*Mobile market demand leads volume improvement
*Companywide execution and cost-reduction initiatives drive earnings improvement
*Strategic initiatives position the company to leverage the improving economic recovery

The Timken Company (NYSE: TKR) today reported sales of $913.7 million during the first quarter of 2010, an increase of 5 percent over the same period a year ago. Despite weaker demand in certain aerospace and industrial market sectors, higher volume in the company’s mobile end markets drove the overall sales improvement, with contributions from surcharges and currency.



Income from the company’s continuing operations, net of noncontrolling interest, in the first quarter was $28.3 million, or $0.29 per diluted share, compared with $4.5 million, or $0.05 per share, a year ago. Excluding special items, income from continuing operations, net of noncontrolling interest, was $55.2 million, or $0.57 per diluted share, compared with $20.7 million, or $0.22 per diluted share, a year ago.



Special items associated with continuing operations, net of tax, in the first quarter of 2010 totaled $26.9 million of expense compared with $16.2 million of expense in the same period last year. The expense in 2010 included a one-time non-cash charge of $21.6 million to record the deferred tax impact of recently-enacted U.S. health care legislation, while 2009 included severance and impairment charges.



The improvement in first-quarter earnings primarily reflects increased demand, improved manufacturing performance, cost reduction initiatives, and the timing effect of the company’s material surcharge-recovery mechanism. Partially offsetting these benefits were lower aerospace and industrial demand, LIFO expense (last-in, first-out inventory accounting) and higher selling, general and administrative costs related to incentive compensation plans.



“We have increased our profitability with structural improvements and operating efficiencies throughout the company,” said James W. Griffith, Timken president and chief executive officer. “In addition to our improved performance this quarter, we are positioned for greater value creation as we leverage the recovery expected in our industrial markets.”



Among first-quarter developments, the company:



Commenced wind-bearing production at its Timken XEMC (Hunan) Bearings Co., Ltd. facility in Xiangtan, China;

Increased its penetration on the U.S. Army’s fleet of Apache Longbow helicopters, making Timken the only aftermarket manufacturer approved to supply all five gearboxes onboard the Apache;

Introduced a new line of tapered roller bearing housed units that are ideal for rugged applications, such as in process and material-handling equipment; and

Was recognized as one of the World’s 100 Most Ethical Companies for 2010 by the Ethisphere Institute.



Total debt at March 31, 2010, was $515.9 million, or 24.0 percent of capital, essentially unchanged from year-end, 2009. As of March 31, 2010, the company’s cash position was $709 million, or $193 million in excess of total debt. This compares with a net cash position of $243 million as of Dec. 31, 2009. The change reflects strong cash flow from earnings, which was more than offset by working-capital requirements and pension contributions, including a discretionary payment of $100 million in the quarter. The company expects to generate positive free cash flow for full year driven by improved earnings.



Bearings and Power Transmission Group Results



The Bearings and Power Transmission Group had first-quarter sales of $666.1 million, up 5 percent from $635.0 million for the same period last year. Earnings before interest and taxes (EBIT) for the first quarter were $82.2 million, up 39 percent from $59.3 million in the first quarter of 2009.



Mobile Industries Segment Results



In the first quarter, Mobile Industries’ sales were $367.5 million, a 22-percent increase from last year’s first-quarter sales of $300.6 million. The significant increase was driven by stronger demand and currency. Sales increases in light vehicle and heavy truck market sectors yielded the largest increases, while sales in off-highway and rail market sectors were lower than the prior year.



EBIT was $42.5 million for the current period, compared with an EBIT loss of $2.3 million for the same period a year ago. The increase was driven by improved demand, better manufacturing utilization, and cost reduction, restructuring and pricing initiatives.



Process Industries Segment Results



Process Industries had first-quarter sales of $206.6 million, down 8 percent from $225.1 million for the same period a year ago. Sales declined in most market sectors, including aggregate, gear drives, oil and gas, and industrial distribution, while sales in wind energy and power generation were up compared with last year. The net decline in demand was partially offset by a favorable currency effect.



First-quarter EBIT was $26.9 million, down 38 percent from $43.5 million in the same period a year ago. The benefit of cost-reduction initiatives was more than offset by reduced volume; higher selling, administrative and general costs; and costs associated with the ramp-up of new wind-energy production.



Aerospace and Defense Segment Results



Aerospace and Defense had first-quarter sales of $92.1 million, down 16 percent from $109.3 million for the same period last year. The decline primarily reflects further reductions in demand from commercial and general aviation market sectors.



First-quarter EBIT was $12.8 million, down 29 percent from $18.1 million a year ago. The impact of lower demand and higher selling, general and administrative costs was partially offset by manufacturing execution and cost-cutting initiatives.



Steel Group Results



Sales for the Steel Group, including inter-group sales, were $270.3 million, an increase of 9 percent from $248.6 million for the same period last year. The increase was driven by stronger light vehicle demand and higher raw-material surcharges, partially offset by lower energy and industrial volume.



First-quarter EBIT was $19.9 million and compared with an EBIT loss of $7.3 million for the same period a year ago. EBIT performance benefited from improved volume, manufacturing utilization, cost reduction initiatives, and the timing of surcharges in excess of raw-material costs. Partially offsetting these benefits were negative mix and LIFO expense.



Outlook



The company’s outlook for 2010 reflects a general improvement in the global economy that varies by end-market and geographic region. Timken anticipates an increase in sales of approximately 20 to 25 percent over 2009, driven primarily by stronger demand in the Steel and Mobile Industries segments. Steel Group sales are expected to increase 65 to 75 percent from 2009, due to improved demand across all market sectors, as well as surcharges. Mobile Industries segment sales are expected to be up approximately 15 to 20 percent, as increased demand across most market sectors is expected to be partially offset by lost business resulting from the company’s initiatives to re-price low-margin business. Sales in the Process Industries segment are expected to be up slightly, as growth initiatives in energy and Asia and new product introductions offset declines in other industrial market sectors. Aerospace and Defense segment sales are expected to decline slightly due to decreases in commercial and general aviation, but are expected to improve in the second half.



The company is raising its 2010 full-year earnings estimate, excluding special items, to a range from $1.60 to $1.80 per diluted share, compared with its prior estimate of $0.85 to $1.15 per diluted share. The company expects to deliver strong free cash flow in 2010, driven by improved earnings and effective working capital management and cost controls.



Conference Call Information



The company will host a conference call for investors and analysts today to discuss financial results.



Conference Call: Thursday, April 29, 2010

11:00 a.m. Eastern Time

All Callers: Live Dial-In: 800-344-0593 or 706-634-0975
(Call in 10 minutes prior to be included.)
Conference ID: 68505133
Replay Dial-In through May 7, 2010:
800-642-1687 or 706-645-9291

Live Webcast: www.timken.com/investors


About The Timken Company



The Timken Company (NYSE: TKR, http://www.timken.com) keeps the world turning with innovative friction management and power transmission products and services, enabling our customers’ machinery to perform more efficiently and reliably. With sales of $3.1 billion in 2009, operations in 26 countries/territories and approximately 17,000 employees, Timken is Where You Turn® for better performance.

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