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What changed in TIMKEN CO's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of TIMKEN CO's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+284 added−273 removedSource: 10-K (2024-02-26) vs 10-K (2023-02-16)

Top changes in TIMKEN CO's 2023 10-K

284 paragraphs added · 273 removed · 223 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeTimken industrial sealing solutions come in a variety of types and material options that are used in manufacturing, food processing, mining, power generation, chemical processing, primary metals, pulp and paper, and oil and gas industry applications. The Company also designs and manufactures Drives® helicoid and sectional augers for agricultural applications, like conveying, digging and combines. Services: Power Systems.
Biggest changeThe business serves leading propulsion manufacturers, ship owners, pump makers and other global industrial customers that require advanced sealing systems. Timken offers other industrial sealing solutions that come in a variety of types and material options and are used in manufacturing, food processing, mining, power generation, chemical processing, primary metals, pulp and paper and oil and gas industry applications.
Various combinations of material pairs and engineered coatings improve friction management for application specific conditions. Industrial Motion Products: Linear Motion Products. The Company designs and manufactures a global portfolio of Rollon® engineered linear motion products, including linear guides, telescopic rails, linear actuators, seventh-axis robotic transfer units and gantry systems.
Various combinations of material pairs and engineered coatings improve friction management for application specific conditions. Industrial Motion Products: Linear Motion Products. The Company designs and manufactures a global portfolio of Rollon® and Nadella® engineered linear motion products, including linear guides, telescopic rails, linear actuators, seventh-axis robotic transfer units and gantry systems.
These engineered products are highly customized to control movements with different variability and complexity based on the application. Rollon products serve a wide range of industries, including passenger rail, aerospace, packaging and logistics, medical and automation. Industrial Drives.
These engineered products are highly customized to control movements with different variability and complexity based on the application. Rollon and Nadella products serve a wide range of industries, including passenger rail, aerospace, packaging and logistics, medical and automation. Industrial Drives.
The Company has recruited and trained many of its associates through its engineering co-op program, where engineering students have the opportunity to work up to five semesters alongside the Company’s experienced engineers while they complete their bachelor’s degrees.
The Company has recruited and trained many of its employees through its engineering co-op program, where engineering students have the opportunity to work up to five semesters alongside the Company’s experienced engineers while they complete their bachelor’s degrees.
This joint venture, CoLinx, LLC, includes five equity members: Timken, SKF Group, Schaeffler Group, RBC Bearings and Gates Industrial Corp. The e-business service focuses on information and business services for authorized distributors in the Process Industries segment. Timken has entered into individually negotiated contracts with some of its customers.
This joint venture, CoLinx, LLC, includes five equity members: Timken, SKF Group, Schaeffler Group, RBC Bearings and Gates Industrial Corp. The e-business service focuses on information and business services for authorized distributors in the Engineered Bearings segment. Timken has entered into individually negotiated contracts with some of its customers.
Comprehensive leadership, skill and competency assessments are offered to company employees to best identify and address individual and team development needs and activities. To better inform its hiring and associate development efforts, the Company has partnered with third-party vendors to provide required training for its managers focused on diversity and inclusion.
Comprehensive leadership, skill and competency assessments are offered to Company employees to best identify and address individual and team development needs and activities. To better inform its hiring and employee development efforts, the Company has also partnered with third-party vendors to provide required training for its managers focused on leadership, diversity and inclusion.
The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report unless expressly noted. 7 Table of Contents
The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report unless expressly noted. 8 Table of Contents
New laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements may require Timken to incur costs or become the basis for new or increased liabilities that could have a materially adverse effect on the Company's business, financial condition or results of operations.
New laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements may require Timken to incur costs, change production methods or materials, or become the basis for new or increased liabilities that could have a materially adverse effect on the Company's business, financial condition or results of operations.
As of the end of 2022, 28 of the Company’s plants had obtained ISO 14001 certification, including the majority of the Company's bearing manufacturing plants. The Company establishes appropriate levels of reserves to cover its environmental expenses and has a well-established environmental compliance audit program for its domestic and international units.
As of the end of 2023, 29 of the Company’s plants had obtained ISO 14001 certification, including the majority of the Company's bearing manufacturing plants. The Company establishes appropriate levels of reserves to cover its environmental expenses and has a well-established environmental compliance audit program for its domestic and international units.
The Company’s growing portfolio features many strong brands, including Timken®, Philadelphia Gear®, GGB®, Drives®, Cone Drive®, Rollon®, Lovejoy®, Diamond®, BEKA®, Groeneveld® and Spinea®. The Company was founded in 1899 by Henry Timken, who received two patents on the design of a tapered roller bearing.
The Company’s growing portfolio features many strong brands, including Timken®, GGB®, Philadelphia Gear®, Cone Drive®, Rollon®, Nadella®, Diamond®, Drives®, Groeneveld®, BEKA®, Des-Case®, Lovejoy® and Lagersmit®. The Company was founded in 1899 by Henry Timken, who received two patents on the design of a tapered roller bearing.
Today, the Company's global footprint consists of 126 manufacturing facilities/service centers, 28 technology and engineering centers, and 70 distribution centers and warehouses, supported by a team comprised of more than 19,000 employees. Timken operates in 46 countries around the globe.
Today, the Company's global footprint consists of 142 manufacturing facilities/service centers, 28 technology and engineering centers, and 73 distribution centers and warehouses, supported by a team comprised of more than 19,000 employees. Timken operates in 45 countries around the globe.
Actual shipments depend upon customers' ever-changing production schedules. Accordingly, Timken does not believe that its backlog data and comparisons thereof, as of different dates, reliably indicate future sales or shipments. Sources and Availability of Raw Materials: The principal raw materials used by the Company to make engineered bearings are special bar quality ("SBQ") steel and steel components.
Accordingly, Timken does not believe that its backlog data and comparisons thereof, as of different dates, reliably indicate future sales or shipments. 4 Table of Contents Sources and Availability of Raw Materials: The principal raw materials used by the Company to make engineered bearings are special bar quality ("SBQ") steel and steel components.
The Company also purchases a variety of materials and components to produce industrial motion products, such as non-SBQ steel, synthetic rubber, fabrics, castings and plastics. The Company sources these components from various suppliers in the world market.
The Company also purchases a variety of materials and components to produce industrial motion products, such as non-SBQ steel, synthetic rubber, fabrics, castings and plastics. The Company sources these components from various suppliers in the world market. The Company believes its supply base is adequate to support its manufacturing requirements.
In addition, the Company also believes that having open, honest dialogue with its associates is key to evolving its culture and keeping the Company strong. In line with that approach, the Company conducts comprehensive surveys on a periodic basis and individual stay interviews to measure employee engagement.
The Company also believes that having open, honest dialogue with its employees is key to maintaining its strong culture and ethical work practices. In line with that approach, the Company conducts comprehensive surveys on a periodic basis and individual stay interviews to measure employee engagement.
In general, such claims for investigation and remediation also have been asserted against numerous other entities. Management believes any ultimate liability with respect to pending actions will not materially affect the Company’s annual results of operations, cash flows or consolidated financial position. The Company also is conducting environmental investigation and/or remediation activities at certain current or former operating sites.
In general, such claims for investigation and remediation also have been asserted against numerous other entities. 5 Table of Contents Management believes any ultimate liability with respect to pending actions will not materially affect the Company’s annual results of operations, cash flows or consolidated financial position.
The Company's commitment to the health and safety of its associates is evidenced by its strong safety results in 2021 and 2022 shown in the charts below: *Rates calculated as (number of injuries and illnesses x 200,000) / employee hours worked per 100 full-time workers. 2022 rates represent the Company's best estimate as of the date of this report The Company aims to maintain a recordable rate within the top quartile of U.S. metal manufacturers (North American Industry Classification System code 332) based on information provided by the U.S.
The Company's commitment to the health and safety of its employees is evidenced by its strong safety results in 2023 and 2022 shown in the charts below: *Rates calculated as (number of injuries and illnesses x 200,000) / employee hours worked per 100 full-time workers. 2023 rates represent the Company's best estimate as of the date of this report - - - represents the 2022 top quartile cutoff for U.S. metal manufacturers (North American Industry Classification System ("NAICS") code 332) that employ at least 1,000 employees, based on information provided by the U.S.
Additionally, exit interviews are conducted with employees who voluntarily terminated their employment, which helps improve management processes. The Company also deploys regular pulse surveys to gain insights from associates’ recent experiences and to better understand how effectively it is engaging, energizing and enabling its workforce.
Exit interviews are conducted with employees who voluntarily terminated their employment, which helps improve management processes. The Company deploys pulse surveys to gain insights from employees’ recent experiences and to better understand how effectively it is engaging, energizing and enabling its workforce. The Company provides several professional development and training opportunities to advance its employees’ skills and expertise.
Our associates continue to drive new programming and chapter expansion across our five primary ARGs: Women’s International Network (WIN), Multicultural Association of Professionals (MAP), Young Professionals Network (YPN), Veteran Engagement at Timken (VET), and Timken PRIDE Network (TPN). Additionally, we partner with an online platform, GlobeSmart®, to help our associates further their global competency.
The Company's employees continue to drive new programming and chapter expansion across its five primary ERGs: Women’s International Network (WIN), Multicultural Association of Professionals (MAP), Young Professionals Network (YPN), Veteran Engagement at Timken (VET), and Timken PRIDE Network (TPN). Additionally, the Company partners with an online platform, Aperian®, to help its employees further their global competency.
These contracts may extend for one or more years and, if a price is fixed for any period extending beyond current shipments, customarily include a commitment by the customer to purchase a designated percentage of its requirements from Timken.
These contracts may extend for one or more years and, if a price is fixed for any period extending beyond current shipments, customarily include a commitment by the customer to purchase a designated percentage of its requirements from Timken. Timken does not believe that there is any significant loss of earnings risk associated with any given contract.
Bearing remanufacturing is available for any bearing type or brand - including competitor products - and is well-suited to heavy industrial applications such as paper, metals, mining, power generation and cement; railroad locomotives, passenger cars and freight cars; and aerospace engines and gearboxes. Services accounted for approximately 4% of the Company’s net sales for the year ended December 31, 2022.
Bearing remanufacturing is available for any bearing type or brand - including competitor products - and is well-suited to heavy industrial applications such as paper, metals, mining, power generation and cement; railroad locomotives, passenger cars and freight cars; and aerospace engines and gearboxes.
Such changes may require the Company to incur costs and such changes could form the basis for new or increased liabilities that could have a materially adverse effect on the Company’s business, financial condition or results of operations.
Such changes may require the Company to incur costs and such changes could form the basis for new or increased liabilities that could have a materially adverse effect on the Company’s business, financial condition or results of operations. Refer to Item 1.A Risk Factors – Risks Related to Legal, Compliance and Regulatory Matters for further discussion.
Timken's largest technical center is located at the Company's world headquarters in North Canton, Ohio. Other smaller sites in the United States ("U.S.") include Los Alamitos, California; Downer's Grove, Fulton and Montgomery, Illinois; Indianapolis, Indiana; Norton Shores, Rochester Hills and Traverse City, Michigan; Springfield, Missouri; Keene and Lebanon, New Hampshire; Thorofare, New Jersey; and King of Prussia, Pennsylvania.
Other smaller sites in the United States ("U.S.") include Los Alamitos, California; Downer's Grove, Fulton and Montgomery, Illinois; Norton Shores, Rochester Hills and Traverse City, Michigan; Springfield, Missouri; Keene and Lebanon, New Hampshire; Thorofare, New Jersey; Morganton, North Carolina; and King of Prussia, Pennsylvania.
Timken offers a selection of engineered clutches, brakes, hydraulic power take-off units and other torque management devices marketed under the PT Tech® brand. These products are custom engineered for OEMs and used in marine, mining, aggregate, wood recycling and metals industries. Other Products. The Company also offers a full line of seals, augers and other industrial motion components.
Timken offers a selection of engineered clutches, brakes, hydraulic power take-off units and other torque management devices marketed under the PT Tech® brand. These products are custom engineered for OEMs and used in marine, mining, aggregate, wood recycling and metals industries. Seals. The Company's Lagersmit® engineered sealing solutions serve demanding marine, dredging, water, tidal energy and other industrial applications.
To further our Company's diverse and inclusive culture and work environment, Timken associate resource groups (“ARGs”) around the world help us understand and address the challenges faced by our diverse workforce and the opportunities diversity offers in advancing our collective knowledge.
To further the Company's diverse and inclusive culture, Timken employee resource groups (“ERGs”) around the world help us understand and address the challenges faced by its diverse workforce and the benefits inclusion offers in advancing its collective knowledge.
The costs of such investigation and remediation activities, in the aggregate, are not expected to be material to the operations or financial position of the Company.
The Company also is conducting environmental investigation and/or remediation activities at certain current or former operating sites. The costs of such investigation and remediation activities, in the aggregate, are not expected to be material to the operations or financial position of the Company.
Timken primarily competes based on total value, including price, quality, timeliness of delivery, product design and the ability to provide engineering support and service on a global basis.
Competition: The bearing and industrial motion industries are highly competitive. Timken primarily competes based on its total value proposition, including product design and performance, application engineering, quality, price, timeliness of delivery, and the ability to provide technical sales and service support on a global basis.
The Company believes its supply base is adequate to support its manufacturing requirements. 4 Table of Contents Research: Timken operates a network of technology and engineering centers to support its global customers with sites in North America, Europe and Asia. This network develops and delivers innovative engineered bearings and industrial motion solutions and technical services.
Research: Timken operates a network of technology and engineering centers to support its global customers with sites in North America, Europe and Asia. This network develops and delivers innovative engineered bearings and industrial motion solutions and technical services. Timken's largest technical center is located at the Company's world headquarters in North Canton, Ohio.
Backlog: The following table provides the backlog of orders for the Company's domestic and overseas operations at December 31, 2022 and 2021: December 31, (Dollars in millions) 2022 2021 Segment: Mobile Industries $ 1,297.1 $ 1,354.9 Process Industries 1,193.7 1,095.0 Total Company $ 2,490.8 $ 2,449.9 Approximately 93% of the Company’s backlog at December 31, 2022 is scheduled for delivery in the succeeding 12 months.
Backlog: The following table provides the backlog of orders for the Company's domestic and overseas operations at December 31, 2023 and 2022: December 31, (Dollars in millions) 2023 2022 Segment: Engineered Bearings $ 1,502.0 $ 1,722.1 Industrial Motion 775.2 768.7 Total Company $ 2,277.2 $ 2,490.8 Approximately 92% of the Company’s backlog at December 31, 2023 is scheduled for delivery in the succeeding 12 months.
As such, the Company believes it is important to reward associates with competitive wages and comprehensive benefits to recognize professional excellence and career progression. The Company also believes it is important to provide pay and benefits that are competitive and equitable based on the local markets in which it operates.
The Company provides professional growth and learning opportunities and individualized career development to support these objectives. The Company thinks it is important to recognize and reward its employees with pay and comprehensive benefits that are competitive and equitable based on the local markets in which it operates.
While Timken regards these as important, it does not deem its business as a whole, or any industry segment, to be materially dependent upon any one item or group of items. Employment: At December 31, 2022, Timken had more than 19,000 employees worldwide. Approximately 9% of Timken’s U.S. employees are covered under collective bargaining agreements.
Patents, Trademarks and Licenses: Timken owns numerous U.S. and foreign patents, trademarks and licenses relating to certain products. While Timken regards these as important, it does not deem its business as a whole, or any industry segment, to be materially dependent upon any one item or group of items.
Sales and Distribution: Timken products are sold principally by its internal sales organizations. A portion of each segment's sales are made through authorized distributors. Customer collaboration is central to the Company's sales strategy. Therefore, Timken goes where our customers need us, with sales engineers primarily working in close proximity to customers rather than at production sites.
Therefore, Timken goes where its customers need us, with sales engineers primarily working in close proximity to customers rather than at production sites.
The Company competes with many domestic and foreign manufacturers of anti-friction bearings, including SKF Group, Schaeffler Group, NTN Corporation, JTEKT Corporation and NSK Ltd., and with a diverse group of domestic and foreign manufacturers of industrial motion products.
The Company competes with many domestic and foreign manufacturers of anti-friction bearings, including SKF Group and Schaeffler Group, and with a diverse group of domestic and foreign manufacturers of industrial motion products. Joint Ventures: Investments in affiliated companies accounted for under the equity method were $1.7 million and $1.8 million, respectively, at December 31, 2023 and 2022.
While quartile industry data was not available at the time of this report for either 2021 or 2022, the Company's 2022 recordable rate of 1.06 and lost time accident rate of 0.27 showed strong improvement over the corresponding 2021 rates of 1.20 and 0.38, respectively. 6 Table of Contents Attracting, Retaining, and Motivating Highly Qualified Associates Successful execution of the Company's strategy continues to depend on attracting, retaining, and motivating highly qualified talent.
In 2022, the Company's lost time accident rate of 0.29 outperformed the top quartile of U.S. metal manufacturers while its recordable rate of 1.06 slightly lagged. 7 Table of Contents Attracting, Retaining, and Motivating Highly Qualified Employees Successful execution of the Company's strategy continues to depend on attracting, retaining, and motivating highly qualified talent.
Associate Health and Safety Associate health and safety remains a top priority for the Company and its commitment to safety starts at the top of the organization.
The Company is committed to providing a safe work environment and growth opportunities for its employees to learn and advance their career with the Company to promote and safeguard these key resources. Employee Health and Safety Employee health and safety remains a top priority for the Company and its commitment to safety starts at the top of the organization.
The Company also provides several professional development and training opportunities to advance our associates’ skills and expertise. Some of these opportunities include online-learning platforms, job-specific training, our operations development program and our educational reimbursement programs.
Some of these opportunities include online-learning platforms, job-specific training, employee development programs, including its operations development program (a training program designed to increase the internal pool of employees who are ready to take on leadership positions), and its educational reimbursement programs.
Joint Ventures: Investments in affiliated companies accounted for under the equity method were $1.8 million and $2.0 million, respectively, at December 31, 2022 and 2021. The investment balance at December 31, 2022 was reported in other non-current assets on the Consolidated Balance Sheets.
The investment balance at December 31, 2023 was reported in other non-current assets on the Consolidated Balance Sheets.
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Timken does not believe that there is any significant loss of earnings risk associated with any given contract. 3 Table of Contents Competition: The bearing industry and the industries into which Timken sells its industrial motion products are highly competitive.
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Other Products. The Company also offers specialty filtration products, augers and other specialized industrial motion products. Des-Case is a technical leader in branded filtration solutions that sit adjacent to Timken's automatic lubrication systems. Des-Case features a comprehensive product offering including breathers, filter elements, condition monitoring, lubrication storage and filter systems used throughout the entire lubricant lifecycle.
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Refer to Item 1.A Risk Factors – Risks Related to Legal, Compliance and Regulatory Matters for further discussion. 5 Table of Contents Patents, Trademarks and Licenses: Timken owns numerous U.S. and foreign patents, trademarks and licenses relating to certain products.
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These solutions are critical for enhancing reliability, reducing downtime and extending the useful life of customers' systems. The Company also designs and manufactures Drives® helicoid and sectional augers for agricultural applications, like conveying, digging and combines. The Company's specialized industrial motion components include Shuton and Ipiranga ball screws among other key products. Services: Power Systems.
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Human Capital: The Company believes that its associates and their collective knowledge and experience are its most valuable resource. As a result, the Company is committed to providing a safe work environment, attracting, motivating and retaining the best talent in the industry and providing opportunities for its associates to learn and advance their career with the Company.
Added
Services accounted for approximately 4% of the Company’s net sales for the year ended December 31, 2023. 3 Table of Contents Sales and Distribution: Timken products are sold principally by its internal sales organizations. A portion of each segment's sales are made through authorized distributors or sales agents. Customer collaboration is central to the Company's sales strategy.
Added
Actual shipments depend upon customers' ever-changing production schedules.
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Employment: At December 31, 2023, Timken had more than 19,000 employees worldwide. Approximately 9% of Timken’s U.S. employees are covered under collective bargaining agreements. 6 Table of Contents Human Capital: The Company believes that its employees and their collective knowledge and experience are among its most valuable resources.
Added
Bureau of Labor Statistics at https://www.bls.gov/iif/. The Company aims to maintain a recordable rate within the top quartile of U.S. metal manufacturers (NAICS code 332) based on information provided by the U.S. Bureau of Labor Statistics. For 2023, the Company's lost time accident rate of 0.37 and recordable rate of 1.10 remained strong.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur international operations expose us to risks not present in a purely domestic business, including primarily: • changes in international treaties or trade unions, which may make our products or our customers' products more costly to export or import; • changes in tariff regulations, which may make our products more costly to export or import; • threatened or actual state seizure of foreign-owned manufacturing assets; • hostilities between countries in which we operate which could limit our ability to manufacture in, sell into, or export out of such jurisdictions; • political protests or unrest which could negatively impact our operations; • difficulties establishing and maintaining relationships with local OEMs, distributors and dealers; • import and export licensing requirements; • compliance with a variety of foreign laws and regulations, including unexpected changes in taxation and environmental or other regulatory requirements, which could increase our operating and other expenses and limit our operations; • additional costs, taxes and restrictions related to repatriation of cash in international jurisdictions; • disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the FCPA; • difficulty in staffing and managing geographically diverse operations; • disruptions to our global supply chain and logistical issues associated with port closures or congestion, delays or increased costs; • tax exposures related to cross-border intercompany transfer pricing and other tax risks unique to international operations; and • compliance with data protection regulations.
Biggest changeOur international operations expose us to risks not present in a purely domestic business, including primarily: • changes in international treaties or trade unions, which may make our products or our customers' products more costly to export or import; • changes in tariff regulations, which may make our products more costly to export or import; • threatened or actual state seizure of foreign-owned manufacturing assets; • hostilities between countries in which we operate which could limit our ability to manufacture in, sell into, export out of, or access assets located in such jurisdictions; • the imposition of sanctions on countries in which we operate, from which we receive critical supplies or into which we sell our products; • strained geopolitical relations between countries in which we have significant operations including the U.S. and China; • political protests or unrest which could negatively impact our operations; • difficulties establishing and maintaining relationships with local OEMs, distributors and dealers; • import and export licensing requirements; • compliance with a variety of foreign laws and regulations, including unexpected changes in taxation, environmental, sustainability or other regulatory requirements, which could increase our operating and other expenses and limit our operations; • additional costs, taxes and restrictions related to repatriation of cash in international jurisdictions; • disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the FCPA; • difficulty in staffing and managing geographically diverse operations; • disruptions to our global supply chain and logistical issues associated with port closures or congestion, delays or increased costs; • tax exposures related to cross-border intercompany transfer pricing and other tax risks unique to international operations; and • compliance with data protection regulations. 12 Table of Contents These and other risks also may increase the relative price of our products compared to those manufactured in other countries, reducing the demand for our products in the markets in which we operate, which could have a material adverse effect on our revenues and earnings.
If a customer becomes insolvent or files for bankruptcy, our ability to recover accounts receivable from that customer would be affected adversely and any payment we received during the preference period prior to a bankruptcy filing potentially may be recoverable by the bankruptcy estate.
If a customer becomes insolvent or files for bankruptcy, our ability to recover accounts receivable from that customer would be adversely affected and any payment we received during the preference period prior to a bankruptcy filing potentially may be recoverable by the bankruptcy estate.
In the event that we do not successfully integrate these acquisitions into our existing operations so as to realize the expected return on our investment, issues identified in our due diligence review are not addressed or the costs associated with such issues are higher than expected, or we uncover material issues (including historical environmental, trade, sanctions, or tax compliance violations) that were not identified during our due diligence review, our results of operations, cash flow or financial condition could be adversely affected.
In the event that we do not successfully integrate these acquisitions into our existing operations so as to realize the expected return on our investment, issues identified in our due diligence review are not adequately addressed or the costs associated with such issues are higher than expected, or we uncover material issues (including historical environmental, trade, sanctions, tax or compliance violations) that were not identified during our due diligence review, our results of operations, cash flow or financial condition could be adversely affected.
We generally attempt to manage these fluctuations by passing along increased raw material prices to our customers in the form of price increases or surcharges; however, we may be unable to increase the price of our products, or may experience a lag in doing so, due to pricing pressure, contract terms or other factors, which could adversely impact our revenue and profit margins.
We generally attempt to manage these fluctuations by passing along increased raw material prices to our customers in the form of price increases or surcharges; however, we may be unable to continue to increase the price of our products, or may experience a lag in doing so, due to pricing pressure, contract terms or other factors, which could adversely impact our revenue and profit margins.
If we are unable to increase the price of our products to offset further cost increases, or experience a lag in doing so, due to pricing pressure, contract terms or other factors, our financial condition, results of operations and cash flows may be adversely affected. Warranty, recall, quality or product liability claims could materially adversely affect our earnings.
If we are unable to continue to increase the price of our products to offset further cost increases, or experience a lag in doing so, due to pricing pressure, contract terms or other factors, our financial condition, results of operations and cash flows may be adversely affected. Warranty, recall, quality or product liability claims could materially adversely affect our earnings.
An increase in our levels of debt might lead us to have less cash flow available for our business operations, capital expenditures, and strategic transactions and our ability to service our debt obligations or to obtain future financing could be negatively impacted by general adverse economic and industry conditions and interest rate trends.
An increase in our levels of debt might lead us to have less cash flow available for our business operations, capital expenditures, and strategic transactions and our ability to service our debt obligations or to obtain future financing could be negatively impacted by general adverse economic and industry conditions and rising interest rate trends.
We are or may become subject to extensive federal, state, local and foreign environmental, health and safety laws and regulations concerning matters such as air emissions, wastewater discharges, the use of per- and polyfluoroalkyl substances or other chemicals of concern, waste management (e.g. storage, disposal) and the investigation and remediation of contamination.
We are or may become subject to extensive federal, state, local and foreign environmental, health and safety laws and regulations concerning matters such as air emissions, wastewater discharges, the use of per- and polyfluoroalkyl substances, such as polytetrafluoroethylene, or other chemicals of concern, waste management (e.g. storage, disposal) and the investigation and remediation of contamination.
In addition, the credit and default risk or bankruptcy of customers or suppliers as a result of work stoppages could also materially and adversely affect our operations and results. 12 Table of Contents Expenses and contributions related to our defined benefit plans are affected by factors outside our control, including the performance of plan assets, interest rates, actuarial data and experience, and changes in laws and regulations, all of which could impact our funded status.
In addition, the credit and default risk or bankruptcy of customers or suppliers as a result of work stoppages could also materially and adversely affect our operations and results. 13 Table of Contents Expenses and contributions related to our defined benefit plans are affected by factors outside our control, including the performance of plan assets, interest rates, actuarial data and experience, and changes in laws and regulations, all of which could impact our funded status.
Our most recent evaluation resulted in our conclusion that, as of December 31, 2022, our internal control over financial reporting was effective. We believe that we currently have adequate internal control procedures in place for future periods, including processes related to newly acquired businesses; however, increased risk of internal control breakdowns generally exists in a business environment that is decentralized.
Our most recent evaluation resulted in our conclusion that, as of December 31, 2023, our internal control over financial reporting was effective. We believe that we currently have adequate internal control procedures in place for future periods, including processes related to newly acquired businesses; however, increased risk of internal control breakdowns generally exists in a business environment that is decentralized.
Our businesses are affected, to varying degrees, by technological change and corresponding shifts in customer demand, which could result in unpredictable product transitions or shortened life cycles, especially as it relates to market and technological changes driven by electrification, environmental requirements, automation, the continued rising importance of e-commerce and increased digitization.
Our businesses are affected, to varying degrees, by technological change and corresponding shifts in customer demand, which could result in unpredictable product transitions or shortened life cycles, especially as it relates to market and technological changes driven by electrification, environmental requirements, automation, the continued rising importance of e-commerce, artificial intelligence and increased digitization.
The Company's results in a period may be adversely impacted by similar customer inventory adjustments in the future, as well as changes in customer buying preferences. 8 Table of Contents Any change in raw material prices, the availability or cost of raw materials or logistics expenses could adversely affect our results of operations and profit margins.
The Company's results in a period may be adversely impacted by similar customer inventory adjustments in the future, as well as changes in customer buying preferences. 9 Table of Contents Any change in raw material prices, the availability or cost of raw materials or logistics expenses could adversely affect our results of operations and profit margins.
We have taken approximately $86 million in impairment and restructuring charges in the aggregate during the last five years. Changes in business or economic conditions, or our business strategy, may result in additional restructuring actions and may require us to take additional charges in the future, which could have a material adverse effect on our earnings.
We have taken approximately $127 million in impairment and restructuring charges in the aggregate during the last five years. Changes in business or economic conditions, or our business strategy, may result in additional restructuring actions and may require us to take additional charges in the future, which could have a material adverse effect on our earnings.
Recently, there has been a substantial increase in the global enforcement of anti-corruption laws. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices.
In the past, there has been a substantial increase in the global enforcement of anti-corruption laws. We operate in many parts of the world that have experienced governmental corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices.
The end result could have a negative impact on our operating results. 9 Table of Contents Loss of our rights to exclusive use of our intellectual property whether through patent infringement, counterfeiting, theft of trade secrets, or otherwise could have a material adverse effect on the Company.
The end result could have a negative impact on our operating results. 10 Table of Contents Loss of our rights to exclusive use of our intellectual property whether through patent infringement, counterfeiting, theft of trade secrets, or otherwise could have a material adverse effect on the Company.
New laws and regulations, including those that may relate to emissions of greenhouse gases or the use, discharge or disposal of chemicals of concern utilized in our manufacturing processes, stricter enforcement of existing laws and regulations, new and more stringent customer requirements, the discovery of previously unknown contamination or the imposition of new clean-up requirements or standards could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, financial condition or results of operations.
New laws and regulations, including those that may relate to emissions of greenhouse gases or the use, discharge or disposal of chemicals of concern utilized in our manufacturing processes, stricter enforcement of existing laws and regulations, new and more stringent customer requirements, the discovery of previously unknown contamination or the imposition of new clean-up requirements or standards could require us to incur costs, change production methods or materials or become the basis for new or increased liabilities that could have a material adverse effect on our business, financial condition or results of operations.
We have been and may in the future be subject to attempts to gain unauthorized access to our information technology systems. To date, the impacts of prior events have not had a material adverse effect on us.
We have been and may in the future be subject to attempts to gain unauthorized access to our information technology systems. To date, the impacts of prior incidents have not had a material adverse effect on us.
Changes in exchange rates between the U.S. dollar and other currencies and volatile economic, political and market conditions in emerging market countries have in the past adversely affected our financial performance and may in the future adversely affect the value of our assets located outside the United States, our gross profit and our results of operations. 10 Table of Contents Our results of operations may be materially affected by conditions in global financial markets or in any of the geographic regions in which we, our customers or our suppliers operate.
Changes in exchange rates between the U.S. dollar and other currencies and volatile economic, political and market conditions in emerging market countries have in the past adversely affected our financial performance and may in the future adversely affect the value of our assets located outside the U.S., our gross profit and our results of operations. 11 Table of Contents Our results of operations may be materially affected by conditions in global financial markets or in any of the geographic regions in which we, our customers or our suppliers operate.
A successful warranty or product liability claim against us, or a requirement that we participate in a product recall, could have a material adverse effect on our earnings and brand reputation. 16 Table of Contents If our internal controls are found to be ineffective, our financial results or our stock price may be adversely affected.
A successful warranty or product liability claim against us, or a requirement that we participate in a product recall, could have a material adverse effect on our earnings and brand reputation. If our internal controls are found to be ineffective, our financial results or our stock price may be adversely affected.
A work stoppage at one or more of our facilities, whether caused by fire, flooding, epidemics, pandemics (including the COVID-19 outbreak), military hostilities, government-imposed shutdowns, severe weather, including that caused by climate change, other natural disaster or otherwise, could have a material adverse effect on our business, financial condition and results of operations.
A work stoppage at one or more of our facilities, whether caused by fire, flooding, epidemics, pandemics, public health concerns, military hostilities, government-imposed shutdowns, severe weather, including that caused by climate change, other natural disaster or otherwise, could have a material adverse effect on our business, financial condition and results of operations.
It is possible that future accounting guidance we are required to adopt, or future changes in accounting principles, could change the current accounting treatment that we apply to our consolidated financial statements and that such changes could have an adverse effect on our results of operations, as reported in our consolidated financial statements. Item 1B. Unresolved Staff Comments None.
It is possible that future accounting guidance we are required to adopt, or future changes in accounting principles, could change the current accounting treatment that we apply to our consolidated financial statements and that such changes could have an adverse effect on our results of operations, as reported in our consolidated financial statements. 18 Table of Contents Item 1B.
While we have utilized and continue to utilize various controls and systems to mitigate such risks, we cannot assure that the actions we have implemented and are implementing, or that we cause or have caused third-party service providers to implement, will be sufficient to protect our systems or sensitive and confidential data.
While we have utilized and continue to utilize various controls and systems to mitigate such risks, we cannot assure that the actions we have implemented and are implementing, or that we have required or will require third-party service providers to implement, will be sufficient to protect our systems or data.
Also, our sales to public-sector customers are subject to complex regulations. Noncompliance with government procurement regulations, information security requirements, or other applicable laws or regulations could result in civil, criminal and administrative liability, termination of government contracts or other public-sector customer contracts, and suspension, debarment or ineligibility from doing business with governmental entities or other customers in the public sector.
Noncompliance with government procurement regulations, information security requirements, or other applicable laws or regulations could result in civil, criminal and administrative liability, termination of government contracts or other public-sector customer contracts, and suspension, debarment or ineligibility from doing business with governmental entities or other customers in the public sector.
Our future success also will depend on our ability to attract, retain and develop highly skilled personnel, such as engineering, finance, marketing and senior management professionals, as well as skilled labor.
Our future success also will depend on our ability to attract, retain and develop highly skilled personnel at all levels of the organization, such as engineering, finance, marketing and senior management professionals, as well as skilled labor.
Competition for these types of employees is intense and has increased recently, and we could experience difficulty from time to time in hiring, developing and retaining the personnel necessary to support our business.
Competition for these types of employees is intense, particularly in developed countries such as the U.S., and has increased recently, and we could experience difficulty from time to time in hiring, developing and retaining the personnel necessary to support our business.
If we are found to be liable for FCPA, export control or sanction violations, we could suffer from criminal or civil penalties or other sanctions, including loss of export privileges or authorization needed to conduct aspects of our international business, which could have a material adverse effect on our business.
If we are found to be liable for FCPA, export control or sanction violations, we could suffer from criminal or civil penalties or other sanctions, including loss of export privileges or authorization needed to conduct aspects of our international business, which could have a material adverse effect on our business. 15 Table of Contents Also, our sales to public-sector customers are subject to complex regulations.
Despite security measures taken by the Company, the Company’s information technology systems (both on-premises and third-party managed) may be vulnerable to attacks by hackers or breached due to employee error, technological error, supplier error, malfeasance or other disruptions.
Despite security measures taken by the Company, the Company’s information technology systems (both on-premises and third-party managed) may be vulnerable to attacks by hackers or subject to unauthorized access due to employee error, technology vulnerabilities or misconfigurations, supplier error, malfeasance or other causes.
We compete with many domestic and foreign manufacturers of anti-friction bearings. In addition, the industries into which we sell our industrial motion products are also highly competitive and consolidating. Due to competitiveness within these industries, we may not be able to increase prices for our products to cover increases in our costs or to achieve desired profitability.
In addition, the industries into which we sell our industrial motion products are also highly competitive and consolidating. Due to competitiveness within these industries, we may not be able to continue to increase prices for our products to cover increases in our costs or to achieve desired profitability.
In addition, environmental activism and initiatives aimed at limiting climate change and reducing global greenhouse gas emissions could interfere with our business strategy and operations as well as require material investment in energy efficiency projects and renewable energy sourcing.
In addition, environmental activism, government regulations and reporting standards, and other initiatives aimed at limiting climate change and reducing global greenhouse gas emissions could interfere with our business strategy and operations as well as require material investment in energy efficiency projects, renewable energy sourcing, emission controls, data collection and verification resources.
If we fail to meet customer specifications for their products, we may be subject to product quality costs and claims, as well as adverse brand reputational impacts.
In addition, we may be required to participate in the recall of a product. If we fail to meet customer specifications for their products, we may be subject to product quality costs and claims, as well as adverse brand reputational impacts.
Risk Relating to our Business The bearing industry and the industries into which we sell our various industrial motion products are highly competitive, and this competition results in significant pricing pressure for our products that could affect our revenues and profitability. The global bearing industry is highly competitive and consolidated.
Risk Relating to our Business The bearing and industrial motion industries are highly competitive, and this competition results in significant pricing pressure for our products that could affect our revenues and profitability. The global bearing industry is highly competitive and consolidated. We compete with many domestic and foreign manufacturers of anti-friction bearings.
Margins in those industries are highly sensitive to demand cycles, and our customers in those industries historically have tended to delay large capital projects, including expensive maintenance and upgrades during economic downturns. As a result, our revenues and earnings are impacted by overall levels of industrial production.
Margins in those industries are highly sensitive to demand cycles, and our customers in those industries historically have tended to delay large capital projects, including expensive maintenance and upgrades during economic downturns.
We may incur substantial costs if our competitors or other third parties allege such claims. If the outcomes of any such disputes are unfavorable to us, we could be subject to damages and reputational harm and our business could be otherwise adversely affected.
If the outcomes of any such disputes are unfavorable to us, we could be subject to damages and reputational harm and our business could be otherwise adversely affected.
The Company relies on information technology systems to manage and operate its business and to process, transmit and store sensitive and confidential data, including its intellectual property and other proprietary business information and that of its customers and suppliers.
The Company relies on information technology systems and those of third parties who provide products or services to us to manage and operate its business and to process, transmit and store data, including its intellectual property, personal data and other proprietary business information and that of its customers and suppliers.
The global nature of our business exposes us to foreign currency fluctuations that may affect our asset values, results of operations and competitiveness. We are exposed to the risks of currency exchange rate fluctuations because a significant portion of our net sales, costs, assets and liabilities, are denominated in currencies other than the U.S. dollar.
We are exposed to the risks of currency exchange rate fluctuations because a significant portion of our net sales, costs, assets and liabilities, are denominated in currencies other than the U.S. dollar. These risks include a reduction in our net asset values, net sales, operating income and competitiveness.
In addition, a failure to maintain our credit ratings could adversely affect our cost of borrowing, liquidity and access to capital markets. Some of our debt has variable interest rates, which could increase the cost of servicing such debt. Interest rates have risen significantly over the past year and may rise in the future due to inflation or other causes.
In addition, a failure to maintain our credit ratings could adversely affect our cost of borrowing, liquidity and access to capital markets. Some of our debt has variable interest rates, which could increase the cost of servicing such debt, and fixed rate debt may have increased cost to refinance at maturity.
Over time, stakeholder expectations for, and regulatory requirements related to, our CSR program and initiatives may change, and our investors, customers, suppliers, employees or regulators may demand that we implement additional, or stricter, goals and initiatives related to CSR topics. Greater expectations or legal requirements may cause us to undertake costly initiatives to satisfy such new criteria.
Over time, stakeholder expectations for, and regulatory requirements (such as the Corporate Sustainability Reporting Directive) related to, our CSR program and initiatives may change, and our investors, customers, suppliers, employees or regulators may advocate that we implement additional, or stricter, goals and initiatives related to CSR topics.
These rights are important to our business, and their loss, whether through patent infringement, counterfeiting, theft of trade secrets, or otherwise, could have a material adverse effect on the Company. Additionally, third parties may bring claims to challenge the validity of our patents or other intellectual property rights or allege that we infringe their patents or other intellectual property rights.
These rights are important to our business, and their loss, whether through patent infringement, counterfeiting, theft of trade secrets, data breach, or otherwise, could have a material adverse effect on the Company.
Inflation has led to and could continue to lead to further increases in other operating costs, such as shipping costs, costs of raw materials, and energy and fuel prices.
These cost increases may continue to be impacted by inflationary pressures that could further reduce our sales or profitability. Inflation has led to and could continue to lead to further increases in other operating costs, such as shipping costs, costs of raw materials, and energy and fuel prices.
We may not realize the improved operating results that we anticipate from past and future acquisitions, may experience difficulties in integrating acquired businesses, and may incur unanticipated liabilities and costs associated with such acquired businesses.
Any significant increase in the prices for such raw materials or logistics expenses could adversely affect our results of operations and profit margins. We may not realize the improved operating results that we anticipate from past and future acquisitions, may experience difficulties in integrating acquired businesses, and may incur unanticipated liabilities and costs associated with such acquired businesses.
Rising inflationary pressure has resulted in and could further result in increased employee expenses, shipping costs, raw material costs, energy and fuel costs and other costs of production. If we cannot continue to absorb or pass these increases in our costs of production to our customers, our results of operations, profit margins and cash flows could be adversely affected.
If we cannot continue to absorb or pass these increases in our costs of production to our customers, our results of operations, profit margins and cash flows could be adversely affected. Increases in compensation, wage pressure, and other expenses for our employees have adversely affected our profitability and could continue to do so.
Compliance with the laws and regulations described above or with other applicable foreign, federal, state, and local laws and regulations currently in effect or that may be adopted in the future could materially adversely affect our competitive position, operating results, financial condition and liquidity. 14 Table of Contents New or more stringent government regulations or standards associated with climate change could increase our operational costs and severe weather associated with a changing climate could negatively impact our operations and those of our customers and suppliers.
Compliance with the laws and regulations described above or with other applicable foreign, federal, state, and local laws and regulations currently in effect or that may be adopted in the future could materially adversely affect our competitive position, operating results, financial condition and liquidity.
Any such breach in security could expose the Company and its employees, customers and suppliers to risks of misuse of confidential information, manipulation and destruction of data, production downtimes, litigation and operational disruptions, which in turn could adversely affect the Company's reputation, competitive position, business or results of operations. 15 Table of Contents Data privacy and security concerns, as well as evolving government regulation, could adversely affect our results of operations and profitability.
A cybersecurity incident could expose the Company and its employees, customers and suppliers to risks of misuse of confidential information, manipulation and destruction of data, production downtimes and operational disruptions, which in turn could result in litigation, business disputes and government investigations, and related monetary damages, injunctive requirements and fines, and could adversely affect the Company's reputation, competitive position, business or results of operations.
The risks of substantial costs and liabilities related to compliance with these laws and regulations are an inherent part of our business, and future conditions may develop, arise or be discovered that create substantial environmental compliance or remediation liabilities and costs. 13 Table of Contents Compliance with environmental, health and safety legislation and regulatory requirements may prove to be more limiting and costly than we anticipate.
The risks of substantial costs and liabilities related to compliance with these laws and regulations are an inherent part of our business, and future conditions may develop, arise or be discovered that create substantial environmental compliance or remediation liabilities and costs or which may require that we change certain production methods or materials used in our manufacturing processes or products.
We collect, store, access and otherwise process certain confidential or sensitive data, including proprietary business information, personal data or other information that is subject to privacy and security laws, regulations and/or government or customer-imposed controls. We operate in a global environment in which the data privacy regulatory and legal framework is evolving quickly.
Data privacy and security concerns, as well as evolving regulation and enforcement, could adversely affect our results of operations and profitability. We collect, store, access and otherwise process certain confidential or sensitive data, including proprietary business information, personal data or other information that is subject to privacy, data protection and security laws, regulations and/or government or customer-imposed controls.
Investors, customers, suppliers, employees, regulators and other stakeholders are increasingly focused on CSR practices and disclosures, and expectations in this area are rapidly evolving and growing. We have announced goals covering certain CSR topics, such as those related to reductions in greenhouse gas emissions and maintaining employee health and safety.
We have announced goals covering certain CSR topics, such as those related to reductions in greenhouse gas emissions and maintaining employee health and safety.
The U.S. government has imposed tariffs on certain foreign goods, including steel and other raw materials as well as certain products made from such materials.
We have global operations, and changes to government trade policies including the imposition of tariffs and other trade barriers, as well as the resulting consequences, could adversely impact our revenue and profit margins. The U.S. government has imposed tariffs on certain foreign goods, including steel and other raw materials as well as certain products made from such materials.
If we are unable to respond effectively, stakeholders may conclude that our CSR program and initiatives are inadequate. If we do not meet, or are perceived to have not met, announced CSR goals or do not accurately disclose our progress on such goals, our reputation, competitive position, financial condition and operating results could be adversely impacted.
If we do not meet, or are perceived to have not met, announced CSR goals or do not accurately disclose our progress on such goals, our reputation, competitive position, financial condition and operating results could be adversely impacted. 16 Table of Contents Risks Related to Data Privacy and Information Security The Company may be subject to risks relating to its information technology systems, including the risk of cybersecurity incidents.
Severe weather associated with a changing climate could also negatively impact the operation of our facilities, as well as those of our customers and suppliers. Responses to corporate social responsibility (“CSR”) topics, including those related to climate change, could adversely affect our business and performance.
Severe weather associated with a changing climate could also negatively impact the operation of our facilities, as well as those of our customers and suppliers and impact our ability to insure our assets on commercially desirable terms and conditions.
As a result, the costs of servicing our variable interest rate debt could further increase even if the amount borrowed under such facilities remains the same. Increased servicing costs could in turn negatively impact our profitability and cash flow.
Interest rates have risen significantly over the past few years and may remain elevated or rise in the future due to inflation or other causes. As a result, the costs of servicing our variable interest rate debt could further increase even if the amount borrowed under such facilities remains the same.
Pursuing these types of actions could require us to make additional contributions to the defined benefit plans to maintain a legally required funded status. Risks Related to Legal, Compliance and Regulatory Matters If government-imposed restrictions continue, are re-imposed, or are expanded, our business could be further adversely impacted.
Pursuing these types of actions could require us to make additional contributions to the defined benefit plans to maintain a legally required funded status. 14 Table of Contents Risks Related to Legal, Compliance and Regulatory Matters Current and future environmental health and safety laws, regulations, and customer requirements impose substantial costs and limitations on our operations and compliance may be more costly than we expect.
Warranty, recall, quality or product liability claims could materially adversely affect our earnings and brand reputation. In our business, we are exposed to warranty and product liability claims. In addition, we may be required to participate in the recall of a product.
Warranty, recall, quality or product liability claims could materially adversely affect our earnings and brand reputation. In our business, we are exposed to warranty and product liability claims, including in certain industry segments with potential high value claims, such as rail, aerospace and wind energy, and through our automotive customer contracts which often contain negotiated warranty provisions.
Government enforcement actions can be costly and interrupt the regular operation of our business, and a violation of data privacy laws or a security breach involving personal or customer data can result in fines, reputational damage, loss of business, and civil lawsuits, any of which may adversely affect our results of operations and profitability.
Any failure, or perceived failure, to comply with our data protection or privacy-related legal obligations may result in reputational damage, loss of business, regulatory investigations and fines, and civil lawsuits, and related monetary damages and injunctive requirements, any of which may adversely affect our results of operations and profitability.
Current and future environmental health and safety laws, regulations, and customer requirements impose substantial costs and limitations on our operations and compliance may be more costly than we expect.
Compliance with environmental, health and safety legislation and regulatory requirements may prove to be more limiting and costly than we anticipate.
Moreover, the data privacy laws of the specific jurisdictions in which we operate may vary and potentially conflict. As such, we cannot predict the cost of compliance with future data privacy laws, regulations and standards, future interpretations of current laws, regulations and standards, or the potential effects on our business.
We operate in a global environment in which the data privacy regulatory and legal framework and corresponding enforcement and litigation landscape are evolving quickly. Moreover, the data privacy laws of the specific jurisdictions in which we operate may vary and potentially conflict.
Removed
Any significant increase in the prices for such raw materials or logistics expenses could adversely affect our results of operations and profit margins. The COVID-19 pandemic has, and could continue to, adversely and materially impact our business.
Added
Additionally, third parties may bring claims to challenge the validity of our patents or other intellectual property rights or allege that we infringe their patents or other intellectual property rights. We may incur substantial costs if our competitors or other third parties allege such claims.
Removed
The global outbreak of COVID-19 and associated variants has negatively impacted our business operations in a number of ways, including: volatility in economic demand; higher levels of absenteeism, turnover and reduced labor availability; shipping and logistics delays; supply chain and manufacturing disruptions; and higher levels of inflation for raw material, purchased components, freight and other costs.
Added
Increased servicing costs could in turn negatively impact our profitability and cash flow. In addition, fixed rate debt currently outstanding that matures in the future may be refinanced with higher interest rates leading to additional servicing costs. The global nature of our business exposes us to foreign currency fluctuations that may affect our asset values, results of operations and competitiveness.
Removed
We could continue to experience these and other impacts from the pandemic, and collectively or individually, these factors could adversely and materially impact our short-term and long-term operations, cost structure, and related results of operations, including revenue, gross margins, operating margins and cash flows.
Added
The global regulatory landscape is rapidly evolving and new and potentially conflicting requirements, including with respect to climate change, environmental sustainability and other matters, could lead to added operational complexity and compliance risks while adversely impacting our costs and financial results.
Removed
These risks include a reduction in our net asset values, net sales, operating income and competitiveness.
Added
In addition, severe weather associated with a changing climate could negatively impact our operations and those of our customers and suppliers. The pace at which regulators in many jurisdictions are implementing regulatory change is currently heightened across a wide variety of topics including climate change, environmental sustainability, employment and labor, ethics, data privacy, governance, and others.
Removed
These and other risks also may increase the relative price of our products compared to those manufactured in other countries, reducing the demand for our products in the markets in which we operate, which could have a material adverse effect on our revenues and earnings. 11 Table of Contents We have global operations, and changes to government trade policies including the imposition of tariffs and other trade barriers, as well as the resulting consequences, could adversely impact our revenue and profit margins.
Added
Rapid changes in the regulatory environment may lead to additional costs of compliance and risks associated with non-compliance. Furthermore, regulations governing our global operations may at times conflict across jurisdictions leading to additional complexity and operating costs.
Removed
The global outbreaks of COVID-19 and new variants of the virus continue to create uncertainty with respect to economic demand and operations. The COVID-19 outbreak has resulted in significant governmental measures being implemented to control the spread of COVID-19, including, among others, restrictions on travel and manufacturing operations in certain regions of the world.
Added
Actions required to comply with regulations or stakeholder expectations associated with corporate social responsibility (“CSR”) topics, including those related to climate change, could adversely affect our business and performance. Investors, customers, suppliers, employees, regulators and other stakeholders are increasingly focused on CSR practices and disclosures, and expectations in this area are rapidly evolving and growing.
Removed
To the extent that governments reimpose restrictions that have now lapsed, or to the extent that the COVID‐19 outbreak intensifies or new dangerous variants develop and new restrictions are implemented, we could experience additional material impacts to our short-term and long-term operations, access to skilled labor or raw materials, and related results of operations, including revenue, gross margins, operating margins and cash flows.
Added
Greater expectations or legal requirements may cause us to undertake costly initiatives to satisfy such new criteria.
Removed
We are subject to domestic and foreign regulations and standards governing emission limits which are, in part, designed to address climate change. Due to increasing global concern over the effects of climate change, new or more stringent regulations and standards may be mandated.
Added
As such, we incur and expect to continue to incur significant ongoing costs as part of our efforts to comply with applicable law.
Removed
Tighter emissions controls as a result of these actions could increase our operational costs and could lead to disruptions in our operations as compliance is attained.
Added
As a result, our revenues and earnings are impacted by overall levels of industrial production. 17 Table of Contents Rising inflationary pressure has resulted in and could further result in increased employee expenses, shipping costs, raw material costs, energy and fuel costs and other costs of production.
Removed
Risks Related to Data Privacy and Information Security The Company may be subject to risks relating to its information technology systems, including the risk of security breaches.
Removed
Increases in compensation, wage pressure, and other expenses for our employees have adversely affected our profitability and could continue to do so. These cost increases may result from inflationary pressures that could further reduce our sales or profitability.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe facilities are situated in the United States, as well as 45 other countries, including China, India, and Romania. The Company owns the majority of its manufacturing plants, and its leased properties primarily consist of sales and administrative offices and distribution centers. The buildings occupied by Timken are principally made of brick, steel, reinforced concrete and concrete block construction.
Biggest changeNone of these plants, administrative offices or distribution centers are individually material to the Company’s operations. The facilities are situated in the United States, as well as 44 other countries, including China, India, and Romania. The Company owns the vast majority of its plants, while most of its sales and administrative offices and distribution centers are leased.
Item 2. Properties The Company’s corporate headquarters is located in North Canton, Ohio, and, at December 31, 2022, the Company maintained 77 manufacturing plants. The Company also maintains various sales and administrative offices and distribution centers throughout the world. None of these manufacturing plants, administrative offices or distribution centers are individually material to the Company’s operations.
Item 2. Properties The Company’s corporate headquarters is located in North Canton, Ohio, and, as of December 31, 2023, the Company maintained 94 plants that perform manufacturing, assembly or repair services. The Company also maintains various sales and administrative offices and distribution centers throughout the world.
The Company believes all buildings are in satisfactory operating condition to conduct business. The extent to which the Company utilizes its properties varies by property and from time to time. The Company believes that its capacity levels are adequate for its present and anticipated future needs. Most of the Company’s manufacturing facilities remain capable of handling additional volume increases .
The Company believes that its capacity levels are adequate for its present and anticipated future needs. Most of the Company’s manufacturing facilities remain capable of handling additional volume increases . 19 Table of Contents
Added
The buildings occupied by Timken are principally made of brick, steel, reinforced concrete and concrete block construction. The Company believes all buildings are in satisfactory operating condition to conduct business. The extent to which the Company utilizes its properties varies by property and from time to time.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeIn the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position or annual results of operations.
Biggest changeIn the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position or annual results of operations. Item 4. Mine Safety Disclosures Not applicable.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePeriod Total number of shares purchased (1) Average price paid per share (2) Total number of shares purchased as part of publicly announced plans or programs Maximum number of shares that may yet be purchased under the plans or programs (3) 10/1/2022 - 10/31/2022 — $ — — 6,050,000 11/1/2022 - 11/30/2022 240,985 72.86 225,000 5,825,000 12/1/2022 - 12/31/2022 25,500 74.55 25,000 5,800,000 Total 266,485 $ 73.02 250,000 — (1) Of the shares purchased in November and December, 15,985 and 500 respectively, represent common shares of the Company that were owned and tendered by employees to exercise stock options, and to satisfy withholding obligations in connection with the exercise of stock options and vesting of restricted shares.
Biggest changePeriod Total number of shares purchased (1) Average price paid per share (2) Total number of shares purchased as part of publicly announced plans or programs Maximum number of shares that may yet be purchased under the plans or programs (3) 10/1/2023 - 10/31/2023 310,627 $ 71.68 310,000 2,778,990 11/1/2023 - 11/30/2023 130,454 71.30 130,000 2,648,990 12/1/2023 - 12/31/2023 15,391 75.34 10,000 2,638,990 Total 456,472 $ 71.70 450,000 — (1) Of the shares purchased in October, November and December, 627, 454 and 5,391 respectively, represent common shares of the Company that were owned and tendered by employees to exercise stock options, and to satisfy withholding obligations in connection with the exercise of stock options and vesting of restricted shares.
(3) On February 12, 2021, the Company's Board of Directors approved a new share repurchase plan, effective March 1, 2021, pursuant to which the Company may purchase up to ten million of its common shares, in the aggregate. This share purchase plan expires on February 28, 2026.
(3) On February 12, 2021, the Company's Board of Directors approved a share repurchase plan, effective March 1, 2021, pursuant to which the Company may purchase up to ten million of its common shares, in the aggregate. This share purchase plan expires on February 28, 2026.
Under this plan, the Company may purchase shares from time to time in open market purchases or privately negotiated transactio n, and it may make all or part of the purchases pursuant to accelerated share repurchases or Rule 10b5-1 plans. 19 Table of Contents Item 5.
Under this plan, the Company may purchase shares from time to time in open market purchases or privately negotiated transactio n, and it may make all or part of the purchases pursuant to accelerated share repurchases or Rule 10b5-1 plans. 21 Table of Contents Item 5.
The graph assumes, in each case, an initial investment of $100 on January 1, 2018, in Timken common shares, S&P 500 Index and S&P 400 Industrials Index, based on market prices at the end of each fiscal year through and including December 31, 2022 , and reinvestment of dividends. 20 Table of Contents
The graph assumes, in each case, an initial investment of $100 on January 1, 2019, in Timken common shares, S&P 500 Index and S&P 400 Industrials Index, based on market prices at the end of each fiscal year through and including December 31, 2023 , and reinvestment of dividends. 22 Table of Contents
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common shares are traded on the New York Stock Exchange under the symbol “TKR". The estimated number of record holders of the Company’s common shares at December 31, 2022 was 3,046 .
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common shares are traded on the New York Stock Exchange under the symbol “TKR". The estimated number of record holders of the Company’s common shares at December 31, 2023 was 2,882.
The estimated number of beneficial shareholders at December 31, 2022 exceeds 90,000 . Issuer Purchases of Common Shares: The following table provides information about purchases of its common shares by the Company during the quarter ended December 31, 2022.
Issuer Purchases of Common Shares: The following table provides information about purchases of its common shares by the Company during the quarter ended December 31, 2023.
Fiscal years ending December 31. 2018 2019 2020 2021 2022 Timken $ 78 $ 120 $ 169 $ 154 $ 160 S&P 500 96 126 149 192 157 S&P 400 Industrials 85 114 132 170 151 The line graph compares the cumulative total shareholder returns over five years for The Timken Company, the S&P 500 Stock Index and the S&P 400 Industrials Index.
Fiscal years ending December 31. 2019 2020 2021 2022 2023 Timken $ 155 $ 217 $ 198 $ 205 $ 237 S&P 500 131 156 200 164 207 S&P 400 Industrials 134 156 200 177 232 The line graph compares the cumulative total shareholder returns over five years for The Timken Company, the S&P 500 Stock Index and the S&P 400 Industrials Index.
Added
The estimated number of beneficial shareholders at December 31, 2023 exceeds 100,000. During the quarter ended December 31, 2023, no director or officer (as defined in Exchange Act Rule 16a-1(f)) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Regulation 408(a) of Regulation S-K).

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeSelected Financial Data Summary of Operations and Other Comparative Data: (Dollars in millions, except per share, shareholder and per employee data) 2022 2021 2020 2019 2018 Statements of Income Net sales $ 4,496.7 $ 4,132.9 $ 3,513.2 $ 3,789.9 $ 3,580.8 Gross profit 1,288.1 1,102.5 1,009.9 1,141.8 1,040.1 Operating income 606.9 513.1 454.9 516.4 454.5 Net income 417.0 381.5 292.4 374.7 305.5 Net income attributable to The Timken Company $ 407.4 $ 369.1 $ 284.5 $ 362.1 $ 302.8 Basic earnings per share (1) 5.54 4.86 3.78 4.78 3.93 Diluted earnings per share (2) 5.48 4.79 3.72 4.71 3.86 Weighted average number of shares outstanding - basic 73,602,247 75,885,316 75,354,280 75,758,123 77,119,602 Weighted average number of shares outstanding - diluted 74,323,839 77,006,589 76,401,366 76,896,565 78,337,481 Other Comparative Data Total assets $ 5,772.4 $ 5,170.7 $ 5,041.6 $ 4,859.9 $ 4,445.2 Total liabilities 3,419.5 2,793.0 2,816.4 2,905.1 2,802.5 Total equity 2,352.9 2,377.7 2,225.2 1,954.8 1,642.7 Net income attributable to The Timken Company / net sales 9.1 % 8.9 % 8.1 % 9.6 % 8.5 % Net cash provided from operating activities 463.8 387.3 577.6 550.1 332.5 Capital expenditures 178.4 148.3 121.6 140.6 112.6 Capital expenditures / net sales 4.0 % 3.6 % 3.5 % 3.7 % 3.1 % Depreciation and amortization 164.0 167.8 167.1 160.6 146.0 Dividends per share $ 1.23 $ 1.19 $ 1.13 $ 1.12 $ 1.11 Number of employees at year-end 19,404 18,029 17,430 18,829 17,477 Non-GAAP Financial Information (3) Adjusted earnings per share $ 6.02 $ 4.72 $ 4.10 $ 4.60 $ 4.18 Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) $ 855.9 $ 718.0 $ 658.9 $ 726.3 $ 646.5 Adjusted EBITDA Margin (% of net sales) 19.0 % 17.4 % 18.8 % 19.2 % 18.1 % Free cash flow 285.4 239.0 456.0 409.5 219.9 Adjusted return on invested capital (ROIC) 12.6 % 11.0 % 9.9 % 11.9 % 12.8 % (1) Based on weighted average number of shares outstanding during the year.
Biggest changeUnreserved Selected Financial Data Summary of Operations and Other Comparative Data: (Dollars in millions, except per share, shareholder and per employee data) 2023 2022 2021 2020 2019 Statements of Income Net sales $ 4,769.0 $ 4,496.7 $ 4,132.9 $ 3,513.2 $ 3,789.9 Operating income 657.1 606.9 513.1 454.9 516.4 Net income 408.0 417.0 381.5 292.4 374.7 Net income attributable to The Timken Company $ 394.1 $ 407.4 $ 369.1 $ 284.5 $ 362.1 Basic earnings per share (1) 5.52 5.54 4.86 3.78 4.78 Diluted earnings per share (2) 5.47 5.48 4.79 3.72 4.71 Weighted average number of shares outstanding - basic 71,377,656 73,602,247 75,885,316 75,354,280 75,758,123 Weighted average number of shares outstanding - diluted 72,081,884 74,323,839 77,006,589 76,401,366 76,896,565 Other Comparative Data Total assets $ 6,541.7 $ 5,772.4 $ 5,170.7 $ 5,041.6 $ 4,859.9 Total liabilities 3,839.3 3,419.5 2,793.0 2,816.4 2,905.1 Total equity 2,702.4 2,352.9 2,377.7 2,225.2 1,954.8 Net income attributable to The Timken Company / net sales 8.3 % 9.1 % 8.9 % 8.1 % 9.6 % Net cash provided from operating activities 545.2 463.8 387.3 577.6 550.1 Capital expenditures 187.8 178.4 148.3 121.6 140.6 Capital expenditures / net sales 3.9 % 4.0 % 3.6 % 3.5 % 3.7 % Depreciation and amortization 201.3 164.0 167.8 167.1 160.6 Dividends per share $ 1.30 $ 1.23 $ 1.19 $ 1.13 $ 1.12 Number of employees at year-end 19,602 19,404 18,029 17,430 18,829 Non-GAAP Financial Information (3) Adjusted earnings per share $ 7.05 $ 6.46 $ 5.18 $ 4.56 $ 5.05 Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) $ 939.7 $ 855.9 $ 718.0 $ 658.9 $ 726.3 Adjusted EBITDA Margin (% of net sales) 19.7 % 19.0 % 17.4 % 18.8 % 19.2 % Free cash flow 357.4 285.4 239.0 456.0 409.5 Adjusted return on invested capital (ROIC) 13.8 % 14.5 % 12.9 % 11.6 % 13.5 % (1) Based on weighted average number of shares outstanding during the year.
(2) Based on weighted average number of shares outstanding during the year, assuming dilution of stock options and awards. (3) Refer to page 38 for reconciliations to the most directly comparable generally accepted accounting principal ("GAAP") financial measures. 21 Table of Contents
(2) Based on weighted average number of shares outstanding during the year, assuming dilution of stock options and awards. (3) Refer to page 43 for reconciliations to the most directly comparable generally accepted accounting principal ("GAAP") financial measures. 23 Table of Contents

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeTwelve Months Ended December 31, 2022 2021 2020 2019 2018 Diluted earnings per share (EPS) $ 5.48 $ 4.79 $ 3.72 $ 4.71 $ 3.86 Adjusted EPS $ 6.02 $ 4.72 $ 4.10 $ 4.60 $ 4.18 Diluted Shares 74,323,839 77,006,589 76,401,366 76,896,565 78,337,481 38 Table of Contents Reconciliation of segment EBITDA to segment adjusted EBITDA and segment adjusted EBITDA margin: Twelve Months Ended December 31, 2022 Mobile Process Unallocated Corporate Total Net Sales $ 2,106.5 $ 2,390.2 $ — $ 4,496.7 EBITDA 217.1 621.5 (52.9) 785.7 Impairment, restructuring and reorganization charges (1) 35.4 4.1 — 39.5 Corporate pension and other postretirement benefit related expense (2) — — 2.9 2.9 Acquisition-related charges (3) 3.1 8.0 3.7 14.8 Russia-related charges (5) 16.8 (1.2) — 15.6 Gain on divestitures and sale of real estate (6) (2.7) (0.2) — (2.9) Tax indemnification and related items 0.3 — — 0.3 Adjusted EBITDA $ 270.0 $ 632.2 $ (46.3) $ 855.9 Adjusted EBITDA Margin (% of net sales) 12.8 % 26.4 % NM 19.0 % Twelve Months Ended December 31, 2021 Mobile Process Unallocated Corporate Total Net Sales $ 1,965.7 $ 2,167.2 $ — $ 4,132.9 EBITDA 240.1 506.3 (45.5) 700.9 Impairment, restructuring and reorganization charges (1) 7.3 7.0 — 14.3 Corporate pension and other postretirement benefit related expense (2) — — 0.3 0.3 Acquisition-related charges (3) 0.7 0.6 1.9 3.2 Acquisition-related gain (4) — — (0.9) (0.9) Tax indemnification and related items 0.2 — — 0.2 Adjusted EBITDA $ 248.3 $ 513.9 $ (44.2) $ 718.0 Adjusted EBITDA Margin (% of net sales) 12.6 % 23.7 % NM 17.4 % (1) Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: (i) plant closures; (ii) the rationalization of certain plants; (iii) severance related to cost reduction initiatives; (iv) impairment of assets held for sale; and (v) related depreciation and amortization.
Biggest changeTwelve Months Ended December 31, 2023 2022 2021 2020 2019 Diluted earnings per share (EPS) $ 5.47 $ 5.48 $ 4.79 $ 3.72 $ 4.71 Adjusted EPS $ 7.05 $ 6.46 $ 5.18 $ 4.56 $ 5.05 Diluted Shares 72,081,884 74,323,839 77,006,589 76,401,366 76,896,565 43 Table of Contents Reconciliation of segment EBITDA to segment adjusted EBITDA and segment adjusted EBITDA margin: Twelve Months Ended December 31, 2023 Engineered Bearings Industrial Motion Unallocated Corporate Total Net Sales $ 3,257.7 $ 1,511.3 $ — $ 4,769.0 EBITDA 661.7 262.0 (90.5) 833.2 Impairment, restructuring and reorganization charges (1) 14.3 36.5 — 50.8 Corporate pension and other postretirement benefit related expense (2) — — 20.6 20.6 Acquisition-related charges (3) 3.6 21.0 7.2 31.8 Russia-related charges (5) 8.5 — — 8.5 (Gain) loss on divestitures and sale of certain assets (6) (5.5) 0.3 — (5.2) Adjusted EBITDA $ 682.6 $ 319.8 $ (62.7) $ 939.7 Adjusted EBITDA Margin (% of net sales) 21.0 % 21.2 % NM 19.7 % Twelve Months Ended December 31, 2022 Engineered Bearings Industrial Motion Unallocated Corporate Total Net Sales $ 3,092.6 $ 1,404.1 $ — $ 4,496.7 EBITDA 615.8 222.8 (52.9) 785.7 Impairment, restructuring and reorganization charges (1) 4.4 35.1 — 39.5 Corporate pension and other postretirement benefit related expense (2) — — 2.9 2.9 Acquisition-related charges (3) 6.2 4.9 3.7 14.8 Russia-related charges (5) 15.6 — — 15.6 (Gain) loss on divestitures and sale of certain assets (6) (3.5) 0.6 — (2.9) Tax indemnification and related items — 0.3 — 0.3 Adjusted EBITDA $ 638.5 $ 263.7 $ (46.3) $ 855.9 Adjusted EBITDA Margin (% of net sales) 20.7 % 18.8 % NM 19.0 % (1) Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: (i) plant closures; (ii) the rationalization of certain plants; (iii) severance related to cost reduction initiatives; (iv) impairment of assets; and (v) related depreciation and amortization.
The assumptions used for the indefinite-lived intangibles with fair values exceeding carrying values of 10% or less are more sensitive to future performance and will be monitored accordingly. Income taxes: Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, valuation allowances against deferred tax assets, and accruals for uncertain tax positions.
The assumptions used for the indefinite-lived intangibles with fair values exceeding carrying values of 10% or less are more sensitive to future performance and will be monitored accordingly. Income Taxes: Management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, valuation allowances against deferred tax assets, and accruals for uncertain tax positions.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions, except per share data) OVERVIEW Introduction: The Timken Company designs and manufactures a growing portfolio of engineered bearings and industrial motion products, and provides related services.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Dollars in millions, except per share data) OVERVIEW Introduction: The Timken Company designs and manufactures a growing portfolio of engineered bearings and industrial motion products, and related services.
The majority of the Company’s domestic inventories are valued by the LIFO method, while all of the Company’s international inventories are valued by the FIFO method. 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.
The majority of the Company’s domestic inventories are valued by the LIFO method, while substantially all of the Company’s international inventories are valued by the FIFO method. 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.
On December 5, 2022 the Company entered into the Fifth Amended and Restated Credit Agreement ("Credit Agreement"), which is comprised of the $750.0 million unsecured revolving credit facility ("Senior Credit Facility") and a $400 million unsecured term loan facility ("2027 Term Loan") that mature on December 5, 2027.
On December 5, 2022 the Company entered into the Fifth Amended and Restated Credit Agreement ("Credit Agreement"), which is comprised of a $750.0 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.
NEW ACCOUNTING GUIDANCE ISSUED AND NOT YET ADOPTED Information required for this Item is incorporated by reference to Note 1 - Significant Accounting Policies in the Notes to the Consolidated Financial Statements. 31 Table of Contents CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States.
NEW ACCOUNTING GUIDANCE ISSUED AND NOT YET ADOPTED Information required for this Item is incorporated by reference to Note 1 - Significant Accounting Policies in the Notes to the Consolidated Financial Statements. 36 Table of Contents CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States.
The Company is intently focused on providing the highest returns for shareholders through its capital allocation framework, which includes: (1) investing in the core business through capital expenditures, research and development and initiatives to drive profitable organic growth; (2) pursuing strategic acquisitions to broaden its portfolio and capabilities across diverse markets, with a focus on bearings, adjacent industrial motion products and related services; (3) returning capital to shareholders through dividends and share repurchases; and (4) maintaining a strong balance sheet and sufficient liquidity.
The Company is focused on providing the highest returns for shareholders through its capital allocation framework, which includes: (1) investing in the core business through capital expenditures, research and development and initiatives to drive profitable organic growth; (2) pursuing strategic acquisitions to broaden its portfolio and capabilities across diverse markets, with a focus on engineered bearings, industrial motion products and related services; (3) returning capital to shareholders through dividends and share repurchases; and (4) maintaining a strong balance sheet and sufficient liquidity.
(2) Depreciation and amortization shown excludes depreciation recognized in reorganization charges, if any. 41 Table of Contents OTHER DISCLOSURES: Foreign Currency: Assets and liabilities of subsidiaries are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rates of exchange prevailing during the reporting period.
(2) Depreciation and amortization shown excludes depreciation recognized in reorganization charges, if any. 47 Table of Contents OTHER DISCLOSURES: Foreign Currency: Assets and liabilities of subsidiaries are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rates of exchange prevailing during the reporting period.
(2) Corporate pension and other postretirement benefit related (expense) income represents actuarial losses and (gains) that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions or experience. The Company recognizes actuarial losses and (gains) in connection with the annual remeasurement in the fourth quarter, or if specific events trigger a remeasurement.
(2) Corporate pension and other postretirement benefit related expense represents actuarial losses that resulted from the remeasurement of plan assets and obligations as a result of changes in assumptions or experience. The Company recognizes actuarial losses in connection with the annual remeasurement in the fourth quarter, or if specific events trigger a remeasurement.
Refer to Note 1 - Significant Accounting Policies in the Notes to the Consolidated Financial Statements for further discussion around the Company's revenue policy. 33 Table of Contents Benefit Plans: The Company sponsors a number of defined benefit pension plans that cover eligible employees.
Refer to Note 1 - Significant Accounting Policies in the Notes to the Consolidated Financial Statements for further discussion around the Company's revenue policy. 38 Table of Contents Benefit Plans: The Company sponsors a number of defined benefit pension plans that cover eligible employees.
Adjusted Net Income and Adjusted EBITDA: Adjusted net income and adjusted earnings per share represent net income attributable to The Timken Company and diluted earnings per share, respectively, adjusted for impairment, restructuring and reorganization charges, acquisition costs, including transaction costs and the amortization of the inventory step-up, property losses and recoveries, actuarial gains and losses associated with the remeasurement of the Company's defined benefit pension and other postretirement benefit plans, gains and losses on the sale of real estate, gains and losses on divestitures, the income tax impact of these adjustments, as well as other income tax discrete items, and other items from time to time that are not part of the Company's core operations.
Adjusted Net Income and Adjusted EBITDA: Adjusted net income and adjusted earnings per share represent net income attributable to The Timken Company and diluted earnings per share, respectively, adjusted for the amortization of intangible assets related to acquisitions, impairment, restructuring and reorganization charges, acquisition costs, including transaction costs and the amortization of the inventory step-up, property losses and recoveries, actuarial gains and losses associated with the remeasurement of the Company's defined benefit pension and other postretirement benefit plans, gains and losses on the sale of real estate, gains and losses on divestitures, the income tax impact of these adjustments, as well as other income tax discrete items, and other items from time to time that are not part of the Company's core operations.
Risk Factors on pages 8 through 17 . Additional risks relating to the Company’s business, the industries in which the Company operates or the Company’s common shares may be described from time to time in the Company’s filings with the SEC.
Risk Factors on pages 8 through 19 . Additional risks relating to the Company’s business, the industries in which the Company operates or the Company’s common shares may be described from time to time in the Company’s filings with the SEC.
(9) Depreciation and amortization shown excludes depreciation recognized in reorganization charges, if any. 39 Table of Contents Free Cash Flow: Free cash flow represents net cash provided by operating activities less capital expenditures.
(9) Depreciation and amortization shown excludes depreciation recognized in reorganization charges, if any. 44 Table of Contents Free Cash Flow: Free cash flow represents net cash provided by operating activities less capital expenditures.
The Company recognized an increase in its LIFO reserve of $36.0 million during 2022 compared to an increase in its LIFO reserve of $27.3 million during 2021. Goodwill and Indefinite-lived 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.
The Company recognized an increase in its LIFO reserve of $3.3 million during 2023 compared to an increase in its LIFO reserve of $36.0 million during 2022. Goodwill and Indefinite-lived 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.
This includes: the ability of the Company to respond to rapid changes in customer demand, disruptions to the Company's supply chain, logistical issues associated with port closures or congestion, delays or increased costs , the effects of customer or supplier bankruptcies or liquidations, the impact of changes in industrial business cycles, the effects of distributor inventory corrections reflecting de-stocking of the supply chain and whether conditions of fair trade continue in the Company's markets; (d) competitive factors, including changes in market penetration, increasing price competition by existing or new foreign and domestic competitors, the introduction of new products or services by existing and new competitors, competition for skilled labor and new technology that may impact the way the Company’s products are produced, sold or distributed; (e) changes in operating costs.
This includes: the ability of the Company to respond to rapid changes in customer demand, disruptions to the Company's supply chain, logistical issues associated with port closures or congestion, delays or increased costs , the effects of customer or supplier bankruptcies or liquidations, the impact of changes in industrial business cycles, the ability of the Company to effectively adjust the prices for its products in response to changing dynamics, the effects of distributor inventory corrections reflecting de-stocking of the supply chain and whether conditions of fair trade continue in the Company's markets; (d) competitive factors, including changes in market penetration, increasing price competition by existing or new foreign and domestic competitors, the introduction of new products or services by existing and new competitors, competition for skilled labor and new technology that may impact the way the Company’s products are produced, sold or distributed; (e) changes in operating costs.
The following table presents the sensitivity of the Company's accumulated other postretirement benefit obligation ("APBO") to the indicated increase/decrease in key assumptions: + / - Change at December 31, 2022 Change APBO Assumption: Discount rate .25% $ 0.6 In the table above, a 25 basis point decrease in the discount rate will increase the APBO by $0.6 million and decrease income before income taxes through the recognition of actuarial losses of $0.6 million.
The following table presents the sensitivity of the Company's accumulated other postretirement benefit obligation ("APBO") to the indicated increase/decrease in key assumptions: + / - Change at December 31, 2023 Change APBO Assumption: Discount rate .25% $ 0.6 I n the table above, a 25 basis point decrease in the discount rate will increase the APBO by $0.6 million and decrease income before income taxes through the recognition of actuarial losses of $0.6 million.
For measurement purposes, the Company assumed a weighted-average annual rate of increase in the per capita cost (health care cost trend rate) for medical benefits of 6.5% for 2023, declining gradually to 5.0% in 2029 and thereafter for medical and prescription drug benefits.
For measurement purposes, the Company assumed a weighted-average annual rate of increase in the per capita cost (health care cost trend rate) for medical benefits of 6.25% for 2024, declining gradually to 5.0% in 2029 and thereafter for medical and prescription drug benefits.
For Medicare Advantage benefits, actual contract rates have been set for 2023, and are assumed to increase by $5 for 2026 to 2028 and then 6.0% for 2028 , declining gradually to 5.0% in 2032 and thereafter. The assumed health care cost trend rate may have a significant effect on the amounts reported.
For Medicare Advantage benefits, actual contract rates have been set for 2024 through 2026, and are assumed to increase by $5 for 2027 to 2028 and then 6.0% for 2028 , declining gradually to 5.0% in 2032 and thereafter . The assumed health care cost trend rate may have a significant effect on the amounts reported.
The following paragraphs include a discussion of some critical areas that require a higher degree of judgment, estimates and complexity. Inventory: Inventories are valued at the lower of cost or market, with approximately 58% valued by the first-in, first-out ("FIFO") method and the remaining 42% valued by the last-in, first-out ("LIFO") method.
The following paragraphs include a discussion of some critical areas that require a higher degree of judgment, estimates and complexity. Inventory: Inventories are valued at the lower of cost or market, with approximately 62% valued by the first-in, first-out ("FIFO") method and the remaining 38% valued by the last-in, first-out ("LIFO") method.
The Company cautions readers that actual results may differ materially from those expressed or implied in forward-looking statements made by or on behalf of the Company due to a variety of factors, such as: (a) deterioration in world economic conditions, or in economic conditions in any of the geographic regions in which the Company or its customers or suppliers conduct business, including adverse effects from a global economic slowdown or recession, terrorism, or hostilities.
The Company cautions readers that actual results may differ materially from those expressed or implied in forward-looking statements made by or on behalf of the Company due to a variety of factors, such as: (a) deterioration in world economic conditions, or in economic conditions in any of the geographic regions in which the Company or its customers or suppliers conduct business, including adverse effects from a global economic slowdown or recession, pandemics, epidemics or other public health concerns, terrorism, or hostilities.
Refer to Note 16 - Retirement Benefit Plans and Note 17 - Other Postretirement Benefit Plans in the Notes to the Consolidated Financial Statements for additional information. Refer to Note 5 - Income Taxes and Note 13 - Contingencies in the Notes to the Consolidated Financial Statements for additional information regarding the Company's exposure for certain tax and legal matters.
Refer to Note 17 - Retirement Benefit Plans and Note 18 - Other Postretirement Benefit Plans in the Notes to the Consolidated Financial Statements for additional information. Refer to Note 5 - Income Taxes and Note 14 - Contingencies in the Notes to the Consolidated Financial Statements for additional information regarding the Company's exposure for certain tax and legal matters.
The following table presents the sensitivity of the Company's global projected pension benefit obligation ("PBO") to the indicated increase/decrease in key assumptions: + / - Change at December 31, 2022 Change PBO Assumption: Discount rate .25% $ 14.9 In the table above, a 25 basis point decrease in the discount rate will increase the PBO by $14.9 million and decrease income before income taxes through the recognition of actuarial losses of $14.9 million.
The following table presents the sensitivity of the Company's global projected pension benefit obligation ("PBO") to the indicated increase/decrease in key assumptions: + / - Change at December 31, 2023 Change PBO Assumption: Discount rate .25% $ 15.2 In the table above, a 25 basis point decrease in the discount rate will increase the PBO by $15.2 million and decrease income before income taxes through the recognition of actuarial losses of $15.2 million.
The expected increase in net periodic benefit cost, excluding mark-to-market charges, primarily reflects a lower expected return on plan assets.. The Company expects to contribute to its defined benefit pension plans or pay directly to participants of defined benefit plans approximately $25 million in 2023 compared with $11.2 million of contributions and payments in 2022.
The expected increase in net periodic benefit cost, excluding mark-to-market charges, primarily reflects a lower expected return on plan assets. The Company expects to contribute to its defined benefit pension plans or pay directly to participants of defined benefit plans approximately $25 million in 2024 compared with $27.1 million of contributions and payments in 2023.
In determining the need for a valuation allowance, the historical and projected financial performance of the entity recording the net deferred tax asset is considered along with any other pertinent information. The Company recorded $0.9 million in 2022 and $7.8 million in 2021 of tax benefits related to the reversal of valuation allowances.
In determining the need for a valuation allowance, the historical and projected financial performance of the entity recording the net deferred tax asset is considered along with any other pertinent information. The Company recorded $2.1 million in 2023 and $0.9 million in 2022 of tax benefits related to the reversal of valuation allowances.
This includes: claims, investigations or problems related to intellectual property, product liability or warranty, foreign export and trade laws, government procurement regulations, competition and anti-bribery laws, climate change, environmental or health and safety issues, data privacy and taxes; 43 Table of Contents (j) changes in worldwide financial and capital markets, including availability of financing and interest rates on satisfactory terms in a rising interest rate environment, which affect the Company’s cost of funds and/or ability to raise capital, as well as customer demand and the ability of customers to obtain financing to purchase the Company’s products or equipment that contain the Company’s products; (k) the Company's ability to satisfy its obligations and comply with covenants under its debt agreements, maintain favorable credit ratings and its ability to renew or refinance borrowings on favorable terms; (l) the impact on the Company's pension obligations and assets due to changes in interest rates, investment performance and other tactics designed to reduce risk; and (m) those items identified under Item 1A.
This includes: claims, investigations or problems related to intellectual property, product liability or warranty, foreign export, sanctions and trade laws, government procurement regulations, competition and anti-bribery laws, climate change, environmental or health and safety issues, data privacy and taxes; (k) changes in worldwide financial and capital markets, impacting the availability of financing on satisfactory terms as a result of financial stress affecting the banking system or otherwise, and the high interest rate environment, which affect the Company’s cost of funds and/or ability to raise capital, as well as customer demand and the ability of customers to obtain financing to purchase the Company’s products or equipment that contain the Company’s products; (l) the Company's ability to satisfy its obligations and comply with covenants under its debt agreements, maintain favorable credit ratings and its ability to renew or refinance borrowings on favorable terms; (m) the impact on the Company's pension obligations and assets due to changes in interest rates, investment performance and other tactics designed to reduce risk; and (n) those items identified under Item 1A.
This will be the 403 rd consecutive quarterly dividend paid on the common shares of the Company. 42 Table of Contents Forward-Looking Statements Certain statements set forth in this Annual Report on Form 10-K and in the Company’s 2022 Annual Report to Shareholders that are not historical in nature (including the Company’s forecasts, beliefs and expectations) are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995.
This will be the 407 th consecutive quarterly dividend paid on the common shares of the Company. 48 Table of Contents Forward-Looking Statements Certain statements set forth in this Annual Report on Form 10-K and in the Company’s 2023 Annual Report to Shareholders that are not historical in nature (including the Company’s forecasts, beliefs and expectations) are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995.
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. At December 31, 2022, outstanding letters of credit totaled $50.2 million, primarily having expiration dates within 12 months.
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. At December 31, 2023, outstanding letters of credit totaled $59.6 million, primarily having expiration dates within 12 months.
This includes: the effect of changes in the Company’s manufacturing processes; changes in costs associated with varying levels of operations and manufacturing capacity; availability and cost of raw materials and energy; disruptions to the Company's supply chain and logistical issues associated with port closures or congestion, delays or increased costs; changes in the expected costs associated with product warranty claims; changes resulting from inventory management and cost reduction initiatives; the effects of unplanned plant shutdowns; the effects of government-imposed restrictions, commercial requirements and Company goals associated with climate change and emissions or other waste reduction initiatives; and changes in the cost of labor and benefits; (f) the impact of inflation on employee expenses, shipping costs, raw material costs, energy and fuel costs and other production costs; (g) the success of the Company’s operating plans, announced programs, initiatives and capital investments; the ability to integrate acquired companies and to address material issues both identified and not uncovered during the Company's due diligence review; and the ability of acquired companies to achieve satisfactory operating results, including results being accretive to earnings, realization of synergies and expected cash flow generation; (h) the Company’s ability to maintain appropriate relations with unions or works councils that represent Company associates in certain locations in order to avoid disruptions of business; the continued attraction, retention and development of management and other key employees, the successful development and execution of succession plans and management of other human capital matters; (i) unanticipated litigation, claims, investigations or assessments.
This includes: the effect of changes in the Company’s manufacturing processes; changes in costs associated with varying levels of operations and manufacturing capacity; availability and cost of raw materials and energy; disruptions to the Company's supply chain and logistical issues associated with port closures or congestion, delays or increased costs; changes in the expected costs associated with product warranty claims especially in industry segments with potential high claim values; changes in the global regulatory landscape; changes resulting from inventory management and cost reduction initiatives; the effects of unplanned plant shutdowns; the effects of government-imposed restrictions, commercial requirements and Company goals associated with climate change and emissions or other sustainability initiatives; and changes in the cost of labor and benefits; (f) the impact of inflation on employee expenses, shipping costs, raw material costs, energy and fuel costs and other production costs; (g) the success of the Company’s operating plans, announced programs, initiatives and capital investments; the ability to integrate acquired companies and to address material issues both identified and not uncovered during the Company's due diligence review; and the ability of acquired companies to achieve satisfactory operating results, including results being accretive to earnings, realization of synergies and expected cash flow generation; (h) the Company’s ability to maintain appropriate relations with unions or works councils that represent Company employees in certain locations in order to avoid disruptions of business; (i) the continued attraction, retention and development of management, other key employees, and other skilled personnel at all levels of the organization, the successful development and execution of succession plans and management of other human capital matters; 49 Table of Contents (j) unanticipated litigation, claims, investigations or assessments.
The Company intends to expand into new and existing markets by leveraging its collective knowledge of metallurgy, friction management and industrial motion to create value for Timken customers. Using a highly collaborative technical selling approach, the Company places particular emphasis on creating unique solutions for challenging and/or demanding applications.
The Company intends to expand into new and existing markets by leveraging its collective knowledge of materials science, friction management and power transmission to create value for Timken customers. Using a highly collaborative technical selling approach, the Company places particular emphasis on creating unique solutions for challenging and/or demanding applications.
The Company recognizes actuarial gains and losses immediately through net periodic benefit cost upon the annual remeasurement in the fourth quarter, or on an interim basis if specific events trigger a remeasurement. 34 Table of Contents Defined Benefit Pension Plans: The Company recognized net periodic benefit cost of $21.0 million during 2022 for defined benefit pension plans, compared to net periodic benefit cost of $5.9 million during 2021.
The Company recognizes actuarial gains and losses immediately through net periodic benefit cost upon the annual remeasurement in the fourth quarter, or on an interim basis if specific events trigger a remeasurement. 39 Table of Contents Defined Benefit Pension Plans: The Company recognized net periodic benefit cost of $33.8 million during 2023 for defined benefit pension plans, compared to net periodic benefit cost of $21.0 million during 2022.
For expense purposes in 2022, the Company applied a weighted-average discount rate of 3.07% to its U.S. defined benefit pension plans. For expense purposes in 2023, the Company will apply a weighted-average discount rate of 5.64% to its U.S. defined benefit pension plans.
For expense purposes in 2023, the Company applied a weighted-average discount rate of 5.64% to its U.S. defined benefit pension plans. For expense purposes in 2024, the Company will apply a weighted-average discount rate of 5.40% to its U.S. defined benefit pension plans.
The minimum consolidated interest coverage ratio permitted under the Senior Credit Facility is 3.0 to 1.0. As of December 31, 2022, the Company's consolidated interest coverage ratio was 12.02 to 1.0. The interest rate under the Senior Credit Facility is variable with a spread based on the Company's debt rating.
The minimum consolidated interest coverage ratio permitted under the Senior Credit Facility is 3.0 to 1.0. As of December 31, 2023, the Company's consolidated interest coverage ratio was 9.11 to 1.0. The interest rate under the Senior Credit Facility is variable with a spread based on the Company's debt rating.
This includes: political risks associated with the potential instability of governments and legal systems in countries in which the Company or its customers or suppliers conduct business, changes in currency valuations and recent world events that have increased the risks posed by international trade disputes, tariffs and sanctions; (b) negative impacts to the Company's business, results of operations, financial position or liquidity, disruption to the Company's supply chains, negative impacts to customer demand or operations, and availability and health of employees, as a result of COVID-19 or other pandemics and associated governmental measures such as restrictions on travel and manufacturing operations; (c) the effects of fluctuations in customer demand on sales, product mix and prices in the industries in which the Company operates.
This includes: political risks associated with the potential instability of governments and legal systems in countries in which the Company or its customers or suppliers conduct business, changes in currency valuations, strained geopolitical relations between countries in which we have significant operations, and recent world events that have increased the risks posed by international trade disputes, tariffs and sanctions; (b) negative impacts to the Company's business, results of operations, financial position or liquidity, disruption to the Company's supply chains, negative impacts to customer demand or operations, and availability and health of employees, and governmental restrictions on travel and manufacturing operations; (c) the effects of fluctuations in customer demand on sales, product mix and prices in the industries in which the Company operates.
During the fourth quarter of 2022, the Company used discount rates for its indefinite-lived intangible assets in the range of 11.5% to 14.8%, royalty rates in the range of 1.0% to 6.0% and terminal growth rates in the range of 1.0% to 3.5%.
During the fourth quarter of 2023, the Company used discount rates for its indefinite-lived intangible assets in the range of 10.7% to 14.5%, royalty rates in the range of 1.0% to 6.0% and terminal growth rates in the range of 1.0% to 3.5%.
For the year ended December 31, 2022, the Company recorded a negative non-cash foreign currency translation adjustment of $155.4 million that decreased shareholders’ equity, compared with a negative non-cash foreign currency translation adjustment of $62.3 million that decreased shareholders’ equity for the year ended December 31, 2021.
For the year ended December 31, 2023, the Company recorded a positive non-cash foreign currency translation adjustment of $35.3 million that increased shareholders’ equity, compared with a negative non-cash foreign currency translation adjustment of $155.4 million that decreased shareholders’ equity for the year ended December 31, 2022.
The Company expects to generate a higher amount of cash from operating activities in 2023 compared to 2022, driven by higher earnings and improved working capital performance.
The Company expects to generate a higher amount of cash from operating activities in 2024 compared to 2023, driven by improved working capital performance and lower cash taxes.
The Company used a discounted cash flow model to measure the trade names, customer relationship, and technology and know-how-related intangible assets. The estimation of fair value required significant judgment related to future net cash flows based on assumptions related to revenue and EBITDA growth rates and discount rates.
For certain acquisitions, the Company used a benchmarking model to measure the trade names, customer relationship, and technology and know-how-related intangible assets. The estimation of fair value required judgment related to future net cash flows based on assumptions related to revenue and EBITDA growth rates, customer attrition rates and discount rates.
The amounts in the table above are based on actuarial estimates using current assumptions for, among other things, discount rates, expected return on assets and health care cost trend rates. During 2022, the Company made cash contributions and payments of approximat ely $11.2 million to its global defined benefit pension plans and $3.4 million to its other postretirement benefit plans.
The amounts in the table above are based on actuarial estimates using current assumptions for, among other things, discount rates, expected return on assets and health care cost trend rates. During 2023, the Company made cash contributions and payments of $27.1 million to its global defined benefit pension plans and $2.7 million to its other postretirement benefit plans.
For expense purposes in 2022, the Company applied a discount rate of 2.99% to its other postretirement benefit plans. For expense purposes in 2023, the Company will apply a discount rate of 5.75% to its other postretirement benefit plans.
For expense purposes in 2023, the Company applied a discount rate of 5.75% to its other postretirement benefit plans. For expense purposes in 2024, the Company will apply a discount rate of 5.55% to its other postretirement benefit plans.
Net periodic benefit cost for 2023 does not include mark-to-market charges that will be recognized immediately through earnings in the fourth quarter of 2023, or on an interim basis if specific events trigger a remeasurement. Excluding the mark-to-market charges of $16.0 million recognized in 2022, net periodic benefit cost was $5.0 million in 2022.
Net periodic benefit cost for 2024 does not include mark-to-market charges that will be recognized immediately through earnings in the fourth quarter of 2024, or on an interim basis if specific events trigger a remeasurement. Excluding the mark-to-market charges of $21.6 million recognized in 2023, net periodic benefit cost was $12.2 million in 2023.
The Accounts Receivable Facility is subject to certain borrowing base limitations and is secured by certain domestic trade accounts receivable of the Company. These limitations reduced the availability of the Accounts Receivable Facility to $86.7 million at December 31, 2022.
The Accounts Receivable Facility is subject to certain borrowing base limitations and is secured by certain domestic trade accounts receivable of the Company. These limitations reduced the availability of the Accounts Receivable Facility to $79.1 million at December 31, 2023.
Reconciliation of net cash provided by operating activities to free cash flow: Twelve Months Ended December 31, 2022 2021 2020 2019 2018 Net cash provided by operating activities $ 463.8 $ 387.3 $ 577.6 $ 550.1 $ 332.5 Capital expenditures (178.4) (148.3) (121.6) (140.6) (112.6) Free cash flow $ 285.4 $ 239.0 $ 456.0 $ 409.5 $ 219.9 Ratio of Net Debt to Adjusted EBITDA: The ratio of net debt to adjusted EBITDA for the trailing twelve months represents total debt less cash and cash equivalents divided by adjusted EBITDA for the trailing twelve months.
Reconciliation of net cash provided by operating activities to free cash flow: Twelve Months Ended December 31, 2023 2022 2021 2020 2019 Net cash provided by operating activities $ 545.2 $ 463.8 $ 387.3 $ 577.6 $ 550.1 Capital expenditures (187.8) (178.4) (148.3) (121.6) (140.6) Free cash flow $ 357.4 $ 285.4 $ 239.0 $ 456.0 $ 409.5 45 Table of Contents Ratio of Net Debt to Adjusted EBITDA: The ratio of net debt to adjusted EBITDA for the trailing twelve months represents total debt less cash and cash equivalents divided by adjusted EBITDA for the trailing twelve months.
The foreign currency translation adjustments for the year ended December 31, 2022 were negatively impacted by the strengthening of the U.S. dollar relative to other currencies as of December 31, 2022 compared to December 31, 2021.
The foreign currency translation adjustments for the year ended December 31, 2023 were positively impacted by the weakening of the U.S. dollar relative to other currencies as of December 31, 2023 compared to December 31, 2022.
In addition to impairments and allowances recorded, the Company recorded a loss on the divestiture of its Timken Russia business during the third quarter of 2022. Refer to Russia Operations in Management Discussion and Analysis within the Company's annual report on Form 10-K for additional information .
In addition to impairments and allowances recorded, the Company recorded a loss on the divestiture of its Timken Russia business during the third quarter of 2022. Refer to Russia Operations in Management Discussion and Analysis below for additional information.
Net of related derivative activity, the Company recognized a foreign currency exchange gain resulting from transactions of $15.4 million for the year ended December 31, 2022, and recognized losses of $9.4 million and $10.0 million for the years ended December 31, 2021 and 2020, respectively.
Net of related derivative activity, the Company recognized a foreign currency exchange loss resulting from transactions of $14.8 million for the year ended December 31, 2023, and recognized a gain of $15.4 million and a loss of $9.4 million for the years ended December 31, 2022 and 2021, respectively.
Net income for the trailing twelve months ended December 31, 2022 and December 31, 2021 was $417.0 million and $381.5 million, respectively. Net debt to adjusted EBITDA for the trailing twelve months was 1.9 at December 31, 2022 , compared with 1.7 at December 31, 2021 .
Net income for the trailing twelve months ended December 31, 2023 and December 31, 2022 was $408.0 million and $417.0 million, respectively. Net debt to adjusted EBITDA for the trailing twelve months was 2.1 at December 31, 2023 , compared with 1.9 at December 31, 2022 .
Reconciliation of Net income to Adjusted EBITDA for the twelve months: Twelve Months Ended December 31, 2022 2021 Net income $ 417.0 $ 381.5 Provision for income taxes 133.9 95.1 Interest expense 74.6 58.8 Interest income (3.8) (2.3) Depreciation and amortization 164.0 167.8 Consolidated EBITDA 785.7 700.9 Adjustments: Impairment, restructuring and reorganization charges (1) $ 39.5 $ 14.3 Corporate pension and other postretirement benefit related expense (2) 2.9 0.3 Acquisition-related charges (3) 14.8 3.2 Acquisition-related gain (4) — (0.9) Russia-related charges (5) 15.6 — Gain on divestitures and the sale of real estate, net (6) (2.9) — Tax indemnification and related items 0.3 0.2 Total Adjustments 70.2 17.1 Adjusted EBITDA $ 855.9 $ 718.0 Net Debt $ 1,631.6 $ 1,207.8 Ratio of Net Debt to Adjusted EBITDA 1.9 1.7 (1) Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: (i) plant closures; (ii) the rationalization of certain plants; (iii) severance related to cost reduction initiatives; and (iv) impairment of assets held for sale.
Reconciliation of Net income to Adjusted EBITDA for the twelve months: Twelve Months Ended December 31, 2023 2022 Net income $ 408.0 $ 417.0 Provision for income taxes 122.5 133.9 Interest expense 110.7 74.6 Interest income (9.3) (3.8) Depreciation and amortization 201.3 164.0 Consolidated EBITDA 833.2 785.7 Adjustments: Impairment, restructuring and reorganization charges (1) $ 50.8 $ 39.5 Corporate pension and other postretirement related expense (2) 20.6 2.9 Acquisition-related charges (3) 31.8 14.8 Russia-related charges (4) 8.5 15.6 Gain on divestitures and sale of certain assets (5) (5.2) (2.9) Tax indemnification and related items — 0.3 Total Adjustments 106.5 70.2 Adjusted EBITDA $ 939.7 $ 855.9 Net Debt $ 1,977.0 $ 1,631.6 Ratio of Net Debt to Adjusted EBITDA 2.1 1.9 (1) Impairment, restructuring and reorganization charges (including items recorded in cost of products sold) relate to: (i) plant closures; (ii) the rationalization of certain plants; (iii) severance related to cost reduction initiatives; and (iv) impairment of assets.
For expense purposes in 2022, the Company applied an expected weighted-average rate of return of 4.84% for the Company’s U.S. pension plan assets. For expense purposes in 2023, the Company will apply an expected weighted-average rate of return on plan assets of 4.43%.
For expense purposes in 2023, the Company applied an expected weighted-average rate of return of 4.47% for the Company’s U.S. pension plan assets. For expense purposes in 2024, the Company will apply an expected weighted-average rate of return on plan assets of 3.94%.
As of December 31, 2022, the Company carried investment-grade credit ratings with Moody's (Baa2) and S&P Global (BBB-). 29 Table of Contents The Company has a $100.0 million Amended and Restated Asset Securitization Agreement (the "Accounts Receivable Facility"), which matures on November 30, 2024.
As of December 31, 2023, the Company carried investment-grade credit ratings with Moody's (Baa2) and S&P Global (BBB-). 34 Table of Contents The Company renewed the Amended and Restated Asset Securitization Agreement (the "Accounts Receivable Facility") on December 6, 2023. The $100.0 million Accounts Receivable Facility matures on November 30, 2026.
A one percentage point increase in the assumed health care cost trend rate would have increased the 2022 total service and interest cost components by $0.1 million and would have increased the postretirement benefit obligation by $0.7 million. A one percentage point decrease would provide corresponding reductions of $0.1 million and $0.6 million, respectively.
A one percentage point increase in the assumed health care cost trend rate would have increased the 2023 total service and interest cost components by $0.1 million and would have increased the postretirement benefit obligation by $0.7 million.
(5) Russia-related charges include impairments or allowances recorded against certain property, plant and equipment, inventory and trade receivables to reflect the current impact of Russia's invasion of Ukraine (and associated sanctions) on the Company's operations.
(5) Russia-related charges include impairments or allowances recorded against certain property, plant and equipment, inventory and trade receivables and write-down of a 51%-owned joint ventur e ("Russian JV") to reflect the current impact of Russia's invasion of Ukraine (and associated sanctions) on the Company's operations.
Management believes adjusted EBITDA is useful to investors as it is representative of the Company's core operations and is used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. 37 Table of Contents Reconciliation of net income attributable to The Timken Company to adjusted net income, adjusted EBITDA and adjusted EBITDA Margin: Twelve Months Ended December 31, 2022 2021 2020 2019 2018 Net Sales $ 4,496.7 $ 4,132.9 $ 3,513.2 $ 3,789.9 $ 3,580.8 Net Income Attributable to The Timken Company 407.4 369.1 284.5 362.1 302.8 Impairment, restructuring and reorganization charges (1) 39.5 15.1 29.0 9.8 7.1 Corporate pension and other postretirement benefit related expense (income) (2) 2.9 0.3 18.5 (4.1) 12.8 Acquisition-related charges (3) 14.8 3.2 3.7 15.5 20.6 Acquisition-related gain (4) — (0.9) (11.1) — — Russia-related charges (5) 15.6 — — — — (Gain) loss on divestitures and sale of real estate (6) (2.9) — (0.4) (4.5) 0.8 Property losses (recoveries) and related expenses (7) — — (5.5) 7.6 — Brazil legal matter — — — 1.8 — Tax indemnification and related items 0.3 0.2 0.5 0.7 1.5 Noncontrolling interest of above adjustments (5.3) — (0.1) (0.5) (1.3) Provision for income taxes (8) (24.5) (23.6) (6.0) (34.6) (16.8) Adjusted Net Income $ 447.8 $ 363.4 $ 313.1 $ 353.8 $ 327.5 Net income attributable to noncontrolling interest 9.6 12.4 7.9 12.6 2.7 Provision for income taxes (as reported) 133.9 95.1 103.9 97.7 102.6 Interest expense 74.6 58.8 67.6 72.1 51.7 Interest income (3.8) (2.3) (3.7) (4.9) (2.1) Depreciation and amortization expense (9) 164.0 167.0 164.0 159.9 146.0 Less: Noncontrolling interest (5.3) — (0.1) (0.5) (1.3) Less: Provision for income taxes (8) (24.5) (23.6) (6.0) (34.6) (16.8) Adjusted EBITDA $ 855.9 $ 718.0 $ 658.9 $ 726.3 $ 646.5 Adjusted EBITDA Margin (% of net sales) 19.0 % 17.4 % 18.8 % 19.2 % 18.1 % Diluted earnings and adjusted earnings per share in the table below are based on net income attributable to The Timken Company and adjusted net income, respectively, in the table above.
Management believes adjusted EBITDA is useful to investors as it is representative of the Company's core operations and is used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. 42 Table of Contents Reconciliation of net income attributable to The Timken Company to adjusted net income, adjusted EBITDA and adjusted EBITDA Margin: Twelve Months Ended December 31, 2023 2022 2021 2020 2019 Net Sales $ 4,769.0 $ 4,496.7 $ 4,132.9 $ 3,513.2 $ 3,789.9 Net Income Attributable to The Timken Company 394.1 407.4 369.1 284.5 362.1 Net Income Attributable to The Timken Company as a Percentage of Sales 8.3% 9.1% 8.9% 8.1% 9.6% Adjustments: Acquisition intangible amortization 65.7 43.9 46.8 47.3 46.7 Impairment, restructuring and reorganization charges (1) 51.6 39.5 15.1 29.0 9.8 Corporate pension and other postretirement benefit related expense (income) (2) 20.6 2.9 0.3 18.5 (4.1) Acquisition-related charges (3) 31.8 14.8 3.2 3.7 15.5 Acquisition-related gain (4) — — (0.9) (11.1) — Russia-related charges (5) 8.5 15.6 — — — Gain on divestitures and sale of certain assets (6) (5.2) (2.9) — (0.4) (4.5) Property losses (recoveries) and related expenses (7) — — — (5.5) 7.6 Brazil legal matter — — — — 1.8 Tax indemnification and related items — 0.3 0.2 0.5 0.7 Noncontrolling interest of above adjustments (2.1) (5.3) — (0.1) (0.5) Provision for income taxes (8) (56.9) (35.9) (35.0) (18.2) (47.2) Adjusted Net Income $ 508.1 $ 480.3 $ 398.8 $ 348.2 $ 387.9 Net income attributable to noncontrolling interest 13.9 9.6 12.4 7.9 12.6 Provision for income taxes (as reported) 122.5 133.9 95.1 103.9 97.7 Interest expense 110.7 74.6 58.8 67.6 72.1 Interest income (9.3) (3.8) (2.3) (3.7) (4.9) Depreciation and amortization expense (9) 200.5 164.0 167.0 164.0 159.9 Less: Acquisition intangible amortization 65.7 43.9 46.8 47.3 46.7 Less: Noncontrolling interest (2.1) (5.3) — (0.1) (0.5) Less: Provision for income taxes (8) (56.9) (35.9) (35.0) (18.2) (47.2) Adjusted EBITDA $ 939.7 $ 855.9 $ 718.0 $ 658.9 $ 726.3 Adjusted EBITDA Margin (% of net sales) 19.7 % 19.0 % 17.4 % 18.8 % 19.2 % Diluted earnings and adjusted earnings per share in the table below are based on net income attributable to The Timken Company and adjusted net income, respectively, in the table above.
As a result of Russia's invasion of Ukraine (and associated sanctions), the Company suspended operations and recorded property, plant and equipment impairment charges of $9.0 million and inventory write-downs of $4.1 million during the year ended December 31, 2022.
As a result of Russia's invasion of Ukraine (and associated sanctions), the Company suspended operations and recorded property, plant and equipment impairment charges of $9.0 million and inventory write-downs of $4.1 million during the year ended December 31, 2022. During 2022, the Company sold the Timken Russia business resulting in a loss of $2.7 million on the sale.
As of December 31, 2022, there were $85.0 million outstanding borrowings under the Accounts Receivable Facility, which reduced the availability under this facility to $1.7 million. Other sources of liquidity include uncommitted short-term lines of credit for certain of the Company's foreign subsidiaries, which provide for borrowings of up to approximately $234.2 million.
As of December 31, 2023, there were $67.0 million outstanding borrowings under the Accounts Receivable Facility, which reduced the availability under this facility to $12.1 million. Other sources of liquidity include uncommitted short-term lines of credit for certain of the Company's foreign subsidiaries, which currently allows for borrowings of up to $232.2 million.
During 2022, the Company recorded a $3.1 million decrease of uncertain tax positions related to foreign currency translation adjustments and deferred tax liabilities. The Company also recorded $1.9 million of uncertain tax positions related to prior years for acquisitions made during 2022.
During 2023, the Company recorded a $0.6 million increase of uncertain tax positions related to foreign currency translation adjustments and deferred tax liabilities. The Company also recorded $5.9 million of uncertain tax positions related to prior years for acquisitions made during 2023.
See Note 9 - Goodwill and Other Intangible Assets in the Notes to the Consolidated Financial Statements for movements in the carrying amount of goodwill by segment. The Company reviews goodwill for impairment at the reporting unit level. The Mobile Industries segment has three reporting units and the Process Industries segment has two reporting units.
See Note 9 - Goodwill and Other Intangible Assets in the Notes to the Consolidated Financial Statements for movements in the carrying amount of goodwill by segment. 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.
The Company recognized mark-to-market charges of $16.0 million during 2022 compared to $4.4 million during 2021.
The Company recognized mark-to-market" charges of $21.6 million during 2023 compared to $16.0 million during 2022.
Net periodic benefit credit f or 2023 does not include mark-to-market charges that will be recognized immediately through earnings in the fourth quarter of 2023, or on an interim basis if specific events trigger a remeasurement. Excluding the mark-to-market gains of $13.1 million recognized in 2022, the net periodic benefit credit was $8.5 million i n 2022.
Net periodic benefit credit for 2024 does not include actuarial gains that will be recognized immediately through earnings in the fourth quarter of 2024, or on an interim basis if specific events trigger a remeasurement. Excluding the mark-to-market gains of $1.0 million recognized in 2023, the net periodic benefit credit was $6.3 million in 2023.
(6) Represents the net gain resulting from divestitures and the sale of real estate. Return on Invested Capital: Return on Invested Capital is defined as adjusted net operating profit after taxes divided by average invested capital.
(5) Represents the net gain resulting from divestitures and sale of certain assets. 46 Table of Contents Return on Invested Capital: Return on Invested Capital is defined as adjusted net operating profit after taxes divided by average invested capital.
In 2022, the Company recorded $8.9 million of net tax benefit for uncertain tax positions, which consisted primarily of $14.6 million related to the net reversal of accruals for prior year uncertain tax positions and settlements with tax authorities. This benefit was partially offset by $5.7 million of interest and increases to current and prior year uncertain tax positions.
In 2023, the Company recorded $4.7 million of net tax expense for uncertain tax positions, which consisted primarily of $15.4 million related to increases to current and prior year uncertain tax positions and interest. This expense was partially offset by $10.7 million of the net reversal of accruals for prior year uncertain tax positions and settlements with tax authorities.
Impairment, restructuring and reorganization charges for 2022 included $29.3 million related to the sale of ADS. The Company re-assesses its operating footprint and cost structure periodically, and makes adjustments as needed that result in restructuring charges. However, management believes these actions are not representative of the Company’s core operations.
The Company re-assesses its operating footprint and cost structure periodically, and makes adjustments as needed that result in restructuring charges. However, management believes these actions are not representative of the Company’s core operations.
Based on the October 1, 2022 quantitative assessment of indefinite-lived intangible assets, there were four indefinite-lived intangibles with carrying values totaling $78.1 million in which the fair value exceeded the carrying value of the assets by 10% or less. 32 Table of Contents Management believes the future sales growth and EBITDA margins in the long-range plan and the discount rate used in the valuations requires significant use of judgment.
Based on the October 1, 2023 quantitative assessment of indefinite-lived intangible assets, there was one indefinite-lived intangible with a carrying value of $28.5 million in which the fair value exceeded the carrying value of this indefinite-lived intangible asset by 10% or less. 37 Table of Contents Management believes the future sales growth and EBITDA margins in the long-range plan and the discount rate used in the valuations requires use of judgment.
In 2023, the Company expects net periodic benefit cost to be approximately $12 million for defined benefit pension plans, compared with net periodic benefit cost of $21.0 million in 2022.
In 2024, the Company expects net periodic benefit cost to be approximately $13 million for defined benefit pension plans, compared with net periodic benefit cost of $33.8 million in 2023.
Timken operates with a relentless drive for exceptional results and a passion for superior execution. The Company embraces a continuous improvement culture that is charged with increasing efficiency, lowering costs, eliminating waste, encouraging organizational agility and building greater brand equity to fuel growth. This requires the Company’s ongoing commitment to attract, retain and develop the best talent across the world.
Timken operates with a relentless drive for exceptional results and a passion for superior execution. The Company embraces a continuous improvement culture that is charged with increasing efficiency, lowering costs, eliminating waste, driving organizational advancement and agility, and building greater brand equity to fuel growth.
Financing Activities: The change in net cash provided by financing activities in 2022 compared with 2021 was primarily due to a decrease in net payments of $598.7 million on outstanding debt, partially offset by an increase in the purchase of treasury shares of $118.6 million. 28 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Reconciliation of total debt to net debt and the ratio of net debt to capital: Net Debt: December 31, 2022 2021 Short-term debt, including current portion of long-term debt $ 49.0 $ 53.8 Long-term debt 1,914.2 1,411.1 Total debt $ 1,963.2 $ 1,464.9 Less: Cash and cash equivalents 331.6 257.1 Net debt $ 1,631.6 $ 1,207.8 Ratio of Net Debt to Capital: December 31, 2022 2021 Net debt $ 1,631.6 $ 1,207.8 Total equity 2,352.9 2,377.7 Net debt plus total equity (capital) $ 3,984.5 $ 3,585.5 Ratio of net debt to capital 40.9 % 33.7 % The Company presents net debt because it believes net debt is more representative of the Company's financial position than total debt due to the amount of cash and cash equivalents held by the Company and the ability to utilize such cash and cash equivalents to reduce debt if needed.
Financing Activities: The change in net cash provided by financing activities in 2023 compared with 2022 was primarily due to cash proceeds of $284.8 million from the sale of shares of TIL, a subsidiary of the Company, in the second quarter of 2023, partially offset by a decrease in net borrowings of $105.0 million and an increase in the purchase of treasury shares of $39.3 million. 33 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Reconciliation of total debt to net debt and the ratio of net debt to capital: Net Debt: December 31, 2023 2022 Short-term debt, including current portion of long-term debt $ 605.6 $ 49.0 Long-term debt 1,790.3 1,914.2 Total debt $ 2,395.9 $ 1,963.2 Less: Cash and cash equivalents 418.9 331.6 Net debt $ 1,977.0 $ 1,631.6 Ratio of Net Debt to Capital: December 31, 2023 2022 Net debt $ 1,977.0 $ 1,631.6 Total equity 2,702.4 2,352.9 Net debt plus total equity (capital) $ 4,679.4 $ 3,984.5 Ratio of net debt to capital 42.2 % 40.9 % The Company presents net debt because it believes net debt is more representative of the Company's financial position than total debt due to the amount of cash and cash equivalents held by the Company and the ability to utilize such cash and cash equivalents to reduce debt if needed.
Impairment, restructuring and reorganization charges for 2022 included $29.3 million related to the sale of ADS. The Company re-assesses its operating footprint and cost structure periodically, and makes adjustments as needed that result in restructuring charges. However, management believes these actions are not representative of the Company’s core operations.
Impairment, restructuring and reorganization charges for 2023 included $28.3 million related to the impairment of goodwill. Impairment, restructuring and reorganization charges for 2022 included $29.3 million related to the sale of ADS. The Company re-assesses its operating footprint and cost structure periodically, and makes adjustments as needed that result in restructuring charges.
Unallocated Corporate: 2022 2021 $ Change Change Unallocated corporate expense $ (50.0) $ (46.1) $ (3.9) 8.5 % Unallocated corporate expense % to net sales (1.1 %) (1.1 %) — — bps Unallocated corporate expense increased in 2022 compared with 2021 primarily due to higher compensation costs (including incentive-based compensation) and other spending to support increased business activity levels, partially offset by the impact of foreign currency exchange gains in 2022 as compared with foreign currency exchange losses in the prior year. 27 Table of Contents CASH FLOWS 2022 2021 $ Change Net cash provided by operating activities $ 463.8 $ 387.3 $ 76.5 Net cash used in investing activities (573.3) (173.8) (399.5) Net cash provided by (used in) financing activities 206.8 (269.3) 476.1 Effect of exchange rate changes on cash (14.5) (7.4) (7.1) Increase (decrease) in cash, cash equivalents and restricted cash $ 82.8 $ (63.2) $ 146.0 Operating Activities: The increase in net cash provided by operating activities in 2022 compared with 2021 was primarily due to higher net income of $35.5 million, a net increase in non-cash charges of $44.0 million included in net income, including impairment charges and stock-based compensation expense, and the favorable impact of income taxes of $19.3 million, partially offset by an increase in the cash used for working capital items of $29.9 million.
Unallocated Corporate: 2022 2021 $ Change Change Unallocated corporate expense $ (50.0) $ (46.1) $ (3.9) 8.5 % Unallocated corporate expense % to net sales (1.1 %) (1.1 %) — — bps Unallocated corporate expense increased in 2022 compared with 2021 primarily due to higher compensation costs (including incentive-based compensation) and other spending to support increased business activity levels, partially offset by the impact of foreign currency exchange gains in 2022 as compared with foreign currency exchange losses in the prior year. 32 Table of Contents CASH FLOWS 2023 2022 $ Change Net cash provided by operating activities $ 545.2 $ 463.8 $ 81.4 Net cash used in investing activities (806.5) (573.3) (233.2) Net cash provided by financing activities 347.1 206.8 140.3 Effect of exchange rate changes on cash (7.2) (14.5) 7.3 Increase in cash, cash equivalents and restricted cash $ 78.6 $ 82.8 $ (4.2) Operating Activities: The increase in net cash provided by operating activities in 2023 compared with 2022 was primarily due to the favorable impact of working capital items of $161.6 million, as well as the benefit of other items, partially offset by the unfavorable impact of income taxes on cash of $132.7 million due to higher tax payments and a decrease in net income of $9.0 million.
At December 31, 2022, the Company had strong liquidity with $331.6 million of cash and cash equivalents on the Consolidated Balance Sheet, as well as $828.2 million available under committed credit lines. Of the $331.6 million of cash and cash equivalents, $305.7 million resided in jurisdictions outside the United States.
At December 31, 2023, the Company had strong liquidity with $418.9 million of cash and cash equivalents on the Consolidated Balance Sheet, as well as $513.4 million available under committed credit lines. Of the $418.9 million of cash and cash equivalents, $406.3 million resided in jurisdictions outside the United States.
The impact of the net increase in the discount rate used to measure the Company's defined benefit pension obligations was primarily driven by a 257 basis point increase in the weighted-average discount rate used to measure its U.S. plan obligations, which increased from 3.07% in 2021 to 5.64% in 2022.and a 301 basis point increase in the discount rate used to measure its U.K. plan obligations, which increased from 1.80% in 2021 to 4.81% in 2022.
The impact of the net reduction in the discount rate used to measure the Company's defined benefit pension obligations was primarily driven by a 24 basis point reduction in the weighted-average discount rate used to measure its U.S. plan obligations, which decreased from 5.64% in 2022 to 5.40% in 2023, and a 33 basis point decrease in the discount rate used to measure its U.K. plan obligations, which decreased from 4.81% in 2022 to 4.48% in 2023.
For a discussion of changes in our results from 2021 to 2020, refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021. 25 Table of Contents BUSINESS SEGMENTS The Company ' s reportable segments are business units that serve different industry sectors.
For a discussion of changes in consolidated results from 2022 to 2021, refer to Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022. 28 Table of Contents BUSINESS SEGMENTS The Company's reportable segments are product-based business groups that serve customers in diverse industrial markets.
In 2022, $2.9 million of net actuarial losses were recognized, compared to $0.3 million of net actuarial losses in 2021. Refer to Note 16 - Retirement Benefit Plans and Note 17 - Other Postretirement Benefit Plans in the Notes to the Consolidated Financial Statements for more information .
In 2023, $20.6 million of mark-to-market charges were recognized, compared to $2.9 million of mark-to-market charges in 2022. Refer to Note 17 - Retirement Benefit Plans and Note 18 - Other Postretirement Benefit Plans in the Notes to the Consolidated Financial Statements for more information .
EBITDA decreased in 2022 by $23.0 million or 9.6% compared with 2021, primarily due to higher operating costs, as well as higher impairment and restructuring charges, partially offset by favorable price/mix and the impact of higher volume.
EBITDA decreased in 2022 by $10.2 million or 4.4% compared with 2021, primarily due to higher operating costs, higher impairment charges and the unfavorable impact of foreign currency exchange rate changes, partially offset by favorable price/mix and higher volume.
The following chart displays the impact of working capital items on cash during 2022 and 2021, respectively: 2022 2021 $ Change Cash (used in) provided by: Accounts receivable $ (73.5) $ (55.8) $ (17.7) Unbilled receivables (26.0) 6.2 (32.2) Inventories (145.6) (215.8) 70.2 Trade accounts payable (10.2) 76.7 (86.9) Other accrued expenses 91.9 55.2 36.7 Cash used in working capital items $ (163.4) $ (133.5) $ (29.9) The following table displays the impact of income taxes on cash during 2022 and 2021, respectively: 2022 2021 $ Change Accrued income tax expense $ 133.9 $ 95.1 $ 38.8 Income tax payments (120.6) (100.7) (19.9) Other miscellaneous (0.6) (1.0) 0.4 Change in income taxes $ 12.7 $ (6.6) $ 19.3 Investing Activities: The increase in net cash used in investing activities in 2022 compared with 2021 was primarily due to an increase in cash used for acquisitions of $446.2 million, partially offset by proceeds from divestitures of $33.9 million.
The following chart displays the impact of working capital items on cash during 2023 and 2022, respectively: 2023 2022 $ Change Cash (used in) provided by: Accounts receivable $ 71.6 $ (73.5) $ 145.1 Unbilled receivables (40.4) (26.0) (14.4) Inventories 72.0 (145.6) 217.6 Trade accounts payable (57.4) (10.2) (47.2) Other accrued expenses (47.6) 91.9 (139.5) Cash used in working capital items $ (1.8) $ (163.4) $ 161.6 The following table displays the impact of income taxes on cash during 2023 and 2022, respectively: 2023 2022 $ Change Accrued income tax expense $ 122.5 $ 133.9 $ (11.4) Income tax payments (240.3) (120.6) (119.7) Other miscellaneous (2.2) (0.6) (1.6) Change in income taxes $ (120.0) $ 12.7 $ (132.7) Investing Activities: The increase in net cash used in investing activities in 2023 compared with 2022 was primarily due to an increase in cash used for acquisitions of $185.1 million, a decrease in the proceeds from divestitures of $20.4 million, an increase in cash used for net investments in short-term marketable securities of $8.9 million, and an increase in capital expenditures of $9.4 million.
Russia Operations : At the beginning of 2022, the Company had two subsidiaries in Russia, Timken Russia, which was 100% owned by Timken, and a 51%-owned joint venture company to serve the Russian rail market ("Rail JV").
Russia Operations : The Company had two subsidiaries in Russia prior to Russia's invasion of Ukraine in February 2022, including Timken Russia, which was 100% owned by Timken and a 51%-owned Russian JV.
This was partially offset by the release of accruals for uncertain tax positions and favorable U.S. permanent book-tax differences.
This was partially offset by the release of accruals for uncertain tax positions and favorable U.S. permanent book-tax differences. The change in the effective rate for 2023 compared with 2022 was a decrease of 1.2%.
In addition to impairments and allowances recorded, the Company recorded a loss on the divestiture of its Timken Russia business during the third quarter of 2022. Refer to Russia Operations in Management Discussion and Analysis within the Company's annual report on Form 10-K for additional information .
In addition to impairments and allowances recorded, the Company recorded a loss on the divestiture of its Timken Russia business during the third quarter of 2022. Refer to Russia Operations in Management Discussion and Analysis below for additional information. (6) Represents the net loss (gain) resulting from divestitures and sale of certain assets.
The Credit Amendment amended and restated the Company's previous revolving credit agreement, dated as of June 25, 2019, and replaced the $350 million term loan that was set to mature on September 11, 2023 ("2023 Term Loan"). The Credit Agreement also replaced interest rates based on LIBOR with interest rates based on Secured Overnight Financing Rate ("SOFR").
The Credit Amendment amended and restated the Company's previous revolving credit agreement that was set to mature on June 25, 2024, and replaced the $350 million term loan that was set to mature on September 11, 2023 ("2023 Term Loan").
The average rate on outstanding U.S. dollar borrowings was 5.10% and the average rate on outstanding Euro borrowings was 2.21% as of December 31, 2022.
The average rate on outstanding U.S. dollar borrowings was 6.48% and the average rate on outstanding Euro borrowings was 4.85% as of December 31, 2023.
Income Tax Expense: 2022 2021 $ Change Change Income tax expense $ 133.9 $ 95.1 $ 38.8 40.8 % Effective tax rate 24.3 % 20.0 % — 430 bps The effective tax rate for 2022 was 24.3%, which was unfavorable compared to the U.S. federal statutory rate of 21%, primarily due to the unfavorable impact of earnings in foreign jurisdictions where the effective tax rate was higher than 21%.
Income Tax Expense: 2023 2022 $ Change Change Income tax expense $ 122.5 $ 133.9 $ (11.4) (8.5 %) Effective tax rate 23.1 % 24.3 % — (120) bps The effective tax rate for 2023 was 23.1%, which was unfavorable compared to the U.S. federal statutory rate of 21%, primarily due to the unfavorable impact of earnings in foreign jurisdictions where the effective tax rate was higher than 21% and withholding taxes accrued on planned dividend distributions expected in 2024.
The increase in net income was primarily due to favorable price/mix and the impact of higher volume, partially offset by higher material, logistics and other operating costs, an increase in impairment, restructuring and acquisition-related charges, an increase in net interest expense, and a higher tax rate.
The decrease in net income was primarily due to the impact of lower volume, higher operating costs, the unfavorable impact of foreign currency exchange rate changes, higher pension remeasurement charges, and an increase in net interest expense, partially offset by favorable price/mix.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of December 31, 2022, there were $635.6 million of hedges in place. A uniform 10% weakening of the U.S. dollar against all currencies would have resulted in a charge of $13.8 million related to these hedges, which would have partially offset the otherwise favorable impact of the underlying currency fluctuation.
Biggest changeAs of December 31, 2023, there were $591.8 million of hedges in place. A uniform 10% weakening of the U.S. dollar against all currencies would have resulted in a benefit of $19.4 million related to these hedges, which would have partially offset the impact of the underlying currency fluctuation.
Whenever possible, the Company manages its exposure to commodity risks primarily through the use of supplier pricing agreements that enable the Company to establish the purchase prices for certain inputs that are used in our manufacturing and distribution business. 44 Table of Contents
Whenever possible, the Company manages its exposure to commodity risks primarily through the use of supplier pricing agreements that enable the Company to establish the purchase prices for certain inputs that are used in our manufacturing and distribution business. 50 Table of Contents
If the market rates for short-term borrowings increased by one-percentage-point around the globe, the impact from our variable rate debt would be an increase in interest expense of $5.4 million annually, with a corresponding decrease in income from continuing operations before income taxes of the same amount.
If the market rates for short-term borrowings increased by one-percentage-point around the globe, the impact from our variable rate debt would be an increase in interest expense of $9.6 million annually, with a corresponding decrease in income from continuing operations before income taxes of the same amount.

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