Timken Company Announces Record Second Quarter Results; Raises Outlook

Timken Company Announces Record Second Quarter Results; Raises
Outlook 


CANTON, Ohio, July 28  /PRNewswire-FirstCall/ -- The Timken Company today
reported a 17 percent increase in sales and more than doubling of earnings per
share for the second quarter of 2005, compared to a year ago.

"We are pleased to report both record sales and second-quarter earnings per
share.  As these results demonstrate, we have leveraged the strength of the
industrial markets we serve, while improving competitiveness," said James W.
Griffith, president and CEO.

Timken reported second-quarter sales of $1.3 billion, compared to $1.1 billion
last year, and net income of $67.3 million or $0.73 per diluted share, up from
$25.3 million or $0.28 per diluted share a year ago. Excluding special items,
earnings per diluted share were $0.77, compared to $0.33 per diluted share last
year.  Special items in the second quarter of 2005 totaled $3.7 million of
pretax expense, including expenses for manufacturing rationalization,
integration and reorganization, partially offset by a gain on the sale of a
non-strategic business.

"While we are seeing strong industrial markets, automotive markets continue to
be challenging.  We have benefited from actions to improve our position,
including price increases to recoup high raw material costs. However, these
efforts have not been enough to offset significant changes occurring in the
automotive industry. As a result, we are taking more aggressive actions.  Over
the next quarter, we will announce detailed plans to globally restructure our
Automotive Group to reduce fixed costs, with targeted annual savings of
approximately $40 million," Mr. Griffith said.

For the first half of 2005, sales were $2.6 billion, an increase of 18 percent
from the prior year. Earnings per diluted share for the first six months were
$1.37 in 2005, versus $0.60 in 2004. Excluding special items, earnings per
diluted share in the first half of 2005 were $1.42, versus $0.64 in 2004.
Special items in the first half of 2005 totaled $4.8 million of pretax expense,
compared to $6.9 million a year ago.

Excluding special items, the company's effective tax rate for the first half of
2005 was 34.1 percent, down from 36.0 percent in the first quarter, due to
higher earnings in low tax-rate jurisdictions.  The company expects to maintain
its rate from the first half.

Total debt at June 30, 2005 was $842.1 million, or 38.6 percent of capital.
Debt was higher than the 2004 year-end level of $779.3 million due to
seasonality and higher working capital requirements to support growth.  The
company expects its leverage to be lower at the end of this year compared to
last year.

Industrial Group Results

For the second quarter, Industrial Group sales were $498.2 million, up 14
percent from $437.7 million last year. Sales growth was strongest in
distribution, rail, mining and agriculture. In addition to strong market
demand, results reflect the benefit of the company's focus on profitable growth
through new products and market expansion.  During the quarter, the Industrial
Group introduced a new line of Timken(R) industrial oil seals and expanded its
maintenance tool line into the U.S. and Canada.

Earnings before interest and taxes (EBIT) increased to $63.6 million, up 29
percent from last year's $49.3 million.  EBIT margin improved to 12.8 percent
from 11.3 percent a year ago. Driving margin improvement was increased volume,
favorable mix that reflected higher distribution sales and improved pricing.

For the first half of 2005, Industrial Group sales were $967.0 million, up 14
percent from a year ago, while EBIT for the first half of 2005 increased to
$110.6 million - or 11.4 percent of sales - compared to 10.0 percent in the
first half of 2004.

Automotive Group Results

Automotive Group sales were $425.9 million, up 5 percent from $404.2 million in
the second quarter of last year.  Increased sales into medium and heavy truck
markets were partially offset by decreases in light vehicle markets.   The
Automotive Group reported a loss before interest and taxes of $1.2 million,
compared with EBIT of $6.6 million the prior year. Despite improved pricing,
the decline in earnings was due principally to reduced unit volume from light
vehicle customers and the impact of high raw material costs.

Over the next quarter, the Automotive Group will announce detailed plans to
restructure operations, which will reduce fixed costs. Restructuring actions
are expected to require approximately two years to complete. These actions are
targeted to deliver annual savings of approximately $40 million, with expected
net workforce reductions of 400 to 500 positions and restructuring costs of $80
to $90 million.

For the first half of 2005, Automotive Group sales were $846.2 million, up 3
percent from the first half of last year.  The Group recorded a loss of $6.3
million for the first half, compared to EBIT of $24.9 million in the first half
of 2004.

Steel Group Results

For the second quarter, Steel Group sales were $445.3 million, up 35 percent
from $330.4 million last year.  The sales growth in the alloy and specialty
steel businesses reflected strong demand from industrial customers as well as
price increases and surcharges to recover high raw material and energy costs.

EBIT was $56.7 million compared to $3.0 million last year.  Increased volume,
price increases, surcharges and continued high labor productivity drove the
strong EBIT performance. During the quarter, the company also benefited from
its investment in the new continuous rolling mill at its specialty steel
operation in Latrobe, Pennsylvania.

Last year's second quarter EBIT was reduced by nearly $8 million due to an
unplanned shutdown of the Faircrest steel plant.

For the first half, Steel Group sales were $912.8 million, up 43 percent over
the first half of last year. EBIT for the first half was a record $120.5
million - or 13.2 percent of sales - compared to 0.9 percent of sales in the
first half of 2004. Steel Group's second half results are expected to be lower
than the record first half due to seasonality and lower raw material
surcharges.

Outlook

As a result of the company's strong second-quarter performance and improved
outlook for the year, the company is estimating third-quarter earnings per
diluted share, excluding special items, of $0.50 to $0.55 and increasing its
full-year estimates to $2.40 to $2.55 from $2.05 to $2.20. The improved outlook
reflects continued strong industrial markets, benefiting the Industrial and
Steel Groups, which should more than offset continued challenges within
automotive markets.

Conference Call Information

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

  Conference Call:  Thursday, July 28, 2005
                    11:00 a.m. Eastern Daylight Time

  All Callers       Live Dial-In: 706-634-0975
                    (Call in 10 minutes prior to be included)
                    Replay Dial-In through August 4, 2005: 706-645-9291
                    Conference ID: 3420202

  Live Web cast: http://www.timken.com/



The Timken Company (NYSE: TKR; http://www.timken.com/) keeps the world turning,
with innovative ways to make customers' products run smoother, faster and more
efficiently.  Timken's highly engineered bearings, alloy steels and related
products and services turn up everywhere - on land, on the seas and in space.
With operations in 27 countries, sales of $4.5 billion in 2004 and 26,000
employees, Timken is Where You Turn(TM) 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
contained in the paragraph 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 results of the Company's discussions with the union that
represents Company associates at the Canton area manufacturing facilities and
possible loss of future business due to uncertainty concerning the Company's
labor situation; fluctuations in raw material costs and the operation of the
Company's surcharge mechanisms; the Company's ability to respond to the rapid
improvement in the industrial markets; changes in the Company's effective tax
rate; 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, including
the implementation of its Automotive Group restructuring, manufacturing
transformation and rationalization activities. 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, 2004, in the Company's 2004 Annual Report, page 64 and
in the Company's Form 10-Q for the quarter ended March 31, 2005. The Company
undertakes no obligation to update or revise any forward-looking statement.

  CONSOLIDATED STATEMENT OF INCOME
                                            AS REPORTED
  (Thousands of U.S.
  dollars, except share                              Six Months  Six Months
  data)                        2Q 05       2Q 04         05          04
  Net sales                  $1,324,678  $1,130,287  $2,629,218  $2,229,072
  Cost of products sold       1,041,818     923,700   2,073,384   1,818,586
  Manufacturing
   rationalization/
   Integration/Reorganization
   expenses - cost of
   products sold                  6,048       1,000       7,172       2,376
      Gross Profit             $276,812    $205,587    $548,662    $408,110
  Selling, administrative &
   general expenses (SG&A)      161,464     141,133     325,094     279,848
  Manufacturing
   rationalization/
   Integration/
   Reorganization
   expenses - SG&A                  278       6,258         687      10,246
  Impairment and
   restructuring                    (44)        329         (44)      1,059
      Operating Income         $115,114     $57,867    $222,925    $116,957
  Other expense                  (3,022)     (5,288)     (8,168)    (14,107)
  Special items - other
   income                         2,609           -       2,995       6,794
      Earnings Before
       Interest and Taxes
       (EBIT)   (2)            $114,701     $52,579    $217,752    $109,644
  Interest expense, net         (13,087)    (11,707)    (25,189)    (22,852)

      Income Before Income
       Taxes                   $101,614     $40,872    $192,563     $86,792
  Provision for income taxes     34,280      15,531      66,994      32,981
      Net Income                $67,334     $25,341    $125,569     $53,811

     Earnings Per Share           $0.74       $0.28       $1.38       $0.60

     Earnings Per Share-
      assuming dilution           $0.73       $0.28       $1.37       $0.60

  Average Shares Outstanding 91,189,208  89,698,030  90,981,208  89,492,987
  Average Shares
   Outstanding-assuming
   dilution                  91,817,375  90,552,362  91,828,505  90,356,032


  CONSOLIDATED STATEMENT OF INCOME
                                              ADJUSTED (1)
  (Thousands of U.S.
  dollars, except share                              Six Months  Six Months
  data)                        2Q 05       2Q 04         05          04
  Net sales                  $1,324,678  $1,130,287  $2,629,218  $2,229,072
  Cost of products sold       1,041,818     923,700   2,073,384   1,818,586
  Manufacturing
   rationalization/
   Integration/
   Reorganization
   expenses - cost of
   products sold                      -           -           -           -
      Gross Profit             $282,860    $206,587    $555,834    $410,486
  Selling, administrative &
   general expenses (SG&A)      161,464     141,133     325,094     279,848
  Manufacturing
   rationalization/
   Integration/
   Reorganization
   expenses - SG&A                    -           -           -           -
  Impairment and
   restructuring                      -           -           -           -
      Operating Income         $121,396     $65,454    $230,740    $130,638
  Other expense                  (3,022)     (5,288)     (8,168)    (14,107)
  Special items - other
   income                             -           -           -           -
      Earnings Before
       Interest and Taxes
       (EBIT)   (2)            $118,374     $60,166    $222,572    $116,531
  Interest expense, net         (13,087)    (11,707)    (25,189)    (22,852)

      Income Before Income
       Taxes                   $105,287     $48,459    $197,383     $93,679
  Provision for income taxes     34,153      18,414      67,308      35,598
      Net Income                $71,134     $30,045    $130,075     $58,081

     Earnings Per Share           $0.78       $0.33       $1.43       $0.65

     Earnings Per Share-
      assuming dilution           $0.77       $0.33       $1.42       $0.64

  Average Shares Outstanding 91,189,208  89,698,030  90,981,208  89,492,987
  Average Shares
   Outstanding-assuming
   dilution                  91,817,375  90,552,362  91,828,505  90,356,032

  (1) "Adjusted" statements exclude the impact of impairment and
  restructuring, manufacturing rationalization/integration/reorganization
  and special charges and credits for all periods shown


  BUSINESS SEGMENTS
                                                     Six Months  Six Months
  (Thousands of U.S. dollars)     2Q 05     2Q 04        05          04
  Industrial Group
  Net sales to
   external
   customers                     $497,523  $437,416    $965,972    $847,685
  Intersegment
   sales                              628       278       1,026         567
  Total net sales                $498,151  $437,694    $966,998    $848,252
  Adjusted earnings
   before interest
   and taxes (EBIT)
   * (2)                          $63,629   $49,311    $110,628     $85,077
  Adjusted EBIT
   Margin (2)                        12.8%     11.3%       11.4%       10.0%

  Automotive Group
  Net sales to
   external
   customers                     $425,949  $404,163    $846,214    $819,765
  Adjusted (loss)
   earnings before
   interest and
   taxes (EBIT) *
   (2)                            ($1,217)   $6,607     ($6,317)    $24,930
  Adjusted EBIT
   (Loss) Margin
   (2)                               -0.3%      1.6%       -0.7%        3.0%

  Steel Group
  Net sales to
   external
   customers                     $401,206  $288,708    $817,032    $561,622
  Intersegment
   sales                           44,131    41,686      95,736      78,103
  Total net sales                $445,337  $330,394    $912,768    $639,725
  Adjusted earnings
   before interest
   and taxes (EBIT)
   * (2)                          $56,748    $3,026    $120,473      $5,750
  Adjusted EBIT
   Margin (2)                        12.7%      0.9%       13.2%        0.9%

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

  (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 our business segments and EBIT
  disclosures are responsive to investors.


  Reconciliation of Total Debt to Net Debt and the Ratio of Net Debt to
  Capital:

  (Thousands of U.S. Dollars)     June 30, 2005   Dec 31, 2004
  Short-term debt                        $232,487     $158,690
  Long-term debt                          609,627      620,634
    Total Debt                            842,114      779,324
  Less:  cash and cash equivalents        (66,980)     (50,967)
    Net Debt                             $775,134     $728,357

  Net debt                               $775,134     $728,357
  Shareholders' equity                  1,342,163    1,269,848
    Net debt + shareholders' equity
     (Capital)                         $2,117,297   $1,998,205

  Ratio of Net Debt to Capital              36.6%        36.5%

  This reconciliation is provided as additional relevant information about
  Timken's financial position.  Management believes Net Debt is more
  representative of Timken's indicative financial position, due to a
  temporary increase in cash and cash equivalents.


  Reconciliation of GAAP net income and EPS - Basic and Diluted as
  previously disclosed.

  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/integration/reorganization costs,
  Continued Dumping and Subsidy Offset Act (CDSOA) receipts, and gain on the
  sale of non-strategic assets.


  (Thousands of U.S. dollars, except          2Q 05             2Q 04
  share data)                              $       EPS       $       EPS

  Net income                             $67,334   $0.73   $25,341   $0.28

  Pre-tax special items:
    Manufacturing
     rationalization/integration/
     reorganization expenses
     - cost of products sold                6,048    0.07     1,000   0.01
    Manufacturing
     rationalization/integration/
     reorganization expenses
     - SG&A                                  278    0.00     6,258    0.07
    Impairment and restructuring             (44)  (0.00)      329    0.00
    Special items - other (income)
     expense:
      Gain on sale of non-strategic
       assets                             (2,570)  (0.03)        -     -
      CDSOA receipts, net of expenses          -     -           -     -
      Adoption of FIN 46 for investment
       in PEL                                  -     -           -     -
      Other                                  (39)  (0.00)        -     -
  Tax effect of special items                127    0.00    (2,883)  (0.03)



  Adjusted net income                    $71,134   $0.77   $30,045   $0.33

  (3)  In the first quarter of 2004, Timken adopted Interpretation No. 46,
  "Consolidation of Variable Interest Entities, an interpretation of
  Accounting Research Bulletin No. 51" (FIN 46).  Timken concluded that its
  investment in a joint venture, PEL, was subject to the provisions of FIN
  46 and that Timken was the primary beneficiary of PEL.  Accordingly,
  Timken consolidated PEL, effective March 31, 2004, which resulted in a
  charge to earnings related to the cumulative effect of change
  in accounting principle.


  Reconciliation of Outlook Information -
  Expected earnings per diluted share for the full year and third quarter
  exclude special items.  Examples of such special items include impairment
  and restructuring, manufacturing rationalization/integration/
  reorganization expenses, gain 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.  We cannot
  predict whether we will receive any additional payments under the CDSOA in
  2005 and if so, in what amount.  If we do receive any additional CDSOA
  payments, they will most likely be received in the fourth quarter.


                                                     Six Months
                                                05                04
  (Thousands of U.S. dollars, except
  share data)                                $       EPS      $        EPS

  Net income                              $125,569  $1.37  $53,811    $0.60

  Pre-tax special items:
    Manufacturing
     rationalization/integration/reorgani
     zation expenses - cost of products
     sold                                    7,172   0.07    2,376     0.03
    Manufacturing
     rationalization/integration/reorgani
     zation expenses - SG&A                    687   0.01   10,246     0.11
    Impairment and restructuring               (44) (0.00)   1,059     0.01
    Special items - other (income)
     expense:
      Gain on sale of non-strategic
       assets                               (2,570) (0.03)       -      -
      CDSOA receipts, net of expenses            -    -     (7,743)   (0.09)

      Adoption of FIN 46 for investment
       in PEL                                    -    -        949 (3) 0.01
      Other                                   (425) (0.00)       -      -
  Tax effect of special items                 (314) (0.00)  (2,617)   (0.03)



  Adjusted net income                     $130,075  $1.42  $58,081    $0.64

  (3)  In the first quarter of 2004, Timken adopted Interpretation No. 46,
  "Consolidation of Variable Interest Entities, an interpretation of
  Accounting Research Bulletin No. 51" (FIN 46).  Timken concluded that its
  investment in a joint venture, PEL, was subject to the provisions of FIN
  46 and that Timken was the primary beneficiary of PEL.  Accordingly,
  Timken consolidated PEL, effective March 31, 2004, which resulted in a
  charge to earnings related to the cumulative effect of change
  in accounting principle.


  Reconciliation of Outlook Information -
  Expected earnings per diluted share for the full year and third quarter
  exclude special items.  Examples of such special items include impairment
  and restructuring, manufacturing rationalization/integration/
  reorganization expenses, gain 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.  We cannot
  predict whether we will receive any additional payments under the CDSOA in
  2005 and if so, in what amount.  If we do receive any additional CDSOA
  payments, they will most likely be received in the fourth quarter.



  CONSOLIDATED BALANCE SHEET                    June 30            Dec 31
  (Thousands of U.S. dollars)                     2005              2004
  ASSETS
  Cash & cash equivalents                        $66,980           $50,967
  Accounts receivable                            808,276           717,425
  Deferred income taxes                           91,022            90,066
  Inventories                                    963,862           874,833
      Total Current Assets                    $1,930,140        $1,733,291
  Property, plant & equipment                  1,522,606         1,583,425
  Goodwill                                       188,005           189,299
  Other assets                                   445,192           408,056
      Total Assets                            $4,085,943        $3,914,071

  LIABILITIES
  Accounts payable & other liabilities          $518,388          $504,585
  Short-term debt                                232,487           158,690
  Accrued expenses                               437,659           353,623
      Total Current Liabilities               $1,188,534        $1,016,898
  Long-term debt                                 609,627           620,634
  Accrued pension cost                           404,881           468,644
  Accrued postretirement benefits cost           494,978           490,366
  Other non-current liabilities                   45,760            47,681
      Total Liabilities                       $2,743,780        $2,644,223

  SHAREHOLDERS' EQUITY                         1,342,163         1,269,848
      Total Liabilities and
       Shareholders' Equity                   $4,085,943        $3,914,071


  CONDENSED CONSOLIDATED STATEMENT  For the three months For the six months
  OF CASH FLOWS                            ended               ended
                                     June 30   June 30   June 30   June 30
  (Thousands of U.S. dollars)          2005      2004      2005      2004
  Cash Provided (Used)
  OPERATING ACTIVITIES
  Net Income                          $67,334   $25,341  $125,569   $53,811
  Adjustments to reconcile net
   income to net cash used
    by operating activities:
    Depreciation and amortization      53,599    51,409   107,699   105,337
    Other                              (4,137)    8,995    (4,410)   12,225
    Changes in operating assets and
     liabilities:
      Accounts receivable             (41,480)  (16,344) (123,722) (103,672)
      Inventories                     (48,117)   (4,081) (124,594)  (19,848)
      Other assets                    (16,272)  (10,696)  (28,619)  (18,504)
      Accounts payable and accrued
       expenses                        41,203   (31,448)   76,816   (34,731)
      Foreign currency translation
       loss                             4,231     1,833     7,435     3,309
       Net Cash Provided (Used) by
        Operating Activities          $56,361   $25,009   $36,174   ($2,073)

  INVESTING ACTIVITIES
    Capital expenditures             ($51,331) ($31,247) ($83,226) ($55,696)
    Other                               3,622     2,188     3,910        89
    Proceeds from disposals of non-
     strategic assets                  10,881         -    10,881         -
    Acquisitions                            -    (6,275)   (6,556)   (7,824)
       Net Cash Used by Investing
        Activities                   ($36,828) ($35,334) ($74,991) ($63,431)

  FINANCING ACTIVITIES
    Cash dividends paid to
     shareholders                    ($13,728) ($11,675) ($27,414) ($23,289)
    Proceeds from exercise of stock
     options                            2,505     5,930    12,580    10,202
    Net borrowings on credit
     facilities                        10,470    48,110    75,932   114,991
       Net Cash (Used) Provided by
        Financing Activities            ($753)  $42,365   $61,098  $101,904

  Effect of exchange rate changes on
   cash                               ($3,568)     $414   ($6,268)   $2,443

  Increase in Cash and Cash
   Equivalents                         15,212    32,454    16,013    38,843
  Cash and Cash Equivalents at
   Beginning of Period                $51,768   $35,015   $50,967   $28,626

  Cash and Cash Equivalents at End
   of Period                          $66,980   $67,469   $66,980   $67,469


   NEWS MEDIA CONTACT:
   Denise Bowler
   Manager -  Associate & Financial Communications
   Mail Code: GNW-37
   1835 Dueber Avenue, S.W.
   P.O. Box 6932
   Canton, OH 44706-0932 U.S.A.
   Telephone: [phone]
   Facsimile: (330)  471-4118
   

   INVESTOR CONTACT:
   Steve Tschiegg
   Manager - Investor Relations
   Mail Code: GNE-26
   1835 Dueber Avenue, S.W.
   P.O. Box 6928
   Canton, OH 44706-0928 U.S.A.
   Telephone: [phone]
   Facsimile: [phone]
   

DATASOURCE: The Timken Company



CONTACT:  News Media: Denise Bowler, Manager -  Associate & Financial

Communications, [phone], fax [phone],

; Investor: Steve Tschiegg, Manager - Investor

Relations, [phone],  fax, [phone], 



Web site:  http://www.timken.com/ 

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