UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 1-1169

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock, without par value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “larger accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

     As of June 30, 2010, the aggregate market value of the registrant’s common shares held by non-affiliates of the registrant was $2,269,831,634 based on the closing sale price as reported on the New York Stock Exchange.

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at January 31, 2011
Common Shares, without par value		97,888,273 shares

 

 

THE TIMKEN COMPANY
INDEX TO FORM 10-K REPORT

						PAGE
I.		PART I.
		Item 1.		Business			1
				General			1
				Industry Segments			1
				Geographical Financial Information			2
				Products			3
				Sales and Distribution			4
				Competition			4
				Trade Law Enforcement			5
				Joint Ventures			5
				Backlog			6
				Raw Materials			6
				Research			6
				Environmental Matters			7
				Patents, Trademarks and Licenses			7
				Employment			7
				Available Information			8
		Item 1A.		Risk Factors			8
		Item 1B.		Unresolved Staff Comments			12
		Item 2.		Properties			12
		Item 3.		Legal Proceedings			13
		Item 4.		[Removed and Reserved]			13
		Item 4A.		Executive Officers of the Registrant			13
II.		PART II.
		Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			14
		Item 6.		Selected Financial Data			17
		Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
		Item 7A.		Quantitative and Qualitative Disclosures about Market Risk			45
		Item 8.		Financial Statements and Supplementary Data			46
		Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			87
		Item 9A.		Controls and Procedures			87
		Item 9B.		Other Information			89
III.		Part III.
		Item 10.		Directors, Executive Officers and Corporate Governance			89
		Item 11.		Executive Compensation			89
		Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			89
		Item 13.		Certain Relationships and Related Transactions, and Director Independence			89
		Item 14.		Principal Accountant Fees and Services			89
IV.		Part IV.
		Item 15.		Exhibits and Financial Statement Schedules			90
EX-10.28
EX-10.29
EX-12
EX-21
EX-23
EX-24
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I.

Measurement of segment profit or loss and segment assets
The Company evaluates performance and allocates resources based on return on capital and profitable growth. The primary measurement used by management to measure the financial performance of each segment is “adjusted EBIT” (earnings before interest and taxes, excluding special items such as impairment and restructuring charges, rationalization and integration costs, one-time gains or losses on sales of assets, allocated receipts received or payments made under the Continued Dumping and Subsidy Offset Act (CDSOA), gains and losses on the dissolution of a subsidiary and other items similar in nature). The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are recorded at values based on market prices, which create intercompany profit on intersegment sales or transfers that is eliminated in consolidation.

Factors used by management to identify the enterprise’s reportable segments
The Company reports net sales by geographic area in a manner that is more reflective of how the Company operates its segments, which is by the destination of net sales. Long-lived assets by geographic area are reported by the location of the subsidiary.

Export sales from the United States and Canada are less than 10% of revenue. The Company’s Bearings and Power Transmission Group has historically participated in the global bearing industry while the Steel Group has concentrated primarily on U.S. customers.

Timken’s non-U.S. operations are subject to normal international business risks not generally applicable to domestic business. These risks include currency fluctuation, changes in tariff restrictions, difficulties in establishing and maintaining relationships with local distributors and dealers, import and export licensing requirements, difficulties in staffing and managing geographically diverse operations and restrictive regulations by foreign governments, including price and exchange controls.

Geographical Financial Information:

Products

The Timken Company manufactures and manages global supply chains for two core product lines: anti-friction bearings and related products and steel products. Differentiation in these two product lines is achieved by either: (1) bearing type or steel type or (2) differentiation in the applications of bearings and steel.

Tapered Roller Bearings. The tapered roller bearing is Timken’s principal product in the anti-friction industry segment. It consists of four components: (1) the cone or inner race; (2) the cup or outer race; (3) the tapered rollers, which roll between the cup and cone; and (4) the cage, which serves as a retainer and maintains proper spacing between the rollers. Timken manufactures or purchases these four components and then sells them in a wide variety of configurations and sizes.

The tapered rollers permit ready absorption of both radial and axial load combinations. For this reason, tapered roller bearings are particularly well-adapted to reducing friction where shafts, gears or wheels are used. The uses for tapered roller bearings are diverse and include applications on passenger cars, light and heavy trucks and trains, as well as a wide variety of industrial applications, ranging from very small gear drives to bearings over two meters in diameter for wind energy machines. A number of applications utilize bearings with sensors to measure parameters such as speed, load, temperature or overall bearing condition.

Selection or development of bearings for customers’ applications and demand for high reliability requires engineering and sophisticated analytical techniques. This design, combined with high precision tolerances, proprietary internal geometry and premium quality material, provides Timken bearings with high load-carrying capacity, excellent friction-reducing qualities and long service lives.

Precision Cylindrical and Ball Bearings. Timken’s aerospace and super precision facilities produce high-performance ball and cylindrical bearings for ultra high-speed and/or high-accuracy applications in the aerospace, medical and dental, computer and other industries. These bearings utilize ball and straight rolling elements and are in the super precision end of the general ball and straight roller bearing product range in the bearing industry. A majority of Timken’s aerospace and super precision bearings products are custom-designed bearings and spindle assemblies. They often involve specialized materials and coatings for use in applications that subject the bearings to extreme operating conditions of speed and temperature.

Spherical and Cylindrical Bearings. Timken produces spherical and cylindrical roller bearings for large gear drives, rolling mills and other process industry and infrastructure development applications. These products are sold worldwide to original equipment manufacturers and industrial distributors serving major industries, including construction and mining, natural resources, defense, pulp and paper production, rolling mills and general industrial goods. The same rigorous analysis and development apply to these products as well.

Services. A small part of the business involves providing bearing reconditioning services for industrial and railroad customers, both domestically and internationally. Other services include maintenance and rework services for large industrial equipment used in metal mills and energy sectors. These services accounted for less than 5% of the Company’s net sales for the year ended December 31, 2010.

Aerospace Products and Services. Through strategic acquisitions and ongoing product development, Timken has expanded its portfolio of parts, systems and services for the aerospace market, where it is used in helicopters and fixed-wing aircraft for the military and commercial aviation. Timken provides design, manufacture and testing for a wide variety of power transmission and drive train components including bearings, transmissions, gears and rotor head components. Other parts include airfoils (such as blades, vanes, rotors and diffusers), nozzles and other precision flight-critical components.

Timken also supplies comprehensive aftermarket maintenance, repair and overhaul services and parts for gas turbine engines, gearboxes and accessory systems in helicopters and fixed-wing aircraft. Services range from aerospace bearing repair and component reconditioning to the complete overhaul of engines, transmissions and fuel controls.

Steel. Steel products are special bar quality (SBQ) and include steels of low and intermediate alloy, as well as some carbon grades. These steel products are available in a wide range of solid bars and tubular sections with a variety of lengths and finishes. These steel products are used in a wide array of applications, including bearings, engine crankshafts, automotive transmissions, oil drilling components and other demanding applications, where mechanical power transmission is critical to the end customer.

Timken also produces custom-made steel products, including steel components for automotive and industrial customers. Steel components have provided the Company with the opportunity to further expand its market for tubing and capture higher value-added steel sales by streamlining customer supply chains. It also enables Timken’s traditional tubing customers in the automotive and bearing industries to take advantage of ready-to-finish components that cost less than other alternatives. Customization of products is an important component of the Company’s steel business where mechanical power transmission is critical to the end customer.

Sales and Distribution

Timken’s products in the Bearings and Power Transmission Group are sold principally by its own internal sales organizations. A portion of the Process Industries segment’s sales are made through authorized distributors.

Traditionally, a main focus of the Company’s sales strategy has consisted of collaborative projects with customers. For this reason, the Company’s sales forces are primarily located in close proximity to its customers rather than at production sites. In some instances, the sales forces are located inside customer facilities. The Company’s sales force is highly-trained and knowledgeable regarding all friction management products, and employees assist customers during the development and implementation phases and provide ongoing support.

The Company has a joint venture in North America focused on joint logistics and e-business services. This alliance is called CoLinx, LLC and includes five equity members: Timken, SKF Group, the Schaeffler Group, Rockwell Automation and Gates Corporation. The e-business service is focused on information and business services for authorized distributors in the Process Industries segment. The Company also has another e-business joint venture which focuses on information and business services for authorized industrial distributors in Europe, Latin America and Asia. This alliance, which Timken founded with SKF Group, Sandvik AB, INA and Reliance, is called Endorsia.com International AB.

Timken’s steel products are sold principally by its own sales organization. Most orders are customized to satisfy customer-specific applications and are shipped directly to customers from Timken’s steel manufacturing plants. Less than approximately 10% of Timken’s Steel Group net sales are intersegment sales. In addition, sales are made to other anti-friction bearing companies and to the automotive and truck, forging, construction, industrial equipment, oil and gas drilling and aircraft industries and to steel service centers.

Timken has entered into individually negotiated contracts with some of its customers in its Bearings and Power Transmission Group and Steel Group. These contracts may extend for one or more years and, if a price is fixed for any period extending beyond current shipments, customarily include a commitment by the customer to purchase a designated percentage of its requirements from Timken. Timken does not believe that there is any significant loss of earnings risk associated with any given contract.

Competition

The anti-friction bearing business is highly competitive in every country in which Timken sells products. Timken competes primarily based on price, quality, timeliness of delivery, product design and the ability to provide engineering support and service on a global basis. The Company competes with domestic manufacturers and many foreign manufacturers of anti-friction bearings, including SKF Group, Schaeffler Group, NTN Corporation, JTEKT Corporation and NSK Ltd.

Competition within the steel industry, both domestically and globally, is intense and is expected to remain so. Principal bar competitors include foreign-owned domestic producers MacSteel (wholly-owned by Brazilian steelmaker Gerdau, S.A), Republic Engineered Products (a unit of Mexican steel producer ICH) and Mittal Steel USA (a unit of Luxembourg-based ArcelorMittal Steel S.A.), along with domestic steel producers Steel Dynamics and Nucor Corporation. Seamless tubing competitors include foreign-owned domestic producers ArcelorMittal Tubular Products, V&M Star Tubes (a unit of Vallourec, S.A.), and Tenaris, S.A. Additionally, Timken competes with a wide variety of offshore producers of both bars and tubes, including Sanyo Special Steel and Ovako. Timken also provides value-added steel products to its customers in the energy, industrial and automotive sectors. Competitors within the value-added segment include Linamar, Jernberg, Formflo and Curtis Screw Company.

Maintaining high standards of product quality and reliability, while keeping production costs competitive, is essential to Timken’s ability to compete with domestic and foreign manufacturers in both the anti-friction bearing and steel businesses.

Trade Law Enforcement

The U.S. government has six antidumping duty orders in effect covering ball bearings from France, Germany, Italy, Japan and the United Kingdom and taper roller bearings from China. The Company is a producer of these products in the United States. The U.S. government determined in August 2006 that each of these six antidumping duty orders should remain in effect for an additional five years, after which the orders could be reviewed again.

Continued Dumping and Subsidy Offset Act (CDSOA)

The CDSOA provides for distribution of monies collected by U.S. Customs from antidumping cases to qualifying domestic producers where the domestic producers have continued to invest in their technology, equipment and people. The Company reported CDSOA receipts, net of expenses, of $2.0 million, $3.6 million and $10.2 million in 2010, 2009 and 2008, respectively.

In September 2002, the World Trade Organization (WTO) ruled that CDSOA payments are not consistent with international trade rules. In February 2006, U.S. legislation was enacted that would end CDSOA distributions for dumped imports covered by antidumping duty orders entering the United States after September 30, 2007. Instead, any such antidumping duties collected would remain with the U.S. Treasury. This legislation would be expected to eventually reduce any distributions in years beyond 2007, with distributions eventually ceasing. Several countries have objected that this U.S. legislation is not consistent with WTO rulings, and have been granted retaliation rights by the WTO, typically in the form of increased tariffs on some imported goods from the United States. The European Union and Japan have been retaliating in this fashion against the operation of U.S. law.

In 2006, the U.S. Court of International Trade (CIT) ruled, in two separate decisions, that the procedure for determining recipients eligible to receive CDSOA distributions is unconstitutional. In February 2009, the U.S. Court of Appeals for the Federal Circuit reversed both decisions of the CIT. In December 2009, a plaintiff petitioned the U.S. Supreme Court to hear a further appeal, but the Supreme Court declined the petition, allowing the appellate court reversals to stand. There are, however, several remaining constitutional challenges to the CDSOA law that are now before the CIT. The Company is unable to determine, at this time, what the ultimate outcome of litigation regarding CDSOA will be.

There are a number of factors that can affect whether the Company receives any CDSOA distributions and the amount of such distributions in any given year. These factors include, among other things, potential additional changes in the law, ongoing and potential additional legal challenges to the law and the administrative operation of the law. Accordingly, the Company cannot reasonably estimate the amount of CDSOA distributions it will receive in future years, if any. It is possible that court rulings might prevent the Company from receiving any CDSOA distributions in 2011 and beyond. Any reduction of CDSOA distributions would reduce the Company’s earnings and cash flow.

Joint Ventures

Investments accounted for under the equity method were approximately $9.4 million and $9.5 million at December 31, 2010 and 2009, respectively. Approximately $6.8 million of the $9.4 million at December 31, 2010 was classified as assets held for sale and was reported in other current assets. The remaining balance was reported in other non-current assets on the Consolidated Balance Sheets.

Approximately 94% of the Company’s backlog at December 31, 2010 is scheduled for delivery in the succeeding twelve months. Actual shipments are dependent upon ever-changing production schedules of customers. Accordingly, Timken does not believe that its backlog data and comparisons thereof, as of different dates, are reliable indicators of future sales or shipments.

Raw Materials

The principal raw materials used by Timken in steel manufacturing are scrap metal, nickel, molybdenum and other alloys. The availability and costs of raw materials and energy resources are subject to curtailment or change due to, among other things, new laws or regulations, changes in global demand levels, suppliers’ allocations to other purchasers, interruptions in production by suppliers, changes in exchange rates and prevailing price levels. For example, the weighted average consumption cost of scrap metal increased 56.2% from 2007 to 2008, decreased 49.0% from 2008 to 2009 and increased 59.0% from 2009 to 2010.

The Company continues to expect that it will be able to pass a significant portion of cost increases through to customers in the form of price increases or surcharges.

Disruptions in the supply of raw materials or energy resources could temporarily impair the Company’s ability to manufacture its products for its customers or require the Company to pay higher prices in order to obtain these raw materials or energy resources from other sources, which could affect the Company’s revenues and profitability. Any increase in the costs for such raw materials or energy resources could materially affect the Company’s earnings. Timken believes that the availability of raw materials and alloys is adequate for its needs, and, in general, it is not dependent on any single source of supply.

Research

Timken operates a network of technology and engineering centers to support its global customers with sites in North America, Europe and Asia. This network develops and delivers innovative friction management and power transmission solutions and technical services. The largest technical center is located in North Canton, Ohio, near Timken’s world headquarters. Other sites in the United States include Mesa, Arizona; Manchester, Connecticut; and Keene and Lebanon, New Hampshire. Within Europe, the Company has technology facilities in Ploiesti, Romania; and Colmar France, and in Asia, it operates technology and engineering facilities in Bangalore, India and Shanghai, China.

Expenditures for research, development and application amounted to approximately $49.9 million, $50.0 million and $64.1 million in 2010, 2009 and 2008, respectively. Of these amounts, approximately $1.6 million, $1.7 million and $5.1 million, respectively, were funded by others in 2010, 2009 and 2008.

Environmental Matters

The Company continues its efforts to protect the environment and comply with environmental protection regulations. Additionally, it has invested in pollution control equipment and updated plant operational practices. The Company is committed to implementing a documented environmental management system worldwide and to becoming certified under the ISO 14001 standard where appropriate to meet or exceed customer requirements. By the end of 2010, 18 of the Company’s plants had obtained ISO 14001 certification.

The Company believes it has established adequate reserves to cover its environmental expenses (See Note 7 — Contingencies in the Notes to the Consolidated Financial Statements for additional detail) and has a well-established environmental compliance audit program, which includes a proactive approach to bringing its domestic and international units to higher standards of environmental performance. This program measures performance against applicable laws, as well as standards that have been established for all units worldwide. It is difficult to assess the possible effect of compliance with future requirements that differ from existing ones. As previously reported, the Company is unsure of the future financial impact to the Company that could result from the U.S. Environmental Protection Agency’s (EPA’s) final rules to tighten the National Ambient Air Quality Standards for fine particulate and ozone. In addition, the Company is unsure of the future financial impact that could result from the EPA instituting hourly ambient air quality standards for sulfur dioxide and nitrogen oxide.

The Company is also unsure of the potential future financial impact that could result from possible future legislation regulating emissions of greenhouse gases. If such legislation is enacted, the Company could incur increased energy, environmental, capital expenditure and other costs to comply with any new limitations on greenhouse gas emissions. Unless and until such legislation is enacted and its terms are known, the Company cannot reasonably or reliably estimate its impact on the financial condition, operating performance or ability to compete.

The Company and certain U.S. subsidiaries have been designated as potentially responsible parties by the EPA for site investigation and remediation at certain sites under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), known as the Superfund, or state laws similar to CERCLA. The claims for remediation have been asserted against numerous other entities, which are believed to be financially solvent and are expected to fulfill their proportionate share of the obligation.

Management believes any ultimate liability with respect to pending actions will not materially affect the Company’s operations, cash flows or consolidated financial position. The Company is also conducting voluntary environmental investigation and/or remediation activities at a number of current or former operating sites. Any liability with respect to such investigation and remediation activities, in the aggregate, is not expected to be material to the operations or financial position of the Company.

New laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements may require the Company to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on Timken’s business, financial condition or results of operations.

Patents, Trademarks and Licenses

Timken owns a number of U.S. and foreign patents, trademarks and licenses relating to certain products. While Timken regards these as important, it does not deem its business as a whole, or any industry segment, to be materially dependent upon any one item or group of items.

Employment

At December 31, 2010, Timken had 19,839 employees. Approximately 11% of Timken’s U.S. employees are covered under collective bargaining agreements.

Available Information

The Company uses our Investor Relations website, www.timken.com, as a channel for routine distribution of important information, including news releases, analyst presentations and financial information. The Company posts filings as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC, including our annual, quarterly, and current reports on Forms 10-K, 10-Q, and 8-K; our proxy statements; and any amendments to those reports or statements. All such postings and filings are available on the Investor Relations website free of charge. In addition, this website allows investors and other interested persons to sign up to automatically receive e-mail alerts when the Company posts news releases and financial information on our website. The SEC also maintains a web site, www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The content on any website referred to in this Annual Report Form 10-K is not incorporated by reference into this Annual Report unless expressly noted.

Item 1A: Risk Factors

The following are certain risk factors that could affect our business, financial condition and results of operations. The risks that are highlighted below are not the only ones that we face. These risk factors should be considered in connection with evaluating forward-looking statements contained in this Annual Report on Form 10-K because these factors could cause our actual results and financial condition to differ materially from those projected in forward-looking statements. If any of the following risks actually occur, our business, financial condition or results of operations could be negatively affected.

The bearing industry is highly competitive, and this competition results in significant pricing pressure for our products that could affect our revenues and profitability.

The global bearing industry is highly competitive. We compete with domestic manufacturers and many foreign manufacturers of anti-friction bearings, including SKF Group, Schaeffler Group, NTN Corporation, JTEKT Corporation and NSK Ltd. The bearing industry is also capital intensive and profitability is dependent on factors such as labor compensation and productivity and inventory management, which are subject to risks that we may not be able to control. Due to the competitiveness within the bearing industry, we may not be able to increase prices for our products to cover increases in our costs and, in many cases, we may face pressure from our customers to reduce prices, which could adversely affect our revenues and profitability. In addition, our customers may choose to purchase products from one of our competitors rather than pay the prices we seek for our products, which could adversely affect our revenues and profitability.

Competition and consolidation in the steel industry, together with potential global overcapacity, could result in significant pricing pressure for our products.

Competition within the steel industry, both domestically and worldwide, is intense and is expected to remain so. Global production overcapacity has occurred in the past and may reoccur in the future, which would exert downward pressure on domestic steel prices and result in, at times, a dramatic narrowing, or with many companies the elimination, of gross margins. High levels of steel imports into the United States could exacerbate this pressure on domestic steel prices. In addition, many of our competitors are continuously exploring and implementing strategies, including acquisitions and the addition or repositioning of capacity, which focus on manufacturing higher margin products that compete more directly with our steel products. These factors could lead to significant downward pressure on prices for our steel products, which could have a material adverse effect on our revenues and profitability.

Our business is capital intensive, and if there are downturns in the industries that we serve, we may be forced to significantly curtail or suspend operations with respect to those industries, which could result in our recording asset impairment charges or taking other measures that may adversely affect our results of operations and profitability.

Our Bearing and Power Transmission and Steel Groups are capital intensive, and we devote a significant amount of capital to certain industries. If there are downturns in the industries that we serve, we may be forced to significantly curtail or suspend our operations with respect to those industries, including laying-off employees, recording asset impairment charges and other measures, which may adversely affect our results of operations and profitability.

Weakness in either global economic conditions or in any of the industries in which our customers operate, as well as the cyclical nature of our customers’ businesses generally or sustained uncertainty in financial markets, could adversely impact our revenues and profitability by reducing demand and margins.

Our results of operations may be materially affected by the conditions in the global economy generally and in global capital markets. The recent global economic downturn caused extreme volatility in the capital markets and in the end markets in which our customers operate, which negatively affected our revenues. Our revenues may also be negatively affected by changes in customer demand, additional changes in the product mix and negative pricing pressure in the industries in which we operate. Margins in those industries are highly sensitive to demand cycles, and our customers in those industries historically have tended to delay large capital projects, including expensive maintenance and upgrades, during economic downturns. As a result, our revenues and earnings are impacted by overall levels of industrial production.

Our results of operations may be materially affected by the conditions in the global financial markets. If an end user cannot obtain financing to purchase our products, either directly or indirectly contained in machinery or equipment, demand for our products will be reduced, which could have a material adverse effect on our financial condition and earnings.

If a customer becomes insolvent or files for bankruptcy, our ability to recover accounts receivable from that customer would be adversely affected and any payment we received during the preference period prior to a bankruptcy filing may be potentially recoverable by the bankruptcy estate. Furthermore, if certain of our customers liquidate in bankruptcy, we may incur impairment charges relating to obsolete inventory and machinery and equipment. In addition, financial instability of certain companies in the supply chain could disrupt production in any particular industry. A disruption of production in any of the industries where we participate could have a material adverse effect on our financial condition and earnings.

Any change in the operation of our raw material surcharge mechanisms, a raw material market index or the availability or cost of raw materials and energy resources could materially affect our revenues and earnings.

We require substantial amounts of raw materials, including scrap metal and alloys and natural gas to operate our business. Many of our customer contracts contain surcharge pricing provisions. The surcharges are tied to a widely-available market index for that specific raw material. In the recent economic downturn, many of the widely-available raw material market indices experienced wide fluctuations. Any change in a raw material market index could materially affect our revenues. Any change in the relationship between the market indices and our underlying costs could materially affect our earnings. Any change in our projected year-end input costs could materially affect our LIFO inventory valuation method and earnings.

Moreover, future disruptions in the supply of our raw materials or energy resources could impair our ability to manufacture our products for our customers or require us to pay higher prices in order to obtain these raw materials or energy resources from other sources, and could thereby affect our sales and profitability. Any increase in the prices for such raw materials or energy resources could materially affect our costs and therefore our earnings.

Warranty, recall or product liability claims could materially adversely affect our earnings.

In our business, we are exposed to warranty and product liability claims. In addition, we may be required to participate in the recall of a product. A successful warranty or product liability claim against us, or a requirement that we participate in a product recall, could have a material adverse effect on our earnings.

We may incur further impairment and restructuring charges that could materially affect our profitability.

We have taken approximately $236 million in impairment and restructuring charges, during the last five years, for the Canton bearing operations, Mobile Industries segment, Bearings and Power Transmission Group and employment and other cost reduction initiatives. Changes in business or economic conditions, or our business strategy, may result in additional restructuring programs and may require us to take additional charges in the future, which could have a material adverse effect on our earnings.

Environmental regulations impose substantial costs and limitations on our operations and environmental compliance may be more costly than we expect.

We are subject to the risk of substantial environmental liability and limitations on our operations due to environmental laws and regulations. We are subject to various federal, state, local and foreign environmental, health and safety laws and regulations concerning issues such as air emissions, wastewater discharges, solid and hazardous waste handling and disposal and the investigation and remediation of contamination. The risks of substantial costs and liabilities related to compliance with these laws and regulations are an inherent part of our business, and future conditions may develop, arise or be discovered that create substantial environmental compliance or remediation liabilities and costs.

Compliance with environmental legislation and regulatory requirements may prove to be more limiting and costly than we anticipate. New laws and regulations, including those which may relate to emissions of greenhouse gases, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements could require us to incur costs or become the basis for new or increased liabilities that could have a material adverse effect on our business, financial condition or results of operations. We may also be subject from time to time to legal proceedings brought by private parties or governmental authorities with respect to environmental matters, including matters involving alleged property damage or personal injury.

Unexpected equipment failures or other disruptions of our operations may increase our costs and reduce our sales and earnings due to production curtailments or shutdowns.

Interruptions in production capabilities, especially in our Steel Group, would inevitably increase our production costs and reduce sales and earnings for the affected period. In addition to equipment failures, our facilities are also subject to the risk of catastrophic loss due to unanticipated events such as fires, explosions or violent weather conditions. Our manufacturing processes are dependent upon critical pieces of equipment, such as furnaces, continuous casters and rolling equipment, as well as electrical equipment, such as transformers, and this equipment may, on occasion, be out of service as a result of unanticipated failures. In the future, we may experience material plant shutdowns or periods of reduced production as a result of these types of equipment failures.

The global nature of our business exposes us to foreign currency fluctuations that may affect our asset values, results of operations and competitiveness.

We are exposed to the risks of currency exchange rate fluctuations because a significant portion of our net sales, costs, assets and liabilities, are denominated in currencies other than the U.S. dollar. These risks include a reduction in our asset values, net sales, operating income and competitiveness.

For those countries outside the United States where we have significant sales, devaluation in the local currency would reduce the value of our local inventory as presented in our Consolidated Financial Statements. In addition, a stronger U.S. dollar would result in reduced revenue, operating profit and shareholders’ equity due to the impact of foreign exchange translation on our Consolidated Financial Statements. Fluctuations in foreign currency exchange rates may make our products more expensive for others to purchase or increase our operating costs, affecting our competitiveness and our profitability.

Changes in exchange rates between the U.S. dollar and other currencies and volatile economic, political and market conditions in emerging market countries have in the past adversely affected our financial performance and may in the future adversely affect the value of our assets located outside the United States, our gross profit and our results of operations.

Global political instability and other risks of international operations may adversely affect our operating costs, revenues and the price of our products.

Our international operations expose us to risks not present in a purely domestic business, including primarily:

	•		changes in tariff regulations, which may make our products more costly to export or import;
	•		difficulties establishing and maintaining relationships with local OEMs, distributors and dealers;
	•		import and export licensing requirements;
	•		compliance with a variety of foreign laws and regulations, including unexpected changes in taxation and environmental or other regulatory requirements, which could increase our operating and other expenses and limit our operations;
	•		disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the Foreign Corrupt Practices Act (FCPA);
	•		difficulty in staffing and managing geographically diverse operations; and
	•		tax exposures related to cross-border intercompany transfer pricing and other tax risks unique to international operations.

These and other risks may also increase the relative price of our products compared to those manufactured in other countries, reducing the demand for our products in the markets in which we operate, which could have a material adverse effect on our revenues and earnings.

Underfunding of our defined benefit and other postretirement plans has caused and may in the future cause a significant reduction in our shareholders’ equity.

Although we recorded an increase in shareholders’ equity related to pension and postretirement benefit liabilities in 2010 primarily due to positive asset returns, in the future, we may be required to record additional charges related to pension and other postretirement liabilities as a result of asset returns, discount rate changes or other actuarial adjustments. These charges may be significant and would cause a significant reduction in our shareholders’ equity.

The underfunded status of our pension plans may require large contributions which may divert funds from other uses.

The underfunded status of our pension plans may require us to make large contributions to such plans. We made cash contributions of approximately $230 million, $63 million and $22 million in 2010, 2009 and 2008, respectively, to our defined benefit pension plans and currently expect to make cash contributions of approximately $120 million in 2011 to such plans. However, we cannot predict whether changing economic conditions, the future performance of assets in the plans or other factors will lead us or require us to make contributions in excess of our current expectations, diverting funds we would otherwise apply to other uses.

Our defined benefit plans’ assets and liabilities are substantial and expenses and contributions related to those plans are affected by factors outside our control, including the performance of plan assets, interest rates, actuarial data and experience, and changes in laws and regulations.

Our defined benefit plans had assets with an estimated value of approximately $2.4 billion and liabilities with an estimated value of approximately $2.8 billion, both as of December 31, 2010. Our future expense and funding obligations for the defined benefit pension plans depend upon a number of factors, including the level of benefits provided for by the plans, the future performance of assets set aside in trusts for these plans, the level of interest rates used to determine the discount rate to calculate the amount of liabilities, actuarial data and experience and any changes in government laws and regulations. In addition, if the various investments held by our pension trusts do not perform as expected or the liabilities increase as a result of discount rate and other actuarial changes, our pension expense and required contributions would increase and, as a result, could materially adversely affect our business. Due to the value of our defined benefit plan assets and liabilities, even a minor decrease in interest rates, to the extent not offset by contributions or asset returns, could increase our obligations under such plans. We may be legally required to make contributions to the pension plans in the future in excess of our current expectations, and those contributions could be material.

Work stoppages or similar difficulties could significantly disrupt our operations, reduce our revenues and materially affect our earnings.

A work stoppage at one or more of our facilities could have a material adverse effect on our business, financial condition and results of operations. Also, if one or more of our customers were to experience a work stoppage, that customer would likely halt or limit purchases of our products, which could have a material adverse effect on our business, financial condition and results of operations.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Timken has manufacturing facilities at multiple locations in the United States and in a number of countries outside the United States. The aggregate floor area of these facilities worldwide is approximately 13,713,000 square feet, all of which, except for approximately 1,382,000 square feet, is owned in fee. The facilities not owned in fee are leased. The buildings occupied by Timken are principally made of brick, steel, reinforced concrete and concrete block construction. All buildings are in satisfactory operating condition in which to conduct business.

Timken’s Mobile Industries and Process Industries segments’ manufacturing facilities in the United States are located in Bucyrus, Canton and Niles, Ohio; Ball Ground, Georgia; Carlyle, Illinois; South Bend, Indiana; Lenexa, Kansas; Randleman and Iron Station, North Carolina; Gaffney, Union and Honea Path, South Carolina; Pulaski and Knoxville, Tennessee; Ogden, Utah; Altavista, Virginia; and Ferndale, Washington. These facilities, including warehouses at plant locations and a technology center in Canton, Ohio that primarily serves the Mobile Industries and Process Industries business segments, have an aggregate floor area of approximately 4,769,000 square feet.

Timken’s Mobile Industries and Process Industries manufacturing plants outside the United States are located in Benoni, South Africa; Villa Carcina, Italy; Colmar, France; Northampton, England; Ploiesti, Romania; Sao Paulo and Belo Horizonte, Brazil; Jamshedpur and Chennai, India; Sosnowiec, Poland; Delta, Prince George and St. Thomas, Canada; and Wuxi, Xiangtan and Yantai, China. These facilities, including warehouses at plant locations, have an aggregate floor area of approximately 4,236,000 square feet.

Timken’s Aerospace and Defense manufacturing facilities in the United States are located in Mesa and Tucson, Arizona; Los Alamitos, California; Manchester, Connecticut; Keene and Lebanon, New Hampshire; New Philadelphia, Ohio; and Rutherfordton, North Carolina. These facilities, including warehouses at plant locations, have an aggregate floor area of approximately 1,061,000 square feet.

Timken’s Aerospace and Defense manufacturing facilities outside the United States are located in Wolverhampton, England; Medemblik, The Netherlands; and Chengdu, China. These facilities, including warehouses at plant locations, have an aggregate floor area of approximately 188,000 square feet.

Timken’s Steel manufacturing facilities in the United States are located in Canton and Eaton, Ohio; Columbus, North Carolina; and Houston, Texas. These facilities have an aggregate floor area of approximately 3,459,000 square feet. The Steel Group also has a ferrous scrap and recycling operation in Akron, Ohio.

In addition to the manufacturing and distribution facilities discussed above, Timken owns or leases warehouses and steel distribution facilities in the United States, Canada, United Kingdom, France, Mexico, Singapore, Argentina, Australia, Brazil and China.

The plant utilization for the Mobile Industries segment was between approximately 70% and 80% in 2010. The plant utilization for the Process Industries segment was between approximately 60% and 70% in 2010. The plant utilization for the Aerospace and Defense segment was between approximately 50% and 60% in 2010. Finally, the Steel segment plant utilization was between approximately 45% and 85% in 2010. Plant utilization for all of the segments, except Aerospace and Defense, was higher in 2010 than in 2009.

Item 3. Legal Proceedings

The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position or results of operations.

Item 4. [Removed and Reserved]

Item 4A. Executive Officers of the Registrant

The executive officers are elected by the Board of Directors normally for a term of one year and until the election of their successors. All executive officers have been employed by Timken or by a subsidiary of the Company during the past five-year period. The executive officers of the Company as of February 22, 2011 are as follows:

PART II

The line graph compares the cumulative total shareholder returns over five years for The Timken Company, the S&P 500 Stock Index, and a peer index that proportionally reflects Timken’s two principal businesses. The S&P Steel Index comprises the steel portion of the peer index. This index is comprised of AK Steel, Allegheny Technologies, Cliffs Natural Resources, Nucor and US Steel. The remaining portion of the peer index is a self constructed bearing index that consists of five companies. These five companies are Kaydon, JTEKT, NSK, NTN and SKF Group. The last four are non-US bearing companies that are based in Japan (JTEKT, NSK, NTN), and Sweden (SKF Group).

Item 6. Selected Financial Data

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollars in millions, except per share data)

Overview

Introduction

The Timken Company engineers, markets, manufactures and services highly engineered anti-friction bearings and assemblies, high-quality alloy steels and aerospace power transmission systems, as well as provides a broad spectrum of related products and services. The Company operates under two business groups: the Steel Group and the Bearings and Power Transmission Group. The Bearings and Power Transmission Group is composed of three operating segments: (1) Mobile Industries, (2) Process Industries and (3) Aerospace and Defense. These three operating segments and the Steel Group comprise the Company’s four reportable segments. The following is a description of the Company’s segments:

•

Mobile Industries provides bearings, power transmission components and related products and services to original equipment manufacturers and suppliers building agricultural, construction and mining equipment, passenger cars, light trucks, medium and heavy-duty trucks, rail cars and locomotives, as well as to automotive aftermarket and heavy-duty truck distributors.

•

Process Industries provides bearings, power transmission components and related products and services, working side by side with original equipment manufacturers of power transmission, energy and heavy industries machinery and equipment. This includes rolling mills, cement and aggregate processing equipment, paper mills, sawmills, printing presses, cranes, hoists, drawbridges, wind energy turbines, gear drives, drilling equipment, coal conveyors, coal crushers and food processing equipment. The segment also serves aftermarket sales through its global network of authorized industrial distributors.

•

Aerospace and Defense manufactures bearings, helicopter transmission systems, rotor head assemblies, turbine engine components, gears and other precision flight-critical components for commercial and military aviation applications and provides aftermarket services, including repair and overhaul of engines, transmissions and fuel controls, as well as aerospace bearing repair and component reconditioning. Additionally, this segment manufactures precision bearings, higher-level assemblies and sensors for equipment manufacturers of health and positioning control equipment.

•

Steel produces more than 450 grades of carbon and alloy steel, which are sold in both solid and tubular sections in a variety of chemistries, lengths and finishes. The group’s metallurgical expertise and operational capabilities result in solutions for the automotive, industrial and energy sectors. Timken ® specialty steels feature prominently in a wide variety of end products including oil country drill pipe, bits and collars; gears, hubs, axles, crankshafts and connecting rods; bearing races and rolling elements, and bushings, fuel injectors and wind energy shafts.

The Company’s strategy balances corporate aspirations for sustained GROWTH and a determination to OPTIMIZE the Company’s existing portfolio of business, thereby continuing to generate excellent profits and cash flows.

Specifically, the GROWTH element of the strategy addresses differentiation and expansion .

For differentiation , the Company undertakes investments in new technologies to enhance existing products and services or to create new products that capture value for its customers. In 2010, the Company significantly broadened its product offering, introducing new housed bearings, adding to its spherical and cylindrical bearing line and developing new products and services for the wind energy market sector. Several new grades of steel were introduced, with roughly 25% of the sales for the Steel segment emanating from new products introduced over the past five years.

Regarding expansion , the Company’s strategy is to grow in attractive sectors, with particular emphasis on those industrial markets that test the limits of the Company’s products and create significant aftermarket, thereby providing a lifetime of opportunity in both product sales and services. The Company’s strategy also encompasses expanding the portfolio in new geographic spaces, with an emphasis in Asia, where it has expanded its manufacturing footprint to include eight manufacturing plants with roughly 4,500 associates and 2010 sales of $470 million, or 12 percent of total Company sales. The Company’s acquisition strategy is directed at complementing its existing portfolio and expanding the Company’s market position. Examples that demonstrate this strategy include the acquisitions of the assets of The Purdy Corporation, within the Aerospace and Defense segment, and of Boring Specialties, Inc., within the Steel segment.

Simultaneously, the Company works to OPTIMIZE its existing business with specific initiatives aimed at transformation and execution . This includes transforming the overall portfolio of businesses and products to create further value and profitability, which can include addressing or repositioning underperforming product lines and segments, revising market sector or geographic strategies and divesting non-strategic assets. As to execution, the Company embraces a continuous improvement culture that is charged with lowering costs, increasing efficiency, encouraging organizational agility and building greater brand equity.

The following business transactions highlight the more significant strategic accomplishments from 2010 and the later part of 2009.

•

In December 2010, our Steel Group’s wholly owned subsidiary TSB Recycling purchased substantially all of the assets of City Scrap and Salvage Co. (City Scrap) in Akron, Ohio. The City Scrap acquisition will streamline the supply of scrap to Timken’s steel operations, improving efficiency and increasing supply chain reliability.

•

In September 2010, the Company completed the acquisition of QM Bearings and Power Transmission, Inc. (QM Bearings), headquartered in Ferndale, Washington. QM Bearings manufactures spherical roller bearing steel housed units and elastomeric and steel couplings and expands the Company’s presence in demanding applications used in sawmill and logging operations.

•

In August 2010, the Company announced a $50 million investment in its steel operations to install a new intermediate finishing line at the Gambrinus Steel Plant and to expand the steel lay-down yard at the Harrison Steel Plant’s small-bar mill, both located in Canton, Ohio.

•

In July 2010, the first product shipped from the Company’s new ultra-large bore bearing manufacturing facility in Xiangtan, China; the Company holds an 80 percent equity ownership.

•

In May 2010, the Company completed the final installation of Project O.N.E., a multi-year program launched in 2005 to improve the Company’s business processes and systems. The Company invested $215.8 million to implement Project O.N.E, of which approximately $126.5 million was capitalized. Presently, 90% of the Bearings and Power Transmission Group’s global sales flow through the new system.

•

On December 31, 2009, the Company completed the sale of the assets of its Needle Roller Bearings (NRB) operations to JTEKT Corporation (JTEKT). The Company received approximately $303.6 million in cash proceeds for these operations and retained certain receivables.

The Company reported net sales for 2010 of $4.1 billion compared to $3.1 billion in 2009, a 29.1% increase. Sales in 2010 were higher across all business segments except for the Aerospace and Defense segment. The increase in sales was primarily driven by strong demand from the Mobile Industries and Steel segments and the industrial distribution channel within the Process Industries segment, as well as higher surcharges, partially offset by lower sales in the Aerospace and Defense segment. For 2010, diluted earnings per share were $2.81 compared to a net loss per share of $1.39 for 2009. Income from continuing operations per diluted share was $2.73 for 2010 compared to a net loss from continuing operations per share of $0.64 for 2009.

The Company’s results for 2010 reflect the improvement of the end-market sectors served principally by the Mobile Industries and Steel segments, higher surcharges, improved manufacturing performance, lower restructuring costs and the favorable impact of prior-year restructuring initiatives, partially offset by lower demand from aerospace and defense customers, higher raw material costs and related LIFO expense and higher expense related to incentive compensation plans.

The income from discontinued operations recognized in 2010 is the result of favorable working capital adjustments from the sale of the Company’s NRB operations, completed in December of 2009, while the loss from discontinued operations recognized in 2009 was due to the negative impact of the deteriorating global economy on NRB’s business operations.

Outlook

The Company’s outlook for 2011 reflects a modest improvement in the global economy following the recovery in 2010. The Company expects higher sales of approximately 10% to 15%, primarily driven by stronger sales in the Steel, Process Industries and Aerospace & Defense segments. The Company expects to leverage sales growth from these segments to drive improved operating performance. However, the strengthening margins will be partially offset by slightly higher selling, general and administrative expenses to support the higher sales.

From a liquidity standpoint, the Company expects to generate cash from operations of approximately $340 million, which is a slight increase over 2010. Pension contributions are expected to be approximately $120 million in 2011 compared to $230 million in 2010. The Company expects to increase capital expenditures to $220 million in 2011 compared to $115 million in 2010. Dividends are also expected to increase in 2011 to approximately $70 million compared to $51 million in 2010, reflecting the full-year impact of the current quarterly dividend rate of $0.18 per share.

Net sales for 2010 increased $913.9 million, or 29.1%, compared to 2009, primarily due to higher volume of approximately $655 million primarily across the Mobile Industries’ light-vehicle, off-highway and heavy truck market sectors, the Process Industries’ industrial distribution channel and the Steel segment. Net sales for 2010 also increased due to higher surcharges of approximately $250 million.

Gross profit margins increased in 2010 compared to 2009, due to the impact of higher sales volume of approximately $280 million, higher steel surcharges of approximately $250 million, improved manufacturing utilization of approximately $150 million and improved pricing of approximately $100 million. These increases were partially offset by higher raw material costs of approximately $275 million and related LIFO expense of approximately $90 million.

In 2010, rationalization expenses of $5.5 million included in cost of products sold primarily related to the closure of the manufacturing facility in Sao Paulo, Brazil and the continued rationalization of Process Industries’ Canton, Ohio bearing facilities. In 2009, rationalization expenses of $8.2 million included in cost of products sold primarily related to certain Mobile Industries’ and Aerospace and Defense manufacturing facilities and the continued rationalization of Process Industries’ Canton, Ohio bearing facilities. Rationalization expenses in 2010 primarily consisted of relocation and closure costs. Rationalization expenses in 2009 primarily included the write-down of inventory, accelerated depreciation on assets and the relocation of equipment.

The increase in selling, general and administrative expenses of $91.1 million in 2010, compared to 2009, was primarily due to higher expense related to incentive compensation plans of approximately $65 million, with the remainder of the increase relating to higher employee and professional costs.

Impairment and Restructuring Charges:

The following discussion explains the major impairment and restructuring charges recorded for the periods presented; however, it is not intended to reflect a comprehensive discussion of all amounts in the tables above. See Note 6 — Impairment and Restructuring in the Notes to the Consolidated Financial Statements for further details by segment.

Selling and Administrative Cost Reductions

In March 2009, the Company announced the realignment of its organization to improve efficiency and reduce costs as a result of the economic downturn. The Company targeted pretax savings of approximately $80 million in annual selling and administrative costs. This target was achieved in 2009. During 2009, the Company recorded $10.7 million of severance and related benefit costs related to this initiative to eliminate approximately 280 positions. Of the $10.7 million charge for 2009, $4.5 million related to the Mobile Industries segment, $2.0 million related to the Process Industries segment, $0.6 million related to the Aerospace and Defense segment, $1.6 million related to the Steel segment and $2.0 million related to Corporate positions. Overall, the Company eliminated approximately 500 sales and administrative positions in 2009.

Manufacturing Workforce Reductions

During 2009, the Company recorded $32.2 million in severance and related benefit costs, including a curtailment of pension benefits of $0.9 million, to eliminate approximately 3,000 manufacturing positions to reflect lower demand due to the economic downturn. Of the $32.2 million charge, $21.5 million related to the Mobile Industries segment, $6.5 million related to the Process Industries segment, $2.5 million related to the Aerospace and Defense segment and $1.7 million related to the Steel segment. During 2010, the Company recorded an additional $5.0 million in severance and related benefit costs to eliminate approximately 200 positions. Of the $5.0 million charge for 2010, $2.0 million related to the Aerospace and Defense segment, $1.6 million related to the Process Industries segment and $1.4 million related to the Mobile Industries segment. In addition, the Company recorded $1.8 million of exit costs in 2010 related to these reductions and costs associated with the consolidation of warehouses.

Torrington Campus

On July 20, 2009, the Company sold the remaining portion of its Torrington, Connecticut office complex. In anticipation of the loss that the Company expected to record upon completion of the sale of this property, the Company recorded an impairment charge of $6.4 million during the second quarter of 2009. During the third quarter of 2009, the Company recorded an additional loss of approximately $0.7 million in other (expense) income, net upon completion of the sale of this portion of the office complex.

Mobile Industries

In March 2007, the Company announced the closure of its manufacturing facility in Sao Paulo, Brazil. The Company completed the closure of this manufacturing facility on March 31, 2010. This closure is targeted to deliver annual pretax savings of approximately $5 million, with expected pretax costs of approximately $40 million, which includes restructuring costs and rationalization costs recorded in cost of products sold and selling, general and administrative expenses. The expected costs increased from $30 million to $40 million due to higher site remediation costs. The targeted pretax savings were achieved by the end of 2010. Mobile Industries has incurred cumulative pretax costs of approximately $34.0 million as of December 31, 2010 related to this closure. During 2010, the Company recorded $4.4 million of exit costs, $1.3 million of severance and related benefit costs and $1.1 million of impairment charges associated with the closure of this facility. The exit costs were primarily due to site remediation costs. The impairment charges were recorded as a result of the carrying value of certain machinery and equipment exceeding their expected future cash flows. During 2009, the Company recorded $5.2 million of severance and related benefit costs and $1.7 million of exit costs associated with the closure of this facility.

In 2009, the Company recorded impairment charges of $71.7 million for certain fixed assets in the United States, Canada, France and China related to several automotive product lines. The Company reviewed these assets for impairment during the fourth quarter due to declining sales and as part of the Company’s initiative to exit programs where adequate returns could not be obtained through pricing initiatives. Incorporating this information into its annual long-term forecasting process, the Company determined the undiscounted projected future cash flows for these product lines could not support the carrying value of these asset groups. The Company then arrived at fair value by either valuing the assets in use where the assets were still producing product or in exchange where the assets had been idled. See Note 15 — Fair Value in the Notes to the Consolidated Financial Statements for further discussion of how the Company arrived at fair value.

In addition to the above charges, the Company recorded $3.1 million of environmental exit costs in 2010 at the site of its former plant in Columbus, Ohio.

Process Industries

In May 2004, the Company announced plans to rationalize its three bearing plants in Canton, Ohio within the Process Industries segment. In 2009, the Company closed two of the three bearing plants. In 2009, the Company recorded impairment charges of $27.7 million, exit costs of $1.6 million and severance and related benefits of $0.6 million related to these rationalization plans. The significant impairment charge was recorded during the second quarter of 2009 as a result of the rapid deterioration of the market sectors served by one of the rationalized plants resulting in the carrying value of the fixed assets for this plant exceeding their projected future cash flows. The Company then arrived at fair value by either valuing the assets in use, where the assets were still producing product, or in exchange, where the assets had been idled. The fair value was determined based on market comparisons of similar assets. In 2010, the Company recorded $1.0 million of exit costs as a result of Process Industries’ rationalization plans primarily due to demolition costs. The Process Industries segment has incurred cumulative pretax costs of approximately $71.2 million (including non-cash charges) as of December 31, 2010 for these plans, including rationalization costs recorded in cost of products sold and selling, general and administrative expenses. As of December 31, 2010, the Process Industries’ rationalization plans have resulted in approximately $35 million in annual pretax savings.

In October 2009, the Company announced the consolidation of its distribution centers in Bucyrus, Ohio and Spartanburg, South Carolina into a leased facility near the existing Spartanburg location. The consolidation of the Company’s distribution centers reflects that nearly 90% of all manufactured product inbound to the Company’s distribution centers originates in the southeastern United States, and the new location will significantly reduce the average number of miles required to ship goods and inventory throughout the supply chain. This initiative is expected to deliver annual pretax savings of approximately $4 million to $8 million, with expected pretax costs of approximately $5 million to $10 million by the end of 2011. The closure of the Bucyrus Distribution Center will eliminate approximately 260 positions. During 2009, the Company recorded $4.5 million of severance and related benefit costs related to this closure. During 2010, the Company reduced its accruals for severance and related benefits by $0.7 million.

Aerospace and Defense

In 2010, the Company recorded fixed asset impairment charges of $2.0 million at its location in Mesa, Arizona. The impairment charges were recorded as a result of the carrying value of certain machinery and equipment exceeding their expected future cash flows.

The restructuring accrual at December 31, 2010 and 2009 is included in other current liabilities on the Consolidated Balance Sheets. The accrual at December 31, 2010 included $8.4 million of severance and related benefits, which is expected to be paid by the end of 2011. The remainder of the balance primarily represented environmental exit costs. The restructuring accrual at December 31, 2009 excluded costs related to the curtailment of pension benefit plans of $0.9 million.

Interest Expense and Income:

Interest expense for 2010 decreased compared to 2009 primarily due to lower average debt levels, partially offset by the amortization of deferred financing costs associated with the refinancing of the Company’s $500 million Amended and Restated Credit Agreement (Senior Credit Facility) and the issuance of $250 million aggregate principal amount of fixed-rate 6% unsecured senior notes (Senior Notes), both of which occurred in the third quarter of 2009. Interest income increased for 2010 compared to 2009 due to significantly higher average invested cash balances in 2010.

The U.S. Continued Dumping and Subsidy Offset Act (CDSOA) receipts are reported net of applicable expenses. The CDSOA provides for distribution of monies collected by U.S. Customs from antidumping cases to qualifying domestic producers where the domestic producers have continued to invest in their technology, equipment and people. The Company received CDSOA receipts, net of expenses, of $2.0 million and $3.6 million in 2010 and 2009, respectively. Refer to Other Matters — Continued Dumping and Subsidy Offset Act (CDSOA) for additional discussion.

The equity investment impairment loss for 2009 reflects an impairment loss on two of the Company’s joint ventures, International Component Supply Ltda for $4.7 million and Endorsia.com International AB for $1.4 million. The Company recorded the impairment loss as a result of the carrying value of these investments exceeding the expected future cash flows of these joint ventures. The Company is currently attempting to sell its interest in both joint ventures.

The effective tax rate on the pretax income for 2010 was favorable relative to the U.S. federal statutory rate primarily due to earnings in certain foreign jurisdictions where the effective tax rate is less than 35%, the U.S. manufacturing deduction, the U.S. research tax credit and the net effect of other U.S. tax items, partially offset by losses at certain foreign subsidiaries where no tax benefit could be recorded, and U.S. state and local taxes. The effective tax rate for 2010 also includes the net impact of a $21.6 million charge in the first quarter to record the deferred tax impact of the Patient Protection and Affordable Care Act of 2010 (as amended), partially offset by a $19.8 million tax benefit in the fourth quarter to record the benefit of contributions made to a newly established Voluntary Employee Benefit Association (VEBA) trust to fund certain retiree healthcare costs.

The effective tax rate on the pretax loss for 2009 was unfavorable relative to the U.S. federal statutory tax rate primarily due to losses at certain foreign subsidiaries where no tax benefit could be recorded. This item was partially offset by the U.S. research tax credit and the net effect of other items.

Discontinued Operations:

In December 2009, the Company completed the divestiture of its NRB operations to JTEKT. Discontinued operations represent operating results of the NRB operations for 2009 and the gain (loss) on disposal of these operations for 2010 and 2009. For 2009, the operating results, net of tax, of the NRB operations were a loss of $60.0 million, primarily due to the deterioration of the markets served by the NRB operations and higher restructuring charges in 2009. The restructuring charges include a pretax impairment loss of $33.7 million and pension curtailment of $2.2 million, as well as other pretax charges related to severance and related benefits of $16.0 million. The impairment loss was the result of the projected proceeds from the sale of NRB operations being lower than the net book value of the net assets expected to be transferred as a result of the sale of the NRB operations to JTEKT. In 2009, the Company recorded a loss on disposal of $12.6 million, net of tax.

In 2010, the Company recognized a gain on disposal of $7.4 million, net of income taxes, as a result of a favorable working capital adjustment. The working capital adjustment was partially offset by a correction of an error of $1.3 million, net of income taxes, related to a foreign currency translation adjustment for the Company’s Canadian operations that were sold as part of the NRB divestiture. The Company realized during the third quarter of 2010 that this adjustment should have been written-off in the fourth quarter of 2009 and recognized as part of the loss on the sale of the NRB operations. Management of the Company concluded the effect of this adjustment was immaterial to the Company’s 2009 and 2010 financial statements. Refer to Note 2 — Acquisitions and Divestitures in the Notes to the Consolidated Financial Statements for additional discussion.

For 2010, the net income attributable to noncontrolling interest was $2.1 million, compared to a net loss attributable to noncontrolling interest of $4.6 million in 2009. The increase in net income attributable to noncontrolling interests in 2010 was primarily due to improved market conditions served by subsidiaries in which the Company holds less than 100% ownership.

In 2009, the loss attributable to noncontrolling interest increased by $6.1 million due to a correction of an error related to the $18.4 million goodwill impairment loss the Company recorded in the fourth quarter of 2008 for the Mobile Industries segment. In recording the goodwill impairment loss in the fourth quarter of 2008, the Company did not recognize that a portion of the goodwill impairment loss related to two separate subsidiaries in India and South Africa in which the Company holds less than 100% ownership. As a result, the Company’s 2008 financial statements were understated by $6.1 million and the Company’s first quarter 2009 financial statements were overstated by $6.1 million. Management concluded the effect of this adjustment was not material to the Company’s 2009 or 2008 financial statements.

Business Segments:

The primary measurement used by management to measure the financial performance of each segment is “adjusted EBIT” (earnings before interest and taxes, excluding the effect of certain items that management considers not representative of ongoing operations such as impairment and restructuring, manufacturing rationalization and integration charges, one-time gains or losses on disposal of non-strategic assets, allocated receipts received or payments made under CDSOA and gains and losses on the dissolution of subsidiaries). Beginning in 2011, the primary measurement used by management to measure the financial performance of each segment will be EBIT (earnings before interest and taxes, including the effect of impairment and restructuring, manufacturing rationalization and integration charges, one-time gains or losses on disposal of non-strategic assets, allocated receipts received or payments made under CDSOA and gains and losses on the dissolution of subsidiaries). The change in 2011 is primarily due to the completion of most of the Company’s previously-announced restructuring initiatives. Refer to Note 13 — Segment Information in the Notes to the Consolidated Financial Statements for the reconciliation of adjusted EBIT by segment to consolidated income before income taxes.

The presentation below reconciles the changes in net sales for each segment reported in accordance with U.S. GAAP to net sales adjusted to remove the effects of acquisitions made in 2010 and currency exchange rates. The effects of acquisitions and currency exchange rates are removed to allow investors and the Company to meaningfully evaluate the percentage change in net sales on a comparable basis from period to period. During the third quarter of 2010, the Company completed the acquisition of QM Bearings. QM Bearings is part of the Process Industries segment. The acquisition of City Scrap, completed on December 31, 2010, had no impact on the 2010 operating results. The year 2009 represents the base year for which the effects of currency are measured; as a result, currency is assumed to be zero for 2009.

The Mobile Industries segment’s net sales, excluding the effects of currency-rate changes, increased 25.1% in 2010, compared to 2009, primarily due to higher volume of approximately $220 million and higher pricing of approximately $90 million. The higher volume was seen across all market sectors, led by a 40% increase in heavy truck demand, a 33% increase in off-highway demand and a 28% increase in light vehicle demand. Adjusted EBIT was higher in 2010 compared to 2009, primarily due to the impact of higher volume and pricing of approximately $180 million, favorable sales mix of approximately $40 million and improved manufacturing utilization of approximately $25 million. These increases were partially offset by higher selling, general and administrative expenses of approximately $30 million and LIFO expense of approximately $25 million.

The Mobile Industries segment’s sales are expected to increase slightly in 2011, compared to 2010, primarily due to higher demand across most of the Mobile Industries’ market sectors, led by increases in off-highway and heavy truck demand of approximately 10% to 15%, each offset by lower light vehicle demand. In addition, EBIT for the Mobile Industries segment is expected to be up slightly in 2011 compared to 2010.

The Process Industries segment’s net sales, excluding the effect of acquisitions and currency-rate changes, increased 10.9% for 2010, compared to 2009, primarily due to higher volume of approximately $80 million. The higher volume resulted from a 20% increase from the industrial distribution channel, a 116% increase in global wind energy demand and a 10% increase in gear drive demand. These increases were partially offset by a 26% decline in the metals sector. Adjusted EBIT was higher in 2010 compared to 2009 due to the impact of increased volume of approximately $45 million and better manufacturing utilization of approximately $35 million. These increases were partially offset by higher selling, general and administrative expenses of approximately $30 million and higher raw material costs and related LIFO expense of $25 million.

The Company expects the Process Industries segment’s sales to increase by 10% to 15% in 2011 compared to 2010. The increase in sales reflects strengthening global industrial distribution, growth in Asia and sales from new product lines. EBIT for 2011 is expected to be higher, compared to 2010, as a result of increased volume.

The Aerospace and Defense segment’s net sales, excluding the effect currency-rate changes, decreased 18.7% for 2010, compared to 2009. The decline was due to a decrease in volume of approximately $90 million, partially offset by favorable pricing. Volume was down across most market sectors within the Aerospace and Defense segment, especially the defense and civil aviation market sectors. Adjusted EBIT decreased 70.8% in 2010, compared to 2009, primarily due to lower volume of approximately $35 million, higher manufacturing costs of approximately $20 million and higher LIFO expense of approximately $10 million, partially offset by cost reductions, pricing and sales mix. The Company expects the Aerospace and Defense segment to see an increase in sales of approximately 5% to 10% as a result of strengthening in the commercial aerospace and health and positioning control market sectors, partially offset by continued weakness in the general aviation and defense markets. EBIT for 2011 is expected to increase, compared to 2010, as a result of higher volume.

The Steel segment’s net sales for 2010, excluding the effects of currency-rate changes, increased 90.1% compared to 2009, primarily due to higher volume of approximately $445 million, across all market sectors, and higher surcharges of approximately $250 million in 2010, partially offset by an unfavorable sales mix of approximately $50 million. Surcharges increased to $350.4 million in 2010 from $100.1 million in 2009. Surcharges are a pricing mechanism that the Company uses to recover scrap steel, energy and certain alloy costs, which are derived from published monthly indices. The average scrap index for 2010 was $426 per ton compared to $258 per ton for 2009. Steel shipments for 2010 were 1,027,280 tons, compared to 594,931 tons for 2009, an increase of 73%. The Steel segment’s average selling price, including surcharges, was $1,323 per ton for 2010, compared to an average selling price of $1,202 per ton for 2009. The increase in the average selling prices was primarily the result of higher surcharges, partially offset by unfavorable sales mix. The higher surcharges were the result of higher prices for certain input raw materials, especially scrap steel, molybdenum and nickel.

The Steel segment’s adjusted EBIT increased $204.2 million in 2010, compared to 2009, primarily due to higher surcharges, the impact of higher sales volume of approximately $175 million and lower manufacturing costs of approximately $110 million, partially offset by the impact of higher raw material costs of approximately $255 million and higher LIFO expense of approximately $40 million. In 2010, the Steel segment recognized LIFO expense of $2.8 million, compared to LIFO income of $37.1 million in 2009. Raw material costs consumed in the manufacturing process, including scrap steel, alloys and energy, increased 38% in 2010, compared to the prior year, to an average cost of $414 per ton.

The Company expects the Steel segment to see a 20% to 25% increase in sales for 2011, compared to 2010, due to higher volume and higher average selling prices. The higher average selling prices are driven by higher surcharges as scrap steel and alloy prices are expected to increase in 2011. The Company expects stronger demand across most market sectors, primarily driven by a 60% increase in oil and gas market sectors and a 15% increase in industrial market sectors. The Company expects the Steel segment’s EBIT to increase in 2011, compared to 2010, primarily due to the stronger demand, higher average selling prices and favorable sales mix, partially offset by higher raw material costs. Scrap, alloy and energy costs are expected to increase in the near term from current levels as global industrial production improves and then levels off.

Corporate:

Corporate expenses increased in 2010, compared to 2009, as a result of higher performance-based compensation of approximately $18 million.

The Company reported net sales for 2009 of $3.1 billion compared to $5.0 billion in 2008, a decrease of 37.7%. Sales in 2009 were lower across all business segments except for the Aerospace and Defense segment. The decrease in sales was primarily driven by lower volume and lower surcharges in the Steel segment, partially offset by the impact of favorable pricing. For 2009, net loss per share was $1.39 compared to diluted earnings per share of $2.77 for 2008. Loss from continuing operations per share was $0.64 for 2009 compared to income from continuing operations per diluted share of $2.89 for 2008.

The Company’s results for 2009 reflect the deterioration of most market sectors as a result of the global economic downturn. The impact of lower volume and higher restructuring charges, including asset impairments, resulting from actions taken to align the Company’s businesses with current demand, was partially offset by lower raw material costs and lower selling and administrative costs. Additionally, the Company’s results from continuing operations for 2008 reflected a pretax gain of $20.4 million on the sale of the Company’s former seamless steel tube manufacturing facility located in Desford, England.

Net sales for 2009 decreased $1.9 billion, or 37.7%, compared to 2008, primarily due to lower volume of approximately $1.5 billion across all business segments, except for the Aerospace and Defense segment, lower surcharges in the Steel segment of approximately $555 million and the effect of foreign currency exchange rate changes of approximately $90 million. These decreases were partially offset by improved pricing and favorable sales mix of approximately $220 million.

Gross profit margins decreased in 2009, compared to 2008, due to the impact of lower sales volume across most market sectors of approximately $640 million, lower surcharges in the Steel segment of $555 million and lower utilization of manufacturing costs of approximately $240 million, partially offset by lower raw material costs of approximately $540 million, improved pricing and sales mix of approximately $220 million and lower logistics costs of approximately $100 million.

In 2009, rationalization expenses of $8.2 million included in cost of products sold primarily related to certain Mobile Industries’ and Aerospace and Defense manufacturing facilities and the continued rationalization of Process Industries’ Canton, Ohio bearing facilities. In 2008, rationalization expenses of $3.4 million included in cost of products sold primarily related to certain Mobile Industries’ domestic manufacturing facilities, the continued rationalization of Process Industries’ Canton, Ohio bearing facilities and the closure of the Company’s seamless steel tube manufacturing operations located in Desford, England. Rationalization expenses in 2009 and 2008 primarily included the write-down of inventory, accelerated depreciation on assets and the relocation of equipment.

Selling, General and Administrative Expenses:

The decrease in selling, general and administrative expenses of $184.4 million in 2009, compared to 2008, was primarily due to restructuring initiatives of approximately $60 million, lower performance-based compensation of approximately $60 million, lower discretionary spending of approximately $55 million and a decrease in the provision for doubtful accounts of approximately $10 million.

In 2009, the rationalization expenses included in selling, general and administrative expenses were primarily costs related to associates exiting the Company and costs associated with exiting a variety of office leases due to restructuring initiatives. In 2008, the rationalization expenses included in selling, general and administrative expenses primarily related to the rationalization of Process Industries’ Canton, Ohio bearing facilities and costs associated with vacating the Torrington, Connecticut office complex.

Impairment and Restructuring Charges:

The following discussion explains the major impairment and restructuring charges recorded for the periods presented; however, it is not intended to reflect a comprehensive discussion of all amounts in the tables above. See Note 6 — Impairment and Restructuring in the Notes to the Consolidated Financial Statements for further details by segment.

2009 Selling and Administrative Cost Reductions

During 2009, the Company recorded $10.7 million of severance and related benefit costs related to this initiative to eliminate approximately 280 positions. Of the $10.7 million charge for 2009, $4.5 million related to the Mobile Industries segment, $2.0 million related to the Process Industries segment, $0.6 million related to the Aerospace and Defense segment, $1.6 million related to the Steel segment and $2.0 million related to Corporate. Overall, the Company eliminated approximately 500 sales and administrative positions in 2009.

2009 Manufacturing Workforce Reductions

During 2009, the Company recorded $32.2 million in severance and related benefit costs, including a curtailment of pension benefits of $0.9 million, to eliminate approximately 3,000 manufacturing positions to properly align its business as a result of the current downturn in the economy and expected market demand. Of the $32.2 million charge, $21.5 million related to the Mobile Industries segment, $6.5 million related to the Process Industries segment, $2.5 million related to the Aerospace and Defense segment and $1.7 million related to the Steel segment.

2008 Workforce Reductions

In December 2008, the Company recorded $4.2 million in severance and related benefit costs to eliminate approximately 110 manufacturing and sales and administrative positions as a result of the downturn in the economy. Of the $4.2 million charge, $2.0 million related to the Mobile Industries segment, $0.8 million related to the Process Industries segment, $1.1 million related to the Steel segment and $0.3 million related to Corporate.

Bearings and Power Transmission Reorganization

During the first quarter of 2008, the Company began to operate under two major business groups: the Steel Group and the Bearings and Power Transmission Group. The Bearings and Power Transmission Group is composed of three reportable segments: Mobile Industries, Process Industries and Aerospace and Defense. During 2008, the Company recorded $2.5 million of severance and related benefit costs related to this initiative.

Torrington Campus

On July 20, 2009, the Company sold the remaining portion of its Torrington, Connecticut office complex. In anticipation of the loss that the Company expected to record upon completion of the sale of this property, the Company recorded an impairment charge of $6.4 million during the second quarter of 2009.

Mobile Industries

In 2009, the Company recorded fixed asset impairment charges of $71.7 million for certain fixed assets in the United States, Canada, France and China related to several automotive product lines. The Company reviewed these assets for impairment during the fourth quarter due to declining sales and as a result of the Company’s initiative to exit programs where adequate returns could not be obtained through pricing initiatives.

The Company recorded an impairment charge of $48.8 million in 2008, representing the write-off of goodwill associated with the Mobile Industries segment. Of the $48.8 million impairment charge, $30.4 million was reclassified to discontinued operations. The Company is required to review goodwill and indefinite-lived intangibles for impairment annually. The Company performed this annual test during the fourth quarter of 2008 using an income approach (discounted cash flow model) and a market approach. As a result of the economic downturn that began in the second half of 2008, management’s forecasts of earnings and cash flow declined significantly. The Company utilized these forecasts for the income approach as part of the goodwill impairment review. As a result of the lower earnings and cash flow forecasts at that time, the Company determined that the Mobile Industries segment could not support the carrying value of its goodwill. Refer to Note 8 — Goodwill and Other Intangible Assets in the Notes to the Consolidated Financial Statements for additional discussion.

During 2009 and 2008, the Company recorded $5.2 million and $2.2 million, respectively, of severance and related benefit costs and $1.7 million and $0.8 million, respectively, of exit costs associated with the closure of the manufacturing facility in Sao Paulo, Brazil.

Process Industries

In 2009, the Company recorded impairment charges of $27.7 million, exit costs of $1.6 million and severance and related benefits of $0.6 million as a result of Process Industries’ rationalization plans. The significant impairment charge was recorded during the second quarter of 2009 as a result of the rapid deterioration of the market sectors served by one of the rationalized plants resulting in the carrying value of the fixed assets for this plant exceeding their projected future cash flows.

During 2009, the Company recorded $4.5 million of severance and related benefit costs related to the closure of the distribution center in Bucyrus, Ohio.

Interest expense for 2009 decreased compared to 2008 due to lower average debt outstanding in 2009 compared to 2008, partially offset by higher borrowing costs. Interest income decreased for 2009 compared to 2008 due to the net effect of significantly lower interest rates on higher average invested cash balances in 2009.

In 2009, the Company received CDSOA receipts, net of expenses, of $3.6 million. In 2008, the Company received CDSOA receipts, net of expenses, of $10.2 million, of which $1.1 million was reclassified to discontinued operations. Refer to Other Matters — Continued Dumping and Subsidy Offset Act (CDSOA) for additional discussion.

In 2008, the gain on divestitures of non-strategic assets primarily related to the sale of the Company’s seamless steel tube manufacturing facility located in Desford, England, which closed in April 2007. In February 2008, the Company completed the sale of this facility, resulting in a pretax gain of approximately $20.4 million.

The equity investment impairment loss for 2009 reflects an impairment loss on two of the Company’s joint ventures, International Component Supply Ltda for $4.7 million and Endorsia.com International AB for $1.4 million.

For 2009, other (expense) income, net primarily consisted of $5.2 million of foreign currency exchange gains, $1.7 million of royalty income, $0.6 million of investment income and $0.5 million of export incentives, offset by $7.5 million of losses on the disposal of fixed assets. For 2008, other (expense) income, net primarily included $6.4 million of foreign currency losses, $4.7 million of losses on the disposal of fixed assets and $3.9 million of donations, partially offset by gains on equity investments of $1.4 million and $1.2 million of export incentives.

The effective tax rate on the pretax loss for 2009 was unfavorable relative to the U.S. federal statutory tax rate primarily due to losses at certain foreign subsidiaries where no tax benefit could be recorded. This item was partially offset by the U.S. research tax credit and the net effect of other items.

The effective tax rate on the pretax income for 2008 was unfavorable relative to the U.S. federal statutory tax rate primarily due to adjustments to the Company’s accruals for uncertain tax positions, losses at certain foreign subsidiaries where no tax benefit could be recorded and state income taxes, partially offset by the earnings in foreign jurisdictions where the tax rate is less than 35%, the U.S. manufacturing deduction, the U.S. research tax credit and the net effect of other U.S. tax items.

In December 2009, the Company completed the divestiture of its NRB operations to JTEKT. Discontinued operations represent the operating results and related loss on sale, net of tax, of these operations. For 2009, the operating results, net of tax, of the NRB operations were a loss of $60.0 million, compared to a loss of $11.3 million for 2008, primarily due to the deterioration of the markets served by the NRB operations and higher restructuring charges in 2009. The restructuring charges include a pretax impairment loss of $33.7 million and a pension curtailment of $2.2 million, as well as other pretax charges related to severance and related benefits of $16.0 million. The impairment loss was the result of the projected proceeds from the sale of NRB operations being lower than the net book value of the net assets expected to be transferred as a result of the sale of the NRB operations to JTEKT. The operating results, net of tax, for 2008 include a pretax impairment charge of $30.4 million, which represents the write-off of goodwill associated with the Mobile Industries segment. Refer to Note 2 — Acquisitions and Divestitures in the Notes to the Consolidated Financial Statements for additional discussion.

Net (Loss) Income Attributable to Noncontrolling Interest:

On January 1, 2009, the Company implemented new accounting rules related to noncontrolling interests. The new accounting rules establish requirements for ownership interests in subsidiaries held by parties other than the Company (sometimes called “minority interests”) to be clearly identified, presented and disclosed in the consolidated statements of financial position within equity, but separate from the parent’s equity. In addition, the new accounting rules require that net income attributable to parties other than the Company be separately reported on the Consolidated Statements of Income. For 2009, the net (loss) income attributable to noncontrolling interest was a loss of $4.6 million, compared to income of $3.6 million for 2008. In the first quarter of 2009, net (loss) income attributable to noncontrolling interest increased by $6.1 million due to a correction of an error related to the $18.4 million goodwill impairment loss the Company recorded in the fourth quarter of 2008 for the Mobile Industries segment. In recording the goodwill impairment loss in the fourth quarter of 2008, the Company did not recognize that a portion of the goodwill impairment loss related to two separate subsidiaries in India and South Africa in which the Company holds less than 100% ownership. As a result, the Company’s 2008 financial statements were understated by $6.1 million and the Company’s first quarter 2009 financial statements were overstated by $6.1 million. Management concluded the effect of the first quarter adjustment was not material to the Company’s 2008 and first quarter 2009 financial statements as well as the full-year 2009 financial statements.

Business Segments:

The presentation below reconciles the changes in net sales for each segment operations reported in accordance with U.S. GAAP to net sales adjusted to remove the effects of acquisitions and currency exchange rates. The effects of acquisitions and currency exchange rates are removed to allow investors and the Company to meaningfully evaluate the percentage change in net sales on a comparable basis from period to period. In first quarter of 2008, the Company completed the acquisition of the assets of Boring Specialties, Inc., which is part of the Steel segment. In November 2008, the Company completed the acquisition of the assets of EXTEX Ltd., which is part of the Aerospace and Defense segment. Acquisitions in 2009 represent the increase in sales, year over year, for acquisitions completed during 2009 and 2008. The year 2008 represents the base year for which the effects of currency are measured; as a result, currency is assumed to be zero for 2008.

The Mobile Industries segment’s net sales, excluding the effects of currency-rate changes, decreased 26.5% in 2009, compared to 2008, primarily due to lower volume of approximately $565 million, partially offset by improved pricing and favorable sales mix of approximately $95 million. The lower volume was seen across all market sectors, led by a 13% decline in light vehicle demand, a 49% decline in heavy truck demand and a 44% decline in off-highway demand.

Adjusted EBIT was lower in 2009 compared to 2008, primarily due to the impact of lower demand of $135 million and the impact of underutilization of manufacturing capacity of approximately $115 million, partially offset by lower selling, general and administrative expenses of $100 million as a result of restructuring initiatives, improved pricing and favorable sales mix of approximately $65 million, lower raw material costs of approximately $40 million and lower logistics costs of approximately $40 million. In reaction to the lower demand experienced in 2009, the Mobile Industries segment reduced total employment levels by approximately 3,100 positions in 2009.