Timken Reports Second-Quarter Results

The Timken Company (NYSE:TKR) today reported sales of $1.35 billion in the second quarter of 2007, an increase of 4 percent over the same period a year ago. Strong sales in industrial markets were partially offset by the strategic divestment of the companys automotive steering and European steel operations.

Second-quarter income from continuing operations was $55.6 million, or $0.58 per diluted share, compared to $64.9 million, or $0.69 per diluted share, in the second quarter a year ago. Excluding special items, income from continuing operations per diluted share was $0.73 during the second quarter of 2007, compared to $0.80 in prior-year period and in line with the companys previous second-quarter estimate of $0.65 to $0.75. Second-quarter special items included restructuring and rationalization charges totaling $16.6 million of pretax expense, compared to $21.0 million of similar charges in the second quarter of 2006.

Timken gained further momentum in the second quarter, as demand remained strong in our major industrial market sectors, said James W. Griffith, Timkens president and chief executive officer. We expect enhanced performance going forward as we drive operations improvements, realize pricing across selected market sectors, bring new capacity online and complete our restructuring efforts.

During the quarter, the company:

  • Completed the first major U.S. implementation of Project O.N.E., a program designed to improve business processes and systems;
  • Made further progress on key additions to Industrial Group capacity in Asia and North America;
  • Advanced its restructuring initiatives within its Automotive and Industrial Groups; and
  • Completed the closure of its steel tube manufacturing operations in Desford, England.

Total debt at June 30, 2007, was $598.5 million, or 26.5 percent of capital. Net debt at June 30, 2007, was $525.2 million, or 24.1 percent of capital, compared to $567.7 million, or 26.7 percent of capital, at March 31, 2007. The company expects to end 2007 with lower net debt and leverage than last year, providing additional financial capacity to pursue strategic investments.

For the first half of 2007, sales were $2.63 billion, an increase of 3 percent from the same period in the prior year. Income from continuing operations per diluted share for the first six months of 2007 increased 5 percent to $1.36, from $1.30 last year. Special items in the first half of 2007 totaled $43.5 million of pretax expense, compared to $25.8 million in the same period a year ago. Excluding special items, income from continuing operations per diluted share in the first half of 2007 was $1.39, versus $1.41 in the first half of 2006. During the first six months of 2007, the company benefited from strong industrial market demand and record Steel Group performance, which were countered by lower demand from the companys North American automotive customers.

Industrial Group Results

The Industrial Group had second-quarter sales of $565.9 million, up 7 percent from $529.1 million for the same period last year. The increase resulted from favorable pricing and continued broad market-sector strength, especially from heavy industry and aerospace.

The Industrial Groups earnings before interest and taxes (EBIT) were $61.8 million, compared to $63.5 million in the second quarter of 2006. EBIT performance in the quarter benefited from favorable pricing, which was offset by product mix, higher raw-material and logistics costs, as well as manufacturing costs associated with capacity additions, compared to the year-ago period.

For the first half of 2007, Industrial Group sales were $1.11 billion, up 7 percent from the same period a year ago. First-half 2007 EBIT was $111.0 million, or 10.0 percent of sales, compared to EBIT of $109.4 million, or 10.6 percent of sales, in the first half of 2006.

The company expects to see top-line growth for the Industrial Group throughout the year due to strong markets and capacity additions. The group is also expected to deliver improved operating margins for the full year compared to 2006.

Automotive Group Results

The Automotive Groups second-quarter sales of $407.2 million were down 5 percent from $426.7 million for the same period last year. The decrease primarily reflects the companys decision to exit its steering operations at the end of 2006 as part of its portfolio management strategy. Increased sales into light-truck markets during the quarter were counterbalanced by lower heavy-truck demand.

The Automotive Group incurred a loss of $7.4 million in the second quarter of 2007 compared to a loss of $2.0 million for the same period a year ago. The net benefits associated with restructuring initiatives and divestiture of the companys steering operations were more than offset by higher raw-material costs.

For the first half of 2007, Automotive Group sales of $795.1 million were down 6 percent from the same period a year ago. The decrease was driven by the sale of its steering operations at the end of last year and lower demand from North American heavy-truck customers. The group recorded a loss of $14.6 million for the first half of 2007, compared to a loss of $5.1 million in the first half of 2006.

During the quarter, Timken continued to advance its previously announced initiatives to improve the performance of its Automotive business, which remain on track. The company expects the Automotive Group to return to profitability in 2008.

Steel Group Results

Steel Group sales, including inter-segment sales, were $410.8 million in the second quarter of 2007, up 7 percent from $383.3 million for the same period a year ago. All market sectors participated in the increase, especially energy. The Steel Group benefited from surcharges, which more than offset the impact of exiting the groups manufacturing operations in Europe.

Second-quarter EBIT of $61.1 million was comparable to the same period a year ago. The impact of surcharges on EBIT performance counteracted higher raw-material costs and manufacturing expenses related to construction of the companys small-bar mill and initiatives to improve productivity.

For the first six months of 2007, Steel Group sales were $801.1, up 6 percent over the first half of last year. EBIT for the first half of 2007 was a record $122.9 million, or 15.3 percent of sales, compared to EBIT of $116.7 million, or 15.4 percent of sales in last years first half.

The company expects the Steel Group to continue its strong performance in 2007, exceeding last years record profitability.

Outlook

Timken anticipates continued strength in global industrial markets, while automotive markets are expected to remain stable. The combination of strong markets, capacity additions and operating improvements is expected to drive earnings improvement for the remainder of the year compared to the same period in 2006.

The company anticipates earnings per diluted share for 2007 from continuing operations, excluding special items, to be $2.60 to $2.70 for the year and $0.55 to $0.65 for the third quarter, compared to $2.13 and $0.49, 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:     Tuesday, July 31, 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:  5457191

                          Replay Dial-In through August 7, 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 second quarter of 2007; 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 Dec. 31, 2006, page 40, and in the companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. 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)Q2 2007 Q2 2006 Six Months 07 Six Months 06 Q2 2007 Q2 2006 Six Months 07 Six Months 06
Net sales $1,349,231 $1,302,174 $2,633,744 $2,556,482 $1,349,231 $1,302,174 $2,633,744 $2,556,482
Cost of products sold 1,049,476 1,003,380 2,064,653 1,984,839 1,049,476 1,003,380 2,064,653 1,984,839

Manufacturing rationalization / reorganization expenses - cost of products sold

10,720 4,945 22,563 7,981 - - - -
Gross Profit$289,035 $293,849 $546,528 $563,662 $299,755 $298,794 $569,091 $571,643
Selling, administrative & general expenses (SG&A) 178,980 171,193 341,953 341,568 178,980 171,193 341,953 341,568

Manufacturing rationalization / reorganization expenses - SG&A

649 1,316 1,979 1,693 - - - -
(Gain) loss on divestitures (38) 9,971 316 9,971 - - - -
Impairment and restructuring 7,254 7,469 21,030 8,509 - - - -
Operating Income$102,190 $103,900 $181,250 $201,921 $120,775 $127,601 $227,138 $230,075
Other (expense) (5,622) (4,843 ) (9,350) (9,694 ) (5,622) (4,843 ) (9,350) (9,694 )
Special items - other income 2,029 2,662 2,372 2,354 - - - -
Earnings Before Interest and Taxes (EBIT) (2)$98,597 $101,719 $174,272 $194,581 $115,153 $122,758 $217,788 $220,381
Interest expense, net (8,880) (11,697 ) (16,569) (23,299 ) (8,880) (11,697 ) (16,569) (23,299 )

Income From Continuing Operations Before Income Taxes

$89,717 $90,022 $157,703 $171,282

$106,273

$111,061 $201,219 $197,082
Provision for income taxes 34,116 25,134 27,848 49,300 36,547 36,070 69,018 63,921
Income From Continuing Operations$55,601 $64,888 $129,855 $121,982 $69,726 $74,991 $132,201 $133,161

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

(275) - 665-- - - -

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

- 9,803 - 18,649 - 9,803 - 18,649
Net Income$55,326 $74,691 $130,520 $140,631 $69,726 $84,794 $132,201 $151,810
Earnings Per Share - Continuing Operations $0.59 $0.70 $1.38 $1.31 $0.74 $0.80 $1.40 $1.43
Earnings Per Share - Discontinued Operations - 0.10 - 0.20 - 0.11 - 0.20
Earnings Per Share$0.59 $0.80 $1.38 $1.51 $0.74 $0.91 $1.40 $1.63
Diluted Earnings Per Share - Continuing Operations $0.58 $0.69 $1.36 $1.30 $0.73 $0.80 $1.39 $1.41
Diluted Earnings Per Share - Discontinued Operations - 0.10 0.01 0.19 - 0.10 - 0.20
Diluted Earnings Per Share$0.58 $0.79 $1.37 $1.49 $0.73 $0.90 $1.39 $1.61
Average Shares Outstanding 94,514,074 93,261,154 94,245,696 93,117,090 94,514,074 93,261,154 94,245,696 93,117,090
Average Shares Outstanding-assuming dilution 95,566,119 94,313,670 95,195,785 94,177,549 95,566,119 94,313,670 95,195,785 94,177,549
BUSINESS SEGMENTS
(Thousands of U.S. dollars) (Unaudited)Q2 2007 Q2 2006 Six Months 07 Six Months 06
Industrial Group
Net sales to external customers $565,458 $528,605 $1,109,534 $1,032,049
Intersegment sales 486 462 852 897
Total net sales $565,944 $529,067 $1,110,386 $1,032,946

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

$61,807 $63,492 $110,981 $109,377
Adjusted EBIT Margin (2) 10.9% 12.0 % 10.0% 10.6 %
Automotive Group
Net sales to external customers $407,155 $426,714 $795,115 $847,698

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

($7,391) ($1,960 ) ($14,624) ($5,101 )
Adjusted EBIT (Loss) Margin (2) -1.8% -0.5 % -1.8% -0.6 %
Steel Group (3)
Net sales to external customers $376,618 $346,855 $729,095 $676,735
Intersegment sales 34,151 36,441 71,966 81,971
Total net sales $410,769 $383,296 $801,061 $758,706

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

$61,104 $59,749 $122,921 $116,732
Adjusted EBIT Margin (2) 14.9% 15.6 % 15.3% 15.4 %

(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) Jun 30, 2007 Mar 31, 2007 Dec 31, 2006
Short-term debt $64,649 $137,909 $50,453
Long-term debt 533,856 530,590 547,390
Total Debt $598,505 $668,499 $597,843
Less: Cash and cash equivalents (73,339 ) (100,818 ) (101,072 )
Net Debt $525,166 $567,681 $496,771
Shareholders' equity $1,655,969 $1,562,257 $1,476,180
Ratio of Total Debt to Capital 26.5 % 30.0 % 28.8 %
Ratio of Net Debt to Capital (Leverage) 24.1 % 26.7 % 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.

Second QuarterSix Months
2007 2006 2007 2006
(Thousands of U.S. dollars, except share data) (Unaudited)$ EPS (1) $ EPS (1) $ EPS $ EPS
Net income $55,326 $0.58 $74,691 $0.79 $130,520 $1.37 $140,631 $1.49
Pre-tax special items:

Manufacturing rationalization/reorganization expenses - cost of products sold

10,720 0.11 4,945 0.05 22,563 0.24 7,981 0.08
Manufacturing rationalization/reorganization expenses - SG&A 649 0.01 1,316 0.01 1,979 0.02 1,693 0.02
(Gain) loss on divestiture (38) - 9,971 0.11 316 - 9,971 0.11
Impairment and restructuring 7,254 0.08 7,469 0.08 21,030 0.22 8,509 0.09
Special items - other (income) (2,029) (0.02 ) (2,662) (0.03 ) (2,372) (0.02 ) (2,354) (0.02 )
Provision for income taxes (2) (2,431) (0.03 ) (10,936) (0.12 ) (41,170) (0.43 ) (14,621) (0.16 )

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

275 - - - (665) (0.01 ) - -
Adjusted net income $69,726 $0.73 $84,794 $0.90 $132,201 $1.39 $151,810 $1.61
(1) EPS amounts will not sum due to rounding differences.

(2) Provision for income taxes includes the quarterly or
    year-to-date impact of pre-tax special items on our full year
    estimated effective tax rate, as well as the impact of discrete
    tax items recorded during the quarter.

(3) Discontinued Operations relates to the sale of Latrobe Steel on
    December 8, 2006.

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.

Second QuarterSix Months
2007 2006 2007 2006
(Thousands of U.S. dollars, except share data) (Unaudited)$ EPS $ EPS (1) $ EPS $ EPS (1)
Income from continuing operations $55,601 $0.58 $64,888 $0.69 $129,855 $1.36 $121,982 $1.30
Pre-tax special items:

Manufacturing rationalization/reorganization expenses - cost of products sold

10,720 0.11 4,945 0.05 22,563 0.24 7,981 0.08
Manufacturing rationalization/reorganization expenses - SG&A 649 0.01 1,316 0.01 1,979 0.02 1,693 0.02
(Gain) loss on divestiture (38) - 9,971 0.11 316 - 9,971 0.11
Impairment and restructuring 7,254 0.08 7,469 0.08 21,030 0.22 8,509 0.09
Special items - other (income) (2,029) (0.02 ) (2,662) (0.03 ) (2,372) (0.02 ) (2,354) (0.02 )
Provision for income taxes (2) (2,431) (0.03 ) (10,936) (0.12 ) (41,170) (0.43 ) (14,621) (0.16 )
Adjusted income from continuing operations $69,726 $0.73 $74,991 $0.80 $132,201 $1.39 $133,161 $1.41
(1) EPS amounts will not sum due to rounding differences.

(2) Provision for income taxes includes the quarterly or
    year-to-date impact of pre-tax special items on our full year
    estimated effective tax rate, as well as the impact of discrete
    tax items recorded during the quarter.

Reconciliation of Outlook Information.

Expected earnings per diluted share for the 2007 full year and
third 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 SHEETJun 30 Dec 31
(Thousands of U.S. dollars) (Unaudited)2007 2006
ASSETS
Cash & cash equivalents $73,339 $101,072
Accounts receivable 759,285 673,428
Inventories 981,287 952,310
Deferred income taxes 85,718 85,576
Other current assets 107,194 87,894
Total Current Assets $2,006,823 $1,900,280
Property, plant & equipment 1,623,747 1,601,559
Goodwill 211,526 201,899
Other assets 323,550 327,795
Total Assets $4,165,646 $4,031,533
LIABILITIES
Accounts payable & other liabilities $525,945 $506,301
Short-term debt 64,649 50,453
Income taxes 23,929 53,406
Accrued expenses 192,253 225,409
Total Current Liabilities $806,776 $835,569
Long-term debt 533,856 547,390
Accrued pension cost 380,253 410,438
Accrued postretirement benefits cost 684,597 682,934
Other non-current liabilities 104,195 79,022
Total Liabilities $2,509,677 $2,555,353
SHAREHOLDERS' EQUITY 1,655,969 1,476,180
Total Liabilities and Shareholders' Equity $4,165,646

$4,031,533
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the three
months ended

For the six
months ended

(Thousands of U.S. dollars)

Jun 30Jun 30Jun 30Jun 30

(Unaudited)

2007200620072006
Cash Provided (Used)
OPERATING ACTIVITIES
Net Income $55,326 $74,691 $130,520 $140,631
Loss (earnings) from discontinued operations 275 (9,803 ) (665) (18,649 )
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 47,975 47,888 102,475 97,378
Other (15,842) (10,647 ) (5,697) (4,684 )
Accounts receivable (11,481) (6,513 ) (76,257) (75,965 )
Inventories 6,273 8,548 (11,518) (29,157 )
Accounts payable and accrued expenses 16,336 21,411 (47,428) (26,131 )
Foreign currency translation gain (2,262) (4,906 ) (1,472) (11,007 )
Net Cash Provided by Operating Activities - Continuing Operations $96,600 $120,669 $89,958 $72,416
Net Cash (Used) Provided by Operating Activities - Discontinued Operations (275) 14,819 665 26,396
Net Cash Provided by Operating Activities$96,325 $135,488 $90,623 $98,812
INVESTING ACTIVITIES
Capital expenditures($64,037) ($62,609 ) ($124,979) ($101,963 )
Other8,833 1,354 11,957 149
Divestments - (3,993 ) - (1,600 )
Acquisitions - - (1,523) -
Net Cash Used by Investing Activities - Continuing Operations ($55,204) ($65,248 ) ($114,545) ($103,414 )
Net Cash Used by Investing Activities - Discontinued Operations - (1,257 ) - (2,976 )
Net Cash Used by Investing Activities($55,204) ($66,505 ) ($114,545) ($106,390 )
FINANCING ACTIVITIES
Cash dividends paid to shareholders($15,249) ($14,095 ) ($30,401) ($28,122 )
Net proceeds from common share activity 18,759 11,967 30,645 18,099
Net borrowings on credit facilities (74,668) (60,901 ) (7,853) (11,725 )
Net Cash Used by Financing Activities - Continuing Operations ($71,158) ($63,029 ) ($7,609) ($21,748 )
Net Cash Used by Financing Activities($71,158) ($63,029 ) ($7,609) ($21,748 )
Effect of exchange rate changes on cash $2,558 $1,513 $3,798 $2,661
(Decrease) Increase in Cash and Cash Equivalents(27,479) 7,467 (27,733) (26,665 )
Cash and Cash Equivalents at Beginning of Period$100,818 $31,285 $101,072 $65,417
Cash and Cash Equivalents at End of Period$73,339 $38,752 $73,339 $38,752

Contacts:

The Timken Company
Media Contact:
Jeff Dafler, 330-471-3514
Manager Global Media & Government Relations
Facsimile: 330-471-7032
jeff.dafler@timken.com
or
Investor Contact:
Steve Tschiegg, 330-471-7446
Manager Investor Relations
Facsimile: 330-471-2797
steve.tschiegg@timken.com
or
For Additional Information:
www.timken.com/media
www.timken.com/investors

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