* Sales rise as global industrial demand remains strong
* Earnings increase on execution of strategic initiatives, counteracting weaker automotive demand
* Company expects record full-year earnings

The Timken Company (NYSE: TKR) today reported record sales of $1.54 billion in the second quarter of 2008, an increase of 14 percent over the same period a year ago. Strong sales in global industrial markets more than offset the impact of weaker North American automotive demand. During the quarter, the company benefited from its capacity-expansion initiatives, as well as the favorable impact of pricing, surcharges and currency.



Second-quarter income from continuing operations was $88.9 million, or $0.92 per diluted share, compared to $55.6 million, or $0.58 per diluted share, in the second quarter a year ago. Excluding special items, income from continuing operations increased 33 percent to $92.4 million, or $0.96 per diluted share, for the second quarter of 2008, compared to $69.7 million, or $0.73 per diluted share, in the second quarter of 2007. Record second-quarter earnings benefited from favorable pricing, surcharges, volume and currency, which were partially offset by higher material costs and related LIFO charges. Second-quarter special items, net of tax, included manufacturing rationalization, impairment and restructuring charges totaling $3.5 million, compared to $14.1 million of similar charges in the second quarter of 2007.



“The company has pursued a deliberate strategy to transform Timken’s portfolio where we see a significant opportunity to drive profitable growth,” said James W. Griffith, Timken’s president and chief executive officer. “This strategy is allowing us to create higher levels of customer and shareholder value over time and contributed to record sales and earnings during the second quarter despite continued weakness in automotive markets. We are on pace to achieve record performance for the year as our strategic initiatives to add capacity and strengthen execution continue to take hold.”



During the quarter, the company:

Completed another significant phase of Project O.N.E., Timken’s business process improvement and global systems initiative, now covering most of the company’s U.S. and European Bearing and Power Transmission operations; and
Began production at its new aerospace and precision products facility in Chengdu, China, and started shipping products from its new industrial bearing manufacturing plant in Chennai, India.


Timken continued to strengthen its balance sheet during the quarter. Total debt at June 30, 2008, was $861.4 million, or 28.3 percent of capital. Net debt at June 30, 2008, was $786.6 million, or 26.5 percent of capital, compared to $805.1 million, or 28.0 percent of capital, at March 31, 2008. The company expects to generate strong free cash flow for the remainder of the year and to end 2008 with lower net debt and leverage than last year, providing additional financial capacity to pursue strategic investments.



For the first half of 2008, sales were $2.97 billion, an increase of 13 percent from the same period in 2007. Income from continuing operations per diluted share for the first six months of 2008 was $1.80, compared to $1.36 last year. Special items, net of tax, in the first half of 2008 totaled $2.1 million of income compared to $2.3 million of expense in the prior-year period. These special items included a gain on a real estate divestment associated with a prior plant closure, partially offset by charges related to restructuring, rationalization and impairment. Excluding special items, income from continuing operations per diluted share in the first half of 2008 increased 28 percent to $1.78, versus $1.39 in the first half of 2007. During the first six months of 2008, the company benefited from strong industrial market demand, pricing, surcharges, mix and currency, which were partially offset by higher raw-material costs and related LIFO charges and the impact of lower automotive demand.



Bearings and Power Transmission Group Results
The Bearings and Power Transmission Group had second-quarter sales of $1.06 billion, up 9 percent from $0.97 billion for the same period last year, resulting primarily from organic growth in the Process Industries and Aerospace and Defense segments, which was partially offset by weaker demand in the Mobile Industries segment. The group also benefited from the favorable impact of the Purdy acquisition and currency.



Bearings and Power Transmission Group earnings before interest and taxes (EBIT) for the second quarter were $87.7 million, up 31 percent from $67.2 million in the second quarter of 2007, benefiting from strong global industrial demand, pricing and currency, which were partially offset by higher material costs and related LIFO charges, as well as weakness in North American automotive markets. The group also experienced higher manufacturing costs associated with serving strong industrial demand, compared to the year-ago period.



For the first half of 2008, Bearings and Power Transmission Group sales were $2.11 billion, up 11 percent from the same period a year ago. First-half 2008 EBIT was $181.4 million, or 8.6 percent of sales, compared to EBIT of $121.6 million, or 6.4 percent of sales, in the first half of 2007.

Mobile Industries Segment Results
In the second quarter, Mobile Industries sales were $628.2 million, a decrease of 1 percent from $632.5 million for the same period a year ago. Sales declined as a result of lower demand from the North American light-vehicle market sector, which included the effects of a strike in the automotive industry. Stronger demand in the heavy-truck, automotive aftermarket and off-highway market sectors, pricing and the impact of currency partially offset the drop in light-vehicle demand.



Second-quarter 2008 EBIT was $12.0 million, down 51 percent from $24.6 million in the second quarter of 2007. Results benefited from pricing, currency and mix, which were more than offset by higher material costs and related LIFO charges, the impact of the strike and an increase in automotive accounts-receivable reserves.



For the first half of 2008, Mobile Industries sales of $1.26 billion were up 2 percent from the same period a year ago. First-half 2008 EBIT was $38.6 million, or 3.1 percent of sales, compared to EBIT of $45.5 million, or 3.7 percent of sales, in the first half of 2007.



During the second half of 2008, strength in the heavy-truck, automotive aftermarket and off-highway market sectors is expected to be more than offset by lower light-vehicle and rail demand. The favorable impact of pricing, mix, portfolio-management and restructuring initiatives on second-half 2008 earnings is anticipated to be more than offset by higher raw-material costs and related LIFO charges, as well as the impact of lower demand. The company expects full-year results to be comparable to 2007 for the Mobile Industries segment.



Process Industries Segment Results
Process Industries had second-quarter sales of $328.4 million, up 23 percent from $266.2 million for the same period a year ago. The increase was driven by strong demand across broad industrial market sectors, new capacity coming online, pricing and currency.


Second-quarter EBIT was $63.6 million, up 66 percent from $38.4 million in the prior-year period. EBIT performance benefited from strong volume, increased capacity for large-bore products, pricing and currency, partially offset by higher raw-material and manufacturing costs.



For the first half of 2008, Process Industries sales were $641.0 million, up 24 percent from the same period a year ago. First-half 2008 EBIT was $123.5 million, or 19.3 percent of sales, compared to EBIT of $65.4 million, or 12.7 percent of sales, in the first half of 2007.



Timken expects to see continued top-line growth in the Process Industries segment in 2008 compared to 2007, particularly in market sectors where the company has focused its growth initiatives, including energy, heavy industry, distribution and in Asia. The company continues to expect strong results in Process Industries for the full year compared to 2007, although lower than the first half of 2008, tempered by higher raw-material costs.



Aerospace and Defense Segment Results

Aerospace and Defense, which serves the defense, civil helicopter aviation and commercial original equipment and aftermarket sectors, had second-quarter sales of $105.7 million, up 42 percent from $74.4 million for the same period last year. The increase was driven primarily by the Purdy acquisition, completed in the fourth quarter of last year, as well as strong demand and favorable pricing. The Purdy acquisition accounted for approximately two-thirds of the overall increase in Aerospace and Defense sales.



Second-quarter EBIT was $12.1 million, up 190 percent from $4.2 million in the prior-year period. Performance benefited from the Purdy acquisition and pricing, partially offset by investments in capacity expansions, including the aerospace and precision products plant in Chengdu, China, and higher manufacturing and logistics costs associated with managing strong demand through constrained facilities.



For the first half of 2008, Aerospace and Defense sales were $207.8 million, up 40 percent from the same period a year ago. The Purdy acquisition accounted for approximately two-thirds of the sales increase. First-half 2008 EBIT was $19.3 million, or 9.3 percent of sales, compared to EBIT of $10.7 million, or 7.2 percent of sales, in the first half of 2007.



Timken expects aerospace demand to remain strong and performance to benefit from the integration of the Purdy acquisition and the segment’s broad end-market profile, resulting in performance during the second half of the year that is anticipated to be comparable to the first six months of 2008 and well above 2007 results.



Steel Group Results
Sales for the Steel Group, including inter-group sales, were $518.9 million, an increase of 26 percent from $410.8 million for the same period last year. The increase was driven by raw-material surcharges and higher demand across all market sectors, except for automotive.



Second-quarter EBIT was $80.3 million, up 22 percent from $65.9 million in the prior-year period. Compared to the same period a year ago, results benefited from volume, mix and surcharges, which were partially offset by higher raw-material and related LIFO charges, as well as higher manufacturing costs.



For the first six months of 2008, Steel Group sales were $943.9 million, up 18 percent over the first half of last year. EBIT for the first half of 2008 was $133.7 million, or 14.2 percent of sales, compared to EBIT of $131.4 million, or 16.4 percent of sales in last year’s first half.



Second-half 2008 Steel Group performance is expected to be below the first half of the year, and above the second half of 2007. The company continues to expect to benefit from volume, mix and surcharges, partially offset by higher raw-material and related LIFO charges, as well as increased manufacturing costs.



Outlook

The company expects earnings per diluted share for 2008, excluding special items, to be $2.95 to $3.10 for the year and $0.65 to $0.75 for the third quarter, compared to $2.40 and $0.51, respectively, for the same periods in 2007. Industrial demand is expected to remain strong in 2008 as additional capacity comes online in key growth markets, while North American automotive demand is anticipated to decline. Timken will continue to pursue execution initiatives and portfolio optimization, as well as pricing and better working capital management to improve operating results and cash flow. The company expects these initiatives to contribute to record performance in 2008.

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