Timken Company Earnings Per Share Double on Record Third Quarter Sales; Outlook Raised for Year

CANTON, Ohio, Oct. 26  /PRNewswire-FirstCall/ -- The Timken Company today reported record third quarter sales of $1.3 billion, up 15 percent from $1.1 billion last year. Net income of $39.8 million or $0.43 per diluted share, was more than double last year's third quarter net income of $17.5 million or $0.19 per diluted share.  Excluding special items, earnings per diluted share of $0.58 were more than double the $0.27 per diluted share reported a year ago.  Special items in the third quarter of 2005 totaled $28.3 million of pretax expense, which was primarily for restructuring automotive operations as well as for industrial manufacturing rationalization.

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"We delivered strong performance this quarter as we continued to capitalize on the ongoing strength of global industrial markets," said James W. Griffith, president and CEO. "While we had record third quarter results in the Industrial and Steel Groups, our Automotive Group performance continued to be challenged."

"We are focusing our growth initiatives to take advantage of the strong industrial demand. We have continued to add industrial bearing capacity around the world and invest in acquisitions in key markets to complement organic growth," Mr. Griffith said. "The record performance in our steel business reflects leveraging strong demand in industries such as aerospace and energy. In our automotive operations, we began our restructuring program to reduce fixed costs and improve performance as we deal with the difficult environment in the North American automotive industry."

For the first nine months of 2005, sales were $3.9 billion, an increase of 17 percent from the prior year. Earnings per diluted share for the first nine months were $1.79 in 2005 versus $0.79 in 2004. Excluding special items, earnings per diluted share in the first nine months of 2005 were $1.99 versus $0.91 in 2004. Special items in the first nine months of 2005 totaled $33.1 million of pretax expense, compared to $18.0 million a year ago.

The company's effective tax rate for the first nine months was 31.4 percent, down from 34.8 percent in the first half due primarily to benefits related to export tax incentives as well as improved earnings in certain foreign jurisdictions.  Excluding special items, the effective tax rate for the first nine months was 33.1 percent.  The company expects to maintain this rate going forward.

Total debt on September 30, 2005 was $802.6 million, or 36.4 percent of capital.  Total debt was reduced $39.5 million from the end of the second quarter.  The company expects to continue to reduce its debt levels and leverage during the fourth quarter.

Industrial Group Results

For the third quarter, Industrial Group sales were $468.2 million, up 13 percent from $414.0 million last year. Sales grew in all industrial segments, with the largest increases in distribution and rail.

Earnings before interest and taxes (EBIT) increased to $47.4 million from last year's $45.2 million, reflecting higher volume and pricing.  EBIT margin was 10.1 percent, compared to 10.9 percent a year ago, reflecting higher costs to support the company's growth initiatives, the impact of currency and higher incentive compensation. The company expects EBIT margin to improve in the fourth quarter to levels above last year.

During the quarter, the Industrial Group expanded operations in Wuxi, China to serve industrial customers with spherical bearings.  In October, the company continued to expand its aftermarket services business with the acquisition of Bearing Inspection, Inc., which provides bearing inspection and overhaul services to the aerospace industry.

During the quarter, the company also reached a new four-year agreement with the United Steelworkers union, covering employees in its Canton-area bearing and steel plants. As a result of the contract settlement, the company has refined its plans to rationalize the Canton bearing operations. This initiative is expected to deliver annual pretax savings of approximately $25 million through streamlining operations and workforce reductions, with costs of approximately $35 to $40 million over the next four years.

For the first nine months of 2005, Industrial Group sales were $1.4 billion, up 14 percent from a year ago, while EBIT for the first nine months of 2005 increased to $158.1 million - or 11.0 percent of sales - compared to 10.3 percent in the first nine months of 2004.

Automotive Group Results

Automotive Group sales were $408.0 million, up 10 percent from $370.9 million in the third quarter of last year. The increase in sales was due to improved pricing and growth in heavy truck volumes.   The Automotive Group reported a loss before interest and taxes of $6.0 million, compared to a loss of $7.1 million the prior year. EBIT margin in the third quarter improved 40 basis points to a negative 1.5 percent from the same period a year ago.  The Automotive Group has made progress with improved pricing offsetting high raw material costs. However, the Group was negatively affected by currency and the impact of Delphi's Chapter 11 filing. The company expects the Automotive Group to return to profitability in the fourth quarter.

During the third quarter, the Automotive Group announced restructuring plans, including closing of facilities, workforce reductions and combining and relocating engineering resources. Additional announcements are expected in coming months. The restructuring initiative is targeted to deliver annual pretax savings of approximately $40 million, with costs of approximately $80 to $90 million over two years.

For the first nine months of 2005, Automotive Group sales were $1.3 billion, up 5 percent from the first nine months of last year.  The Group recorded a loss of $12.4 million for the first nine months, compared to EBIT of $17.8 million in the first nine months of 2004.

Steel Group Results

The Steel Group had record third quarter sales of $427.9 million, up 20 percent from $355.3 million last year.   The increase was due to strong demand in industrial, aerospace and energy segments as well as price increases and surcharges to recover high raw material costs.

The Steel Group reported record third quarter EBIT of $49.7 million, compared to $16.8 million last year. EBIT margin was 11.6 percent, compared to 4.7 percent a year ago. Price increases, surcharges for scrap steels and alloys, increased volume and high labor productivity drove the strong EBIT performance. While scrap costs fell below last year's extremely high levels, alloy costs increased from a year ago.   The company continues to expect lower profitability in the fourth quarter due to seasonal factors.

For the first nine months, Steel Group sales were $1.3 billion, up 35 percent over the same period last year. EBIT for the first nine months was $170.2 million - or 12.7 percent of sales - compared to 2.3 percent of sales in the first nine months of 2004.

Outlook

The company is increasing its full-year earnings estimate, excluding special items, to $2.55 to $2.65 per diluted share from the prior estimate of $2.40 to $2.55.  Strong industrial markets should continue to benefit Industrial and Steel Group performance in the fourth quarter. The company also expects to see continued improvement in its Automotive Group, despite the challenging environment in the North American automotive industry. In commenting on the financial outlook, Mr. Griffith said: "We expect to continue benefiting from our participation in diverse industrial markets.  In particular, increased activity in mining, oil and gas and other energy-related markets should result in additional demand for our products."

Conference Call Information

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

  Conference Call:  Wednesday, October 26, 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 November 2, 2005: 706-645-9291
                    Conference ID: 3420213

  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 related to expected savings and costs of the Company's initiatives and expectations concerning the Company's financial performance, as well as 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 fluctuations in raw material and energy costs and the operation of the Company's surcharge mechanisms; the Company's ability to respond to the changes in the industrial markets; changes in the financial health of the Company's customers; 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, the rationalization of the Company's Canton bearing operations, 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 June 30, 2005. The Company undertakes no obligation to update or revise any forward-looking statement.

For more information, media, Denise Bowler, Manager - Associate & Financial Communications, 330-471-3485, or fax, 330-471-4118, or , or investors, Steve Tschiegg, Manager - Investor Relations, 330-471-7446, or fax, 330-471-2797, or , both of The Timken Company; for additional information: http://www.timken.com/media or http://www.timken.com/investors

  CONSOLIDATED STATEMENT OF INCOME
  (Thousands of U.S. dollars,                   AS REPORTED
   except share data)                               Nine Months  Nine Months
                                3Q 05       3Q 04        05           04

  Net sales                  $1,258,133  $1,096,724  $3,887,351  $3,325,796
  Cost of products sold       1,002,705     911,681   3,076,089   2,730,267
  Manufacturing
   rationalization/Integration/
   Reorganization expenses -
   cost of products sold          3,017         998      10,189       3,374
      Gross Profit             $252,411    $184,045    $801,073    $592,155
  Selling, administrative &
   general expenses (SG&A)      162,231     128,507     487,325     408,355
  Manufacturing
   rationalization/Integration/
   Reorganization
   expenses - SG&A                  790       6,499       1,477      16,745
  Impairment and restructuring   24,451       2,939      24,407       3,998
      Operating Income          $64,939     $46,100    $287,864    $163,057
  Other expense                  (4,265)     (4,892)    (12,433)    (19,000)
  Special items - other
   (expense) income                  (8)       (719)      2,987       6,076
      Earnings Before
       Interest and Taxes
       (EBIT)   (2)             $60,666     $40,489    $278,418    $150,133
  Interest expense, net         (11,968)    (12,323)    (37,157)    (35,175)

      Income Before Income
       Taxes                    $48,698     $28,166    $241,261    $114,958
  Provision for income taxes      8,867      10,703      75,861      43,684
      Net Income                $39,831     $17,463    $165,400     $71,274

     Earnings Per Share           $0.43       $0.19       $1.81       $0.79

     Earnings Per Share-
      assuming dilution           $0.43       $0.19       $1.79       $0.79

  Average Shares Outstanding 91,688,231  90,166,612  91,238,444  89,706,620
  Average Shares
   Outstanding-assuming
   dilution                  92,821,344  91,058,739  92,181,013  90,579,359


  CONSOLIDATED STATEMENT OF INCOME
  (Thousands of U.S. dollars,                    ADJUSTED (1)
  except share data)                                Nine Months  Nine Months
                                3Q 05       3Q 04         05          04

  Net sales                  $1,258,133  $1,096,724  $3,887,351  $3,325,796
  Cost of products sold       1,002,705     911,681   3,076,089   2,730,267
  Manufacturing
   rationalization/Integration/
   Reorganization
   expenses - cost of
   products sold                      -           -           -           -
      Gross Profit             $255,428    $185,043    $811,262    $595,529
  Selling, administrative &
   general expenses (SG&A)      162,231     128,507     487,325     408,355
  Manufacturing
   rationalization/Integration/
   Reorganization
   expenses - SG&A                    -           -           -           -
  Impairment and
   restructuring                      -           -           -           -
      Operating Income          $93,197     $56,536    $323,937    $187,174
  Other expense                  (4,265)     (4,892)    (12,433)    (19,000)
  Special items - other
   (expense) income                   -           -           -           -
      Earnings Before
       Interest and Taxes
       (EBIT)   (2)             $88,932     $51,644    $311,504    $168,174
  Interest expense, net         (11,968)    (12,323)    (37,157)    (35,175)

      Income Before Income
       Taxes                    $76,964     $39,321    $274,347    $132,999
  Provision for income taxes     23,501      14,942      90,809      50,540
      Net Income                $53,463     $24,379    $183,538     $82,459

     Earnings Per Share           $0.58       $0.27       $2.01       $0.92

     Earnings Per Share-
      assuming dilution           $0.58       $0.27       $1.99       $0.91

  Average Shares Outstanding 91,688,231  90,166,612  91,238,444  89,706,620
  Average Shares
   Outstanding-assuming
   dilution                  92,821,344  91,058,739  92,181,013  90,579,359

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


  BUSINESS SEGMENTS
  (Thousands of U.S.          3Q 05      3Q 04     Nine Months  Nine Months
   dollars)                                           05           04
  Industrial Group
  Net sales to external
   customers                $467,774    $413,589  $1,433,746  $1,261,274
  Intersegment sales             435         416       1,461         983
  Total net sales           $468,209    $414,005  $1,435,207  $1,262,257
  Adjusted earnings before
   interest and taxes
   (EBIT) * (2)              $47,444     $45,200    $158,072    $130,277
  Adjusted EBIT Margin (2)     10.1%       10.9%       11.0%       10.3%

  Automotive Group
  Net sales to external
   customers                $407,959    $370,876  $1,254,173  $1,190,641
  Adjusted (loss) earnings
   before interest and taxes
   (EBIT) * (2)             ($6,040)    ($7,148)   ($12,357)     $17,782
  Adjusted EBIT (Loss)
   Margin (2)                  -1.5%       -1.9%       -1.0%        1.5%

  Steel Group
  Net sales to external
   customers                $382,400    $312,259  $1,199,432    $873,881
  Intersegment sales          45,512      43,044     141,248     121,147
  Total net sales           $427,912    $355,303  $1,340,680    $995,028
  Adjusted earnings before
   interest and taxes
   (EBIT) * (2)              $49,698     $16,760    $170,171     $22,510
  Adjusted EBIT Margin (2)     11.6%        4.7%       12.7%        2.3%


  * 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 Total Debt and
   Net Debt to Capital:
  (Thousands of U.S. Dollars)               Sep 30,    June 30,     Dec 31,
                                             2005        2005        2004
  Short-term debt                          $269,441    $232,487    $158,690
  Long-term debt                            533,169     609,627     620,634
    Total Debt                              802,610     842,114     779,324
  Less:  cash and cash equivalents          (63,105)    (66,980)    (50,967)
    Net Debt                               $739,505    $775,134    $728,357

  Shareholders' equity                    1,403,930   1,342,163   1,269,848

  Ratio of Total Debt to Capital              36.4%       38.6%       38.0%
  Ratio of Net Debt to Capital (Leverage)     34.5%       36.6%       36.5%



This reconciliation is provided as additional relevant information about Timken's financial position.  Capital is defined as debt plus shareholders' equity.

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 loss (gain) on the sale of non- strategic assets.

  (Thousands of U.S. dollars, except          3Q 05             3Q 04
   share data)                              $       EPS       $       EPS

  Net income                             $39,831   $0.43   $17,463   $0.19

  Pre-tax special items:

    Manufacturing
     rationalization/integration/
     reorganization expenses -
     cost of products sold                 3,017    0.03       998    0.01
    Manufacturing
     rationalization/integration/
     reorganization expenses -
     SG&A                                    790    0.01     6,499    0.07
    Impairment and restructuring          24,451    0.26     2,939    0.03
    Special items - other (income)
     expense:
      Loss (Gain) on sale of non-
       strategic assets                       35     -           -     -
      CDSOA receipts, net of expenses          -     -           -     -
      Adoption of FIN 46 for investment
       in PEL                                  -     -           -     -
      Other                                  (27)    -         719    0.01
  Tax effect of special items            (14,634)  (0.15)   (4,239)  (0.04)


  Adjusted net income                    $53,463   $0.58   $24,379   $0.27


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

  Net income                            $165,400   $1.79   $71,274    $0.79

  Pre-tax special items:

    Manufacturing
     rationalization/integration/
     reorganization expenses - cost
     of products sold                     10,189    0.11     3,374     0.04
    Manufacturing
     rationalization/integration/
     reorganization expenses - SG&A        1,477    0.02    16,745     0.18
    Impairment and restructuring          24,407    0.26     3,998     0.04
    Special items - other (income)
     expense:
      Loss (Gain) on sale of non-
       strategic assets                   (2,535)  (0.03)        -       -
      CDSOA receipts, net of
       expenses                                -       -    (7,743)   (0.09)
      Adoption of FIN 46 for
       investment in PEL                       -       -       948 (3) 0.01
      Other                                 (452)      -       719     0.01
  Tax effect of special items            (14,948)  (0.16)   (6,856)   (0.07)

  Adjusted net income                   $183,538   $1.99   $82,459    $0.91

  (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 exclude special items.  Examples of such special items include impairment and restructuring, manufacturing rationalization/integration/reorganization expenses, loss (gain) on the sale of non-strategic assets, and receipts 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                      Sep 30            Dec 31
  (Thousands of U.S. dollars)                      2005              2004
  ASSETS
  Cash & cash equivalents                        $63,105           $50,967
  Accounts receivable                            791,729           717,425
  Deferred income taxes                           94,821            90,066
  Inventories                                  1,004,939           874,833
      Total Current Assets                    $1,954,594        $1,733,291
  Property, plant & equipment                  1,516,325         1,583,425
  Goodwill                                       190,200           189,299
  Other assets                                   446,703           408,056
      Total Assets                            $4,107,822        $3,914,071

  LIABILITIES
  Accounts payable & other liabilities          $514,255          $504,585
  Short-term debt                                269,441           158,690
  Accrued expenses                               503,247           353,623
      Total Current Liabilities               $1,286,943        $1,016,898
  Long-term debt                                 533,169           620,634
  Accrued pension cost                           324,954           468,644
  Accrued postretirement benefits cost           504,425           490,366
  Other non-current liabilities                   54,401            47,681
      Total Liabilities                       $2,703,892        $2,644,223

  SHAREHOLDERS' EQUITY                         1,403,930         1,269,848
      Total Liabilities and
       Shareholders' Equity                   $4,107,822        $3,914,071


  CONDENSED CONSOLIDATED
  STATEMENT OF                  For the three           For the nine
  CASH FLOWS                     months ended            months ended
                              Sep 30     Sep 30       Sep 30       Sep 30
  (Thousands of                2005       2004         2005         2004
   U.S. dollars)
  Cash Provided (Used)
  OPERATING ACTIVITIES
  Net Income                 $39,831     $17,463     $165,400     $71,274
  Adjustments to
   reconcile net income
   to net cash provided
   (used) by operating
     activities:
    Depreciation
     and amortization         53,066      51,579      160,765     156,916
    Other                        207         398       (4,203)      6,153
    Changes in operating
     assets and
     liabilities:
      Accounts receivable     13,460     (17,659)    (110,262)   (121,331)
      Inventories            (37,512)    (71,857)    (162,106)    (91,705)
      Other assets               146      12,885      (28,473)        851
      Accounts payable
       and accrued expenses    2,176     (15,317)      78,992     (50,048)
      Foreign currency
       translation
       (gain) loss            (1,854)     (1,567)       5,581       1,742
       Net Cash
        Provided (Used)
        by Operating
        Activities           $69,520    ($24,075)    $105,694    ($26,148)

  INVESTING ACTIVITIES
    Capital
     expenditures           ($45,379)   ($39,533)   ($128,605)   ($95,229)
    Other                      2,937        (386)       6,847        (297)
    Proceeds from
     disposals of non-
     strategic assets            848           -       11,729           -
    Acquisitions                 (73)     (2,409)      (6,629)    (10,233)
       Net Cash Used by
        Investing
        Activities          ($41,667)   ($42,328)   ($116,658)  ($105,759)

  FINANCING ACTIVITIES
    Cash dividends
     paid to
     shareholders           ($13,824)   ($11,725)    ($41,238)   ($35,014)
    Proceeds from
     exercise of
     stock options            18,160       3,542       30,740      13,744
    Net (payments)
     borrowings on
     credit facilities       (37,533)     58,324       38,399     173,315
       Net Cash (Used)
        Provided by
        Financing
        Activities          ($33,197)    $50,141      $27,901    $152,045

  Effect of exchange
   rate changes on
   cash                       $1,469      $1,664      ($4,799)     $4,107

  (Decrease)
   Increase in Cash and
   Cash Equivalents           (3,875)    (14,598)      12,138      24,245
  Cash and Cash
   Equivalents at
   Beginning of
   Period                    $66,980     $67,469      $50,967     $28,626

  Cash and Cash
   Equivalents at
   End of Period             $63,105     $52,871      $63,105     $52,871


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DATASOURCE: The Timken Company



CONTACT:  News media contact: Denise Bowler, Manager - Associate &

Financial Communications, 330-471-3485, or fax, 330-471-4118, or

, investors, Steve Tschiegg, Manager - Investor

Relations, 330-471-7446, or fax, 330-471-2797, or 



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

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