The Timken Company (NYSE: TKR) today reported record third-quarter
sales of $1.48 billion, an increase of 18 percent over the same
period a year ago. During the quarter, the company benefited from
the favorable impact of surcharges, pricing and currency, as well
as acquisitions that serve the aerospace and energy market sectors.
Strong sales in global industrial markets largely offset the impact
of weaker automotive demand. Third-quarter income from continuing
operations was $130.4 million, or $1.35 per diluted share, compared
to $41.2 million, or $0.43 per diluted share, in the third quarter
a year ago. Excluding special items, income from continuing
operations increased 179 percent to $135.8 million, or $1.41 per
diluted share, in the third quarter of 2008, compared to $48.6
million, or $0.51 per diluted share, in the third quarter of 2007.
Third-quarter earnings exceeded the company�s prior estimate of
$1.00 to $1.10, principally due to the impact of last-in, first-out
(LIFO) accounting, resulting from projected lower raw-material
costs, and the timing of raw-material cost recovery. The record
quarterly earnings benefited from raw-material surcharges, pricing
and mix, as well as income from LIFO. These benefits were partially
offset by higher manufacturing, logistics and material costs in the
quarter compared to a year ago. Third-quarter special items, net of
tax, included manufacturing rationalization, impairment and
restructuring charges totaling $5.4 million, compared to $7.4
million of similar charges in the third quarter of 2007. �Our
strategy of shifting our portfolio toward more attractive global
industrial markets is clearly delivering results,� said James W.
Griffith, Timken�s president and chief executive officer. �While
the economy today is unsettled, we still see strong demand for our
products from aerospace, energy and heavy industry market sectors,
as well as growth in Asia. We continue to take actions to deal with
declining automotive demand. Our company is well-positioned to
navigate the uncertain markets we face.� During the quarter, the
company: Invested $14 million in a new thermal treatment facility
at its steel plant in Canton, Ohio, that will increase capacity
primarily suited for use in the energy and industrial market
sectors; Began production of large-bore bearings at its plant in
Wuxi, China, to serve customers in key market sectors including
cement, mining, wind energy and rail; and Received an improved
corporate debt rating from Moody�s Investors Service of �Baa3�
(investment grade), reflecting the company�s strong financial
performance and balance sheet. Total debt at Sept. 30, 2008, was
$739.2 million, or 25.1 percent of capital. Net debt at Sept. 30,
2008, was $644.5 million, or 22.6 percent of capital, compared to
$693.0 million, or 26.1 percent of capital, at Dec. 31, 2007. The
decrease in net debt reflects strong operating cash flow. In
addition to cash and cash equivalents of $94.7 million at Sept. 30,
2008, the company has liquidity available under a $500 million
senior credit facility and a $200 million accounts-receivable
securitization program. Availability under these committed
facilities totaled $563.5 million at Sept. 30, 2008. The company
expects to generate positive 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 nine months of 2008, sales were $4.45
billion, an increase of 14 percent from the same period in 2007.
Income from continuing operations per diluted share for the first
nine months of 2008 was $3.15, compared to $1.79 last year. Special
items, net of tax, in the first nine months of 2008 totaled $3.3
million of expense compared to $9.7 million of expense in the
prior-year period. These special items included charges related to
restructuring, rationalization and impairment, partially offset by
a gain on a real-estate divestment associated with a prior plant
closure. Excluding special items, income from continuing operations
per diluted share in the first nine months of 2008 increased 69
percent to $3.19, versus $1.89 in the same period a year ago.
During the first nine 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 third-quarter sales of $1.00
billion, up 8 percent from $918 million for the same period last
year. The group benefited from strong markets within its Process
Industries and Aerospace and Defense segments, while Mobile
Industries markets were weaker. The group benefited from the
favorable impact of the Purdy acquisition, pricing and currency,
which were partially offset by weaker demand in the Mobile
Industries segment. Bearings and Power Transmission Group earnings
before interest and taxes (EBIT) for the third quarter were $98.8
million, up 123 percent from $44.2 million in the third quarter of
2007, benefiting from strong global industrial demand, pricing,
shifting capacity to more profitable segments and currency, which
were partially offset by high material costs and weakness in
automotive markets. The group also experienced higher manufacturing
costs associated with serving strong industrial demand, compared to
the year-ago period. For the first nine months of 2008, Bearings
and Power Transmission Group sales were $3.11 billion, up 10
percent from the same period a year ago. EBIT for the first nine
months of 2008 was $282.4 million, or 9.1 percent of sales,
compared to EBIT of $165.9 million, or 5.9 percent of sales, in the
first nine months of 2007. Mobile Industries Segment Results In the
third quarter, Mobile Industries sales were $539.0 million, a
decrease of 8 percent from $586.7 million for the same period a
year ago. Sales declined as a result of lower demand from the North
American and European light-vehicle market sectors. Stronger demand
in the heavy-truck and off-highway market sectors and pricing
partially offset the drop in light-vehicle demand. Third-quarter
2008 EBIT was $4.7 million, down 55 percent from $10.4 million in
the third quarter of 2007. Results benefited from pricing and mix,
which were more than offset by higher material and logistics costs,
and the underutilization of manufacturing capacity due to lower
demand. In addition, the company continued to increase its
accounts-receivable reserves for automotive customers. During the
quarter, the company further reduced total employment levels and
temporarily idled factories beyond normal seasonal shutdowns in
response to weakness in demand. For the first nine months of 2008,
Mobile Industries sales of $1.80 billion were down 1 percent from
the same period a year ago. EBIT for the first nine months of 2008
was $45.6 million, or 2.5 percent of sales, compared to EBIT of
$55.9 million, or 3.1 percent of sales, in the first nine months of
2007. The company expects fourth-quarter 2008 Mobile Industries
performance to be below the prior-year period, as lower demand in
the light-vehicle and rail market sectors and higher raw-material
costs are anticipated to more than offset strong pricing compared
to 2007. The company expects full-year results to be below 2007
levels for the Mobile Industries segment. Process Industries
Segment Results Process Industries had third-quarter sales of
$346.3 million, up 33 percent from $260.7 million for the same
period a year ago. The increase was driven by strong demand across
broad industrial market sectors, which was supplied through new
capacity coming online and shifting capacity from other market
sectors. In addition, the company benefited from strong pricing and
currency. Third-quarter EBIT was $81.7 million, up 144 percent from
$33.4 million in the prior-year period. EBIT benefited from strong
volume, increased capacity for large-bore products and pricing,
partially offset by higher raw-material and manufacturing costs.
For the first nine months of 2008, Process Industries sales were
$987.3 million, up 27 percent from the same period a year ago. EBIT
for the first nine months of 2008 was $205.1 million, or 20.8
percent of sales, compared to EBIT of $98.8 million, or 12.7
percent of sales, in the first nine months of 2007. Timken expects
to see increased sales and earnings in the Process Industries
segment during the fourth-quarter of 2008 compared to 2007, driven
by end-market demand, increased capacity and improved pricing.
Aerospace and Defense Segment Results Aerospace and Defense had
third-quarter sales of $110.0 million, up 56 percent from $70.4
million for the same period last year. Approximately half of the
increase in sales was driven by the Purdy acquisition, completed in
the fourth quarter of last year, with the remainder due to strong
demand and favorable pricing. Third-quarter EBIT was $12.5 million,
up significantly from $0.4 million in the prior-year period.
Performance benefited from the Purdy acquisition, pricing, volume
and improved manufacturing productivity, partially offset by
investments in capacity expansions, including the aerospace and
precision products plant in Chengdu, China. For the first nine
months of 2008, Aerospace and Defense sales were $317.8 million, up
45 percent from the same period a year ago. The Purdy acquisition
accounted for approximately 60 percent of the�sales increase. EBIT
for the first nine months of 2008 was $31.8 million, or 10.0
percent of sales, compared to EBIT of $11.1 million, or 5.1 percent
of sales, in the first nine months of 2007. Timken expects
aerospace demand to remain strong during the fourth quarter and
earnings to be comparable with the same period last year. Steel
Group Results In the third quarter, sales for the Steel Group,
including inter-group sales, were $536.5 million, an increase of 41
percent from $381.1 million for the same period last year. The
increase was driven by raw-material surcharges, the impact of the
Boring Specialties acquisition completed in the first quarter of
2008, and favorable mix as a result of higher demand across all
market sectors, except automotive. Third-quarter EBIT was $133.8
million, up 156 percent from $52.3 million in the prior-year
period. Compared to the same period a year ago, results benefited
from the timing of surcharges in excess of raw-material costs, and
better mix. The rapid decline in material costs at the end of the
third quarter resulted in LIFO income, compared to LIFO expense in
the third quarter of 2007. These factors more than offset weaker
automotive demand and the impact of inflation. For the first nine
months of 2008, Steel Group sales were $1.48 billion, up 25 percent
over the first nine months of last year. EBIT for the first nine
months of 2008 was $267.5 million, or 18.1 percent of sales,
compared to EBIT of $183.7 million, or 15.5 percent of sales in the
same period last year. The company anticipates fourth-quarter Steel
Group performance to be below the prior-year period due primarily
to raw-material costs not fully offset by surcharges during the
quarter and the impact of lower automotive production volumes. The
negative impact from material cost recovery is due to timing, as
the company benefited from surcharges in excess of its material
costs in the third quarter of 2008. Outlook The global economic
outlook continues to soften, while credit markets are expected to
remain constrained. The company is seeing weakness in its North
American and Western European markets, while demand in Asia
continues to grow at a slower pace. Demand for the company�s
products in aerospace, energy and heavy industry markets remains
relatively strong on a global basis. The company expects earnings
per diluted share for 2008, excluding special items, to be $3.35 to
$3.45 for the year and $0.16 to $0.26 for the fourth quarter,
compared to $2.40 and $0.51, respectively, for the same periods in
2007. Fourth-quarter expectations are below the company�s previous
estimate due primarily to the timing of raw-material cost recovery
in the Steel Group, which benefited the third quarter, and weaker
automotive demand for both Steel and Mobile Industries. The company
has reaffirmed its expectation for record full-year earnings.
Conference Call Information The company will host a conference call
for investors and analysts today to discuss financial results.
Conference Call: � Friday, Oct. 24, 2008 9 a.m. Eastern Time � Live
Dial-In: 800-344-0593 or 706-634-0975 (Call in 10 minutes prior to
be included.) Conference ID: 24735640 � Replay Dial-In through Nov.
3, 2008: 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 to perform faster and more
efficiently. With sales of $5.2 billion in 2007, operations in 27
countries and approximately 25,000 employees, Timken is Where You
Turn� for better performance. Certain statements in this news
release (including statements regarding the company's forecasts,
estimates and expectations) that are not historical in nature are
"forward-looking" statements within the meaning of the Private
Securities Litigation Reform Act of 1995. In particular, the
statements related to expectations regarding the future performance
of the specific reporting segments and the company�s financial
performance, including the information under the heading �Outlook,�
are forward-looking. The company cautions that actual results may
differ materially from those projected or implied in
forward-looking statements due to a variety of important factors,
including: the finalization of the company�s financial statements
for the third quarter of 2008; fluctuations in raw-material and
energy costs and their impact on the operation of the company�s
surcharge mechanisms; the impact of the company�s LIFO accounting;
the company�s ability to respond to the changes in its end markets
that could affect demand for the company�s products, especially in
the automotive industry; changes in the global economic and
financial markets; changes in the financial health of the company�s
customers; changes in the expected costs associated with product
warranty claims; the impact on operations of general economic
conditions, higher raw-material and energy costs, fluctuations in
customer demand; and the company's ability to achieve the benefits
of its future and ongoing programs and initiatives, including,
without limitation, the implementation of its Mobile Industries
Segment restructuring program and initiatives and the
rationalization of the company�s Canton bearing operations. These
and additional factors are described in greater detail in the
company's Annual Report on Form 10-K for the year ended Dec. 31,
2007, page 40 and in the company�s Form 10-Q for the quarter ended
June 30, 2008. The company undertakes no obligation to update or
revise any forward-looking statement. (Unaudited) � � � � � � �
CONDENSED CONSOLIDATED STATEMENT OF INCOME AS REPORTED ADJUSTED (1)
(Dollars in thousands, except share data) Q3 2008 � Q3 2007 � Nine
Months 2008 � Nine Months 2007 Q3 2008 � Q3 2007 � Nine Months 2008
� Nine Months 2007 Net sales $ 1,482,684 $ 1,261,239 $ 4,452,903 $
3,894,983 $ 1,482,684 $ 1,261,239 $ 4,452,903 $ 3,894,983 Cost of
products sold 1,075,595 1,005,448 3,388,291 3,072,631 1,075,595
1,005,448 3,388,291 3,072,631 Manufacturing rationalization/
reorganization expenses - cost of products sold � 333 � � � 5,382 �
� � 2,575 � � � 27,945 � � - � � � - � � � - � � � - � Gross Profit
$ 406,756 $ 250,409 $ 1,062,037 $ 794,407 $ 407,089 $ 255,791 $
1,064,612 $ 822,352 Selling, administrative & general expenses
(SG&A) 194,027 169,989 566,517 511,942 194,027 169,989 566,517
511,942 Manufacturing rationalization/ reorganization expenses -
SG&A (369 ) 852 1,690 2,831 - - - - (Gain) loss on divestitures
- 152 (8 ) 468 - - - - Impairment and restructuring � 3,330 � � �
11,840 � � � 8,013 � � � 32,870 � � - � � � - � � � - � � � - �
Operating Income $ 209,768 $ 67,576 $ 485,825 $ 246,296 $ 213,062 $
85,802 $ 498,095 $ 310,410 Other (expense) (683 ) (3,933 ) (8,325 )
(10,753 ) (683 ) (3,933 ) (8,325 ) (10,753 ) Special items - other
(expense) income � (558 ) � � 983 � � � 19,987 � � � 3,355 � � - �
� � - � � � - � � � - � Earnings Before Interest and Taxes (EBIT)
(2) $ 208,527 $ 64,626 $ 497,487 $ 238,898 $ 212,379 $ 81,869 $
489,770 $ 299,657 Interest expense, net � (9,630 ) � � (8,317 ) � �
(29,357 ) � � (24,886 ) � (9,630 ) � � (8,317 ) � � (29,357 ) � �
(24,886 ) Income From Continuing Operations Before Income Taxes
198,897 56,309 468,130 214,012 202,749 73,552 460,413 274,771
Provision for income taxes � 68,484 � � � 15,066 � � � 164,309 � �
� 42,914 � � 66,922 � � � 24,954 � � � 153,317 � � � 93,972 �
Income From Continuing Operations $ 130,413 � � $ 41,243 � � $
303,821 � � $ 171,098 � $ 135,827 � � $ 48,598 � � $ 307,096 � � $
180,799 � Income from discontinued operations net of income taxes,
special items (3) � - � � � - � � � - � � � 665 � � - � � � - � � �
- � � � - � Net Income $ 130,413 � � $ 41,243 � � $ 303,821 � � $
171,763 � $ 135,827 � � $ 48,598 � � $ 307,096 � � $ 180,799 � � �
Earnings Per Share - Continuing Operations $ 1.36 $ 0.43 $ 3.18 $
1.81 $ 1.42 $ 0.51 $ 3.21 $ 1.91 Earnings Per Share - Discontinued
Operations � - � � � - � � � - � � � 0.01 � � - � � � - � � � - � �
� - � Earnings Per Share $ 1.36 $ 0.43 $ 3.18 $ 1.82 $ 1.42 $ 0.51
$ 3.21 $ 1.91 � Diluted Earnings Per Share - Continuing Operations
$ 1.35 $ 0.43 $ 3.15 $ 1.79 $ 1.41 $ 0.51 $ 3.19 $ 1.89 Diluted
Earnings Per Share - Discontinued Operations � - � � � - � � � - �
� � 0.01 � � - � � � - � � � - � � � - � Diluted Earnings Per Share
$ 1.35 $ 0.43 $ 3.15 $ 1.80 $ 1.41 $ 0.51 $ 3.19 $ 1.89 � Average
Shares Outstanding 95,878,978 95,029,369 95,574,420 94,494,531
95,878,978 95,029,369 95,574,420 94,494,531 Average Shares
Outstanding-assuming dilution � 96,468,621 � � � 96,095,860 � � �
96,314,814 � � � 95,483,420 � � 96,468,621 � � � 96,095,860 � � �
96,314,814 � � � 95,483,420 � � BUSINESS SEGMENTS (Dollars in
thousands) (Unaudited) � Q3 2008 � Q3 2007 � Nine Months 2008 �
Nine Months2007 Mobile Industries Segment � � � � Net sales to
external customers $ 538,967 $ 586,736 $ 1,802,457 $ 1,828,688
Adjusted earnings (loss) before interest and taxes (EBIT) (2) 4,673
10,401 45,599 $ 55,905 Adjusted EBIT Margin (2) 0.9 % 1.8 % 2.5 %
3.1 % � � � Process Industries Segment Net sales to external
customers $ 345,482 $ 260,062 $ 985,198 $ 774,676 Intergroup sales
� 784 � � � 600 � � � 2,063 � � � 1,451 � Total net sales $ 346,266
$ 260,662 $ 987,261 $ 776,127 Adjusted earnings before interest and
taxes (EBIT) (2) 81,678 33,414 205,056 $ 98,837 Adjusted EBIT
Margin (2) 23.6 % 12.8 % 20.8 % 12.7 % � Aerospace and Defense
Segment Net sales to external customers $ 109,987 $ 70,429 $
317,795 $ 218,513 Adjusted earnings before interest and taxes
(EBIT) (2) 12,489 425 31,792 $ 11,117 Adjusted EBIT Margin (2) 11.4
% 0.6 % 10.0 % 5.1 % � Total Bearings and Power Transmission Group
Net sales to external customers $ 994,436 $ 917,227 $ 3,105,450 $
2,821,877 Intergroup sales � 784 � � � 600 � � � 2,063 � � � 1,451
� Total net sales $ 995,220 $ 917,827 $ 3,107,513 $ 2,823,328
Adjusted earnings before interest and taxes (EBIT) (2) 98,840
44,240 282,447 165,859 Adjusted EBIT Margin (2) 9.9 % 4.8 % 9.1 %
5.9 % � Steel Group (3) Net sales to external customers $ 488,248 $
344,012 $ 1,347,453 $ 1,073,106 Intergroup sales � 48,291 � � �
37,100 � � � 133,002 � � � 109,067 � Total net sales $ 536,539 $
381,112 $ 1,480,455 $ 1,182,173 Adjusted earnings before interest
and taxes (EBIT) (2) 133,802 52,278 267,499 183,692 Adjusted EBIT
Margin (2) 24.9 % 13.7 % 18.1 % 15.5 % � � Unallocated corporate
expense (19,039 ) (14,370 ) (54,767 ) (48,124 ) � Intergroup
eliminations income (expense) (4) ($1,224 ) ($279 ) ($5,409 )
(1,770 ) � Consolidated Net sales to external customers $ 1,482,684
$ 1,261,239 $ 4,452,903 $ 3,894,983 Adjusted earnings before
interest and taxes (EBIT) (2) $ 212,379 $ 81,869 $ 489,770 $
299,657 Adjusted EBIT Margin (2) 14.3 % 6.5 % 11.0 % 7.7 % � (1)
"Adjusted" statements exclude the impact of impairment and���
restructuring, manufacturing rationalization/reorganization and���
special charges and credits for all periods shown. � (2) EBIT is
defined as operating income plus other income��� (expense). EBIT
Margin is EBIT as a percentage of net sales.��� EBIT and EBIT
margin on a segment basis exclude certain special��� items set
forth above. EBIT and EBIT Margin are important��� financial
measures used in the management of the business,��� including
decisions concerning the allocation of resources and��� assessment
of performance. Management believes that reporting��� EBIT and EBIT
Margin best reflect the performance of the��� company's business
segments and EBIT disclosures are responsive��� to investors. � (3)
Discontinued Operations reflects the Dec. 8, 2006 sale of��� Timken
Latrobe Steel. Steel Group Net sales and Adjusted EBIT��� have been
changed to exclude Timken Latrobe Steel for all��� periods. Income
From Discontinued Operations Net of Income��� Taxes, Special Items
includes the gain on sale. � (4) Intergroup eliminations represent
intergroup profit or loss����between the Steel Group and the
Bearings and Power Transmission��� Group. � Reconciliation of GAAP
net income and EPS - diluted. This reconciliation is provided as
additional relevant informationabout the company's performance.
Management believes adjusted netincome and adjusted earnings per
share are more representative ofthe company's performance and
therefore useful to investors.Management also believes that it is
appropriate to compare GAAP netincome to adjusted net income in
light of special items related toimpairment and restructuring and
manufacturing rationalization/reorganization costs, Continued
Dumping and Subsidy Offset Act(CDSOA) receipts, and gain/loss on
the sale of non-strategic assets. � � � � � � � Third Quarter Nine
Months � 2008 � 2007 2008 � 2007 (Dollars in thousands, except per
share data) (Unaudited) $ � EPS (1) � $ � EPS (1) $ � EPS (1) � $ �
EPS (1) � Net income $ 130,413 $ 1.35 $ 41,243 $ 0.43 $ 303,821 $
3.15 $ 171,763 $ 1.80 � Pre-tax special items: Manufacturing
rationalization/reorganization expenses - cost of products sold 333
- 5,382 0.06 2,575 0.03 27,945 0.29 Manufacturing
rationalization/reorganization expenses - SG&A (369 ) - 852
0.01 1,690 0.02 2,831 0.03 (Gain) loss on divestiture - - 152 - (8
) - 468 - Impairment and restructuring 3,330 0.03 11,840 0.12 8,013
0.08 32,870 0.34 Special items - other expense (income) 558 0.01
(983 ) (0.01 ) (19,987 ) (0.21 ) (3,355 ) (0.04 ) Provision for
income taxes (2) 1,562 0.02 (9,888 ) (0.10 ) 10,992 0.11 (51,058 )
(0.53 ) Income from discontinued operations net of income taxes,
special items (3) - - - - - - (665 ) (0.01 ) � � � � � � � � � � �
� � � Adjusted net income $ 135,827 � � $ 1.41 � $ 48,598 � � $
0.51 � $ 307,096 � � $ 3.19 � � $ 180,799 � � $ 1.89 � � (1) EPS
amounts will not sum due to rounding differences. � (2) Provision
for income taxes includes the tax effect of pre-tax��� special
items on our effective tax rate, as well as the impact��� of
discrete tax items recorded during the respective periods. � (3)
Discontinued Operations relates to the sale of Latrobe Steel on���
Dec. 8, 2006. � Reconciliation of GAAP income from continuing
operations and EPS - diluted. This reconciliation is provided as
additional relevant informationabout the company's performance.
Management believes adjusted incomefrom continuing operations and
adjusted earnings per share are morerepresentative of the company's
performance and therefore useful toinvestors. Management also
believes that it is appropriate tocompare GAAP income from
continuing operations to adjusted incomefrom continuing operations
in light of special items related toimpairment and restructuring
and manufacturing rationalization/reorganization costs, Continued
Dumping and Subsidy Offset Act(CDSOA) receipts, and gain/loss on
the sale of non-strategic assets. � � � � � � � Third Quarter Nine
Months � 2008 � 2007 2008 � 2007 (Dollars in thousands, except per
share data) (Unaudited) $ � EPS (1) � $ � EPS (1) $ � EPS (1) � $ �
EPS (1) � Income from continuing operations $ 130,413 $ 1.35 $
41,243 $ 0.43 $ 303,821 $ 3.15 $ 171,098 $ 1.79 � Pre-tax special
items: Manufacturing rationalization/reorganization expenses - cost
of products sold 333 - 5,382 0.06 2,575 0.03 27,945 0.29
Manufacturing rationalization/reorganization expenses - SG&A
(369 ) - 852 0.01 1,690 0.02 2,831 0.03 (Gain) loss on divestiture
- - 152 - (8 ) - 468 - Impairment and restructuring 3,330 0.03
11,840 0.12 8,013 0.08 32,870 0.34 Special items - other expense
(income) 558 0.01 (983 ) (0.01 ) (19,987 ) (0.21 ) (3,355 ) (0.04 )
Provision for income taxes (2) 1,562 0.02 (9,888 ) (0.10 ) 10,992
0.11 (51,058 ) (0.53 ) � � � � � � � � � � � � � � Adjusted income
from continuing operations $ 135,827 � � $ 1.41 � $ 48,598 � � $
0.51 � $ 307,096 � � $ 3.19 � � $ 180,799 � � $ 1.89 � � (1) EPS
amounts will not sum due to rounding differences. � (2) Provision
for income taxes includes the tax effect of pre-tax��� special
items on our effective tax rate, as well as the impact��� of
discrete tax items recorded during the respective periods. �
Reconciliation of Outlook Information. Expected earnings per
diluted share for the 2008 full year excludespecial items. Examples
of such special items include impairment andrestructuring,
manufacturing rationalization/reorganization expenses,gain/loss on
the sale of non-strategic assets and payments under theCDSOA. It is
not possible at this time to identify the potentialamount or
significance of these special items. Management cannotpredict
whether the company will receive any additional paymentsunder the
CDSOA in 2008 and if so, in what amount. � Reconciliation of GAAP
Income from Continuing Operations before Income Taxes This
reconciliation is provided as additional relevant informationabout
the company's performance. Management believes Consolidatedadjusted
earnings before interest and taxes (EBIT) and TotalBearings and
Power Transmission Group adjusted EBIT are morerepresentative of
the company's performance and therefore useful toinvestors.
Management also believes that it is appropriate tocompare GAAP
Income from Continuing Operations before Income Taxesto
Consolidated adjusted EBIT in light of special items related
toimpairment and restructuring and
manufacturingrationalization/reorganization costs, Continued
Dumping and SubsidyOffset Act (CDSOA) receipts, and gain/loss on
the sale ofnon-strategic assets. � � � � � � � Third Quarter Nine
Months � � 2008 � 2007 2008 � 2007 (Thousands of U.S. dollars)
(Unaudited) � $ � $ $ � $ � Income from Continuing Operations
before Income Taxes $ 198,897 $ 56,309 $ 468,130 $ 214,012 �
Pre-tax reconciling items: Interest expense 11,124 10,697 33,764
30,421 Interest (income) (1,494 ) (2,380 ) (4,407 ) (5,535 )
Manufacturing rationalization/ reorganization expenses - cost of
products sold 333 5,382 2,575 27,945 Manufacturing rationalization/
reorganization expenses - SG&A (369 ) 852 1,690 2,831 (Gain)
loss on divestiture - 152 (8 ) 468 Impairment and restructuring
3,330 11,840 8,013 32,870 Special items - other expense (income)
558 (983 ) (19,987 ) (3,355 ) � � � � � � Consolidated adjusted
earnings before interest and taxes (EBIT) $ 212,379 � � $ 81,869 �
$ 489,770 � � $ 299,657 � � Steel Group adjusted earnings before
interest and taxes (EBIT) (133,802 ) (52,278 ) (267,499 ) (183,692
) Unallocated corporate expense 19,039 14,370 54,767 48,124
Intergroup eliminations expense (income) 1,224 279 5,409 1,770 �
Total Bearings and Power Transmission Group adjusted earnings
before interest and taxes (EBIT) � � � � � � $ 98,840 � � $ 44,240
� $ 282,447 � � $ 165,859 � � Reconciliation of Total Debt to Net
Debt and the Ratio of Net Debt to Capital: (Dollars in thousands)
(Unaudited) Sept. 30, 2008 � Dec. 31, 2007 Short-term debt $
217,313 � $ 142,568 Long-term debt � 521,896 � � � 580,587 � Total
Debt 739,209 723,155 Less: Cash and cash equivalents � (94,709 ) �
� (30,144 ) Net Debt $ 644,500 � � $ 693,011 � � Shareholders'
equity $ 2,206,702 $ 1,960,669 � Ratio of Total Debt to Capital
25.1 % 26.9 % Ratio of Net Debt to Capital (Leverage) � 22.6 % � �
26.1 % � This reconciliation is provided as additional relevant
informationabout Timken's financial position. Capital is defined as
total debtplus shareholder's equity. Management believes Net Debt
is more indicative of Timken'sfinancial position, due to the amount
of cash and cash equivalents. � CONDENSED CONSOLIDATED BALANCE
SHEET � � � (Dollars in thousands) (Unaudited) Sept. 30,2008 � Dec
31,2007 ASSETS Cash & cash equivalents $ 94,709 $ 30,144
Accounts receivable 814,702 748,483 Inventories 1,297,928 1,087,712
Other current assets 169,993 � 178,912 Total Current Assets
2,377,332 2,045,251 Property, plant & equipment 1,733,445
1,722,081 Goodwill 273,474 271,784 Other assets 322,868 � 340,121
Total Assets $ 4,707,119 � $ 4,379,237 � LIABILITIES Accounts
payable & other liabilities $ 535,693 $ 528,052 Short-term debt
217,313 142,568 Income taxes 61,239 21,787 Accrued expenses 240,650
� 212,015 Total Current Liabilities 1,054,895 904,422 Long-term
debt 521,896 580,587 Accrued pension cost 145,619 169,364 Accrued
postretirement benefits cost 656,932 662,379 Other non-current
liabilities 121,075 � 101,816 Total Liabilities 2,500,417 2,418,568
� SHAREHOLDERS' EQUITY 2,206,702 � 1,960,669 Total Liabilities and
Shareholders' Equity $ 4,707,119 � $ 4,379,237 � CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOWS � For the three months ended
For the nine months ended (Dollars in thousands) (Unaudited) Sept.
30,2008 � Sept. 30,2007 � Sept. 30,2008 � Sept. 30,2007 Cash
Provided (Used) � � OPERATING ACTIVITIES Net Income $ 130,413 $
41,243 $ 303,821 $ 171,763 Earnings from discontinued operations -
- - (665 ) Adjustments to reconcile net income to net cash provided
by operating activities: Depreciation and amortization 61,005
58,120 178,085 160,595 Pension and other postretirement expense
20,539 30,321 64,479 90,792 Pension and other postretirement
benefit payments (15,340 ) (40,440 ) (57,121 ) (138,984 ) Accounts
receivable 62,641 36,320 (70,152 ) (39,937 ) Inventories (101,877 )
(23,248 ) (222,560 ) (34,766 ) Accounts payable and accrued
expenses 40,381 (14,741 ) 95,338 (38,084 ) Other � 16,947 � � �
7,981 � � � 6,174 � � � 14,800 � Net Cash Provided by Operating
Activities - Continuing Operations 214,709 95,556 298,064 185,514
Net Cash (Used) Provided by Operating Activities - Discontinued
Operations � - � � � - � � � - � � � 665 � Net Cash Provided by
Operating Activities 214,709 95,556 298,064 186,179 � INVESTING
ACTIVITIES Capital expenditures (58,851 ) (71,395 ) (186,298 )
(196,374 ) Other 5,928 1,638 34,063 13,595 Divestments - - - -
Acquisitions � (272 ) � � - � � � (57,178 ) � � (1,523 ) Net Cash
Used by Investing Activities (53,195 ) (69,757 ) (209,413 )
(184,302 ) � FINANCING ACTIVITIES Cash dividends paid to
shareholders (17,374 ) (16,281 ) (50,083 ) (46,682 ) Net proceeds
from common share activity 1,171 6,342 16,879 36,987 Net borrowings
(payments) on credit facilities � (106,678 ) � � (7,006 ) � �
20,462 � � � (14,859 ) Net Cash (Used) Provided by Financing
Activities (122,881 ) (16,945 ) (12,742 ) (24,554 ) � Effect of
exchange rate changes on cash (18,659 ) 5,574 (11,344 ) 9,372 �
Increase (Decrease) in Cash and Cash Equivalents 19,974 14,428
64,565 (13,305 ) Cash and Cash Equivalents at Beginning of Period �
74,735 � � � 73,339 � � � 30,144 � � � 101,072 � � Cash and Cash
Equivalents at End of Period $ 94,709 � � $ 87,767 � � $ 94,709 � �
$ 87,767 �
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