Acquisitions and Divestitures

9 Months Ended

Sep. 30, 2023

Business Combination and Asset Acquisition [Abstract]

Note 3 - Acquisitions and Divestitures

Acquisitions:

During the first nine months of 2023, the Company completed four acquisitions. On September 29, 2023, the Company acquired 100% of the capital stock of Rosa Sistemi S.p.A. ("Rosa"), a European designer and manufacturer of roller guideways, linear bearings, customized linear systems and actuators, commercialized ball guideways and precision ball screws. Rosa employs approximately 65 people and has its headquarters, R&D and high-precision manufacturing facility in Milan, Italy. Rosa expects 2023 revenue to be approximately $15 million. Results for Rosa will be reported in the Industrial Motion segment. On September 5, 2023, the Company acquired 100% of the capital stock of D-C Filtration Holdings Corp. ("Des-Case"), a Tennessee-based manufacturer of specialty filtration products for industrial lubricants. Des-Case has manufacturing facilities in Tennessee and the Netherlands and employs approximately 120 people. Des-Case expects 2023 revenue to be approximately $40 million. Results for Des-Case are reported in the Industrial Motion segment. On April 4, 2023, the Company acquired 100% of the capital stock of Leonardo Top S.a.r.l. ("Nadella"), a leading European manufacturer of linear guides, telescopic rails, actuators and systems and other specialized industrial motion solutions. Based in Italy, Nadella employs approximately 450 people and operates manufacturing facilities in Europe and China. Nadella reported revenue of approximately $107 million in 2022. Results for Nadella are reported in the Industrial Motion segment. On January 31, 2023, the Company acquired substantially all of the assets of American Roller Bearing Company ("ARB"), a North Carolina-based manufacturer of industrial bearings. ARB, which boasts a large U.S. installed base and strong aftermarket business, operates manufacturing facilities in Hiddenite and Morganton, North Carolina. ARB employs approximately 190 people and reported revenue of approximately $35 million in 2022. Results for ARB are reported in the Engineered Bearings segment. The total purchase price for these acquisitions was $466.9 million, net of cash acquired of $24.3 million. The Company also assumed $11.7 million of long-term debt in conjunction with the acquisition of Nadella. The Company incurred acquisition-related costs of $3.7 million to complete these acquisitions.

The following table presents the preliminary purchase price allocation at fair value for the 2023 acquisitions as of September 30, 2023.


	Initial Purchase Price Allocation
Assets:

Accounts receivable	$	32.8
Inventories	79.6
Other current assets	4.4
Property, plant and equipment	35.2
Operating lease assets	4.2
Goodwill	207.5
Other intangible assets	220.8
Other non-current assets	6.3
Total assets acquired	$	590.8
Liabilities:
Accounts payable, trade	$	19.4
Salaries, wages and benefits	11.7
Income taxes payable	4.8
Other current liabilities	8.6
Short-term debt	5.5
Long-term debt	6.2

Long-term operating lease liabilities	2.1
Deferred income taxes	61.5
Other non-current liabilities	4.1
Total liabilities assumed	$	123.9
Net assets acquired	$	466.9

Note 3 - Acquisitions and Divestitures (continued)

In determining the fair value of the amounts above related to Des-Case and Rosa, the Company utilized a benchmarking approach based on the Company’s prior acquisitions and similar industry acquisitions to determine the preliminary fair values for identified intangible assets. Upon completion of the final fair value assessment, the fair values of the assets acquired, liabilities assumed and resulting goodwill may differ materially from the preliminary assessment. Any changes to the initial estimates of the fair value of the assets acquired and liabilities assumed will be recorded to those assets and liabilities and residual amounts will be allocated to goodwill.

In determining the fair value of the amounts above related to Nadella and ARB, the Company utilized various forms of the income, cost and market approaches depending on the asset or liability being valued. The estimation of fair value required judgment related to future net cash flows, discount rates, competitive trends, market comparisons and other factors. Inputs were generally determined by taking into account independent appraisals and historical data, supplemented by current and anticipated market conditions.

The amounts in the table above represent the preliminary purchase price allocation for the 2023 acquisitions. This purchase price allocation, including the residual amount allocated to goodwill, is based on preliminary information and is subject to change as additional information concerning final asset and liability valuations are obtained and management completes its reassessment of the measurement period procedures based on the results of the preliminary valuation. The purchase price allocation for Rosa and Des-Case are preliminary due to the proximity of the acquisition date to September 30, 2023, and as a result no elements of the purchase price allocation have been finalized. The purchase price allocation for Nadella is preliminary with respect to most assets acquired and liabilities assumed. The purchase price allocation for ARB is substantially complete. During the applicable measurement period, the Company will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments has been completed on the acquisition date.

The following table summarizes the preliminary purchase price allocation at fair value for identifiable intangible assets acquired in 2023.


	2023
			Weighted- Average Life

Trade names	$	32.2	18 years
Technology and know-how	50.2		15 years
Customer relationships	137.9		14 years

Capitalized software	0.5		2 years
Total intangible assets	$	220.8

On November 4, 2022, the Company completed the acquisition of GGB Bearing Technology ("GGB"), a global leader in premium engineered metal-polymer plain bearings, for $300.3 million, net of cash acquired of $19.8 million. GGB's revenue was approximately $200 million for the 2022. GGB's products are used mainly in industrial applications, including pumps and compressors, HVAC, off-highway, energy, material handling and aerospace. With manufacturing facilities across the United States, Europe and China, GGB employs approximately 900 people and has a global engineering, distribution and sales footprint. Results for GGB are reported in the Engineered Bearings segment.

On May 31, 2022, the Company completed the acquisition of Spinea, s.r.o. ("Spinea"), a European technology leader and manufacturer of highly engineered cycloidal reduction gears and actuators, with 2022 sales of approximately $40 million. Spinea’s solutions primarily serve high-precision automation and robotics applications in the factory automation sector. Spinea is located in Presov, Slovakia. The purchase price for this acquisition was $151.2 million, net of cash acquired of $0.2 million. Results for Spinea are reported in the Industrial Motion segment.

Note 3 - Acquisitions and Divestitures (continued)

The following table presents the updated purchase price allocation at fair value, net of cash acquired, for the 2022 acquisitions, as of September 30, 2023:


	Initial Purchase Price Allocation		Adjustments		Updated Purchase Price Allocation
Assets:

Accounts receivable	$	30.6	$	0.1	$	30.7
Inventories	52.3		—		52.3
Other current assets	7.6		0.4		8.0
Property, plant and equipment	153.6		(4.9)		148.7

Goodwill	106.9		0.7		107.6
Other intangible assets	182.6		(0.6)		182.0
Other assets	12.1		(4.8)		7.3
Total assets acquired	$	545.7	$	(9.1)	$	536.6
Liabilities:
Accounts payable, trade	$	16.8	$	(0.6)	$	16.2
Salaries, wages and benefits	11.8		0.1		11.9
Income taxes payable	3.2		—		3.2
Other current liabilities	7.0		(1.0)		6.0


Accrued pension benefits	3.2		0.3		3.5

Deferred income taxes	30.0		(6.0)		24.0
Other non-current liabilities	20.0		0.3		20.3
Total liabilities assumed	$	92.0	$	(6.9)	$	85.1
Net assets acquired	$	453.7	$	(2.2)	$	451.5

The purchase price allocation for Spinea was finalized during the second quarter of 2023. The purchase price allocation for GGB is substantially complete with only minor adjustments expected. During the measurement period, the Company will adjust assets and liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in revised estimated values of those assets or liabilities as of that date. The effect of measurement period adjustments to the estimated fair values will be reflected as if the adjustments had been completed on the acquisition date.

Divestitures:

On September 20, 2023, the Company entered into a definitive agreement to sell Jiangsu TWB Bearings Co., Ltd. ("TWB"). During the third quarter of 2023, the business met the held for sale criteria, and the Company reclassified its assets and liabilities accordingly. Assets held for sale of $16.6 million are included in other current assets, and liabilities held for sale of $7.3 million are included in other current liabilities, on the Consolidated Balance Sheet. As a result of the carrying value of the legal entity exceeding the estimated sales price less costs to sell, the Company recorded an impairment charge of $1.0 million for the three months ended September 30, 2023. The impairment charge is included in the impairment and restructuring line on the Consolidated Statement of Income. The sale of TWB was completed on October 16, 2023. Operating results of this legal entity are included the Engineered Bearings segment.

Note 3 - Acquisitions and Divestitures (continued)

On February 28, 2023, the Company completed the sale of all of its membership interests in S.E. Setco Services Company, LLC ("SE Setco"), a 50% owned joint venture. The Company had accounted for SE Setco as an equity method investment prior to the sale. The Company received $5.7 million in cash proceeds for SE Setco and recognized a pretax gain of $4.8 million on the sale. The gain was reflected in other income, net in the Consolidated Statement of Income.

On November 1, 2022, the Company completed the divestiture of Timken Aerospace Drive Systems, LLC ("ADS"). The Company recorded proceeds of $33.0 million on the sale of the business. For the first six months of 2023, the Company recorded a loss of $1.2 million due to the payment of a working capital adjustment. During the three months ended September 30, 2022, the ADS business met the held for sale criteria, and the Company recorded impairment charges of $29.3 million in advance of the sale as a result of the carrying value of the business exceeding the estimated sales price less costs to sell.

On September 1, 2022, the Company completed the divestiture of Timken-Rus Service Company ooo ("Timken Russia"), one of its two subsidiaries in Russia. Timken Russia had net sales of $4.8 million in 2022. The results of operations of Timken Russia were reported in the Engineered Bearings segment. The Company recorded proceeds of $1.0 million, net of cash divested of $5.3 million, and recognized a loss of $2.1 million on the sale of the business during the three months ending September 30, 2022. The loss was reflected in other income, net in the Consolidated Statement of Income.