PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for The Timken Company for the quarter ended March 31, 2025, including income, comprehensive income, balance sheets, and cash flows, with detailed notes on accounting policies and specific financial items Consolidated Statements of Income For Q1 2025, net sales decreased to $1,140.3 million, resulting in net income attributable to the company of $78.3 million, or $1.11 per diluted share Consolidated Income Statement Highlights (Q1 2025 vs Q1 2024) | Metric | Q1 2025 (in millions) | Q1 2024 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $1,140.3 | $1,190.3 | -4.2% | | Operating Income | $144.0 | $184.6 | -22.0% | | Net Income Attributable to The Timken Company | $78.3 | $103.5 | -24.3% | | Diluted Earnings Per Share | $1.11 | $1.46 | -24.0% | Consolidated Balance Sheets As of March 31, 2025, total assets increased to $6,570.4 million, with total equity rising to $3,089.0 million, driven by net income and favorable foreign currency translation adjustments Balance Sheet Summary | Metric (in millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $2,616.8 | $2,516.9 | | Total Assets | $6,570.4 | $6,411.0 | | Total Current Liabilities | $831.7 | $820.5 | | Long-term Debt | $2,105.4 | $2,049.7 | | Total Equity | $3,089.0 | $2,984.1 | Consolidated Statements of Cash Flows Net cash provided by operating activities increased to $58.6 million in Q1 2025, while net cash used in investing and financing activities also increased, resulting in a slight overall increase in cash and cash equivalents Cash Flow Summary (Three Months Ended March 31) | Activity (in millions) | 2025 | 2024 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $58.6 | $49.3 | | Net Cash Used in Investing Activities | $(32.5) | $(24.5) | | Net Cash Used in Financing Activities | $(30.6) | $(15.0) | | Effect of exchange rate changes on cash | $7.4 | $(6.8) | | Increase in Cash, Cash Equivalents and Restricted Cash | $2.9 | $3.0 | Notes to the Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, revenue recognition, segment performance, income taxes, debt, and contingencies, highlighting revenue disaggregation, segment adjusted EBITDA, a lower effective tax rate, and restructuring charges - Revenue is disaggregated by segment, geography, and sales channel, with Engineered Bearings contributing $760.7 million and Industrial Motion $379.6 million to net sales in Q1 202517 - The effective tax rate for Q1 2025 was 22.7%, lower than 27.9% in Q1 2024, primarily due to favorable discrete items related to the expiration of statutes of limitation in foreign jurisdictions2627 - Total impairment and restructuring charges were $10.9 million in Q1 2025, up from $2.3 million in Q1 2024, mainly due to $9.3 million in severance for the CEO departure5556 - The company had total debt of $2,127.1 million as of March 31, 2025, and was in full compliance with all debt covenants12141 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 financial results, attributing the 4.2% sales decline to lower end-market demand and unfavorable currency rates, detailing segment performance, and outlining a cautious full-year 2025 outlook due to international trade volatility and tariffs Overview and Outlook Q1 2025 net sales decreased 4.2% to $1,140.3 million, with diluted EPS falling to $1.11, driven by lower demand and unfavorable foreign currency impact, leading to a cautious 2025 outlook anticipating lower revenues and earnings due to international trade volatility and tariffs, despite projected higher operating cash flow Q1 2025 Financial Highlights vs. Q1 2024 | Metric | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,140.3M | $1,190.3M | (4.2%) | | Diluted EPS | $1.11 | $1.46 | (24.0%) | - The 2025 outlook anticipates full-year revenues to be down compared to 2024, primarily due to lower demand from international trade volatility, unfavorable currency rates, and the adverse impact of new import tariffs9394 - Despite lower earnings expectations, the company projects higher cash from operating activities in 2025, driven by improved working capital, lower capital expenditures (3.5% of sales), and lower cash taxes95129 Results of Operations Operating income for Q1 2025 fell 22.0% to $144.0 million, with the operating margin decreasing by 290 basis points to 12.6%, primarily due to lower sales volume, higher manufacturing costs, increased impairment and restructuring charges, and a significantly lower effective tax rate - Q1 2025 net sales decreased by $50.0 million year-over-year, driven by lower organic revenue ($37 million) and unfavorable currency impact ($25 million), partially offset by acquisitions ($12 million)97 - Impairment and restructuring charges increased by $8.6 million year-over-year, primarily due to severance related to the CEO transition97100 - Net interest expense decreased to $24.2 million from $29.4 million year-over-year, mainly due to lower average debt levels99 Business Segments Analysis Both Engineered Bearings and Industrial Motion segments reported year-over-year declines in Q1 2025, with Engineered Bearings' net sales falling 5.2% and adjusted EBITDA down 12.2%, while Industrial Motion's net sales decreased 2.1% and adjusted EBITDA fell 18.3% Engineered Bearings Segment Performance (Q1 2025 vs Q1 2024) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $760.7M | $802.5M | (5.2%) | | Adjusted EBITDA | $159.2M | $181.4M | (12.2%) | | Adjusted EBITDA Margin | 20.9% | 22.6% | (170) bps | Industrial Motion Segment Performance (Q1 2025 vs Q1 2024) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $379.6M | $387.8M | (2.1%) | | Adjusted EBITDA | $67.1M | $82.1M | (18.3%) | | Adjusted EBITDA Margin | 17.7% | 21.2% | (350) bps | Liquidity and Capital Resources The company maintained a strong liquidity position with $376.1 million in cash and $820.0 million available under credit lines as of March 31, 2025, with net debt increasing slightly to $1,751.0 million, while remaining in full compliance with all debt covenants - As of March 31, 2025, total liquidity included $376.1 million in cash and cash equivalents and $820.0 million available under committed credit lines123 Net Debt Position | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Debt | $2,127.1M | $2,062.7M | | Net Debt | $1,751.0M | $1,689.5M | | Ratio of Net Debt to Capital | 36.2% | 36.1% | - The company was in compliance with its debt covenants, with a net leverage ratio of 2.17 to 1.0 (covenant: <3.5) and an interest coverage ratio of 7.70 to 1.0 (covenant: >3.0)124 Non-GAAP Measures This section reconciles non-GAAP financial measures, including adjusted net income, adjusted EPS, adjusted EBITDA, and free cash flow, showing adjusted EPS of $1.40 and free cash flow of $23.4 million for Q1 2025 Reconciliation of GAAP to Non-GAAP EPS (Q1 2025) | Metric | Amount | | :--- | :--- | | Diluted EPS (GAAP) | $1.11 | | Adjustments (net) | $0.29 | | Adjusted EPS (Non-GAAP) | $1.40 | Free Cash Flow (Q1 2025 vs Q1 2024) | Metric (in millions) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $58.6 | $49.3 | | Capital expenditures | $(35.2) | $(44.1) | | Free cash flow | $23.4 | $5.2 | - The ratio of Net Debt to trailing twelve months Adjusted EBITDA was 2.2 at March 31, 2025, up slightly from 2.0 at December 31, 2024146 Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in the company's reported market risk since the disclosures made in its Annual Report on Form 10-K for the year ended December 31, 2024 - There have been no material changes in reported market risk since the company's Annual Report on Form 10-K for the year ended December 31, 2024152 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report153 - There were no changes in the Company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the internal controls153 PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal actions in the ordinary course of business, with management believing that their ultimate disposition as of March 31, 2025, will not have a material adverse effect on the company's financial position or results of operations - In the opinion of management, the ultimate disposition of open legal proceedings as of March 31, 2025 will not have a material adverse effect on the Company's consolidated financial position or annual results of operations155 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - There have been no material changes to the risk factors included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024156 Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2025, the company purchased 411,541 common shares at an average price of $79.17 per share, with 296,061 shares purchased under the publicly announced share repurchase plan, leaving 1,842,929 shares available for purchase under the plan expiring in February 2026 Issuer Purchases of Common Shares (Q1 2025) | Period | Total Shares Purchased | Average Price Paid | Shares Purchased Under Plan | | :--- | :--- | :--- | :--- | | Jan 2025 | — | — | — | | Feb 2025 | 238,210 | $81.87 | 122,730 | | Mar 2025 | 173,331 | $75.47 | 173,331 | | Total | 411,541 | $79.17 | 296,061 | - As of March 31, 2025, the company may still purchase up to 1,842,929 shares under its share purchase plan, which is effective until February 28, 2026159 Other Information During the first quarter of 2025, no director or officer of the company adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the fiscal quarter ended March 31, 2025160 Exhibits This section lists the exhibits filed with the Form 10-Q, including the CEO separation agreement, various stock unit agreements, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - Key exhibits filed include the Separation Agreement with former CEO Tarak B. Mehta, various equity agreements with interim CEO Richard G. Kyle, and Sarbanes-Oxley Section 302 and 906 certifications162
Timken(TKR) - 2025 Q1 - Quarterly Report