Q2) and 7.9% (six months) | Engineered Bearings Segment (Dollars in millions) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | $ Change | % Change | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :------- | :------- | | Net sales | $783.4 | $857.2 | $(73.8) | (8.6)% | | EBITDA | $163.3 | $185.5 | $(22.2) | (12.0)% | | EBITDA margin | 20.8% | 21.6% | | (80) bps | - Engineered Bearings' net sales, excluding the impact of acquisitions, divestitures, and currency, decreased by 7.0% for the three months and 8.7% for the six months ended June 30, 2024, primarily due to significant volume decline in the renewable energy sector[116][117] | Industrial Motion Segment (Dollars in millions) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | $ Change | % Change | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Net sales | $398.9 | $415.1 | $(16.2) | (3.9)% | | EBITDA | $75.6 | $80.9 | $(5.3) | (6.6)% | | EBITDA margin | 19.0% | 19.5% | | (50) bps | - Industrial Motion's net sales, excluding the impact of acquisitions and currency, decreased by 9.2% for the three months and 7.9% for the six months ended June 30, 2024, reflecting lower volume across most platforms[120][121] - Industrial Motion's EBITDA increased by 18.4% for the six months ended June 30, 2024, primarily due to lower impairment charges (a goodwill impairment was recorded in Q1 2023), the benefit of acquisitions, and favorable price/mix[121] CASH FLOW Net cash from operating activities decreased by $48.7 million due to lower net income, while investing activities used $352.6 million less cash | Cash Flow (Dollars in millions) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | $ Change | | :------------------------------ | :----------------------------- | :----------------------------- | :------- | | Net cash provided by operating activities | $173.9 | $222.6 | $(48.7) | | Net cash used in investing activities | $(59.4) | $(412.0) | $352.6 | | Net cash (used in) provided by financing activities | $(52.0) | $209.0 | $(261.0) |\ | Increase in Cash, Cash Equivalents and Restricted Cash | $51.7 | $11.6 | $40.1 | - The decrease in net cash provided by operating activities was primarily due to a $42.6 million decrease in net income, $26.4 million lower non-cash impairment charges, $28.5 million unfavorable working capital impact, and $8.9 million higher pension payments, partially offset by a $56.0 million favorable impact from income taxes[124] - Net cash used in investing activities decreased by $352.6 million, mainly driven by a $324.2 million decrease in cash used for acquisitions[126] - Net cash used in financing activities decreased by $261.0 million, primarily due to a $318.9 million decrease in net borrowings and lower proceeds from TIL share sales and stock option exercises, partially offset by a $124.8 million decrease in treasury share purchases[127] LIQUIDITY AND CAPITAL RESOURCES The Company maintains strong liquidity with $469.9 million cash and $809.3 million credit availability, improving its net debt to capital ratio | Metric (Dollars in millions) | June 30, 2024 | December 31, 2023 | | :--------------------------- | :------------ | :---------------- | | Total debt | $2,176.4 | $2,395.9 | | Less: Cash and cash equivalents | $469.9 | $418.9 |\ | Net debt | $1,706.5 | $1,977.0 | | Metric | June 30, 2024 | December 31, 2023 | | :--------------------------- | :------------ | :---------------- | | Ratio of net debt to capital | 36.6% | 42.2% | - At June 30, 2024, the Company had $469.9 million in cash and cash equivalents and $809.3 million available under committed credit lines, with a consolidated leverage ratio of 1.98 to 1.0 and an interest coverage ratio of 7.72 to 1.0, both well within covenants[130] - The Company expects to generate comparable cash from operating activities and maintain flat capital expenditures in 2024 compared to 2023[132] CRITICAL ACCOUNTING POLICIES AND ESTIMATES No significant changes to critical accounting policies or estimates occurred during the six months ended June 30, 2024 - No significant changes to critical accounting policies or estimates were identified during the six months ended June 30, 2024[134] OTHER MATTERS Foreign currency translation adjustments negatively impacted equity by $79.5 million, and Tarak Mehta will succeed Richard G. Kyle as CEO - Foreign currency translation adjustments resulted in a negative impact of $79.5 million on shareholders' equity for the six months ended June 30, 2024, primarily due to the strengthening U.S. dollar against currencies like the Euro, Chinese Renminbi, and Mexican Peso[136] - Tarak Mehta is appointed as the new President and CEO, effective September 5, 2024, succeeding Richard G. Kyle, who will transition to an advisory role and retire in February 2025[137] NON-GAAP MEASURES The Company provides non-GAAP measures like adjusted net income ($240.9 million), adjusted EBITDA ($476.6 million), and free cash flow ($92.5 million) - Non-GAAP measures like adjusted net income, adjusted EPS, adjusted EBITDA, and free cash flow are provided to supplement GAAP results and represent the Company's core operations[139][140] | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------------------- | :----------------------------- | :----------------------------- | | Net Income Attributable to The Timken Company | $199.7 | $247.5 | | Adjusted Net Income | $240.9 | $299.6 | | Adjusted EBITDA | $476.6 | $528.5 | | Adjusted EBITDA Margin (% of net sales) | 20.1% | 20.8% | | Diluted EPS | $2.82 | $3.39 |\ | Adjusted EPS | $3.40 | $4.11 | | Free Cash Flow (Dollars in millions) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $173.9 | $222.6 | | Capital expenditures | $(81.4) | $(91.3) |\ | Free cash flow | $92.5 | $131.3 | - The ratio of net debt to adjusted EBITDA for the trailing twelve months was 1.9 at June 30, 2024, an improvement from 2.1 at December 31, 2023[152] FORWARD-LOOKING STATEMENTS This section contains forward-looking statements subject to material uncertainties and risks, including global economic conditions and customer demand - Forward-looking statements are subject to material uncertainties and risks, including deterioration in world economic conditions, fluctuations in customer demand, competitive factors, changes in operating costs, and the impact of inflation[154] - Other risks include negative impacts to supply chains, availability of skilled labor, unanticipated litigation, changes in financial markets, and the ability to satisfy debt obligations[154][155] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk disclosures are consistent with the Annual Report on Form 10-K for December 31, 2023, with no material changes - Market risk disclosures are consistent with those in the Company's Annual Report on Form 10-K for December 31, 2023, with no material changes reported[157] ITEM 4. CONTROLS AND PROCEDURES Disclosure controls and procedures were effective as of June 30, 2024, with no material changes in internal control - The Company's disclosure controls and procedures were deemed effective as of June 30, 2024[158] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2024[159] - Six acquisitions completed in 2023 (Lagersmit, iMECH, Rosa, Des-Case, Nadella, ARB) will be integrated into the internal control over financial reporting assessment as of December 31, 2024[160] Part II This section covers legal proceedings, risk factors, equity sales, other information, and exhibits Item 1. Legal Proceedings The Company is involved in various legal proceedings, but management believes the ultimate resolution will not materially affect financial position - The Company is involved in various legal proceedings, including environmental matters, but management believes the ultimate resolution will not have a material adverse effect on its financial position or operations[162] Item 1A. Risk Factors No material changes to the risk factors have occurred since the Annual Report on Form 10-K for December 31, 2023 - No material changes to the risk factors have occurred since the Annual Report on Form 10-K for December 31, 2023[163] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company purchased 371,629 common shares at an average price of $82.95 during Q2 2024, with 2,278,990 shares remaining | Period | Total number of shares purchased | Average price paid per share | | :----------------- | :------------------------------- | :--------------------------- | | 4/1/2024 - 4/30/2024 | 393 | $87.33 | | 5/1/2024 - 5/31/2024 | 11,236 | $90.44 | | 6/1/2024 - 6/30/2024 | 360,000 | $82.71 |\ | Total | 371,629 | $82.95 | - As of June 30, 2024, 2,278,990 shares remained available for purchase under the share purchase plan approved on February 12, 2021, which expires on February 28, 2026[164] Item 5. Other Information No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during Q2 2024 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during the quarter ended June 30, 2024[166] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the Second Supplemental Indenture, CEO/CFO certifications, and Inline XBRL - Exhibits include the Second Supplemental Indenture, CEO and CFO certifications (Sarbanes-Oxley Act Sections 302 and 906), and financial statements in Inline XBRL format[166] SIGNATURES The report was signed on July 31, 2024, by Richard G. Kyle (President & CEO) and Philip D. Fracassa (EVP & CFO) - The report was signed by Richard G. Kyle, President and CEO, and Philip D. Fracassa, Executive Vice President and CFO, on July 31, 2024[168]