TKR Timken Co - 10-K

Item 1A. Risk Factors

The following are certain risk factors that could affect our business, financial condition and results of operations. The risks that are described below are not the only ones that we face. These risk factors should be considered in connection with evaluating forward-looking statements contained in this Annual Report on Form 10-K because these factors could cause our actual results and financial condition to differ materially from those projected in forward-looking statements. Although the risks are organized by headings, and each risk is discussed separately, many are interrelated. If any of the following risks actually occur, our business, financial condition or results of operations could be negatively affected.

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. 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, we face pressure from our customers to reduce prices, which coupled with the contractual nature of business with OEM customers, could adversely affect our revenues and profitability. In addition, our customers may choose to purchase products from one of our competitors rather than pay the prices we seek for our products, which could adversely affect our revenues and profitability.

Our business is capital intensive, and if there are downturns in the industries that we serve, we may be forced to significantly curtail or suspend operations with respect to those industries, which could result in our recording asset impairment charges, restructuring charges or taking other measures that may adversely affect our results of operations and profitability.

Our business operations are capital intensive, and we devote a significant amount of capital to certain industries. Our profitability is dependent on factors such as labor compensation and productivity and inventory and supply chain management, which are subject to risks that we may not be able to control. If there are downturns in the industries that we serve, including as a result of high inflation or a recession, we may be forced to significantly curtail or suspend our operations with respect to those industries, including laying-off employees, reducing production, recording asset impairment charges and other measures, which may adversely affect our results of operations and profitability. We have taken approximately $137 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.

Changes in customer preferences and inventory reductions by customers or distributors could adversely affect the Company's business.

The Company serves a range of industries, including energy, transportation, and other sectors with increasing sustainability needs and requirements. A slowdown in investment, reduced interest, or shifts in customer priorities within these market sectors could lower demand for the Company’s products. Such changes may require product adjustments, pricing strategies, or diversification into new sectors, potentially affecting growth and profitability.

In addition, the Company has previously experienced distributor inventory corrections reflecting de-stocking of the supply chain associated with softer demand in certain markets. 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.

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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 require substantial amounts of raw materials, including steel, to operate our business. Our supply of raw materials could be and has in the past been interrupted for a variety of reasons, including availability and pricing (as a result of tariffs or otherwise). Prices for raw materials necessary for production have fluctuated significantly in the past, have risen substantially at times in the past, and could continue to do so in the future. 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.

Moreover, future disruptions in the supply of our raw materials could impair our ability to manufacture our products for our customers, impact our ability to manufacture and deliver our products on a timely basis, require us to pay higher prices in order to obtain these raw materials from other sources or necessitate the use of expedited or more costly freight options. 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 challenges in integrating acquired businesses, may fail to timely or fully capture revenue or cost synergies and may incur unanticipated liabilities and costs associated with such acquired businesses.

We seek to grow, in part, through strategic acquisitions, joint ventures and other arrangements, which are intended to complement or expand our businesses, and expect to continue to do so in the future. These transactions involve challenges and risks. In the event that we do not successfully integrate acquisitions into our existing operations or timely or fully capture revenue or cost synergies 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.

Our operating results depend in part on continued successful research, development and marketing of new and/or improved products and services, and there can be no assurance that we will continue to successfully introduce new products and services.

The success of new and improved products and services depends on their initial and continued acceptance by our customers. 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. We may experience difficulties or delays in the research, development, production, or marketing of new products and services that may prevent us from recouping or realizing a return on the investments required to bring new products and services to market. The end result could have a negative impact on our operating results.

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. Third-party claims alleging our infringement of intellectual property rights could also have a material adverse effect on the Company.

We rely on a combination of patents, trademarks, trade secret laws, invention assignment agreements, confidentiality agreements, and other arrangements to protect our 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.

Additionally, third parties may bring claims and have brought claims in the past 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 validate 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.

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Risks Related to our Capital Structure, the Global Financial Markets, and Currency Exchange Rates

An increase in our levels of debt and the corresponding impact to our financial covenants or a failure to maintain our credit ratings could limit our ability to invest in our business.

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. 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 costs to refinance at maturity.

We have seen interest rates fluctuate significantly in recent years, and they may rise again in the future due to inflation or other causes. As a result, the costs of servicing our variable interest rate debt could 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. 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.

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.

For those countries outside the U.S. where we have significant sales, a strengthening in the U.S. dollar or devaluation in the local currency would reduce revenue, operating profit and shareholders' equity due to the impact of foreign exchange translation on our Consolidated Financial Statements. Fluctuations in foreign currency exchange rates may make our products more expensive for others to purchase or increase our operating costs, affecting our competitiveness and our profitability.

Changes in exchange rates between the U.S. dollar and other currencies and volatile economic, political and market conditions throughout the world 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.

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. If an end user cannot obtain financing to purchase our products, either directly or indirectly contained in machinery or equipment, demand for our products will be reduced, which could have a material adverse effect on our financial condition and earnings.

Global financial markets have experienced volatility in the past, including volatility in securities prices and diminished liquidity and credit availability. Our access to the financial markets cannot be assured and is dependent on, among other things, market conditions and company performance. Accordingly, we may be forced to delay raising capital, issue shorter tenors than we prefer or pay unattractive interest rates, which could increase our interest expense, decrease our profitability and significantly reduce our financial flexibility.

If a customer becomes insolvent or files for bankruptcy (events which we have occasionally experienced in the past and continue to experience from time to time), 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. Furthermore, if certain of our customers liquidate in bankruptcy, we may incur impairment charges relating to obsolete inventory and machinery and equipment.

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In addition, financial instability of certain companies in the supply chain could disrupt production in any particular industry. A disruption of production in any of the industries where we participate could have a material adverse effect on our financial condition and earnings. If any of our suppliers are unable or unwilling to provide the products or services that we require or materially increase their costs, our ability to offer and deliver our products on a timely and profitable basis could be impaired. Furthermore, if any of our suppliers were to become subject to bankruptcy, receivership or similar proceedings, we may be unable to arrange for alternate or replacement relationships on favorable terms, which could harm our sales and operating results.

Risks Related to the Global Nature of our Operations

Global political instability and other risks of international operations may adversely affect our operating costs, revenues and the price of our products.

Our 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., China and Mexico, among others;

• 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 Foreign Corrupt Practices Act ("FCPA");

• difficulty in staffing and managing geographically diverse operations;

• disruptions to our global supply chain and logistical issues associated with port closures or strikes, 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.

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.

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. These tariffs have adversely affected our results of operations and profit margins and could continue to do so. Additionally, changes in U.S. trade policy have resulted in, and could further result in, U.S. trading partners adopting responsive trade policies that make it more difficult or costly for us to export our products to those countries. Furthermore, the governments of other countries in which we have substantial operations could impose tariffs on, or restrict trade in, the materials and components necessary for the production of our products. These measures could result in an increase in our production costs. If we are unable to increase the price of our products or otherwise mitigate these increased costs, it could adversely impact our revenue and profit margins.

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Risks Related to Human Capital Management and Employee Benefits

If we are unable to attract, retain and develop key personnel and develop and successfully execute succession plans, our business could be materially adversely affected.

Our business substantially depends on the continued service of key members of our management and other key employees. The loss of the services of a significant number of members of our management or other key employees could have a material adverse effect on our business. 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. If we do not succeed in retaining and developing our current employees, attracting new high-quality employees, and developing and successfully executing succession plans, our business could be materially adversely affected.

Work stoppages or similar difficulties could significantly disrupt our operations, reduce our revenues and materially affect our earnings.

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. In addition, some of our employees are represented by labor unions or works councils under collective bargaining agreements with varying durations and terms. We have experienced work stoppages at certain of our facilities historically at times, and while these stoppages have been short-term in nature, no assurances can be made that we will not experience additional work stoppages due to government directives, employee health concerns, and other types of conflicts with labor unions, works councils, and other similar groups in the future.

A work stoppage at one of our suppliers could also materially and adversely affect our operations if an alternative source of supply were not readily available. In addition, if one or more of our customers were to experience a work stoppage, that customer could halt or limit purchases of our products, which could have a material adverse effect on our business, finan cial condition and results of operations. 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.

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 future expense and funding obligations for defined benefit pension plans depend upon a number of factors, including the level of benefits provided for by the plans, the future performance of assets with specific country economic performance risks set aside in trust for these plans, the level of interest rates used to determine the discount rate to calculate the amount of liabilities, actuarial data and experience, and any changes in government laws and regulations. In addition, if the various investments held by our pension trusts do not perform as expected or the liabilities increase as a result of discount rate changes and other actuarial changes, our pension expense and required contributions would increase and, as a result, could materially adversely affect our business or require us to record charges that could be significant and would cause a reduction in our shareholders' equity. We may be required legally to make contributions to the pension plans in the future in excess of our current expectations, and those contributions could be material.

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Future actions involving our defined benefit and other postretirement plans, such as annuity purchases, lump-sum payouts, and/or plan terminations could cause us to incur significant pension and postretirement settlement and curtailment charges, and require cash contributions.

We have purchased annuities and offered lump-sum payouts to defined benefit plan and other postretirement plan participants and retirees in the past. If we were to take similar actions in the future, we could incur significant pension settlement and curtailment charges related to the reduction in pension and postretirement obligations from annuity purchases, lump-sum payouts of benefits to plan participants, and/or plan terminations. 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

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.

We are subject to the risk of potentially substantial environmental liability and limitations on our operations due to current environmental laws and regulations and future environmental laws and regulations could impose additional potential risks and limitations. 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 ("PFAS"), such as polytetrafluoroethylene ("PTFE"), or other chemicals of concern, waste management (e.g. storage, disposal) and the investigation and remediation of contamination. The risks of substantial costs and liabilities related to compliance with these laws and regulations are an inherent part of our business, and 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.

Compliance with environmental, health and safety legislation and regulatory requirements may prove to be more limiting and costly than we anticipate. To date, we have committed significant expenditures in our efforts to manage remediation activities and maintain compliance with these requirements at our facilities, and we expect that we will continue to make significant expenditures related to such compliance in the future. From time to time, we may be subject to legal proceedings brought by private parties or governmental authorities with respect to environmental matters, including matters involving alleged noncompliance with or liability arising from environmental, health and safety laws, property damage or personal injury. Actual or alleged violations of environmental, health and safety laws or environmental permit requirements could result in restrictions or prohibitions on operations and substantial civil or criminal fines, as well as, under some environmental, health, and safety laws, the assessment of strict liability and/or joint and several liability. 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 or expanded 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.

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PTFE and other fluoropolymer materials, which are known to be included in certain of our products, are subject to increasing regulatory scrutiny.

Certain of our products, including but not limited to certain seals and plain bearings, are known to contain PTFE or other fluoropolymer materials, which are included in certain broad definitions of PFAS. These products represent a relatively small portion of our total product portfolio. PFAS have been increasingly scrutinized due to their potential environmental and health risks and are now the subject of increasing regulatory attention from the Environmental Protection Agency, state governments, the European Union and other regulators. These evolving regulations may restrict the use, manufacture, sale and/or distribution of our products or our ability to obtain components of our products, or may require us to report data on our use of certain PFAS or PFAS alternatives. Such regulations could lead to significant costs. In addition, certain PFAS, including PFAS or PFAS alternatives previously or currently within PTFE or other fluoropolymer materials, have increasingly become subject to new or more stringent investigation and remediation requirements where such PFAS is believed to have caused an impact to the environment. Certain of the Company’s operations and facilities have already been, or may in the future become, the subject of formal or informal investigations, enforcement actions or proceedings relating to these regulations or of private or public rights of action for the investigation and remediation of PFAS released into the environment. Such investigations, remediations, other response actions, and any related proceedings could lead to significant costs or limitations on future production in the absence of viable alternatives.

We are subject to a wide variety of domestic and foreign laws and regulations that could adversely affect our results of operations, cash flow or financial condition.

We are subject to a wide variety of domestic and foreign laws and regulations, and legal compliance risks, including securities laws, tax laws, data privacy laws, employment and pension-related laws, competition laws, U.S. and foreign export and trade laws, government procurement regulations, and laws governing improper business practices. We are affected by both new laws and regulations, and changes to existing laws and regulations which may continue to evolve through interpretations by courts and regulators. Furthermore, the laws and regulations to which we are subject may differ from jurisdiction to jurisdiction, further increasing the cost of compliance and the risk of noncompliance.

In addition, we could be adversely affected by violations of the FCPA and similar worldwide anti-bribery laws as well as export controls and economic sanction laws. The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to non-U.S. government officials for the purpose of obtaining or retaining business. 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. Our policies mandate compliance with these laws, but we cannot assure you that our internal controls and procedures will always protect us from the improper acts committed by our employees, agents or third-party intermediaries. 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.

Also, our sales to public-sector customers are subject to complex regulations. Noncompliance with government procurement regulations, information security requirements such as the National Institute of Standards and Technology standards and guidelines, 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.

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.

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The global regulatory landscape is rapidly evolving and new and potentially conflicting requirements or preferences, 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.

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, use of artificial intelligence ("AI"), governance, and others. Rapid changes in the regulatory environment may lead to additional costs of compliance and risks associated with non-compliance. Failure to appropriately adapt to this rapidly evolving landscape may result in liability, sanctions or brand and reputational harm. Furthermore, regulations governing our global operations may at times conflict across jurisdictions leading to additional complexity and operating costs.

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.

Severe weather associated with a changing climate could negatively impact our operations and those of our customers and suppliers.

Severe weather associated with a changing climate, such as flooding, hurricanes, extreme heat, severe storms, wildfires and other natural disasters, could negatively impact the operation of our facilities, as well as those of our customers and suppliers, could limit our ability to insure our assets on commercially desirable terms and conditions, and could cause shipping disruptions, leading to delays in manufacturing and delivery of products.

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 and sometimes conflicting. We have announced goals covering certain CSR topics, such as those related to reductions in greenhouse gas emissions and maintaining employee health and safety. Over time, stakeholder expectations for, and regulatory requirements (such as the European Union, 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. Greater expectations or legal requirements may cause us to undertake costly initiatives to satisfy such new criteria. 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.

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Risks Related to Data Privacy, Cybersecurity, and AI

The Company may be subject to risks relating to its information technology systems, including the risk of cybersecurity incidents.

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 employees, customers and suppliers. 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. Cybersecurity incidents and similar attacks vary in their form and can include the deployment of harmful malware or ransomware, denial-of-services attacks, AI-assisted attacks, and other attacks, which may affect business continuity and threaten the availability, confidentiality and integrity of our systems and information. 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 and other business partners to implement, will be sufficient to protect our systems or data. 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. A cybersecurity incident or failure or disruption relating to our information systems or technology infrastructure or that of our third-party service providers, 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.

Data privacy and security concerns, as well as evolving regulation and enforcement, could adversely affect our results of operations and profitability.

We and certain authorized third parties of ours, collect, transmit, 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. We operate in a global environment in which the data privacy regulatory and legal framework and corresponding enforcement and litigation landscape are evolving quickly. Additionally, remote work and the increased use of AI may increase our vulnerability to data protection and security risks. Moreover, the data privacy laws and regulations of the specific jurisdictions in which we operate may vary and potentially conflict. These laws and regulations can also impose significant fines and penalties for noncompliance and afford private rights of action to individuals under certain circumstances. As such, we incur and expect to continue to incur significant ongoing costs as part of our efforts to comply with applicable law. 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 litigation, and related monetary damages and injunctive requirements, any of which may adversely affect our results of operations and profitability.

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Uncertainties with respect to the use of AI in our business may negatively impact our results from operations, reputation, and competitiveness.

We have begun to incorporate AI technologies into certain aspects of our operations. While these technologies may offer potential efficiencies, AI systems are relatively new and may not perform as expected. Errors or failures could disrupt production, impair product quality, or increase costs. Additionally, integration of AI may require changes to existing processes and workforce roles. These changes could lead to inefficiencies, increased training costs, or labor-related challenges. Moreover, the continued development and deployment of these AI technologies will require additional capital and increased costs going forward. In addition to AI regulation under general consumer protection and privacy laws, legislation specifically aimed at regulating the development, deployment and use of AI has been enacted in several states and has also been proposed at the federal level. Further, recent Executive Orders have further addressed federal regulation and policies related to AI. These laws, proposed laws, and Executive Orders may create inconsistent and evolving compliance obligations, which may be costly, challenging, and difficult to resolve. AI-related issues, including continued government regulation of AI, deficiencies and/or failures could give rise to legal and/or regulatory action, damage our reputation or otherwise adversely affect our business, including by impacting costs to our business. Furthermore, if our data, or data belonging to our customers, suppliers, or other third parties, is unintentionally provided to, accessed by, or used to train external AI models, the unauthorized disclosure or misuse of such information could result. Such an event could harm our reputation, expose us to contractual or legal claims, or require us to change how we use such AI models. Conversely, any failure to successfully develop and deploy AI in our business could adversely affect our competitiveness, particularly if our competitors successfully deploy AI in their businesses.

General Risk Factors

Weakness in global economic conditions or in any of the industries or geographic regions in which we or our customers operate, as well as the cyclical nature of our customers' businesses generally or sustained uncertainty in financial markets, could adversely impact our revenues and profitability by reducing demand and margins.

There has been significant volatility in the capital markets and in the end markets and geographic regions in which we and our customers operate, which has negatively affected our revenues. Our revenues also may be negatively affected by changes in customer demand, changes in the product mix and negative pricing pressure in the industries in which we operate. 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.

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.

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 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. 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.

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. 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. 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.

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If our internal controls are found to be ineffective, our financial results or our stock price may be adversely affected.

Our most recent evaluation resulted in our conclusion that, as of December 31, 2025, 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. In addition, if our internal control over financial reporting is found to be ineffective, investors may lose confidence in the reliability of our financial statements, which may adversely affect our stock price.

Changes in accounting standards could have an adverse effect on our results of operations, as reported in our financial statements.

Our Consolidated Financial Statements are prepared in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP"), which is periodically revised and/or expanded. Accordingly, from time to time we are required to adopt new or revised accounting standards and related interpretations issued by recognized authoritative bodies, including the Financial Accounting Standards Board ("FASB") and the SEC. The impact of accounting pronouncements that have been issued but not yet implemented is disclosed in this Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q. 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 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. With more than a century of knowledge and innovation, the Company continuously improves the reliability and efficiency of global machinery and equipment to move the world forward. The Company’s growing portfolio features many strong brands, such as Timken®, GGB®, PT Tech®, Torsion Control Products®, Philadelphia Gear®, Cone Drive®, CGI®, Rollon®, Nadella®, Rosa Sistemi®, Diamond®, Drives®, Groeneveld®, BEKA®, Des-Case®, Lovejoy®, PT Tech®, Torsion Control Products® and Lagersmit®. Timken posted $4.6 billion in sales in 2025 and employs approximately 19,000 people globally, operating in 44 countries. The Company operates under two reportable segments: (1) Engineered Bearings and (2) Industrial Motion. The following further describes these business segments:

• Timken’s Engineered Bearings segment features a broad range of product designs serving OEMs and end-users worldwide. Timken is a leading authority on tapered roller bearings and leverages its position by applying engineering know-how and technology across its entire bearing portfolio, which includes tapered, spherical and cylindrical roller bearings; plain bearings, metal-polymer bearings and rod end bearings; thrust and specialty ball bearings; and housed or mounted bearings. The Engineered Bearings portfolio features the Timken®, GGB® and Fafnir® brands and serves customers across global industries, including wind energy, agriculture, construction, food and beverage, metals and mining, automotive and truck, aerospace, rail and more.

• Timken’s Industrial Motion segment includes a diverse and growing portfolio of engineered products, including industrial drives, automatic lubrication systems, linear motion products and systems, chains, belts, couplings, filtration systems, seals, and industrial clutches and brakes that keep systems running efficiently. Industrial Motion also includes industrial drivetrain services, which return equipment to like-new condition. The Industrial Motion portfolio features many strong brands, including Philadelphia Gear®, Cone Drive®, CGI®, Spinea®, Rollon®, Nadella®, Rosa Sistemi®, Groeneveld®, BEKA®, Des-Case®, Diamond®, Drives®, Timken® Belts, Lovejoy®, PT Tech®, Torsion Control Products® and Lagersmit®. Industrial Motion products are used across a broad range of industries, including solar energy, automation, construction, agriculture and turf, passenger rail, marine, aerospace, packaging and logistics, medical and more.

Timken creates value by understanding customer needs and applying its know-how to serve a broad range of customers in attractive markets and industries across the globe. The Company’s business strengths include its product technology, end-market diversity, geographic reach and aftermarket mix. Timken collaborates with OEMs to improve equipment efficiency with its engineered products and captures subsequent equipment replacement cycles by selling largely through independent channels in the aftermarket. Timken focuses its international efforts and footprint in regions of the world where strong macroeconomic factors such as urbanization, infrastructure development, industrialization and sustainability create demand for its products and services.

The Company's strategy has three primary elements:

Profitable Growth. 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 customer-centric and highly collaborative technical selling approach, the Company places particular emphasis on creating unique solutions for challenging and/or demanding applications. The Company intends to grow in attractive market sectors around the world, emphasizing those spaces that are highly fragmented, demand high service and value the reliability and efficiency offered by Timken products. The Company also targets applications that offer significant aftermarket demand, thereby providing product and services revenue throughout the equipment’s lifetime.

Operational Excellence. 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, increasing cash flow, driving organizational advancement and 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.

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Capital Deployment to Drive Shareholder Value. 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. As part of this framework, the Company may also restructure, reposition or divest underperforming product lines or assets.

The following items highlight some of the Company's accomplishments in 2025:

• In August, Timken issued its annual CSR report, highlighting advances in environmental sustainability, social impact and product innovation. The report details Timken's progress toward its target to reduce aggregate Scope 1 and Scope 2 greenhouse gas (GHG) emissions intensity by 50 percent by 2030. From its 2018 baseline year through the end of 2024, Timken decreased emissions intensity by about 42 percent, demonstrating the company's dedication to climate action and responsible operations.

• Timken increased its quarterly dividend by 3% in the second quarter and paid its 414th consecutive quarterly dividend in the fourth quarter. The Company achieved twelve straight years of higher annual dividends in 2025. Timken also repurchased 779,300 common shares during the year.

• The Company strengthened its balance sheet by reducing total debt by $141 million and net debt by $132 million during the year.

• Timken welcomed Lucian Boldea to Timken as its new President and Chief Executive Officer ("CEO") in September.

• Throughout 2025, Timken received third-party recognition for the role it plays as a global industrial leader and responsible corporate citizen. The Company was named one of the World's Most Ethical Companies® for the 14th time by Ethisphere, and one of America's Most Responsible Companies for the 6th year in a row by Newsweek and Statista.

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RESULTS OF OPERATIONS

Overview:

$ Change

% Change

Net sales

Net income

Net income attributable to noncontrolling interest

Net income attributable to The Timken Company

Diluted earnings per share

Average number of diluted shares

The increase in net sales was primarily driven by favorable pricing, the benefit of acquisitions and the favorable impact of foreign currency exchange rate changes, partially offset by lower demand across both segments. The decrease in net income was primarily due to incremental tariff costs, the impact of lower volume, unfavorable mix and higher impairment and pension remeasurement charges, partially offset by favorable pricing, lower material and logistics costs, reduced selling, general and administrative ("SG&A") and lower income tax expense.

Outlook:

The Company expects 2026 full-year revenue to be up in the range of 2% to 4% in total compared to 2025, primarily driven by higher demand across most market sectors, higher pricing and the favorable impact of foreign currency exchange rates. The Company's earnings are expected to be up in 2026 compared to 2025, primarily due to higher pricing, the impact of higher volume, favorable mix, the impact of foreign currency exchange rate changes and lower material costs, partially offset by incremental tariff costs and higher SG&A expenses.

The Company expects to generate approximately $515 million of cash from operating activities in 2026 compared to $554.3 million in 2025, driven by higher working capital to support increased demand and higher cash taxes, partially offset by higher net income. The Company expects capital expenditures in 2026 to be approximately 3.5% of sales.

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THE STATEMENTS OF INCOME

Operating Income:

Twelve Months Ended

December 31,

$ Change

Change

Net sales

Cost of products sold

Selling, general and administrative expenses

Amortization of intangible assets

Impairment and restructuring charges

Gain on sale of real estate

Operating income

Operating income % to net sales

bps

Net sales increased in 2025 compared to 2024 primarily due to the favorable impact of acquisitions of $38 million as well as the favorable impact of foreign currency exchange of $17 million, partially offset by lower organic sales of $46 million (lower demand, favorable pricing).

Operating income decreased in 2025 compared to 2024 due to incremental tariff costs and the impact of lower sales net of cost of products sold, partially offset by favorable pricing and lower SG&A expenses.

• Cost of products sold increased in 2025 compared to 2024 due to the incremental cost of tariffs of $65 million, the impact of foreign currency exchange rate changes of $16 million, and the incremental cost of goods sold from acquisitions of $15 million, partially offset by favorable material and logistics costs of $19 million and the impact of lower volume of $17 million.

• SG&A expenses decreased in 2025 compared to 2024 primarily due to reduced discretionary spending to align with lower demand, decreased accruals for potential uncollectible accounts, and reduced employee compensation, partially offset by the incremental expense associated with acquisitions and the unfavorable impact of foreign currency.

• Impairment and restructuring charges increased in 2025 compared to 2024 primarily due to severance expense related to the CEO transition, and restructuring charges related to the announced closure of the Company's bearing manufacturing facility in Heilbronn, Germany.

• Gain on sale of real estate for 2024 was due to a gain of $13.8 million on the sale of a former bearing manufacturing plant in Gaffney, South Carolina during the quarter ended September 30, 2024. Refer to Note 8 - Property, Plant and Equipment in the Notes to the Consolidated Financial Statements for additional information.

Interest Expense and Income:

$ Change

% Change

Interest expense

Interest income

Interest expense, net

Interest expense decreased in 2025 compared to 2024, primarily due to lower average debt levels during the year and lower average interest rates. Interest income decreased in 2025 compared to 2024, primarily due to lower average cash levels during the year.

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Other Income (Expense):

$ Change

% Change

Non-service pension and other postretirement

expense

Other expense, net

Total other expense, net

The increase in non-service pension and other postretirement expense was primarily due to net actuarial ("mark-to-market") losses recorded in 2025 compared to net actuarial gains in 2024. In 2025, the Company recognized $10.8 million of net mark-to-market losses, compared to $1.3 million of net mark-to-market gains in 2024. 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 .

The increase in other expense, net was primarily due to higher foreign currency exchange losses, net of derivative activity, recognized in 2025 compared to 2024.

Income Tax Expense:

$ Change

Change

Income tax expense

Effective tax rate

bps

The effective tax rate for 2025 was 23.7%, 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 U.S. state and local income taxes. This was partially offset by the release of valuation allowances on certain non-U.S. deferred tax assets and release of accruals for uncertain tax positions.

The effective tax rate for 2024 was 24.1%, 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 U.S. state and local income taxes. This was partially offset by the release of accruals for uncertain tax positions.

The change in the effective tax rate for 2025 compared to 2024 was a decrease of 0.4%. The decrease was primarily due to the release of valuation allowances on certain non-U.S. deferred tax assets and the release of accruals for uncertain tax positions. This was partially offset by the unfavorable impact of earnings in foreign jurisdictions where the effective tax rate was higher than 21%.

Refer to Note 5 - Income Taxes in the Notes to the Consolidated Financial Statements for additional information on the computation of the income tax expense.

For a discussion of changes in consolidated results from 2024 to 2023, 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, 2024.

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BUSINESS SEGMENTS

The Company's reportable segments are product-based business groups that serve customers in diverse industrial markets. The primary measurement used by management to measure the financial performance of each segment is adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"). Refer to Note 3 - Segment Information in the Notes to the Consolidated Financial Statements for the reconciliation of adjusted EBITDA by segment to consolidated income before income taxes.

The presentation of segment results below includes a reconciliation of the changes in net sales for each segment reported in accordance with U.S. GAAP to net sales adjusted to remove the effects of acquisitions completed in 2024 and foreign currency exchange rate changes. The effects of acquisitions and foreign currency exchange rate changes on net sales are removed to allow investors and the Company to meaningfully evaluate the percentage change in net sales on a comparable basis from period to period.

The following item highlights the Company ' s acquisition completed in 2024:

• The Company acquired CGI, Inc. ("CGI") during the third quarter of 2024. Results for CGI are reported in the Industrial Motion segment.

Engineered Bearings Segment:

$ Change

Change

Net sales

Cost of products sold

Selling, general and administrative expenses

Other segment items

Depreciation and amortization

Adjusted EBITDA

Adjusted EBITDA margin

bps

$ Change

% Change

Net sales

Less: Currency

Net sales, excluding the impact of currency

The Engineered Bearings segment's net sales, excluding the effects of foreign currency exchange rate changes, decreased $15.3 million or 0.5% in 2025 compared to 2024, primarily driven by lower demand in the Americas and Europe, partially offset by higher demand in China, and higher pricing. The segment experienced lower demand across most market sectors, with the auto/truck and heavy industries posting the largest declines, partially offset by higher demand in the renewable energy sector.

Adjusted EBITDA for the Engineered Bearings segment decreased in 2025 by $36.5 million or 6.0% compared to 2024, primarily due to incremental tariff costs and the impact of lower volume, partially offset by favorable price/mix, lower material and logistics costs and lower SG&A expenses.

• Cost of products sold increased in 2025 compared to 2024 due to incremental tariff costs of $55 million, partially offset by favorable material and logistics costs of $24 million.

• SG&A expenses decreased in 2025 compared to 2024 driven primarily by lower compensation expense and reduced discretionary spending, partially offset by the unfavorable impact of foreign currency.

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Industrial Motion Segment:

$ Change

Change

Net sales

Cost of products sold

Selling, general and administrative expenses

Other segment items

Depreciation and amortization

Adjusted EBITDA

Adjusted EBITDA margin

bps

$ Change

% Change

Net sales

Less: Acquisitions

Currency

Net sales, excluding the impact of acquisitions and currency

The Industrial Motion segment's net sales, excluding the effects of acquisitions and foreign currency exchange rate changes, decreased $31.0 million or 2.0% in 2025 compared to 2024, driven primarily by lower demand in most segment platforms, partially offset by higher pricing. Sales were down across most markets, with the largest declines in renewable energy and industrial services.

Adjusted EBITDA decreased $9.1 million or 3.0% in 2025 compared to 2024 primarily due to the impact of lower volume and the incremental cost of tariffs, partially offset by favorable pricing and the benefit of acquisitions.

• Cost of products sold increased in 2025 compared to 2024 due to the impact of the incremental cost of goods sold from acquisitions of $25 million, the unfavorable impact of foreign currency of $14 million, and the incremental cost of tariffs of $10 million , partially offset by the impact of lower volume of $13 million.

• Depreciation and amortization increased in 2025 compared to 2024 primarily due to the addition of property, plant and equipment assets from the acquisition completed during 2024 and the addition of assets from capital projects in the Americas. Refer to Note 2 - Acquisitions in the Notes to the Consolidated Financial Statements for additional information.

Unallocated Corporate:

$ Change

Change

Unallocated corporate expense

Unallocated corporate expense % to net sales

bps

Unallocated corporate expense increased in 2025 compared to 2024 primarily due to the unfavorable impact of foreign currency losses of $11.5 million in 2025 compared to $8.2 million in 2024 and higher charitable donations, partially offset by reduced corporate compensation expenses.

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CASH FLOWS

$ Change

Net cash provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Effect of exchange rate changes on cash

Decrease in cash, cash equivalents and restricted cash

Operating Activities:

The increase in net cash provided by operating activities in 2025 compared to 2024 was primarily due to the favorable impact of working capital items of $95.1 million and the favorable impact of income taxes on cash of $17.2 million, partially offset by a decrease in net income of $58.0 million. Refer to the table below for additional detail of the impact of each line on net cash provided by operating activities.

The following chart displays the impact of working capital items on cash during 2025 and 2024:

$ Change

Cash provided by (used in):

Accounts receivable

Unbilled receivables

Inventories

Trade accounts payable

Other accrued expenses

Cash provided by (used in) working capital items

The following table displays the impact of income taxes on cash during 2025 and 2024:

$ Change

Accrued income tax expense

Income tax payments

Other miscellaneous

Change in income taxes

Investing Activities:

The decrease in net cash used in investing activities in 2025 compared to 2024 was primarily due to a decrease in cash used for acquisitions of $167.4 million and a decrease in capital expenditures of $21.8 million, partially offset by a decrease in cash from the net liquidation of short-term marketable securities of $19.7 million and a decrease in proceeds from disposals of property, plant and equipment of $13.1 million.

Financing Activities:

The change in net cash used in financing activities in 2025 compared to 2024 was primarily due to proceeds received from the sale of shares of Timken India Limited ("TIL") in 2024 of $232.3 million that did not repeat in 2025, an increase in the purchase of treasury shares of $16.9 million and an increase in noncontrolling dividends paid of $13.9 million, partially offset by an increase in net borrowings of $21.6 million.

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LIQUIDITY AND CAPITAL RESOURCES

Reconciliation of total debt to net debt and the ratio of net debt to capital:

Net Debt:

December 31,

Short-term debt, including current portion of long-term debt

Long-term debt

Total debt

Less: Cash and cash equivalents

Net debt

Ratio of Net Debt to Capital:

December 31,

Net debt

Total equity

Net debt plus total equity (capital)

Ratio of net debt to capital

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.

At December 31, 2025, the Company had strong liquidity with $364.4 million of cash and cash equivalents on the Consolidated Balance Sheet, as well as $828.8 million available under committed credit lines. Of the $364.4 million of cash and cash equivalents, $333.9 million resided in jurisdictions outside the United States. Repatriation of non-U.S. cash could be subject to taxes and some portion may be subject to governmental restrictions. Part of the Company's strategy is to grow in attractive market sectors, many of which are outside the United States. This strategy includes making investments in facilities, equipment and potential new acquisitions. The Company plans to fund these investments, as well as meet working capital requirements, with cash and cash equivalents and unused lines of credit within the geographic location of these investments where feasible.

On December 5, 2022 the Company entered into the Fifth Amended and Restated Credit Agreement ("Credit Agreement"), which is comprised of a $750 million unsecured revolving credit facility ("Senior Credit Facility") and a $400 million unsecured term loan facility ("2027 Term Loan") that each mature on December 5, 2027. Interest rates under the Credit Agreement are based on the Secured Overnight Financing Rate ("SOFR"). At December 31, 2025, the Senior Credit Facility had $21.2 million of outstanding borrowings. The Credit Agreement has two financial covenants: a consolidated net leverage ratio and a consolidated interest coverage ratio. The maximum consolidated net leverage ratio permitted under the Senior Credit Facility is 3.5 to 1.0. As of December 31, 2025, the Company's consolidated net leverage ratio was 2.01 to 1.0. The minimum consolidated interest coverage ratio permitted under the Senior Credit Facility is 3.0 to 1.0. As of December 31, 2025, the Company's consolidated interest coverage ratio was 7.76 to 1.0.

The interest rate under the Senior Credit Facility is variable with a spread based on the Company's debt rating. In addition, the Company pays a facility fee based on the applicable rate, which is variable with a spread based on the Company's debt rating, multiplied by the aggregate commitments of all of the lenders under the Senior Credit Facility. As of December 31, 2025, the Company carried investment-grade credit ratings with both Moody's (Baa2) and S&P Global (BBB-).

The Company renewed the Amended and Restated Asset Securitization Agreement (the "Accounts Receivable Facility") on December 5, 2025. The $100 million Accounts Receivable Facility matures on November 30, 2028. The Accounts Receivable Facility is subject to certain borrowing base limitations and is secured by certain domestic trade accounts receivable of the Company. The Accounts Receivable Facility had no borrowing base limitations at December 31, 2025. As of December 31, 2025, there were no outstanding borrowings under the Accounts Receivable Facility.

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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 $247.2 million. At December 31, 2025, the Company had borrowings outstanding of $24.5 million and bank guarantees of $6.2 million, which reduced the aggregate availability under these facilities to $216.5 million.

On May 23, 2024, the Company issued fixed-rate Euro senior unsecured notes ("2034 Notes") in the aggregate principal amount of €600 million with an interest rate of 4.13%, maturing on May 23, 2034. Proceeds from the 2034 Notes were used for the redemption of the Company's outstanding fixed-rate unsecured senior notes ("2024 Notes") in the aggregate principal amount of $350 million that were due to mature on September 1, 2024, as well as the repayment of other debt outstanding at the time of the issuance.

At December 31, 2025, the Company was in full compliance with all applicable covenants on its outstanding debt.

The Company expects to generate approximately $515 million of cash from operating activities in 2026 compared to $554.3 million in 2025, driven by higher working capital to support increased demand and higher cash taxes, partially offset by higher net income. The Company expects capital expenditures in 2026 to be approximately 3.5% of sales.

FUTURE CONTRACTUAL AND OTHER PAYMENTS

The Company’s material cash requirements for contractual debt obligations and other contractual commitments outstanding as of December 31, 2025 were as follows:

Payments due by period:

Future Contractual and Other Payments

Total

Less than

1 Year

1-5 Years

More than

5 Years

Interest payments

Long-term debt, including current portion of long-term debt

Short-term debt

Purchase commitments

Operating leases

Retirement benefit plans

Total

The interest payments beyond five years primarily relate to long-term fixed-rate notes. Refer to Note 12 - Financing Arrangements in the Notes to the Consolidated Financial Statements for additional information.

In order to maintain minimum funding requirements, the Company is required to make contributions to the trusts established for its defined benefit pension plans and other postretirement benefit plans. The table above shows the expected future minimum cash contributions to the trusts for the funded plans as well as estimated future benefit payments to participants for the unfunded plans. Those minimum funding requirements and estimated benefit payments can vary significantly. 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 2025, the Company made cash contributions and payments of $36.8 million to its global defined benefit pension plans and $1.9 million to its other postretirement benefit plans. 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.

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, 2025, outstanding letters of credit totaled $86.3 million, primarily having expiration dates within 12 months.

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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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The following paragraphs include a discussion of some critical areas that require a higher degree of judgment, estimates and complexity.

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. Furthermore, goodwill and indefinite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Each interim period, the Company assesses whether or not an indicator of impairment is present that would necessitate a goodwill and indefinite-lived intangible assets impairment analysis be performed in an interim period other than during the fourth quarter.

As of December 31, 2025, the Company had $1,486.4 million of goodwill on its Consolidated Balance Sheet, of which $703.9 million was attributable to the Engineered Bearings segment and $782.5 million was attributable to the Industrial Motion segment. 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.

Accounting guidance permits an entity to first assess qualitative factors to determine whether additional indefinite-lived intangible asset impairment testing, including goodwill, is required. The Company chose to utilize this qualitative assessment in the annual goodwill impairment testing for all reporting units in the fourth quarter of 2025. Based on the qualitative assessment, the Company concluded that it was more likely than not that the fair value of these reporting units exceeded their respective carrying values. In 2024, the Company performed a quantitative impairment analysis in the fourth quarter of 2024 for its Belts and Chain reporting unit. The result of this impairment analysis was to recognize an impairment loss of $1.5 million, reducing goodwill for this reporting unit to zero.

As of December 31, 2025, the Company had $100.6 million of indefinite-lived intangible assets on its Consolidated Balance Sheet. The Company’s indefinite-lived intangible assets primarily consist of acquired trade names. As mentioned above, accounting guidance permits an entity to first assess qualitative factors to determine whether additional indefinite-lived intangible asset impairment testing is required. The Company chose to utilize this qualitative assessment in the annual impairment testing for all of its indefinite-lived intangible assets in the fourth quarter of 2025. Based on the qualitative assessment, the Company concluded that it was more likely than not that the fair value of these indefinite-lived intangible assets would exceed their respective carrying values.

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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.

The Company, which is subject to income taxes in the U.S. and numerous non-U.S. jurisdictions, accounts for income taxes in accordance with Accounting Standards Codification ("ASC") Topic 740, “Income Taxes.” Deferred tax assets and liabilities are recorded for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as net operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. Deferred tax assets relate primarily to tax loss carryforwards in foreign jurisdictions, as well as pension and postretirement benefit obligations in the U.S., which the Company believes are more likely than not to result in future tax benefits. 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 $6.8 million in 2025 and $0.9 million in 2024 of tax benefits related to the reversal of valuation allowances. Refer to Note 5 - Income Taxes in the Notes to the Consolidated Financial Statements for further discussion on the valuation allowance reversals.

In the ordinary course of the Company’s business, there are many transactions and calculations where the ultimate income tax determination is uncertain. The Company is regularly under audit by tax authorities. Accruals for uncertain tax positions are provided for in accordance with the requirements of ASC Topic 740. The Company records interest and penalties related to uncertain tax positions as a component of income tax expense. In 2025, the Company recorded $13.2 million of net tax benefit for uncertain tax positions, which consisted primarily of $21.0 million of the net reversal of accruals for prior year uncertain tax positions and settlements with tax authorities. This benefit was partially offset by $7.8 million related to increases to current and prior year uncertain tax positions and interest. During 2025, the Company recorded a $2.6 million increase of uncertain tax positions related to foreign currency translation adjustments and deferred tax liabilities. The Company also released $0.3 million of uncertain tax positions related to prior years for acquisitions made during 2024.

Purchase Accounting and Business Combinations:

Assets acquired and liabilities assumed as part of a business combination are recognized at their acquisition date fair values. In determining these fair values, the Company utilized various forms of the income, cost and market approaches depending on the asset or liability being valued. 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. Inputs were generally determined by taking into account competitive trends, market comparisons, independent appraisals, and historical data, among other factors, and were supplemented by current and anticipated market conditions.

Refer to Note 1 - Significant Accounting Policies for further discussion regarding the fair value process.

Revenue Recognition:

A contract exists when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

Revenue is generally recognized as performance obligations under the terms of a contract with a customer of the Company are satisfied. Refer to Note 1 - Significant Accounting Policies in the Notes to the Consolidated Financial Statements for further discussion around the Company's revenue policy.

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Defined Benefit Pension Plans:

The Company sponsors a number of defined benefit pension plans that cover eligible employees. These plans are accounted for in accordance with ASC Topic 715-30, "Defined Benefit Plans – Pension."

The measurement of liabilities related to these plans is based on management's assumptions related to future events, including discount rates. Management regularly evaluates these assumptions and adjusts them as required and appropriate. Other plan assumptions also are reviewed on a regular basis to reflect recent experience and the Company's future expectations. Actual experience that differs from these assumptions may affect future liquidity, expense and the overall financial position of the Company. While the Company believes that current assumptions are appropriate, significant differences in actual experience or significant changes in these assumptions may affect materially the Company's pension obligations and its future expense and cash flow.

The discount rate is used to calculate the present value of expected future pension cash flows as of the measurement date. The Company establishes the discount rate by constructing a notional portfolio of high-quality corporate bonds and matching the coupon payments and bond maturities to projected benefit payments under the Company's pension plans. A lower discount rate will result in a higher benefit obligation; conversely, a higher discount rate will result in a lower benefit obligation. The discount rate also is used to calculate the annual interest cost, which is a component of net periodic benefit cost.

During 2025, the Company entered into an insurance buy-in contract for its pension obligation related to its defined benefit pension plan in the United Kingdom ("U.K."). Refer to Note 17 - Retirement Benefit Plans in the Notes to the Consolidated Financial Statements for additional information regarding the insurance buy-in contract. The insurance buy-in contract matches cash flows with future benefit payments for participants as of the contract date with the obligation remaining with the plan. The discount rate for this plan has been set at the discount rate inherent in the insurance buy-in contract.

The expected rate of return on plan assets is determined by analyzing the historical long-term performance of the Company's pension plan assets, as well as the mix of plan assets between equities, fixed-income securities and other investments, the expected long-term rate of return expected for those asset classes and long-term inflation rates. Short-term asset performance can differ significantly from the expected rate of return, especially in volatile markets. A lower-than-expected rate of return on pension plan assets will increase pension expense and future contributions.

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.

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The Company recognized net periodic benefit cost of $25.2 million during 2025 for defined benefit pension plans, compared to net periodic benefit cost of $12.2 million during 2024. The Company recognized net mark-to-market losses of $11.2 million during 2025 compared to net mark-to-market gains of $0.7 million during 2024. Mark-to-market losses during 2025 were primarily due to the impact of a net reduction in the discount rate used to measure the Company's defined benefit pension obligations of $10.6 million and the impact of experience losses of $2.9 million, partially offset by higher than expected returns on plans assets of $1.3 million and other actuarial gains of $1.0 million. 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 36 basis point decrease in the discount rate used to measure its plan obligations in the U.K., which decreased from 5.43% in 2024 to 5.07% in 2025, and a 24 basis point decrease in the weighted-average discount rate used to measure its U.S. plan obligations, which decreased from 5.83% in 2024 to 5.59% in 2025. Excluding mark-to-market gains and losses recognized in 2025 and 2024, including a curtailment gain, net period benefit cost was $14.0 million and $13.0 million, respectively. The increase in 2025 was due to higher interest costs.

In 2026, the Company expects net periodic benefit cost to be approximately $12 million for defined benefit pension plans, compared to net periodic benefit cost of $25.2 million in 2025. Net periodic benefit cost for 2026 does not include mark-to-market charges that will be recognized immediately through earnings in the fourth quarter of 2026, or on an interim basis if specific events trigger a remeasurement. Excluding the mark-to-market losses of $11.2 million recognized in 2025, net periodic benefit cost was $14.0 million in 2025. The expected decrease in net periodic benefit cost for 2026, excluding mark-to-market charges, primarily reflects a higher 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 $32 million in 2026 compared to $36.8 million of contributions and payments in 2025. The decrease is primarily due to lower expected contributions on to the U.S. pension plans in 2026.

For expense purposes in 2025, the Company applied a weighted-average discount rate of 5.83% to its U.S. defined benefit pension plans. For expense purposes in 2026, the Company will apply a weighted-average discount rate of 5.59% to its U.S. defined benefit pension plans.

For expense purposes in 2025, the Company applied an expected weighted-average rate of return of 4.30% for the Company’s U.S. pension plan assets. For expense purposes in 2026, the Company will apply an expected weighted-average rate of return on plan assets of 4.74%.

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, 2025

Change

PBO

Assumption:

Discount rate

In the table above, a 25 basis point decrease in the discount rate will increase the PBO by $8.3 million and decrease income before income taxes through the recognition of actuarial losses of $8.3 million. A 25 basis point increase in the discount rate will decrease the PBO by $8.3 million and increase income before income taxes through the recognition of actuarial gains of $8.3 million. In addition, a 25 basis point decrease in returns on pension assets will decrease income before income taxes by $0.6 million, and a 25 basis point increase in return on pension assets will increase income before income taxes by $0.6 million.

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NON-GAAP MEASURES

Supplemental Non-GAAP Measures:

In addition to results reported in accordance with U.S. GAAP, the Company provides information on non-GAAP financial measures. These non-GAAP financial measures include adjusted net income, adjusted earnings per share, adjusted EBITDA and adjusted EBITDA margins, ratio of net debt to adjusted EBITDA (for the trailing 12 months), net debt, ratio of net debt to capital, free cash flow and return on invested capital. This information is intended to supplement U.S. GAAP financial measures and is not intended to replace U.S. GAAP financial measures. Net debt and the ratio of net debt to capital is disclosed in the "Liquidity and Capital Resources" section of Management's Discussion and Analysis of Financial Condition and Results of 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, CEO transition expenses, 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 discrete income tax items, and other items from time to time that are not part of the Company's core operations. Management believes adjusted net income and adjusted earnings per share are useful to investors as they are representative of the Company's core operations and are used in the management of the business.

Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization, adjusted for items that are not part of the Company's core operations. These items include 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, and other items from time to time that are not part of the Company's core 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.

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Reconciliation of net income attributable to The Timken Company to adjusted net income, adjusted EBITDA and adjusted EBITDA Margin:

Twelve Months Ended December 31,

Net sales

Net Income Attributable to The Timken Company

Net Income Attributable to The Timken Company as a Percentage of Sales

Adjustments:

Acquisition intangible amortization

Impairment, restructuring and reorganization

charges (1)

Corporate pension and other postretirement

benefit related (income) expense (2)

Acquisition-related charges (3)

Gain on divestitures and sale of certain assets (4)

Property losses and related expenses (5)

Tax indemnification and related items

CEO transition expenses (6)

Noncontrolling interest of above adjustments

Provision for income taxes (7)

Adjusted Net Income

Net income attributable to noncontrolling

interest

Provision for income taxes (as reported)

Interest expense

Interest income

Depreciation and amortization expense (8)

Less: Acquisition intangible amortization

Less: Noncontrolling interest

Less: Provision for income taxes (7)

Adjusted EBITDA

Adjusted EBITDA Margin (% of net sales)

(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. 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 Timken Aerospace Drives Systems, LLC. 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.

(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. Refer to Note 17 - Retirement Benefit Plans and Note 18 - Other Postretirement Benefit Plans for additional discussion.

(3) Acquisition-related charges represent deal-related expenses associated with completed transactions and certain unsuccessful transactions, as well as any resulting inventory step-up impact, and a bargain purchase gain in 2021 on the acquisition of the assets of Aurora Bearing Company, that closed on November 30, 2020.

(4) Represents the net gain resulting from divestitures and sale of certain assets.

(5) Represents property loss and related expenses incurred during the periods presented resulting from a fire that occurred during the second quarter of 2024 at one of the Company's plants in Slovakia.

(6) On August 22, 2025, the Company announced the appointment of Lucian Boldea as President and CEO, effective September 1, 2025, and that Richard G. Kyle would retire from the role of interim President and CEO. On March 31, 2025, the Company announced that Tarak B. Mehta, President and CEO of the Company, would be departing from the Company, effective immediately, and Mr. Kyle would be serving as interim President and CEO. CEO transition expenses primarily relate to the cost of the settlement agreement with Mr. Mehta in connection with his departure, net of the impact for stock awards forfeited, the acceleration of certain stock compensation awards issued to Mr. Kyle, and other one-time costs associated with the transition in 2025. During 2024, the Company announced that Mr. Kyle, President and CEO of the Company, would be retiring from his position as CEO as of February 15, 2025, and that Mr. Mehta would be appointed President and CEO on September 5, 2024. CEO transition expenses for 2024 relate to the acceleration of certain stock compensation awards for Mr. Kyle and other one-time costs associated with the transition in 2024.

(7) Provision for income taxes includes the net tax impact on pre-tax adjustments (listed above), the impact of discrete tax items recorded during the respective periods as well as other adjustments to reflect the use of one overall effective tax rate on adjusted pre-tax income.

(8) Depreciation and amortization shown excludes depreciation recognized in reorganization charges, if any.

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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.

Twelve Months Ended December 31,

Diluted earnings per share (EPS)

Adjusted EPS

Diluted shares

Free Cash Flow:

Free cash flow represents net cash provided by operating activities less capital expenditures. Management believes free cash flow is useful to investors because it is a meaningful indicator of cash generated from operating activities available for the execution of its business strategy.

Reconciliation of net cash provided by operating activities to free cash flow:

Twelve Months Ended December 31,

Net cash provided by operating activities

Capital expenditures

Free cash flow

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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. T he Company presents net debt to adjusted EBITDA because it believes it is more representative of the Company's financial position as it is reflective of the Company's ability to cover its net debt obligations with results from its core operations. Net income for the trailing twelve months ended December 31, 2025 and December 31, 2024 was $317.3 million and $375.3 million, respectively. Net debt to adjusted EBITDA for the trailing twelve months was 2.0 at both December 31, 2025 and December 31, 2024 .

Reconciliation of Net income to Adjusted EBITDA for the twelve months:

Twelve Months Ended December 31,

Net income

Provision for income taxes

Interest expense

Interest income

Depreciation and amortization

Consolidated EBITDA

Adjustments:

Impairment, restructuring and reorganization charges (1)

Corporate pension and other postretirement related expense (income) (2)

Acquisition-related charges (3)

Property losses and related expenses (4)

Gain on divestitures and sale of certain assets (5)

CEO transition expenses (6)

Tax indemnification and related items

Total Adjustments

Adjusted EBITDA

Net Debt

Ratio of Net Debt to Adjusted EBITDA

(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. 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.

(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.

(3) Acquisition-related charges represent deal-related expenses associated with completed transactions and any resulting inventory step-up impact.

(4) Represents property loss and related expenses incurred during the periods presented resulting from a fire that occurred during the second quarter of 2024 at one of the Company's plants in Slovakia.

(5) Represents the net gain resulting from divestitures and sale of certain assets.

(6) On August 22, 2025, the Company announced the appointment of Lucian Boldea as President and CEO, effective September 1, 2025, and that Richard G. Kyle would retire from the role of interim President and CEO. On March 31, 2025, the Company announced that Tarak B. Mehta, President and CEO of the Company, would be departing from the Company, effective immediately, and Mr. Kyle would be serving as interim President and CEO. CEO transition expenses primarily relate to the cost of the settlement agreement with Mr. Mehta in connection with his departure, net of the impact for stock awards forfeited, the acceleration of certain stock compensation awards issued to Mr. Kyle, and other one-time costs associated with the transition in 2025. During 2024, the Company announced that Mr. Kyle, President and CEO of the Company, would be retiring from his position as CEO as of February 15, 2025, and that Mr. Mehta would be appointed President and CEO on September 5, 2024. CEO transition expenses for 2024 relate to the acceleration of certain stock compensation awards for Mr. Kyle and other one-time costs associated with the transition in 2024.

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Return on Invested Capital:

Return on Invested Capital is defined as adjusted net operating profit after taxes divided by average invested capital. The Company uses Average Invested Capital as a type of non-GAAP ratio that indicates return on invested capital, which management believes is useful to investors as a measure of return on their investment.

Reconciliation of adjusted net operating profit after taxes, adjusted invested capital and return on adjusted inv ested capital:

Adjusted Net Operating Profit after Taxes (ANOPAT):

Twelve Months Ended December 31,

Adjusted EBITDA (1)

Acquisition intangible amortization

Less: depreciation and amortization expense (2)

Adjusted EBIT

Adjusted tax rate

Calculated income taxes

ANOPAT

Adjusted Invested Capital:

Twelve Months Ended December 31,

Total debt

Less: cash and cash equivalents

Net debt

Total equity

Invested capital (net debt + total

equity)

Invested capital (two-point average)

Return on Invested Capital:

Twelve Months Ended December 31,

ANOPAT

Invested capital (two-point average)

Return on invested capital

(1) Refer to page 39 for reconciliations to the most directly comparable U.S. GAAP financial measures.

(2) Depreciation and amortization shown excludes depreciation recognized in reorganization charges, if any.

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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. Related translation adjustments are reflected as a separate component of accumulated other comprehensive loss. Foreign currency gains and losses resulting from transactions are included in the Consolidated Statements of Income.

Net of related derivative activity, the Company recognized foreign currency exchange losses resulting from transactions of $14.0 million, $9.3 million and $14.8 million for the years ended December 31, 2025, 2024 and 2023, respectively. For the year ended December 31, 2025, the Company recorded a positive non-cash foreign currency translation adjustment of $215.6 million that increased shareholders’ equity, compared to a negative non-cash foreign currency translation adjustment of $156.4 million that decreased shareholders’ equity for the year ended December 31, 2024. The foreign currency translation adjustments for the year ended December 31, 2025 were positively impacted by the weakening of the U.S. dollar relative to other currencies as of December 31, 2025 compared to December 31, 2024.

CEO Transition:

On September 5, 2024, the Company's Board of Directors appointed Tarak B. Mehta President and CEO and appointed Richard G. Kyle Advisor to the CEO. Mr. Mehta succeeded Mr. Kyle, who had served as Timken’s President and CEO since 2014. On March 31, 2025, Timken announced that the Company and Mr. Mehta had mutually agreed that Mr. Mehta would depart from the Company, including resigning as a member of the Company’s Board of Directors, effective immediately. The Company also announced that the Board had appointed Mr. Kyle as the interim President and CEO of the Company. On September 1, 2025, the Company's Board appointed Lucian Boldea President and CEO and appointed Mr. Kyle Advisor to the CEO.

During the three months ended March 31, 2025, the Company recorded severance of $9.3 million, plus related taxes, for Mr. Mehta's settlement arrangement and release of claims for his termination without cause. Approximately two-thirds of this amount was paid in 2025, with the remaining amounts to be paid in 2026 and 2027. In addition, the Company recorded incremental stock compensation expense related to stock compensation awards issued to Mr. Kyle during the twelve months ended December 31, 2025, as well as other one-time costs associated with the transition in 2025. CEO transition expenses for 2024 relate to the acceleration of certain stock compensation awards for Mr. Kyle and other one-time costs associated with the transition in 2024.

Trade Law Enforcement:

The U.S. government has an antidumping duty order in effect covering tapered roller bearings from China. The Company is a producer of these bearings, as well as ball bearings and other bearing types, in the U.S.

Quarterly Dividend:

On February 13, 2026, the Company’s Board of Directors declared a quarterly cash dividend of $0.35 per common share. The quarterly dividend will be paid on March 6, 2026 to shareholders of record as of February 24, 2026. This will be the 415 th consecutive quarterly dividend paid on the common shares of the Company.

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Forward-Looking Statements

Certain statements set forth in this Annual Report on Form 10-K and in the Company’s 2025 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 particular, Management’s Discussion and Analysis contains numerous forward-looking statements. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “outlook,” “intend,” “may,” “possible,” “potential,” “predict,” “project” or other similar words, phrases or expressions. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. 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. 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, additional costs, taxes and restrictions related to repatriation of cash in international jurisdictions, strained geopolitical relations between countries in which we have significant operations, and recent world events that have increased macroeconomic 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, and negative impacts to 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: the ability of the Company to respond to rapid changes in customer demand, disruptions to the Company's supply chain, 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, changes in customer preferences due to emergent technologies, evolving regulatory landscapes or other factors 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, such as AI, that may impact the way the Company’s products are produced, sold or distributed;

(e) changes in operating costs. 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, energy and fuel; changes in tariff rates and other costs associated with tariffs; disruptions to the Company's supply chain and logistical issues associated with port closures or 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 (including with respect to climate change or other environmental regulations); changes resulting from inventory management and cost reduction initiatives; the effects of unplanned plant shutdowns; costs associated with inclement weather events; 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 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;

(g) 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;

(h) the continued attraction, retention and development of management, other key employees, and other skilled personnel, the successful development and execution of succession plans and management of other human capital matters;

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(i) unanticipated litigation, claims, investigations, remediation or assessments. 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, PTFE, PFAS, other environmental or health and safety issues, data privacy, cybersecurity and taxes;

(j) the rapidly evolving global regulatory landscape and the corresponding heightened operational complexity and compliance risks;

(k) changes in worldwide financial and capital markets, including fluctuations in interest rates, impacting the availability of financing on satisfactory terms as a result of financial stress affecting the banking system or otherwise, 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. Risk Factors on pages 9 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. All of these risk factors are difficult to predict, are subject to material uncertainties that may affect actual results and may be beyond the Company’s control.

Readers are cautioned that it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results and that the above list should not be considered to be a complete list. Except as required by the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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