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Timken Reports 2007 Results, Strong Outlook for 2008
Operating performance improves despite automotive weakness, higher costs
Global industrial demand remains strong

CANTON, Ohio--(BUSINESS WIRE)--Jan. 31, 2008--The Timken Company (NYSE: TKR) today reported sales of $5.2 billion for 2007, an increase of 5 percent from a year ago. Strong sales in industrial markets and the favorable impact of currency were partially offset by the impact of the strategic divestment of the company's automotive steering and European steel tube manufacturing operations. The company achieved income from continuing operations of $219.4 million, or $2.29 per diluted share, up from $176.4 million, or $1.87 per diluted share, in 2006.

Excluding special items, income from continuing operations increased 15 percent to $229.9 million or $2.40 per diluted share in 2007, compared to $200.8 million or $2.13 per diluted share in the prior year. Special items, net of tax, totaled $10.5 million of expense in 2007 compared to $24.4 million in 2006. These special items included losses on divestitures and charges related to restructuring, rationalization and impairment, which were partially offset by disbursements received under the Continued Dumping and Subsidy Offset Act (CDSOA) and favorable tax adjustments.

"Our financial results for 2007 reflect the strength of industrial markets and the progress we made on initiatives to shift our portfolio to markets where we can create greater shareholder value," said James W. Griffith, Timken's president and chief executive officer. "We expect to see continued strong demand for our products and are committed to achieving improved financial performance through a combination of better execution and portfolio management."

During 2007, the company took actions to drive further growth in key market sectors while improving operational performance.

-- Timken made progress in shifting its portfolio toward key growth
   markets, including Asia, aerospace, distribution, energy and
   heavy industries. Examples include:

-- Significant capacity expansion over the past two years in
       China, India, Romania and the United States to meet growing
       demand for large-bore and aerospace bearings;

-- The acquisition of the assets of The Purdy Corp. for $200
       million, expanding the company's range of gearbox manufacturing
       and repair to serve the aerospace industry;

-- Establishment of a joint venture in China to manufacture
       ultra-large-bore bearings for the growing Chinese wind energy
       market;

 -- Closure of steel tube manufacturing operations in Desford,
       England; and

-- Advancement of restructuring initiatives within the company's
       bearing operations, including closure of its manufacturing
       facility in Clinton, S.C.

-- Timken commissioned a new induction heat-treat line focused on
   steel products for the energy and industrial sectors and began
   building a $60 million expansion for special small-bar steel
   capabilities that will give the company one of the broadest
   ranges of super-clean alloy steel bars in North America.

-- The company realigned operations under two major business
   groups, the Bearings and Power Transmission Group and the Steel
   Group, to improve execution and accelerate profitable growth.

-- The company completed the first major U.S. implementation of
   Project O.N.E., a program designed to improve enterprise-wide
   business processes and systems. Over the next year, the company
   will complete the next phase of the rollout, covering most of
   its remaining operations.

Fourth-Quarter Results

For the quarter ended Dec. 31, 2007, sales were $1.3 billion, an increase of 9 percent from a year ago. Strong sales in industrial markets were partially offset by the impact of the company's strategic divestments.

Income from continuing operations per diluted share was $0.50 in the fourth quarter of 2007 compared to $0.17 in the same period a year ago. The company's performance benefited from higher volume and improved pricing, which were partially offset by higher raw-material, manufacturing and logistics costs.

Special items, net of tax, in the fourth quarter of 2007 totaled $0.8 million of expense, compared to $5.5 million in the same period a year ago and included losses on divestitures and charges related to restructuring, rationalization and impairment, partially offset by disbursements received under CDSOA. Excluding these items, income from continuing operations per diluted share in the fourth quarter of 2007 was $0.51, compared to $0.23 during the same period in 2006.

Total debt was $723.2 million as of Dec. 31, 2007, or 26.9 percent of capital. Net debt at Dec. 31, 2007, was $693.0 million, or 26.1 percent of capital, compared to $496.8 million, or 25.2 percent, as of Dec. 31, 2006. The increase in net debt was due primarily to the Purdy aerospace acquisition in the fourth quarter of 2007, higher working capital requirements driven by strong demand and increased capital expenditures in support of growth initiatives.

In the fourth quarter of 2007 the company implemented a change to its management structure and now operates under two major business groups, the Steel Group and the Bearings and Power Transmission Group, which includes three segments - Mobile Industries, Process Industries and Aerospace & Defense. Beginning with the first quarter of 2008, the company will report its financial results under the new structure and reclassify its prior-period segmentation accordingly. Financial reporting under the previous segmentation (Industrial, Automotive and Steel) was used throughout the fourth quarter of 2007.

Industrial Group Results

Sales for the Industrial Group reached a record $2.3 billion in 2007, up 11 percent from the prior year. The increase was driven primarily by favorable pricing, currency and strong demand. The group's sales strength came from multiple market sectors, including oil and gas, mining, metals, rail and aerospace. The Industrial Group also benefited from its Asian growth initiative, particularly in China where sales rose 30 percent over 2006.

Industrial Group 2007 earnings before interest and taxes (EBIT) were a record $237.7 million, an increase of 18 percent over 2006. EBIT performance benefited from strong volume and pricing, which were partially offset by higher raw-material costs. The group also experienced higher manufacturing and logistics costs primarily associated with capacity additions and managing strong demand through constrained facilities, compared to the year-ago period.

Sales in the fourth quarter of 2007 were $633.3 million, up 17 percent from the fourth quarter of 2006. The increase resulted from favorable pricing, currency and strong demand, especially from the oil and gas, mining, metals, rail and aerospace market sectors, which also drove strong distribution sales. In addition, sales benefited from the completion of the Purdy aerospace acquisition in the fourth quarter of 2007. EBIT in the fourth quarter was $71.4 million, up 63 percent from the prior-year period. The same factors impacting full-year Industrial results also affected fourth-quarter performance.

Automotive Group Results

Sales for the Automotive Group were $1.5 billion in 2007, down 3 percent compared to the prior year. Excluding the divestment of the company's steering business, 2007 Automotive Group sales grew 3 percent over 2006, benefiting from increased international sales, which were partially offset by lower heavy-truck demand in North America.

The Automotive Group had a loss in 2007 of $70.3 million, a 5 percent improvement over 2006. Increased pricing, cost savings from ongoing restructuring efforts and lower warranty costs were partially offset by higher raw-material costs.

In the fourth quarter, Automotive Group sales were $366.1 million, up 1 percent compared to the same period a year ago. Excluding the divestment of the company's steering business, fourth-quarter Automotive Group sales were up 7 percent year over year, benefiting from improved demand and the impact of currency.

The Automotive Group had a loss of $35.0 million in the fourth quarter of 2007, an improvement of 17 percent over the prior-year period. The same factors that impacted full-year Automotive Group results also affected fourth-quarter performance; however, the group's fourth-quarter loss was more than expected primarily due to higher LIFO and raw-material costs.

The company continues to pursue its pricing, portfolio management and restructuring initiatives, which are expected to improve performance in 2008.

Steel Group Results

Sales for the Steel Group, including inter-segment sales, reached a record $1.6 billion in 2007, up 6 percent from 2006. Excluding divestment of the group's European steel tube manufacturing operations earlier in 2007, sales increased 10 percent over 2006. Sales in 2007 benefited from strong demand in all market sectors, especially energy, as well as surcharges.

EBIT for the year increased to a record $213.1 million, up 3 percent over 2006, driven by strong volumes in key market segments, higher prices and surcharges, partially offset by inflation in raw-material and manufacturing costs. 2007 performance also benefited from high levels of production, surpassing the previous year's record.

Steel Group sales in the fourth quarter, including inter-segment sales, were $379.4 million, an increase of 6 percent from the prior-year period. Fourth-quarter EBIT was $42.7 million, up 8 percent compared to a year ago. The Steel Group benefited from the same factors during the fourth quarter that impacted the full year.

Outlook

The company expects earnings per diluted share for 2008, excluding special items, to be $2.75 to $2.95 for the year and $0.70 to $0.80 for the first quarter, compared to $2.40 and $0.66, respectively, for the comparable periods in 2007. Global industrial demand is expected to remain strong in 2008 as additional capacity comes online in key growth markets. The company will continue to pursue pricing, portfolio management and better execution to improve operating results.

Conference Call Information

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

Conference Call:  Thursday, Jan. 31, 2008
                  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: 24733496

                  Replay Dial-In through Feb. 7, 2008:
                  800-642-1687 or 706-645-9291

Live Webcast:     www.timken.com/investors

 

 

About The Timken Company

The Timken Company (NYSE: TKR, 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 $5.2 billion in 2007, 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 expectations regarding the company's 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 company's financial statements for the fourth quarter and full year of 2007; 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 its end markets, especially the North American automotive industry; changes in the financial health of the company's 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 company's 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 company's Quarterly Report on Form 10-Q for the quarter ended Sept. 30, 2007. The company undertakes no obligation to update or revise any forward-looking statement. 

 

  CONTACT: 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
 

    SOURCE: The Timken Company