Sales of $4.1 billion up 29%, fueled by mobile and industrial demand
Company delivers strong operating performance
Record earnings forecasted for 2011


CANTON, Ohio: Jan. 27, 2011 — The Timken Company (NYSE: TKR) today reported sales of $4.1 billion for 2010, an increase of 29 percent from the prior year. Light-vehicle demand provided an early boost in sales and remained strong throughout the year. In the second half, accelerated demand in the heavy-truck, off-highway, energy and industrial distribution sectors further increased top-line growth. Surcharges and pricing contributed to the sales increase as well.

In 2010, Timken earned $267.4 million from continuing operations net of non-controlling interest, or $2.73 per diluted share. In the prior year, the company's continuing operations incurred a loss of $61.4 million net of non-controlling interest, or $0.64 per share.

"We are pleased with our performance in 2010. Our strong profitability and cash flow, leveraging this mild economic recovery, demonstrate that our efforts over the past few years to transform the company are succeeding," said James W. Griffith, Timken president and chief executive officer. "Timken is emerging as a stronger company, focused on performance for our customers and our shareholders. These improvements provide a firm foundation for our future growth."

In 2010, excluding special items, Timken posted $288.9 million in income from continuing operations net of non-controlling interest, or $2.95 per diluted share. That compares with 2009 income of $50.9 million from continuing operations, net of non-controlling interest, or $0.53 per share.

Compared with the prior year, the company’s 2010 performance benefited from higher volume, pricing and surcharges, as well as an improved cost structure and greater manufacturing efficiencies. Increased raw material costs and related LIFO charges partially offset these benefits, in addition to higher selling and administrative costs from the company's performance-based compensation plans.

Special items for continuing operations in 2010 totaled $21.5 million of expense, net of tax, principally associated with manufacturing rationalization and restructuring activities. In 2009, special items for continuing operations amounted to $112.3 million of expense, net of tax, and included impairment charges as well as severance associated with the company’s cost-reduction efforts.

During the past year, the company took significant actions to strengthen both its operational and performance capabilities. The company:

• Introduced a record number of new products, including materials, components and assemblies. Examples include wind energy products for multi-megawatt wind turbines and proprietary new wear-resistant bearing technology that outperforms conventional coatings;
  
• Launched a new engineering system to reduce concept-to-commercialization time;
  
• Opened its wind bearing facility in Xiangtan, China, and a distribution center in Duncan, South Carolina, as well as announced a number of investments in its Canton, Ohio, steel operations to improve productivity and safety;
  
• Expanded its sales infrastructure in Asia, adding offices in Indonesia, China and Vietnam;
  
• Completed the last major implementation phase of its SAP "Project O.N.E." global enterprise system;
  
• Acquired QM Bearings, headquartered in Ferndale, Wash., extending its industrial product line with spherical roller bearing steel-housed units and couplings;
  
• Purchased the assets of City Scrap & Salvage Co. in Akron, Ohio, to improve supply of raw materials to its steel facilities in Canton;
  
• Increased shareholder dividends twice during the year, restoring the quarterly dividend to the pre-recession level of 18 cents per share; and
  
• Made $230 million in contributions to defined benefit pension plans and established a VEBA (voluntary employee benefits arrangement) trust to pre-fund retiree-medical costs with an initial $54-million contribution.

Fourth-Quarter Results

For the quarter ended Dec. 31, 2010, Timken reported sales of $1.1 billion, an increase of 38 percent from the same period in 2009. The increase reflects strengthening global demand across most of the company’s end markets, higher surcharges and pricing.

In the fourth quarter of 2010, the company generated income from continuing operations of $0.87 per diluted share net of non-controlling interest, compared with a fourth-quarter loss of $0.08 per share in 2009. Special items recorded in the fourth quarter totaled $0.13 per share of income, including a one-time tax benefit related to the VEBA trust. That benefit was partially offset by restructuring charges.

Excluding special items, income from continuing operations was $0.74 per diluted share net of non-controlling interest, compared with $0.31 per share for the same period last year. When compared with the year-earlier period, the company’s performance benefited from higher volume, surcharges, pricing and manufacturing efficiencies, partially offset by higher raw material costs and related LIFO charges, as well as higher selling and administrative costs.

As of Dec. 31, 2010, total debt was $514 million, or 20.9 percent of capital. At year-end, the company had cash of $877 million, or $363 million in excess of total debt, compared with a net cash position of $243 million as of Dec. 31, 2009. The company generated $313 million in net cash from operating activities in 2010, with free cash flow (net of capital expenditures and dividends) of $146 million. The improvement reflects the benefit of strong earnings, partially offset by working capital requirements in support of higher demand, as well as pension and VEBA trust contributions. Excluding the fourth-quarter discretionary pension and VEBA contributions of $154 million, free cash flow was $249 million. The company's available liquidity was $1.8 billion at Dec. 31, 2010.

Bearings and Power Transmission Group Results

Timken's Bearings and Power Transmission Group posted sales of $2.8 billion in 2010, up 13 percent from the prior year. The group earned $383 million before interest and taxes (EBIT) during the year, an increase of 73 percent from 2009.

The group's fourth-quarter sales in 2010 were $721.8 million, up 17 percent from the 2009 comparison. The group's EBIT in the fourth quarter was $94.6 million, an increase of 32 percent from the previous year.

Mobile Industries Segment Results

Mobile Industries' sales were $1.6 billion in 2010, up 25 percent from $1.2 billion a year ago. The increase reflects recovering demand across all mobile sectors, except rail, as well as pricing.

Mobile Industries achieved record EBIT of $223.5 million for the year, up significantly from $30.5 million earned in 2009. Higher volume, better manufacturing utilization and pricing drove the increase, partially offset by a change in LIFO reserve and higher selling and administrative costs.

Fourth-quarter sales for the Mobile Industries segment in 2010 were $388.6 million, compared with $324.6 million in sales the same period last year. The 20-percent increase reflects stronger demand, led by the off-highway and heavy-truck market sectors, and pricing. EBIT in the fourth quarter of 2010 was $52 million, up from $31.1 million earned in the fourth quarter of 2009. Higher volume and pricing drove the increase, partially offset by higher LIFO charges and selling and administrative costs.

Process Industries Segment Results

Sales for the Process Industries segment were $903.4 million in 2010, an increase of 12 percent from $808.7 million a year ago. Recovering industrial distribution demand in the second half of the year and growth in Asia drove the increase.

Process Industries generated $138.2 million in EBIT for the year, up 17 percent from the prior year's EBIT of $118.5 million. The increase reflects the impact of higher volume and better manufacturing utilization, partially offset by higher material costs, related LIFO charges, and selling and administrative costs.

Process Industries' fourth quarter 2010 sales were $250.7 million, compared with $189.6 million in the fourth quarter last year. The 32-percent increase reflects stronger industrial distribution demand, principally in North America, as well as continued growth in Asia, including wind energy. Fourth quarter EBIT was $45.2 million, up 89 percent from last year's EBIT of $23.9 million. Higher volume and better manufacturing utilization drove the increase, partially offset by LIFO charges and higher selling and administrative costs.

Aerospace and Defense Segment Results

The Aerospace and Defense segment reported sales of $338.3 million in 2010, down 19 percent from $417.7 million a year ago. The decline reflects weak demand in the defense, commercial and general aviation sectors.

The segment's 2010 EBIT fell to $21.2 million, compared with EBIT of $72.5 million a year ago. The decline reflects lower sales and manufacturing utilization, higher LIFO inventory expense and selling and administrative costs.

Aerospace and Defense sales fell 17 percent to $82.5 million in fourth quarter, compared with $99 million the prior year. The decline reflects reduced demand, especially in the defense sector. The business incurred a loss of $2.6 million for the quarter, versus EBIT of $16.6 million a year ago, driven by lower sales volume and manufacturing utilization, as well as a change in LIFO reserve and higher selling and administrative costs. Also during the quarter, the business incurred $7 million of expense to increase inventory and warranty reserves.

Steel Group Results

Timken's Steel Group posted 2010 sales of $1.4 billion, including inter-group sales, an increase of 90 percent over 2009 sales of $714.9 million, reflecting increased demand across all of the group's major markets. Raw material surcharges increased approximately $250 million from a year ago.

The Steel Group achieved EBIT income of $146.3 million in 2010, compared with a loss of $57.9 million in 2009. The increase reflects strong demand, surcharges and improved manufacturing utilization, which was partially offset by higher material costs and a change in LIFO reserve.

The Steel Group recorded $379.8 million in sales, including inter-group sales, in the fourth quarter, up 119 percent from the prior year's fourth-quarter sales of $173.5 million. Stronger demand, particularly in the industrial and oil and gas market sectors, and surcharges contributed to the improvement. Surcharges increased approximately $65 million from the fourth quarter last year. EBIT in the fourth quarter was $42 million, up from last year's fourth-quarter EBIT of $2.5 million. Stronger demand, improved mix, surcharges and manufacturing utilization were the primary drivers of the increase, partially offset by higher material costs and the change in LIFO reserve.

Outlook

The company expects the global economy to grow modestly in 2011 following 2010's recovery. Timken is projecting its 2011 sales to increase approximately 10 to 15 percent from 2010 sales. In its business segments for the full year, Timken expects:

• Mobile Industries sales to be up slightly, as growth in the segment's end markets should be mostly offset by sales attrition in the light-vehicle sector from past pricing actions;
  
• Process Industries sales to be up approximately 10 to 15 percent, reflecting strengthening global industrial distribution, growth in Asia and sales from new product lines;
  
• Aerospace and Defense segment sales to increase approximately 5 to 10 percent, driven by increased demand in commercial aerospace, and health and positioning control markets; and
  
• Steel Group sales to increase 20 to 25 percent, reflecting improved demand across all market sectors, as well as surcharges.
  
  
  

  Beginning in 2011, Timken will discontinue its practice of excluding special items when providing earnings estimates. On that basis, the company expects to achieve full-year 2011 earnings from continuing operations ranging from $3.30 to $3.60 per diluted share, assuming a 34-percent tax rate, versus 2010 results of $2.73 per share. The company expects cash from operating activities to be approximately $340 million, after $100 million of discretionary pension contributions. Free cash flow is expected to be approximately $50 million after capital expenditures of around $220 million and dividends of approximately $70 million.
  
  
  

  Conference Call Information
  
  
  

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