The Timken Company (TKR) filed Quarterly Report for the period ended 2009-03-31.

Timken Company's activities are divided into two principal segments. The first is anti-friction bearings and the other is steel. Timken is a leading international manufacturer of highly engineered bearings alloy and specialty steels and components as well as related products and services. The company also produces custom-made steel products including precision steel components for automotive and industrial customers. The Timken Company has a market cap of $1.73 billion; its shares were traded at around $17.9 with a P/E ratio of 7.1 and P/S ratio of 0.3. The dividend yield of The Timken Company stocks is 4.1%. The Timken Company had an annual average earning growth of 2% over the past 10 years.

Highlight of Business Operations:
Gross profit margin decreased in the first quarter of 2009, compared to the first quarter of 2008, due to the impact of lower sales volume across most market sectors of approximately $115 million, lower steel surcharges of $80 million and higher manufacturing costs of approximately $100 million, partially offset by lower raw material costs of approximately $50 million, improved pricing and sales mix of approximately $70 million and lower logistics costs of approximately $25 million. The higher manufacturing costs were primarily driven by the Mobile Industries and Steel segments as a result of the underutilization of plant capacity. The lower raw material costs are primarily due to lower scrap steel costs as scrap steel and other raw material costs have fallen in 2009 from historically high levels in 2008.



In the first quarter of 2009, impairment and restructuring charges were $8.5 million for the Mobile Industries segment, $4.5 million for the Process Industries segment, $0.5 million for the Steel segment and $1.2 million for Corporate. Corporate represents corporate administrative expenses that are not allocated to any of the reportable segments. In the first quarter of 2008, impairment and restructuring charges were $2.4 million for the Mobile Industries segment, $0.2 million for the Process Industries segment and $0.3 million for the Steel segment. The following discussion explains the major impairment and restructuring charges recorded for the periods presented; however, it is not intended to reflect a comprehensive discussion of all amounts in the table above.



In March 2009, the Company announced the realignment of its organization to improve efficiency and reduce costs. The Company had targeted pretax savings of approximately $30 million to $40 million in annual selling and administrative costs. In light of the Company’s revised forecast indicating significantly reduced sales and earnings for the year, the Company is now expanding the target to approximately $80 million. The implementation of these savings began in the first quarter of 2009 and is expected to be significantly completed by the end of the fourth quarter of 2009, with full-year savings expected to be achieved in 2010. As the Company streamlines its operating structure, it expects to cut its salaried workforce by up to 400 positions in 2009, incurring severance costs of approximately $10 million to $20 million. During the first quarter of 2009, the Company recorded $2.2 million of severance and related benefit costs related to this initiative to eliminate approximately 26 associates. Of the $2.2 million charge, $1.2 million related to Corporate, $0.4 million related to the Mobile Industries segment, $0.4 million related to the Steel segment and $0.2 million related to the Process Industries segment.



In March 2007, the Company announced the planned closure of its manufacturing facility in Sao Paulo, Brazil. The closure of this manufacturing facility was subsequently delayed to serve higher customer demand. However, with the current downturn in the economy, the Company believes it will close this facility before the end of 2010. This closure is targeted to deliver annual pretax savings of approximately $5 million, with expected pretax costs of approximately $25 million to $30 million, which includes restructuring costs and rationalization costs recorded in cost of products sold and selling, administrative and general expenses. Due to the delay in the closure of this manufacturing facility, the Company expects to realize the $5 million of annual pretax savings before the end of 2010, once this facility closes. Mobile Industries has incurred cumulative pretax costs of approximately $18.5 million as of March 31, 2009 related to this closure. During the first quarter of 2009 and 2008, the Company recorded $0.6 million and $1.0 million, respectively, of severance and related benefit costs associated with the planned closure of the Company’s Sao Paulo, Brazil manufacturing facility.



The Company recorded impairment charges of $3.0 million and exit costs of $0.6 million during the first quarter of 2009 related to Process Industries’ rationalization plans. During the first quarter of 2008, the Company recorded impairment charges of $0.1 million and exit costs of $0.1 million as a result of Process Industries’ rationalization plans. Including rationalization costs recorded in cost of products sold and selling, administrative and general expenses, the Process Industries segment has incurred cumulative pretax costs of approximately $41.2 million as of March 31, 2009 for these rationalization plans. As of March 31, 2009, the Process Industries segment has realized approximately $15 million in annual pretax savings.



For the first quarter of 2009, other income (expense) primarily consisted of $6.9 million of foreign currency exchange gains, $0.7 million of export incentives and $0.5 million of royalty income, partially offset by $1.3 million of losses on the disposal of fixed assets and $0.6 million of losses from equity investments. For the first quarter of 2008, other income (expense) primarily consisted of $2.9 million of losses on the disposal of fixed assets and $1.7 million of foreign currency exchange losses.

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