Timken Reports Record Sales in 2011 and Strong Outlook for 2012

The Timken Company has reported record sales of $5.2 billion for 2011, up 28% from the prior year on strong demand from diverse industrial markets. The increase primarily reflects growth from the energy, heavy truck, mining, rail and industrial distribution sectors, as well as favorable pricing, material surcharges and acquisitions.

In 2011, the company generated $454.3 million in income from continuing operations, net of non-controlling interest, or $4.59 per diluted share, up 65% from $274.8 million, or $2.73 per diluted share, a year ago. Higher volume, favorable mix, surcharges and pricing drove the improvement, more than offsetting increased raw material and administrative costs.

"Our financial results tell the story of a transformed Timken Company," says James W. Griffith, Timken president and chief executive officer. "We've successfully repositioned the company, focusing our efforts on those industries and applications where we bring significant value and can make a difference in our customers' performance. As a result of this and our improved operating model, we have increased our earning power, serving Timken customers across a multitude of high-performance applications in industrial markets."

Among developments announced in 2011, Timken:

• Completed two acquisitions further diversifying its portfolio, including Philadelphia Gear for $200 million in July and drives for $92 million in October;
• Launched initiatives to further enhance productivity and serve growth in its steel business, including a new $35 million in-line forge press at the company's Faircrest plant in Canton;
• Continued to expand bearing capacity, with approximately $50 million invested in 2011 to serve global growth in attractive industrial markets;
• Returned capital to shareholders, increasing quarterly dividends 11% to 20 cents per share, and repurchasing 1 million shares of company stock;
• Entered into an amended and restated $500 million unsecured senior credit facility that matures in May 2016;
• Contributed approximately $400 million to the company's pension and post-retirement benefit plans; and
• Began collaborating with The University of Akron to establish a new laboratory focused on surface-engineering technologies, and formed a new alliance with Stark State College to construct a large bearing test center in Canton.

Fourth-Quarter Results

For the fourth quarter ended December 31, 2011, Timken reported sales of $1.3 billion, an increase of 18% from the same period in 2010. Growth across most of the company's end markets, higher surcharges, pricing and acquisitions contributed to the improvement. Acquisitions accounted for approximately one third of the growth.

The company earned $1.11 per diluted share from continuing operations net of non-controlling interest for the quarter, compared with $0.87 per share a year ago. The improvement reflects higher volume, favorable mix, acquisitions, surcharges and pricing, which more than offset increased raw material and administrative costs.

At year-end, total debt was $515.1 million, or 20.1% of capital, and the company had cash of $468.4 million, or $46.7 million of net debt. That compares with a net cash position of $363.4 million on December 31, 2010. The company generated $211.7 million in net cash from operating activities in 2011, while using $69.6 million in free cash flow (net of capital expenditures and dividends). Excluding discretionary pension and VEBA trust contributions of $256 million after tax, free cash flow was $186.4 million, compared with $322 million the prior year. This decline reflects higher working capital and capital expenditures in 2011 to support the company's growth, as well as increased dividends. The company's available liquidity was approximately $1.3 billion at December 31, 2011.