Timken(TKR) - 2022 Q2 - Quarterly Report

Impairment and Restructuring Charges - The Company recorded impairment charges of $8.8 million related to its joint venture in Russia due to the suspension of operations following the invasion of Ukraine[61] - The closure of the bearing manufacturing facility in Villa Carcina, Italy, is expected to incur expenses of approximately $9 million to $11 million, affecting around 110 employees[62] - Cumulative pretax costs related to the closure of the Villa Carcina facility reached $8.3 million as of June 30, 2022[62] - The Company anticipates incurring approximately $11 million to $14 million in expenses related to the closure of its chain manufacturing facility in Indianapolis, Indiana, affecting about 240 employees[63] - Cumulative pretax costs related to the Indianapolis facility closure amounted to $12.0 million as of June 30, 2022[63] - Impairment and restructuring charges for Q2 2022 totaled $10.0 million, significantly higher than $1.3 million in Q2 2021, primarily due to charges related to the joint venture in Russia[107] - The Company suspended operations in Russia, recording impairment charges of $8.8 million and inventory write-downs of $4.3 million during the first six months of 2022[147] - Impairment, restructuring, and reorganization charges amounted to $11.0 million for the twelve months ended June 30, 2022, down from $14.3 million in the previous year[160] Financial Performance - Net sales for Q2 2022 were $1,153.7 million, an increase of 8.5% compared to $1,062.9 million in Q2 2021, driven by strong organic growth[98] - Net income for Q2 2022 was $105.6 million, a slight decrease of 1.5% from $107.2 million in Q2 2021, primarily due to higher operating costs[98] - Gross profit for Q2 2022 increased to $341.8 million, up 13.1% from $302.3 million in Q2 2021, with a gross profit margin of 29.6%[104] - The company reported a diluted earnings per share of $1.42 for Q2 2022, up 4.4% from $1.36 in Q2 2021[98] - Adjusted net income for Q2 2022 was $123.9 million, compared to $106.1 million in Q2 2021, reflecting a year-over-year increase of 16.5%[153] - Adjusted EBITDA for Q2 2022 reached $231.2 million, up from $200.3 million in Q2 2021, marking a growth of 15.4%[153] - The adjusted EBITDA margin for Q2 2022 was 20.0%, compared to 18.8% in Q2 2021, indicating an improvement of 1.2 percentage points[153] - Net income attributable to The Timken Company for the first half of 2022 was $223.2 million, compared to $218.1 million in the first half of 2021, showing a slight increase of 2.5%[153] - Net income for the twelve months ended June 30, 2022, was $385.8 million, compared to $381.5 million for the previous year[160] - Adjusted EBITDA increased to $770.3 million for the twelve months ended June 30, 2022, up from $718.0 million in the prior year, reflecting a growth of approximately 7.3%[160] Cash Flow and Debt - Net cash provided by operating activities for the first six months of 2022 was $77.1 million, a decrease of $101.7 million compared to $178.8 million in 2021[126] - Cash used in working capital items increased by $143.0 million, primarily due to higher accounts receivable and inventories[127] - Net cash used in investing activities rose by $124.8 million to $(198.7) million, driven by an increase in cash used for acquisitions of $152.4 million[129] - Net cash provided by financing activities increased by $296.3 million, totaling $177.4 million, primarily due to an increase in net borrowings of $419.4 million[130] - As of June 30, 2022, total debt was $1,815.9 million, up from $1,464.9 million at the end of 2021, with net debt at $1,510.6 million[131] - The ratio of net debt to capital increased to 39.8% as of June 30, 2022, compared to 33.7% at the end of 2021[132] - The ratio of net debt to adjusted EBITDA was 2.0 as of June 30, 2022, compared to 1.7 at December 31, 2021, indicating a deterioration in financial leverage[159] Pension and Other Expenses - The net periodic benefit cost for U.S. defined benefit pension plans for the three months ended June 30, 2022, was $12.8 million, compared to $4.5 million for the same period in 2021[68] - The Company recognized net actuarial losses of $11.6 million during the three months ended June 30, 2022, due to remeasurement of pension plans[68] - Non-service pension and other postretirement expense decreased by $9.3 million, resulting in a total other expense of $9.0 million for the three months ended June 30, 2022[111] - Corporate pension and other postretirement benefit-related expenses increased significantly to $10.1 million from $0.3 million year-over-year, reflecting actuarial losses[160] Market and Segment Performance - The Company operates under two reportable segments: Mobile Industries and Process Industries, employing over 18,000 people globally[93] - Mobile Industries segment net sales increased by $49.4 million or 10.0% for the three months ended June 30, 2022, with EBITDA rising by $1.8 million or 2.7%[118] - Process Industries segment net sales increased by $41.4 million or 7.3% for the three months ended June 30, 2022, with EBITDA increasing by $22.3 million or 15.8%[121] - Mobile Industries segment net sales, excluding currency effects, increased by $65.1 million or 13.2% for the three months ended June 30, 2022[119] - Process Industries segment net sales, excluding acquisitions and currency effects, increased by $56.5 million or 9.9% for the three months ended June 30, 2022[122] Tax and Interest Expenses - Provision for income taxes increased by $14.6 million or 49.7% for the three months ended June 30, 2022, driven by higher pre-tax earnings[112] - The effective tax rate increased by 790 basis points to 29.4% for the three months ended June 30, 2022[112] - Interest expense increased by $3.0 million or 19.6% for the three months ended June 30, 2022, primarily due to higher average debt outstanding from the issuance of $350 million 2032 Notes[110] - Interest income rose by $0.3 million or 42.9% for the three months ended June 30, 2022, compared to the same period in 2021[110] Future Outlook and Risks - The company aims to expand into new and existing markets by leveraging its expertise in metallurgy and power transmission[95] - The Company expects full-year 2022 revenue to increase by approximately 7% compared to 2021, driven by higher demand and positive pricing[100] - Forward-looking statements indicate potential risks including economic conditions, supply chain disruptions, and competitive factors that may affect future performance[162]