Timken Reports First-Quarter Results

The Timken Company (NYSE:TKR) today reported sales of $1.28 billion during the first quarter of 2007, an increase of 2 percent over the same period a year ago. First-quarter income from continuing operations was $41.6 million, or $0.44 per diluted share, compared to $57.1 million, or $0.61 per diluted share, in the first quarter a year ago.

The decline in income from last years first quarter was due predominately to increased restructuring costs. In addition, the companys tax rate in the quarter was higher, primarily due to losses caused in part by restructuring activities in certain foreign jurisdictions where no tax benefit could be recorded.

Excluding special items, income from continuing operations per diluted share was $0.66 during the first quarter of 2007, up 6 percent from $0.62 in last years first quarter. Special items in the first quarter included restructuring and rationalization charges totaling $27.0 million of pretax expense, compared to $4.8 million in the prior-year period.

Our first-quarter results rebounded following the challenges we encountered during the second half of 2006, said James W. Griffith, Timkens president and chief executive officer. We are confident that our strategic initiatives, including Automotive restructuring and targeted Industrial capacity additions, will combine with continued strong Steel performance to deliver improved results in 2007.

During the quarter, the company:

  • Announced a $60 million expansion for special small-bar steel capabilities, further differentiating its product portfolio, and commissioned a new induction heat-treat line focused on steel products for the energy and industrial sectors;
  • Advanced programs to improve the performance of its Automotive Group, including announcement of the closure of its Sao Paulo, Brazil, bearing production facility by the end of the year; and
  • Grew sales in Asia by 17 percent and made progress on capacity additions in both China and India.

Total debt at March 31, 2007, was $668.5 million, or 30.5 percent of capital. Debt was higher than the 2006 year-end level of $597.8 million, or 28.8 percent of capital, due to seasonal working capital requirements. Net debt at March 31, 2007, was $567.7 million, or 27.2 percent of capital. The company expects to end 2007 with lower net debt and leverage than last year, providing additional financial capacity to pursue strategic investments.

Industrial Group Results

The Industrial Group had record first-quarter sales of $544.4 million, up 8 percent from $503.9 million for the same period last year. Favorable pricing and higher volume drove the increase, with sales strength coming from multiple market sectors, especially aerospace and heavy industry.

The Industrial Groups earnings before interest and taxes (EBIT) were $49.2 million, up 7 percent from $45.9 million in the first quarter of 2006. EBIT performance benefited from favorable pricing and volume, partially offset by higher raw material and logistics costs, as well as manufacturing costs associated with capacity additions.

The company expects to see continued top-line growth in the Industrial Group throughout the year as capacity additions come online, as well as improved operating margins for the full year.

Automotive Group Results

The Automotive Groups first-quarter sales of $388.0 million were down 8 percent from $421.0 million for the same period last year. The decrease was driven by the sale of its steering business at the end of 2006 and lower demand from North American light vehicle and heavy truck customers.

The Automotive Group incurred a loss of $7.2 million compared to a loss of $3.1 million for the same period a year ago. The net benefits associated with restructuring initiatives, including reductions in selling, general and administrative costs, were more than offset by the underutilization of manufacturing capacity caused by weakness in North American automotive demand.

During the quarter, Timken continued to advance its previously announced initiatives to improve the performance of its Automotive business. These initiatives include facility rationalization, workforce reduction and asset divestment and are on track to deliver targeted savings of $75 million by 2008.

Steel Group Results

Steel Group sales, including inter-segment sales, were a record $390.3 million, up 4 percent from $375.4 million for the same period a year ago. The increase was driven by higher demand in the energy and service center sectors, which was partially offset by lower demand in automotive-related sectors. In addition, the Steel Group benefited from price increases and surcharges to help recover continued high raw material costs.

First-quarter EBIT was a record $61.8 million, up 8 percent from $57.0 million in the prior-year period. Performance was driven by improved product mix, pricing, capacity utilization and productivity, which were partially offset by higher raw material costs.

The company expects the Steel Group to continue its strong performance in 2007 with historically high levels of profitability comparable to 2006.

Outlook

Timken anticipates global industrial markets will remain strong, and investments in Industrial Group capacity are expected to become operational throughout the year. In addition, the company expects improved Automotive Group performance for the full year compared to 2006, as it benefits from its operating-improvement initiatives. The company expects earnings per diluted share for 2007 from continuing operations, excluding special items, to be $2.55 to $2.70 for the year and $0.65 to $0.75 for the second quarter, compared to $2.13 and $0.80, respectively, for the same periods in 2006.

Conference Call Information

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

Conference Call: Thursday, April 26, 2007
                 11:00 a.m. Eastern Time

Live Dial-In:    800-344-0593 or 706-634-0975
                 (Call in 10 minutes prior to be included)
                 Conference ID: 5457020

                 Replay Dial-In through May 3, 2007:
                 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 $5.0 billion in 2006, operations in 26 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 expected savings of the companys programs and initiatives and expectations regarding the companys 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 completion of the companys financial statements for the first quarter of 2007; the impact of the first major U.S. implementation of Project O.N.E., a program designed to improve business processes and systems; the companys ability to respond to the changes in its end markets, especially the North American automotive industry; fluctuations in raw material and energy costs and the operation of the companys surcharge mechanisms; the companys ability to respond to the changes in its end markets; changes in the financial health of the companys customers; changes in the expected costs associated with product warranty claims; and 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 Automotive Group restructuring program and initiatives and the rationalization of the companys 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 December 31, 2006, page 40. The company undertakes no obligation to update or revise any forward-looking statement.

(Unaudited)
CONDENSED CONSOLIDATED STATEMENT OF INCOMEAS REPORTEDADJUSTED (1)
(Thousands of U.S. dollars, except share data)Q1 2007 Q1 2006 Q1 2007 Q1 2006
Net sales $1,284,513 $1,254,308 $1,284,513 $1,254,308
Cost of products sold 1,015,177 981,459 1,015,177 981,459

Manufacturing rationalization/
 reorganization expenses -
 cost of products sold

11,843 3,036 - -
Gross Profit$257,493 $269,813 $269,336 $272,849
Selling, administrative & general expenses (SG&A) 162,973 170,375 162,973 170,375

Manufacturing rationalization/
 reorganization

 expenses - SG&A

1,330 377 - -
Loss on divestitures 354 - - -
Impairment and restructuring 13,776 1,040 - -
Operating Income$79,060 $98,021 $106,363 $102,474
Other (expense) (3,728) (4,851) (3,728) (4,851)
Special items - other income 343 (308) - -
Earnings Before Interest and Taxes (EBIT) (2)$75,675 $92,862 $102,635 $97,623
Interest expense, net (7,689) (11,602) (7,689) (11,602)

Income From Continuing Operations Before Income Taxes

$67,986 $81,260 $94,946 $86,021
Provision for income taxes 26,355 24,166 32,471 27,851
Income From Continuing Operations$41,631 $57,094 $62,475 $58,170

Income from discontinued operations net of income taxes, special items (3)

940 - - -

Income from discontinued operations net of income taxes, other (3)

- 8,846 - 8,846
Net Income$42,571 $65,940 $62,475 $67,016
Earnings Per Share - Continuing Operations $0.44 $0.61 $0.66 $0.63
Earnings Per Share - Discontinued Operations 0.01 0.10 - 0.09
Earnings Per Share$0.45 $0.71 $0.66 $0.72
Diluted Earnings Per Share - Continuing Operations $0.44 $0.61 $0.66 $0.62
Diluted Earnings Per Share - Discontinued Operations 0.01 0.09 - 0.09
Diluted Earnings Per Share$0.45 $0.70 $0.66 $0.71

Average Shares
 Outstanding

93,963,797 92,942,082 93,963,797 92,942,082
Average Shares Outstanding-assuming dilution 94,811,930 94,010,483 94,811,930 94,010,483
BUSINESS SEGMENTS
(Thousands of U.S. dollars) (Unaudited)Q1 2007 Q1 2006
Industrial Group
Net sales to external customers $544,076 $503,444
Intersegment sales 366 435
Total net sales $544,442 $503,879

Adjusted earnings before interest and taxes (EBIT) (a) (2)

$49,175 $45,885
Adjusted EBIT Margin (2) 9.0% 9.1%
Automotive Group
Net sales to external customers $387,960 $420,984

Adjusted (loss) earnings before interest and taxes (EBIT) (a) (2)

($7,233) ($3,141)
Adjusted EBIT (Loss) Margin (2) -1.9% -0.7%
Steel Group (3)
Net sales to external customers $352,477 $329,880
Intersegment sales 37,815 45,530
Total net sales $390,292 $375,410

Adjusted earnings before interest and taxes (EBIT) (a) (2)

$61,817 $56,983
Adjusted EBIT Margin (2) 15.8% 15.2%

(a) Industrial Group, Automotive Group and Steel Group EBIT do not equal Consolidated EBIT due to intersegment adjustments which are eliminated upon consolidation.

(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 December 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. Income From Discontinued Operations Net of Income Taxes, Other includes prior activity of Timken Latrobe Steel in accordance with the sales agreement.
Reconciliation of Total Debt to Net Debt and the Ratio of Net Debt to Capital:
(Thousands of U.S. Dollars) (Unaudited) Mar 31, 2007 Dec 31, 2006
Short-term debt $137,909  $50,453 
Long-term debt 530,590  547,390 
Total Debt $668,499  $597,843 
Less: Cash and cash equivalents (100,818) (101,072)
Net Debt $567,681  $496,771 
Shareholders' equity $1,521,805  $1,476,180 
Ratio of Total Debt to Capital 30.5% 28.8%
Ratio of Net Debt to Capital (Leverage) 27.2% 25.2%

This reconciliation is provided as additional relevant information
about Timken's financial position. Capital is defined as total debt
plus shareholder's equity. Management believes Net Debt is more
representative of Timken's indicative financial position, due to the
amount of cash and cash equivalents.

Reconciliation of GAAP net income and EPS - diluted.

This reconciliation is provided as additional relevant information
about the company's performance. Management believes adjusted net
income and adjusted earnings per share are more representative of the
company's performance and therefore useful to investors. Management
also believes that it is appropriate to compare GAAP net income to
adjusted net income in light of special items related to impairment
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.

First Quarter
2007 2006 
(Thousands of U.S. dollars, except share data) (Unaudited)$ EPS (2) $ EPS (2)
Net income $42,571 $0.45  $65,940 $0.70 
Pre-tax special items:

Manufacturing rationalization/reorganization expenses - cost of products sold

11,843 0.12  3,036 0.03 
Manufacturing rationalization/reorganization expenses - SG&A 1,330 0.01  377
Loss on Divestiture 354-
Impairment and restructuring 13,776 0.15  1,040 0.01 
Special items - other expense (income): (343)308
Provision for income taxes (6,116) (0.06) (3,685) (0.04)

Income From Discontinued Operations

 Net of Income Taxes, Special Items (1)

(940) (0.01) -

Income from discontinued operations

 net of income taxes, other (1)

--
Adjusted net income $62,475 $0.66  $67,016 $0.71 
(1) Discontinued Operations relates to the sale of Latrobe Specialty Steel Unit in November of 2006.
(2) EPS amounts will not sum due to rounding differences.

Reconciliation of GAAP income from continuing operations and EPS -
diluted.

This reconciliation is provided as additional relevant information
about the company's performance. Management believes adjusted income
from continuing operations and adjusted earnings per share are more
representative of the company's performance and therefore useful to
investors. Management also believes that it is appropriate to compare
GAAP income from continuing operations to adjusted income from
continuing operations in light of special items related to impairment
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.

First Quarter
2007 2006 
(Thousands of U.S. dollars, except share data) (Unaudited)$ EPS (2) $ EPS (2)
Income from continuing operations $41,631 $0.44  $57,094 $0.61 
Pre-tax special items:

Manufacturing rationalization/reorganization expenses - cost of products sold

11,843 0.12  3,036 0.03 
Manufacturing rationalization/reorganization expenses - SG&A 1,330 0.01  377
Loss on Divestiture 354-
Impairment and restructuring 13,776 0.15  1,040 0.01 
Special items - other expense (income): (343)308
Provision for income taxes (6,116) (0.06) (3,685) (0.04)
Adjusted income from continuing operations $62,475 $0.66  $58,170 $0.62 
(2) EPS amounts will not sum due to rounding differences.
Reconciliation of Outlook Information.

Expected earnings per diluted share for the 2007 full year and
second quarter exclude special items. Examples of such special items
include impairment and restructuring, manufacturing rationalization/
reorganization expenses, gain/loss on the sale of non-strategic assets
and payments under the CDSOA. It is not possible at this time to
identify the potential amount or significance of these special items.
Management cannot predict whether the company will receive any
additional payments under the CDSOA in 2007 and if so, in what amount.
If the company does receive any additional CDSOA payments, they will
most likely be received in the fourth quarter.

CONDENSED CONSOLIDATED BALANCE SHEETMar 31 Dec 31
(Thousands of U.S. dollars) (Unaudited)2007 2006 
ASSETS
Cash & cash equivalents $100,818  $101,072 
Accounts receivable 740,837  673,428 
Inventories 974,967  952,310 
Deferred income taxes 86,113  85,576 
Other current assets 94,863  87,894 
Total Current Assets $1,997,598  $1,900,280 
Property, plant & equipment 1,598,160  1,601,559 
Goodwill 204,247  201,899 
Other assets 324,058  327,795 
Total Assets $4,124,063  $4,031,533 
LIABILITIES
Accounts payable & other liabilities $528,742  $506,301 
Short-term debt 137,909  50,453 
Income taxes 11,352  53,406 
Accrued expenses 169,724  225,409 
Total Current Liabilities $847,727  $835,569 
Long-term debt 530,590  547,390 
Accrued pension cost 391,398  410,438 
Accrued postretirement benefits cost 683,520  682,934 
Other non-current liabilities 149,023  79,022 
Total Liabilities $2,602,258  $2,555,353 
SHAREHOLDERS' EQUITY 1,521,805  1,476,180 
Total Liabilities and Shareholders' Equity $4,124,063  $4,031,533 
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the three months ended
Mar 31Mar 31
(Thousands of U.S. dollars) (Unaudited)20072006
Cash Provided (Used)
OPERATING ACTIVITIES
Net Income $42,571 $65,940 
(Earnings) from Discontinued Operations (940) (8,846)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 54,500 49,490 
Other 8,202 6,150 
Changes in operating assets and liabilities:
Accounts receivable (64,776) (69,452)
Inventories (17,791) (37,705)
Other assets 1,943 (187)
Accounts payable and accrued expenses (31,141) (47,542)
Foreign currency translation loss (gain) 790 (6,101)
Net Cash (Used) by Operating Activities - Continuing Operations ($6,642) ($48,253)
Net Cash Provided by Operating Activities - Discontinued Operations 940 11,577 
Net Cash (Used) by Operating Activities($5,702) ($36,676)
INVESTING ACTIVITIES
Capital expenditures ($60,942) ($39,354)
Other 3,124 (1,205)
Divestments - 2,393 
Acquisitions (1,523)
Net Cash (Used) by Investing Activities - Continuing Operations ($59,341) ($38,166)
Net Cash (Used) by Investing Activities - Discontinued Operations 0 (1,719)
Net Cash (Used) by Investing Activities($59,341) ($39,885)
FINANCING ACTIVITIES
Cash dividends paid to shareholders ($15,152) ($14,027)
Net proceeds from common share activity 11,886 6,132 
Net borrowings on credit facilities 66,815 49,176 
Net Cash Provided by Financing Activities - Continuing Operations $63,549 $41,281 
Net Cash Provided by Financing Activities$63,549 $41,281 
Effect of exchange rate changes on cash $1,240 $1,148 
(Decrease) in Cash and Cash Equivalents(254) (34,132)
Cash and Cash Equivalents at Beginning of Period$101,072 $65,417 
Cash and Cash Equivalents at End of Period$100,818 $31,285 
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