TIMKEN CO (Form: 10-Q, Received: 05/02/2012 17:14:30)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2012

¨	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

THE TIMKEN COMPANY

(Exact name of registrant as specified in its charter)


OHIO		34-0577130
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1835 Dueber Ave., SW, Canton, OH		44706-2798
(Address of principal executive offices)		(Zip Code)

330.438.3000

(Registrant’s telephone number, including area code)

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. Yes x No ¨

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 x No ¨

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 the definitions of “large accelerated filer,” “accelerated filer” and “small 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 ¨ No x

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 March 31, 2012
Common Shares, without par value		97,614,892 shares

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

THE TIMKEN COMPANY AND SUBSIDIARIES

Consolidated Statements of Income

(Unaudited)


	Three Months Ended March 31,
	2012			2011
(Dollars in millions, except per share data)
Net sales	$	1,421.0		$	1,254.1
Cost of products sold		1,009.4			920.8

Gross Profit		411.6			333.3
Selling, general and administrative expenses		164.7			150.3
Impairment and restructuring charges		0.2			1.1

Operating Income		246.7			181.9
Interest expense		(8.6	)		(9.8	)
Interest income		0.7			1.5
Other expense, net		(1.3	)		(2.4	)

Income Before Income Taxes		237.5			171.2
Provision for income taxes		81.5			57.4

Net Income		156.0			113.8
Less: Net income attributable to noncontrolling interest		0.3			1.1

Net Income Attributable to The Timken Company	$	155.7		$	112.7


Net Income per Common Share Attributable to The Timken Company Common Shareholders
Basic earnings per share	$	1.59		$	1.15

Diluted earnings per share	$	1.58		$	1.13

Dividends per share	$	0.23		$	0.18

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended March 31,
	2012			2011
(Dollars in millions)
Net Income	$	156.0		$	113.8

Other comprehensive income, net of tax:
Foreign currency translation adjustments		23.4			33.0
Unrealized gain on marketable securities		(0.5	)		0.1
Pension and postretirement liability adjustment		12.3			6.7
Change in fair value of derivative financial instruments		1.0			(0.2	)

Other comprehensive income		36.2			39.6

Comprehensive Income		192.2			153.4

Less: comprehensive income attributable to noncontrolling interest		0.2			1.1

Comprehensive Income Attributable to The Timken Company	$	192.0		$	152.3

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Balance Sheets


	(Unaudited) March 31,			December 31,
	2012			2011
(Dollars in millions)
ASSETS
Current Assets
Cash and cash equivalents	$	355.3		$	464.8
Restricted cash		3.6			3.6
Accounts receivable, less allowances: 2012 – $13.8 million; 2011 – $19.0 million		762.0			645.5
Inventories, net		993.1			964.4
Deferred income taxes		113.4			113.7
Deferred charges and prepaid expenses		15.4			12.8
Other current assets		73.7			87.5

Total Current Assets		2,316.5			2,292.3

Property, Plant and Equipment-Net		1,313.3			1,308.9

Other Assets
Goodwill		311.1			307.2
Other intangible assets		253.4			261.6
Deferred income taxes		133.8			141.9
Other non-current assets		45.4			40.2

Total Other Assets		743.7			750.9

Total Assets	$	4,373.5		$	4,352.1

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt	$	13.0		$	22.0
Accounts payable, trade		310.6			287.3
Salaries, wages and benefits		186.8			259.3
Income taxes payable		121.5			70.2
Deferred income taxes		3.7			3.1
Other current liabilities		168.1			188.4
Current portion of long-term debt		12.8			14.3

Total Current Liabilities		816.5			844.6

Non-Current Liabilities
Long-term debt		478.8			478.8
Accrued pension cost		388.3			491.0
Accrued postretirement benefits cost		392.7			395.9
Deferred income taxes		6.9			7.5
Other non-current liabilities		92.1			91.8

Total Non-Current Liabilities		1,358.8			1,465.0

Shareholders’ Equity
Class I and II Serial Preferred Stock without par value:
Authorized – 10,000,000 shares each class, none issued		—			—
Common stock without par value:
Authorized – 200,000,000 shares
Issued (including shares in treasury) (2012 – 98,375,135 shares; 2011 – 98,375,135 shares)
Stated capital		53.1			53.1
Other paid-in capital		884.0			889.2
Earnings invested in the business		2,137.9			2,004.7
Accumulated other comprehensive loss		(853.2	)		(889.5	)
Treasury shares at cost (2012 – 760,243 shares; 2011 – 708,327 shares)		(38.0	)		(29.2	)

Total Shareholders’ Equity		2,183.8			2,028.3

Noncontrolling Interest		14.4			14.2

Total Equity		2,198.2			2,042.5

Total Liabilities and Shareholders’ Equity	$	4,373.5		$	4,352.1

See accompanying Notes to the Consolidated Financial Statements.

Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended March 31,
	2012			2011
(Dollars in millions)
CASH PROVIDED (USED)
Operating Activities
Net income attributable to The Timken Company	$	155.7		$	112.7
Net income attributable to noncontrolling interest		0.3			1.1
Adjustments to reconcile income before income taxes to net cash provided by operating activities:
Depreciation and amortization		49.8			47.4
Impairment charges		—			1.8
Loss on sale of assets		1.6			0.1
Deferred income tax provision		(0.4	)		0.3
Stock-based compensation expense		4.4			3.4
Pension and other postretirement expense		21.0			22.3
Pension contributions and other postretirement benefit payments		(104.7	)		(166.0	)
Changes in operating assets and liabilities:
Accounts receivable		(112.0	)		(149.6	)
Inventories		(21.4	)		(80.4	)
Accounts payable, trade		22.1			54.8
Other accrued expenses		(103.4	)		(81.3	)
Income taxes		58.2			41.0
Other – net		(9.9	)		(5.2	)

Net Cash Used by Operating Activities		(38.7	)		(197.6	)

Investing Activities
Capital expenditures		(46.0	)		(20.1	)
Acquisitions		(0.2	)		—
Proceeds from disposals of property, plant and equipment		0.9			0.4
Investments in short-term marketable securities, net		17.5			(13.3	)
Other		(1.4	)		0.8

Net Cash Used by Investing Activities		(29.2	)		(32.2	)

Financing Activities
Cash dividends paid to shareholders		(22.5	)		(17.6	)
Net proceeds from common share activity		12.6			15.2
Purchase of treasury shares		(26.2	)		(25.3	)
Proceeds from issuance of long-term debt		—			1.5
Payments on long-term debt		(1.5	)		(1.8	)
Short-term debt activity – net		(9.9	)		8.6
Increase in restricted cash		—			(4.8	)
Other		—			0.3

Net Cash Used by Financing Activities		(47.5	)		(23.9	)

Effect of exchange rate changes on cash		5.9			14.2

Decrease In Cash and Cash Equivalents		(109.5	)		(239.5	)
Cash and cash equivalents at beginning of year		464.8			877.1

Cash and Cash Equivalents at End of Period	$	355.3		$	637.6

See accompanying Notes to the Consolidated Financial Statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions, except per share data)

Note 1 – Basis of Presentation

The accompanying Consolidated Financial Statements (unaudited) for The Timken Company (the Company) have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by the accounting principles generally accepted in the United States (U.S. GAAP) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to the Consolidated Financial Statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Note 2 – Recent Accounting Pronouncements

Effective January 1, 2012, the Company adopted the two-statement approach for the presentation of other comprehensive income in accordance with Accounting Standards Update (ASU) No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” The two-statement approach allows for the components of net income and total net income to be presented in a financial statement, immediately followed by a financial statement presenting the components of other comprehensive income and a total for comprehensive income. The Consolidated Financial Statements include the Consolidated Statements of Comprehensive Income as a result of adopting this new guidance.

In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. The amendments are being made to allow the Financial Accounting Standards Board (FASB) time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. As the FASB is considering the presentation requirements, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU No. 2011-05.

The Company adopted ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” effective January 1, 2012. The new accounting requirements do not extend the use of fair value accounting; they only provide additional guidance on the application and disclosure of fair value accounting where its use is currently permitted. The new accounting requirements also expand the disclosures about fair value measurement.

Note 3 – Inventories

The components of inventories were as follows:


	March 31,			December 31,
	2012			2011
Inventories, net:
Manufacturing supplies	$	66.4		$	65.6
Raw materials		142.4			129.8
Work in process		341.1			327.4
Finished products		478.6			472.4

Subtotal		1,028.5			995.2

Allowance for surplus and obsolete inventory		(35.4	)		(30.8	)

Total Inventories, net	$	993.1		$	964.4

An actual valuation of the inventory under the last-in, first-out (LIFO) method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on management’s estimates of expected year-end inventory levels and costs. Because these calculations are subject to many factors beyond management’s control, annual results may differ from interim results as they are subject to the final year-end LIFO inventory valuation.

Note 3 – Inventories (continued)

The LIFO reserve at March 31, 2012 and December 31, 2011 was $296.5 million and $287.7 million, respectively. The Company recognized an increase in its LIFO reserve of $8.8 million during the first quarter of 2012 compared to an increase in its LIFO reserve of $6.0 million during the first quarter of 2011.

Based on current expectations of inventory levels and costs, the Company expects to recognize approximately $28.6 million in LIFO expense for the year ended December 31, 2012. The expected increase in the LIFO reserve for 2012 reflects anticipated higher costs; especially scrap steel costs, as well as higher quantities. A 1.0% increase in costs would increase the current LIFO expense estimate for 2012 by $7.2 million. A 1.0% increase in inventory quantities would have no effect on the current LIFO expense estimate for 2012.

Note 4 – Property, Plant and Equipment

The components of property, plant and equipment were as follows:


	March 31, 2012			December 31, 2011
Property, Plant and Equipment:
Land and buildings	$	647.5		$	637.3
Machinery and equipment		2,994.5			2,952.1

Subtotal		3,642.0			3,589.4

Less allowances for depreciation		(2,328.7	)		(2,280.5	)

Property, Plant and Equipment – net	$	1,313.3		$	1,308.9

Total depreciation expense for the three months ended March 31, 2012 and 2011 was $44.6 million and $45.0 million, respectively. At March 31, 2012 and December 31, 2011, machinery and equipment included approximately $87.2 million and $90.5 million, respectively, of capitalized software. Depreciation expense on capitalized software for the three months ended March 31, 2012 and 2011 was approximately $6.7 million and $6.9 million, respectively.

Note 5 – Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the three months ended March 31, 2012 were as follows:

Mobile
Industries

Process
Industries

Aerospace
and Defense

Steel

Total

Beginning Balance

—

132.5

162.1

12.6

307.2

Acquisitions

—

0.2

—

0.2

Purchase Price Allocation

16.9

(13.6

)

—

3.3

Other

—

0.3

0.1

—

0.4

Ending Balance

16.9

119.4

162.2

12.6

311.1

During the first quarter of 2012, the Company allocated goodwill acquired as part of the acquisition of Drives LLC (Drives) between the Mobile Industries and Process Industries segments based on the relative fair value of each reporting unit. The Company also obtained additional information on the fair value of intangible assets acquired in 2011, and therefore, adjusted the value of goodwill and other intangible assets during the first quarter of 2012 (See Note 14 – Acquisitions for additional information on the purchase price allocation). Other primarily includes foreign currency translation adjustments.

Note 5 – Goodwill and Other Intangible Assets (continued)

The following table displays intangible assets as of March 31, 2012 and December 31, 2011:


	As of March 31, 2012						As of December 31, 2011
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
Intangible assets subject to amortization:
Customer relationships	$	187.5	$	29.6	$	157.9	$	189.9	$	26.3	$	163.6
Know-how		17.0		1.7		15.3		17.0		1.5		15.5
Industrial license agreements		0.1		0.1		—		0.2		0.1		0.1
Land-use rights		8.6		3.9		4.7		8.6		3.8		4.8
Patents		2.5		1.7		0.8		2.5		1.7		0.8
Technology use		47.0		9.3		37.7		44.3		8.7		35.6
Trademarks		14.8		2.7		12.1		14.5		2.3		12.2
PMA licenses		8.8		3.2		5.6		8.8		3.1		5.7
Non-compete agreements		5.2		2.8		2.4		4.7		2.5		2.2
Unpatented technology		7.2		6.5		0.7		7.2		6.4		0.8

		298.7		61.5		237.2		297.7		56.4		241.3

Intangible assets not subject to amortization:
Tradename		2.0		—		2.0		6.1		—		6.1
FAA air agency certificates		14.2		—		14.2		14.2		—		14.2

		16.2		—		16.2		20.3		—		20.3

Total intangible assets	$	314.9	$	61.5	$	253.4	$	318.0	$	56.4	$	261.6

Amortization expense for intangible assets was $5.2 million and $2.4 million for the three months ended March 31, 2012 and March 31, 2011, respectively. Amortization expense for intangible assets is estimated to be approximately $21.1 million for 2012; $19.8 million in 2013; $19.4 million in 2014; $19.4 million in 2015; and $19.0 million in 2016.

Note 6 – Financing Arrangements

Short-term debt at March 31, 2012 and December 31, 2011 was as follows:


	March 31, 2012		December 31, 2011
Variable-rate lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 2.24% to 6.89% and 2.24% to 11.0% at March 31, 2012 and December 31, 2011, respectively	$	13.0	$	22.0

Short-term debt	$	13.0	$	22.0

The lines of credit for certain of the Company’s foreign subsidiaries provide for short-term borrowings up to $250.2 million. At March 31, 2012, the Company’s foreign subsidiaries had borrowings outstanding of $13.0 million and guarantees of $11.7 million, which reduced the availability under these facilities to $225.5 million.

Note 6 – Financing Arrangements (continued)

The Company has a $150 million Accounts Receivable Securitization Financing Agreement (Asset Securitization Agreement), which matures November 10, 2012. Under the terms of the Asset Securitization Agreement, the Company sells, on an ongoing basis, certain domestic trade receivables to Timken Receivables Corporation, a wholly-owned consolidated subsidiary, that in turn uses the trade receivables to secure borrowings, which are funded through a vehicle that issues commercial paper in the short-term market. Borrowings under the agreement are limited by certain borrowing base calculations. Any amounts outstanding under this Asset Securitization Agreement would be reported in short-term debt on the Company’s Consolidated Balance Sheet. As of March 31, 2012, there were no outstanding borrowings under the Asset Securitization Agreement. The cost of this facility, which is the commercial paper rate plus program fees, is considered a financing cost and is included in interest expense in the Consolidated Statements of Income.

Long-term debt at March 31, 2012 and December 31, 2011 was as follows:


	March 31, 2012		December 31, 2011
Fixed-rate Medium-Term Notes, Series A, mature at various dates through May 2028, with interest rates ranging from 6.74% to 7.76%	$	175.0	$	175.0
Fixed-rate Senior Unsecured Notes, maturing on September 15, 2014, with an interest rate of 6.0%		249.8		249.8
Variable-rate State of Ohio Water Development Revenue Refunding Bonds, maturing on November 1, 2025 (0.11% at March 31, 2012)		12.2		12.2
Variable-rate State of Ohio Air Quality Development Revenue Refunding Bonds, maturing on November 1, 2025 (0.32% at March 31, 2012)		9.5		9.5
Variable-rate State of Ohio Pollution Control Revenue Refunding Bonds, maturing on June 1, 2033 (0.32% at March 31, 2012)		17.0		17.0
Variable-rate credit facility with US Bank for Advanced Green Components, LLC, maturing on May 23, 2012 (1.392% at March 31, 2012)		3.7		5.1
Other		24.4		24.5

		491.6		493.1
Less current maturities		12.8		14.3

Long-term debt	$	478.8	$	478.8

On May 11, 2011, the Company entered into a $500 million Amended and Restated Credit Agreement (Senior Credit Facility). This Senior Credit Facility amended and restated the former senior credit facility, which was due to expire on July 10, 2012. The Senior Credit Facility now matures on May 11, 2016. At March 31, 2012, the Company had no outstanding borrowings under the Senior Credit Facility but had letters of credit outstanding totaling $17.2 million, which reduced the availability under the Senior Credit Facility to $482.8 million. Under the Senior Credit Facility, the Company has two financial covenants: a consolidated leverage ratio and a consolidated interest coverage ratio. At March 31, 2012, the Company was in full compliance with the covenants under the Senior Credit Facility.

In 2011, the Company was notified that its variable-rate State of Ohio Pollution Control Revenue Refunding Bonds, maturing on June 1, 2033, had lost their tax-exempt status and would now be taxable to its bondholders. As part of the negotiation with the Internal Revenue Service (IRS), the Company will redeem half of the $17 million balance during the second quarter of 2012. The remaining balance matures on June 1, 2033.

Advanced Green Components, LLC (AGC) is a joint venture of the Company. As of March 31, 2012, the Company had restricted cash of $3.6 million in a collateral account to secure up to $3.6 million of the indebtedness between AGC and US Bank in the event AGC defaults on its credit facility with US Bank. The $3.6 million collateral account is classified as restricted cash on the Consolidated Balance Sheet as of March 31, 2012.

Certain of the Company’s foreign subsidiaries have facilities that also provide for long-term borrowings up to $23.8 million. At March 31, 2012, the Company had borrowings outstanding of $23.8 million, leaving no availability under these long-term facilities.

Note 7 – Product Warranty

The Company generally provides limited warranties on its products. The Company accrues liabilities for warranty costs based upon specific claims and a review of historical warranty claim experience in accordance with accounting rules relating to contingent liabilities. The Company records and accounts for its warranty reserve based on specific claim incidents. Should the Company become aware of a specific potential warranty claim for which liability is probable and reasonably estimable, a specific charge is recorded and accounted for accordingly. Adjustments are made quarterly to the accruals as claim data and historical experience change.

The following is a rollforward of the warranty accruals for the three months ended March 31, 2012 and the twelve months ended December 31, 2011:


	March 31, 2012			December 31, 2011
Beginning balance, January 1	$	11.7		$	8.0
Expense		(1.1	)		9.0
Payments		(0.9	)		(5.3	)

Ending balance	$	9.7		$	11.7

The product warranty accrual at March 31, 2012 and December 31, 2011 was included in other current liabilities on the Consolidated Balance Sheets.

Note 8 – Equity


				The Timken Company Shareholders
	Total			Stated Capital		Other Paid-In Capital			Earnings Invested in the Business			Accumulated Other Comprehensive (Loss)			Treasury Stock			Non- controlling Interest
Balance at December 31, 2011	$	2,042.5		$	53.1	$	889.2		$	2,004.7		$	(889.5	)	$	(29.2	)	$	14.2

Net income		156.0								155.7									0.3
Foreign currency translation adjustment		23.4											23.4
Pension and postretirement liability adjustment (net of the income tax benefit of $8.4 million)		12.3											12.3
Unrealized gain on marketable securities		(0.5	)										(0.4	)					(0.1	)
Change in fair value of derivative financial instruments, net of reclassifications		1.0											1.0
Dividends – $0.23 per share		(22.5	)							(22.5	)
Excess tax benefit from stock compensation		7.6					7.6
Stock-based compensation expense		4.4					4.4
Stock purchased at fair market value		(26.2	)													(26.2	)
Stock option exercise activity		6.8					(14.6	)								21.4
Restricted shares (issued) surrendered		—					(2.6	)								2.6
Shares surrendered for taxes		(6.6	)				—									(6.6	)

Balance at March 31, 2012	$	2,198.2		$	53.1	$	884.0		$	2,137.9		$	(853.2	)	$	(38.0	)	$	14.4

Note 9 – Earnings Per Share

The following table sets forth the reconciliation of the numerator and the denominator of basic earnings per share and diluted earnings per share for the three months ended March 31, 2012 and 2011, respectively:


	Three Months Ended March 31,
	2012		2011
Numerator:
Net Income Attributable to The Timken Company	$	155.7	$	112.7
Less: undistributed earnings allocated to nonvested stock		0.4		0.5

Net income available to common shareholders for basic earnings per share and diluted earnings per share	$	155.3	$	112.2

Denominator:
Weighted average number of shares outstanding – basic		97,451,935		97,444,389
Effect of dilutive securities:
Stock options and awards - based on the treasury stock method		1,135,687		1,451,437

Weighted average number of shares outstanding, assuming dilution of stock options and awards		98,587,622		98,895,826

Basic earnings per share	$	1.59	$	1.15

Diluted earnings per share	$	1.58	$	1.13

The exercise prices for certain stock options that the Company has awarded exceed the average market price of the Company’s common stock. Such stock options are antidilutive and were not included in the computation of diluted earnings per share. The antidilutive stock options outstanding were 306,970 and 353,000 during the first quarter of 2012 and 2011, respectively.

Note 10 – Segment Information

The primary measurement used by management to measure the financial performance of each segment is EBIT (earnings before interest and taxes). As of January 1, 2012, the Company modified the way in which certain selling, general and administrative (SG&A) expenses are allocated among segments to better reflect the use of shared resources by the business. Prior year amounts have been revised to be consistent with the new allocations.


	Three Months Ended March 31,
	2012			2011
Net sales to external customers:
Mobile Industries	$	469.1		$	442.9
Process Industries		354.1			284.1
Aerospace and Defense		91.3			79.1
Steel		506.5			448.0

	$	1,421.0		$	1,254.1

Intersegment sales:
Mobile Industries	$	—		$	0.1
Process Industries		1.5			0.9
Steel		29.0			33.5

	$	30.5		$	34.5

Segment EBIT:
Mobile Industries	$	86.7		$	72.1
Process Industries		82.3			65.3
Aerospace and Defense		10.7			1.6
Steel		88.0			59.3

Total EBIT for reportable segments	$	267.7		$	198.3

Unallocated corporate expenses		(20.7	)		(19.3	)
Interest expense		(8.6	)		(9.8	)
Interest income		0.7			1.5
Intersegment adjustments		(1.6	)		0.5

Income before income taxes	$	237.5		$	171.2

Note 11 – Impairment and Restructuring Charges

Impairment and restructuring charges for the Mobile Industries segment are comprised of the following:


	Three Months Ended March 31,
	2012		2011
Severance and related benefit costs	$	0.1	$	—
Exit costs		0.1		1.1

Total	$	0.2	$	1.1

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.

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. Pretax costs associated with the closure could be as high as approximately $60 million, which includes restructuring costs and rationalization costs recorded in cost of products sold and selling, general and administrative expenses. Mobile Industries has incurred cumulative pretax expenses of approximately $51.4 million as of March 31, 2012 related to this closure. During the first quarter of 2012 and 2011, the Company recorded $2.8 million and $1.1 million, respectively, of exit costs associated with the closure of this facility. The exit costs recorded in the first quarter of 2012 primarily related to environmental remediation costs. The exit costs recorded in the first quarter of 2011 primarily related to workers’ compensation claims for former employees. The Company accrues environmental remediation costs and workers’ compensation claims when they are probable and estimable.

In addition to the above charges, the Company recorded a favorable adjustment of $2.8 million for environmental exit costs at the site of its former plant in Columbus, Ohio. The favorable adjustment was a result of the sale of the real estate at the site of this former plant during the first quarter of 2012. The buyer assumed responsibility for the environmental remediation as a result of the sale. However, the buyer was able to obtain funding from the State of Ohio to remediate the site.

The following is a rollforward of the consolidated restructuring accrual for the three months ended March 31, 2012 and the twelve months ended December 31, 2011:


	March 31, 2012			December 31, 2011
Beginning balance, January 1	$	21.8		$	22.1
Expense		0.2			13.9
Payments		(3.1	)		(14.2	)

Ending balance	$	18.9		$	21.8

The restructuring accrual at March 31, 2012 and December 31, 2011 was included in other current liabilities on the Consolidated Balance Sheets. The restructuring accrual at March 31, 2012 included $12.4 million of environmental remediation costs, of which $11.0 million relates to Sao Paulo, Brazil. The Company adjusts environmental remediation accruals based on the best available estimate of costs to be incurred, the timing and extent of remedial actions required by governmental authorities and the amount of the Company’s liability in proportion to other responsible parties. The Company’s estimated total liability for this site ranges from a minimum of $11.0 million to a maximum of $17.2 million. It is possible that the estimate may change in the near term.

Note 12 – Retirement and Postretirement Benefit Plans

The following table sets forth the net periodic benefit cost for the Company’s defined benefit pension and postretirement benefit plans. The amounts for the three months ended March 31, 2012 are based on actuarial calculations prepared during the fourth quarter of 2011. Consistent with prior years, these calculations will be updated later in the year. These updated calculations may result in different net periodic benefit cost for 2012. The net periodic benefit cost recorded for the three months ended March 31, 2012 is the Company’s best estimate of the period’s proportionate share of the amounts to be recorded for the year ending December 31, 2012.


	Pension						Postretirement
	Three Months Ended March 31,						Three Months Ended March 31,
	2012			2011			2012			2011
Components of net periodic benefit cost
Service cost	$	8.8		$	8.3		$	0.7		$	0.5
Interest cost		37.8			39.8			7.2			8.7
Expected return on plan assets		(55.2	)		(50.1	)		(2.8	)		(0.7	)
Amortization of prior service cost (credit)		2.3			2.4			(0.1	)		(0.4	)
Amortization of net actuarial loss		21.2			12.8			1.1			1.0

Net periodic benefit cost	$	14.9		$	13.2		$	6.1		$	9.1

Note 13 – Income Taxes

The Company’s provision for income taxes in interim periods is computed by applying the appropriate annual effective tax rates to income or loss before income taxes for the period. In addition, non-recurring or discrete items, including interest on prior year tax liabilities, are recorded during the period(s) in which they occur.


	Three Months Ended March 31,
	2012			2011
Provision for income taxes	$	81.5		$	57.4
Effective tax rate		34.3	%		33.5	%

The effective tax rate in the first quarter of 2012 was lower than the U.S. federal statutory tax rate primarily due to the earnings in certain foreign jurisdictions where the effective tax rate was less than 35%, the U.S. manufacturing deduction, and other U.S. tax benefits, partially offset by U.S. state and local taxes, U.S. taxation of foreign income, losses at certain foreign subsidiaries where no tax benefit could be recorded and other net discrete income tax expense items related to prior tax periods.

The effective tax rate in the first quarter of 2011 was lower than the U.S. federal statutory tax rate primarily due to the earnings in certain foreign jurisdictions where the effective tax rate was less than 35%, the U.S. manufacturing deduction, the U.S. research tax credit, and other discrete net income tax benefits related to prior tax periods, partially offset by U.S. state and local taxes, losses at certain foreign subsidiaries where no tax benefits could be recorded, U.S. taxation of foreign income, and other U.S. tax items.

Note 14 – Acquisitions

On October 3, 2011, the Company completed the acquisition of Drives for approximately $93 million in cash. On July 1, 2011, the Company completed the acquisition of substantially all of the assets of Philadelphia Gear Corp. (Philadelphia Gear) for approximately $199 million in cash. The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. In the months after closing, the Company obtains additional information and is able to refine the estimates of fair value and more accurately allocate the purchase price. The Company will make appropriate adjustments to the purchase price allocation for both the Drives acquisition and the Philadelphia Gear acquisition prior to completion of the measurement period, as required.

The following table presents the initial purchase price allocation for acquisitions in 2011 and adjustments to the purchase price allocation:


	Initial Purchase Price Allocation		Adjustments			Adjusted Purchase Price Allocation
Assets:
Accounts receivable, net	$	25.6	$	—		$	25.6
Inventories, net		23.6		—			23.6
Deferred charges and prepaid expenses		0.9		—			0.9
Other current assets		0.1		—			0.1
Property, plant and equipment – net		32.1		—			32.1
Goodwill		83.3		3.5			86.8
Other intangible assets		146.9		(3.1	)		143.8
Other non-current assets		0.6		(0.2	)		0.4

Total assets acquired	$	313.1	$	0.2		$	313.3

Liabilities:
Accounts payable, trade	$	10.7	$	—		$	10.7
Salaries, wages and benefits		5.1		—			5.1
Other current liabilities		5.2		—			5.2

Total liabilities assumed	$	21.0	$	—		$	21.0

Net assets acquired	$	292.1	$	0.2		$	292.3

The following table summarizes the initial purchase price allocation and the adjusted purchase price allocation for identifiable assets acquired in 2011:


	Initial Purchase Price Allocation				Adjusted Purchase Price Allocation
			Weighted - Average Life				Weighted - Average Life
Trade name (Not subject to amortization)	$	4.1		Indefinite	$	—		Indefinite
Developed Technology		5.4		7 years		8.0		15 years
Trade name		12.0		15 years		12.3		15 years
Know how		15.0		20 years		15.0		20 years
All customer relationships		108.4		17 years		106.1		16 years
Non-compete agreements		2.0		5 years		2.4		5 years

Total intangible assets allocated	$	146.9			$	143.8

The adjustments to other intangible assets during the first quarter of 2012 relate to the Drives acquisition.

Note 15 – Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Financial Accounting Standards Board (FASB) provides accounting rules that classify the inputs used to measure fair value into the following hierarchy:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Level 3 – Unobservable inputs for the asset or liability.

The following table presents the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2012:

Fair Value at March 31, 2012

Total

Level 1

Level 2

Level 3

Assets:

Cash and cash equivalents

355.3

—

Short-term investments

29.1

—

Foreign currency hedges

1.7

—

1.7

—

Total Assets

386.1

384.4

1.7

—

Liabilities:

Foreign currency hedges

6.9

—

6.9

—

Total Liabilities

6.9

—

6.9

—

Cash and cash equivalents are highly liquid investments with maturities of three months or less when purchased and are valued at redemption value. Short-term investments are investments with maturities between four months and one year and are valued at amortized cost. The Company uses publicly available foreign currency forward and spot rates to measure the fair value of its foreign currency forward contracts.

The Company does not believe it has significant concentrations of risk associated with the counterparts to its financial instruments.

Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, short-term investments, accounts receivable, net, accounts payable, trade, short-term borrowings and long-term debt. Due to their short-term nature, the carrying value of cash and cash equivalents, short-term investments, accounts receivable, net, accounts payable, trade and short-term borrowings are a reasonable estimate of their fair value. The fair value of the Company’s long-term fixed-rate debt, based on quoted market prices, was $478.7 million and $480.7 million at March 31, 2012 and December 31, 2011, respectively. The carrying value of this debt was $425.7 million and $428.9 million at March 31, 2012 and December 31, 2011, respectively.

Note 16 – Subsequent Event

The U.S. Continued Dumping and Subsidy Offset Act (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.

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 ended 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. Several countries have objected that this U.S. legislation is not consistent with WTO rulings, and were 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 was unconstitutional. In addition, several other court cases challenging various provisions of CDSOA were ongoing. As a result, from 2006 through 2010 U.S. Customs and Border Protection (U.S. Customs) withheld a portion of the amounts that would otherwise have been distributed under CDSOA.

In February 2009, the U.S. Court of Appeals for the Federal Circuit reversed both of the 2006 decisions of the CIT. Later 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. At that time, several court cases challenging various provisions of the CDSOA were still unresolved, so U.S. Customs accepted the CIT’s recommendation to continue to withhold CDSOA receipts related to 2006 through 2010 until January 2012.

U.S. Customs began distributing the withheld funds to affected domestic producers in early April 2012 and is expected to continue this process until distributions originally withheld from 2006 through 2010 have been completed. In April 2012, the Company received CDSOA distributions of $112.8 million in the aggregate for 2006 through 2010.

While some of the challenges to CDSOA have been resolved, others are still in litigation. Since there continue to be legal challenges to CDSOA, U.S. Customs has advised all affected domestic producers that it is possible that CDSOA distributions could be subject to clawback.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Introduction

The Timken Company engineers, manufactures, sells 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 four segments: (1) Mobile Industries; (2) Process Industries; (3) Aerospace and Defense; and (4) Steel. The following is a description of the Company’s segments:

•

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

•

Process Industries provides bearings, power transmission components, engineered chains, and related products and services to original equipment manufacturers and suppliers 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, marine and food processing equipment. This segment also serves the aftermarket through its global network of authorized industrial distributors.

•

Aerospace and Defense provides bearings, helicopter transmission systems, rotor head assemblies, turbine engine components, gears and other precision flight-critical components for commercial and military aviation applications and also 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 manufacturers of health and positioning control equipment.

•

Steel produces more than 450 grades of carbon and alloy steel, which are sold in ingots, bars, and tubes in a variety of chemistries, lengths and finishes. The segment’s metallurgical expertise and operational capabilities result in customized 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 generating strong profits and cash flows. The Company pursues its growth strategy through differentiation and expansion:

•

The Company leverages its technological capabilities to enhance existing products and services and to create new products that create value for its customers. The Company recently broadened its product offering by expanding a line of spherical, cylindrical and housed bearings, developing new products and services – including the new Ecoturn ^® seal for the railroad industry – and introducing numerous new custom-developed grades of specialty alloy steel.

•

The Company seeks to grow in attractive market sectors, with particular emphasis on those industrial markets that value the reliability offered by the Company’s products and create significant aftermarket demand, thereby providing a lifetime of opportunity in both product sales and services. The Company also seeks to expand its portfolio in new geographic spaces with an emphasis in Asia and other emerging markets. The Company’s acquisition strategy is directed at complementing its existing portfolio and expanding the Company’s market position globally.

Simultaneously, the Company works to optimize its existing business with specific initiatives aimed at transformation and execution. This includes diversifying 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. The Company drives execution by embracing a continuous improvement culture that is charged with lowering costs, eliminating waste, increasing efficiency, encouraging organizational agility and building greater brand equity.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

The following items highlight certain of the Company’s more recent significant strategic accomplishments:

•

In February 2012, the Company and the United Steelworkers (USW) Local 1123 announced the ratification of a new five-year labor agreement to replace the existing labor agreement, which was due to expire September 2013. After securing the agreement, the Company is moving forward with a $225 million investment at its Faircrest steel plant in Canton, Ohio. With this investment, the Company’s Steel segment expects to improve productivity, expand its product range and increase capacity to serve growing demand for Timken ^® specialty alloy steel bars.

•

In February 2012, the Company announced that it will invest $42 million to build a new 160,000 square foot two-story office complex connected to its existing facility in North Canton, Ohio. The new building will bring together personnel from its Bearings and Power Transmission headquarters, currently located in leased facilities in Canton, with their colleagues at the Company's global technology center. The move is expected to increase collaboration, the speed of innovation and overall service levels. The new building is expected to be completed in the fourth quarter of 2013.

Overview:


	Three Months Ended March 31,
	2012		2011		$ Change		% Change
Net sales	$	1,421.0	$	1,254.1	$	166.9		13.3	%
Net income attributable to The Timken Company		155.7		112.7		43.0		38.2	%
Diluted earnings per share	$	1.58	$	1.13	$	0.45		39.8	%
Average number of shares – diluted		98,587,622		98,895,826		—		(0.3	)%

The Company reported net sales for the first quarter of 2012 of $1.4 billion, compared to $1.3 billion in the first quarter of 2011, an increase of 13.3%. Higher sales were driven by favorable pricing and sales mix and the impact of acquisitions, as well as strong demand across most of the Company’s end market sectors. For the first quarter of 2012, net income per diluted share was $1.58, compared to $1.13 per diluted share for the first quarter of 2011. The Company’s net income for the first quarter of 2012 reflects continued improvement in most of the Company’s end markets. In addition, the first quarter results reflect the impact of higher pricing and acquisitions, partially offset by higher raw material costs and higher selling, general and administrative expenses.

Outlook

The Company expects higher sales of approximately 7% to 10% in 2012 compared to 2011, primarily driven by higher volumes across the Process Industries and Aerospace and Defense segments, Mobile Industries’ off-highway and rail market sectors and Steel’s oil and gas market sector, as well as favorable pricing and the full-year impact of the acquisitions completed in 2011. The Company expects to leverage sales growth to drive improved operating performance. However, the strengthening margins will be partially offset by higher raw material costs and 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 $565 million in 2012, which is a 167% increase over 2011, primarily driven by lower working capital increases and lower pension and postretirement contributions. Pension and postretirement contributions are expected to be approximately $375 million in 2012, compared to $416 million in 2011. The Company expects to increase capital expenditures to approximately $335 million in 2012, compared to $205 million in 2011. The Company received U.S. Continued Dumping and Subsidy Offset Act (CDSOA) receipts of approximately $110 million in April 2012 (refer to Other Matters for further discussion of CDSOA).

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

The Statement of Income

Sales by Segment:


	Three Months Ended March 31,
	2012		2011		$ Change		% Change
Mobile Industries	$	469.1	$	442.9	$	26.2		5.9	%
Process Industries		354.1		284.1		70.0		24.6	%
Aerospace and Defense		91.3		79.1		12.2		15.4	%
Steel		506.5		448.0		58.5		13.1	%

Total Company	$	1,421.0	$	1,254.1	$	166.9		13.3	%

Net sales for the first quarter of 2012 increased $166.9 million, or 13.3%, compared to the first quarter of 2011, primarily due to higher pricing and favorable sales mix of approximately $75 million, the impact of acquisitions of approximately $60 million and higher volume of approximately $30 million. The favorable impact of acquisitions in the first quarter of 2012 was due to the Philadelphia Gear Corp. (Philadelphia Gear) acquisition in July 2011 and the Drives LLC (Drives) acquisition in October 2011. The increase in volume was primarily driven by the Mobile Industries’ off-highway and rail market sectors, the Process Industries’ distribution channel, the Aerospace and Defense segment and Steel’s oil and gas market sector.

Gross Profit:


	Three Months Ended March 31,
	2012			2011			$ Change		% Change
Gross profit	$	411.6		$	333.3		$	78.3		23.5	%
Gross profit % to net sales		29.0	%		26.6	%		—		240	bps

Gross profit margin increased in the first quarter of 2012 compared to the first quarter of 2011 primarily due to the impact of higher pricing and favorable sales mix of approximately $65 million, the impact of acquisitions of approximately $15 million and the impact of higher sales volume of approximately $10 million, partially offset by higher raw material costs of approximately $15 million.

Selling, General and Administrative Expenses:


	Three Months Ended March 31,
	2012			2011			$ Change		% Change
Selling, general and administrative expenses	$	164.7		$	150.3		$	14.4		9.6	%
Selling, general and administrative expenses % to net sales		11.6	%		12.0	%		—		(40	) bps

The increase in selling, general and administrative expenses of $14 million in the first quarter of 2012 compared to the first quarter of 2011 was primarily due to the acquisitions of Philadelphia Gear and Drives, which added approximately $7 million of selling, general and administrative expenses in the first quarter of 2012. In addition, selling, general and administrative expenses increased as a result of higher salaries and related expenses of approximately $7 million. Selling, general and administrative expenses, as a percentage of sales, decreased in the first quarter of 2012 compared to the first quarter of 2011 as a result of the Company’s ability to effectively leverage these costs against higher sales.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Interest Expense and Income:


	Three Months Ended March 31,
	2012			2011			$ Change			% Change
Interest expense	$	8.6		$	9.8		$	(1.2	)		(12.2	)%
Interest income	$	(0.7	)	$	(1.5	)	$	0.8			53.3	%

Interest expense for the first quarter of 2012 decreased compared to the first quarter of 2011 primarily due to lower financing costs as a result of the refinancing of the Company’s $500 million Amended and Restated Credit Agreement (Senior Credit Facility), which occurred in May 2011. Interest income for the first quarter of 2012 decreased compared to the same period in the prior year primarily due to lower invested cash balances.

Income Tax Expense:


	Three Months Ended March 31,
	2012			2011			$ Change		% Change
Income Tax Expense:	$	81.5		$	57.4		$	24.1		42.0	%
Effective tax rate		34.3	%		33.5	%		—		80	bps

The increase in the effective tax rate in the first quarter of 2012 compared to the first quarter of 2011 was primarily due to higher discrete tax expenses related to prior tax years recorded in the first quarter of 2012.

The effective tax rate in the first quarter of 2012 was lower than the U.S. federal statutory tax rate primarily due to the earnings in certain foreign jurisdictions where the effective tax rate was less than 35%, the U.S. manufacturing deduction and other U.S. tax benefits, partially offset by U.S. state and local taxes, U.S. taxation of foreign income, losses at certain foreign subsidiaries where no tax benefit could be recorded and other net discrete income tax expense items related to prior tax periods.

The effective tax rate in the first quarter of 2011 was lower than the U.S. federal statutory tax rate primarily due to the earnings in certain foreign jurisdictions where the effective tax rate was less than 35%, the U.S. manufacturing deduction, the U.S. research tax credit and other discrete net income tax benefits related to prior tax periods, partially offset by U.S. state and local taxes, losses at certain foreign subsidiaries where no tax benefits could be recorded, U.S. taxation of foreign income and other U.S. tax items.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Business Segments:

The primary measurement used by management to measure the financial performance of each segment is EBIT (earnings before interest and taxes). As of January 1, 2012, the Company modified the way in which certain selling, general and administrative expenses are allocated among segments to better reflect the use of shared resources by the businesses. Prior year amounts have been revised to be consistent with the new allocations. Refer to Note 10 – Segment Information in the Notes to the Consolidated Financial Statements for the reconciliation of EBIT by segment to consolidated income before income taxes.

The presentation of segment results below include a reconciliation of 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 2011 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 2011, the Company completed the acquisition of substantially all of the assets of Philadelphia Gear. Philadelphia Gear is part of the Process Industries segment. During the fourth quarter of 2011, the Company completed the acquisition of Drives. Results for Drives are reported in the Mobile and Process Industries segments based on customer application.

Mobile Industries Segment:


	Three Months Ended March 31,
	2012			2011			$ Change		% Change
Net sales, including intersegment sales	$	469.1		$	443.0		$	26.1		5.9	%
EBIT	$	86.7		$	72.1		$	14.6		20.2	%
EBIT margin		18.5	%		16.3	%		—		220	bps


	Three Months Ended March 31,
	2012			2011		$ Change			% Change
Net sales, including intersegment sales	$	469.1		$	443.0	$	26.1			5.9	%
Acquisitions		19.7			—		19.7			NM
Currency		(8.1	)		—		(8.1	)		NM

Net sales, excluding the impact of acquisitions and currency	$	457.5		$	443.0	$	14.5			3.3	%

The Mobile Industries segment’s net sales, excluding the effects of acquisitions and currency-rate changes, increased 3.3% for the first quarter of 2012 compared to the first quarter of 2011 primarily due to higher volume of approximately $10 million and surcharges of approximately $5 million. The higher volume was led by a 30% increase in rail and a 24% increase in off-highway, partially offset by an approximately 20% decrease in light vehicle volume, driven by exited business. EBIT was higher in the first quarter of 2012 compared to the first quarter of 2011 primarily due to the impact of higher volume of approximately $5 million, lower logistics costs of approximately $5 million and surcharges of approximately $5 million.

Sales for the Mobile Industries segment are expected to be flat to up 5 percent in 2012 compared to 2011 as a result of higher volume and the full-year impact of 2011 acquisitions, as well as higher pricing and surcharges. The expected increase in volume is primarily due to a 27% increase in rail demand and an 11% increase in off-highway demand, partially offset by a 16% decrease in light-vehicle volume, driven by exited business. In addition, the higher volume was due to a 21% increase to automotive aftermarket distributors. Sales for the Mobile Industries segment, excluding the effect of acquisitions and currency-rate changes, are expected to be flat in 2012 compared to 2011. EBIT for the Mobile Industries segment is expected to be up slightly in 2012 compared to 2011 as a result of higher volume and pricing, partially offset by higher raw material costs and higher selling, general and administrative expenses.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Process Industries Segment:


	Three Months Ended March 31,
	2012			2011			$ Change		% Change
Net sales, including intersegment sales	$	355.6		$	285.0		$	70.6		24.8	%
EBIT	$	82.3		$	65.3		$	17.0		26.0	%
EBIT margin		23.1	%		22.9	%		—		20	bps


	Three Months Ended March 31,
	2012			2011		$ Change			% Change
Net sales, including intersegment sales	$	355.6		$	285.0	$	70.6			24.8	%
Acquisitions		42.1			—		42.1			NM
Currency		(1.6	)		—		(1.6	)		NM

Net sales, excluding the impact of acquisitions and currency	$	315.1		$	285.0	$	30.1			10.6	%

The Process Industries segment's net sales, excluding the effects of acquisitions and currency-rate changes, increased 10.6% in the first quarter of 2012 compared to the same period in the prior year primarily due to higher volume of approximately $20 million, as well as higher pricing and favorable sales mix of approximately $10 million. The higher sales were primarily due to an approximately 12% increase to industrial distributors. EBIT was higher in the first quarter of 2012 compared to the first quarter of 2011 primarily due to the impact of higher pricing and favorable sales mix of approximately $10 million, the impact of higher volume of approximately $10 million and the favorable impact from acquisitions, partially offset by higher selling, general and administrative expenses of approximately $5 million.

The Company expects the Process Industries segment’s sales to increase by 10% to 15% in 2012 compared to 2011. The increase in sales is expected to reflect continued strengthening of global industrial distribution and sales from new product lines, as well as the full-year impact of 2011 acquisitions and pricing. Sales for the Process Industries segment, excluding the effect of acquisitions and currency-rate changes, are expected to increase by approximately 5% to 10% in 2012 compared to 2011. EBIT for the Process Industries segment is expected to be up for 2012 compared to 2011 as a result of higher volume and pricing, partially offset by higher raw material costs and higher selling, general and administrative expenses.

Aerospace and Defense Segment:


	Three Months Ended March 31,
	2012			2011			$ Change		% Change
Net sales, including intersegment sales	$	91.3		$	79.1		$	12.2		15.4	%
EBIT	$	10.7		$	1.6		$	9.1		NM
EBIT margin		11.7	%		2.0	%		—		970	bps


	Three Months Ended March 31,
	2012			2011		$ Change			% Change
Net sales, including intersegment sales	$	91.3		$	79.1	$	12.2			15.4	%
Currency		(0.2	)		—		(0.2	)		NM

Net sales, excluding the impact of currency	$	91.5		$	79.1	$	12.4			15.7	%

The Aerospace and Defense segment's net sales, excluding the impact of currency-rate changes, increased 15.7% in the first quarter of 2012 compared to the first quarter of 2011 primarily due to higher volume of approximately $12 million across most market sectors. EBIT was higher in the first quarter of 2012 compared to the first quarter of 2011 primarily due to the impact of higher volume of approximately $5 million, as well as favorable sales mix and pricing and lower selling, general and administrative expenses.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Sales for the Aerospace and Defense segment are expected to increase by approximately 10% to 15% in 2012 compared to 2011 as a result of anticipated strengthening in the defense and commercial aerospace sectors. EBIT for 2012 is expected to be up significantly in 2012 compared to 2011 as a result of higher volume and better manufacturing efficiency.

Steel Segment:


	Three Months Ended March 31,
	2012			2011			$ Change		% Change
Net sales, including intersegment sales	$	535.5		$	481.5		$	54.0		11.2	%
EBIT	$	88.0		$	59.3		$	28.7		48.4	%
EBIT margin		16.4	%		12.3	%		—		410	bps


	Three Months Ended March 31,
	2012			2011		$ Change			% Change
Net sales, including intersegment sales	$	535.5		$	481.5	$	54.0			11.2	%
Currency		(0.3	)		—		(0.3	)		NM

Net sales, excluding the impact of currency	$	535.8		$	481.5	$	54.3			11.3	%

The Steel segment’s net sales for the first quarter of 2012, excluding the effect of currency-rate changes, increased 11.3% compared to the first quarter of 2011 primarily due to higher pricing and favorable sales mix of approximately $60 million, partially offset by lower volume of approximately $10 million. The lower volume was primarily driven by an approximately 20% decrease in mobile demand and an approximately 10% decrease in industrial demand, partially offset by an approximately 40% increase in oil and gas demand. The decrease in the mobile and industrial demand was primarily due to customers adjusting inventory levels. Steel shipments for the first quarter of 2012 were approximately 319,000 tons, compared to 330,000 tons for the first quarter of 2011, a decrease of approximately 3%. The Steel segment’s average selling price was $1,678 per ton for the first quarter of 2012, compared to an average selling price of $1,459 per ton in the first quarter of 2011. The increase in the average selling prices was primarily the result of higher pricing and favorable sales mix. Surcharges were $142.4 million in the first quarter of 2012, compared to $138.1 million in the first quarter of 2011. 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 Steel segment’s EBIT increased in the first quarter of 2012 compared to the first quarter of 2011 primarily due to the impact of higher pricing and favorable sales mix of approximately $55 million, partially offset by the impact of lower volume of approximately $10 million, higher raw materials costs of approximately $10 million and expense of approximately $5 million related to the ratification of the new labor agreement. Raw material costs consumed in the manufacturing process, including scrap steel, alloys and energy, increased 28% in the first quarter of 2012 over the comparable period in the prior year to an average cost of $553 per ton.

The Company expects the Steel segment to see a 5% to 10% increase in sales for 2012 compared to 2011 due to higher average selling prices, partially offset by slightly lower volume. The higher average selling prices are expected to be driven by higher pricing as scrap steel and alloy prices are expected to increase in 2012. The Company expects lower demand driven by a 10% decrease in industrial demand, partially offset by a 14% increase in oil and gas demand. The Company expects the Steel segment’s EBIT to increase in 2012 compared to 2011 primarily due to higher average selling prices, partially offset by the impact of lower volume and 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:


	Three Months Ended March 31,
	2012			2011			$ Change		% Change
Corporate expenses	$	20.7		$	19.3		$	1.4		7.3	%
Corporate expenses % to net sales		1.5	%		1.5	%		—		0	bps

Corporate expenses increased slightly for the first quarter of 2012 compared to the same period in 2011 primarily due to higher salaries and related expenses.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

The Balance Sheet

The following discussion is a comparison of the Consolidated Balance Sheets at March 31, 2012 and December 31, 2011.

Current Assets:


	March 31, 2012		December 31, 2011		$ Change			% Change
Cash and cash equivalents	$	355.3	$	464.8	$	(109.5	)		(23.6	)%
Restricted cash		3.6		3.6		—			0.0	%
Accounts receivable, net		762.0		645.5		116.5			18.0	%
Inventories, net		993.1		964.4		28.7			3.0	%
Deferred income taxes		113.4		113.7		(0.3	)		(0.3	)%
Deferred charges and prepaid expenses		15.4		12.8		2.6			20.3	%
Other current assets		73.7		87.5		(13.8	)		(15.8	)%

Total current assets	$	2,316.5	$	2,292.3	$	24.2			1.1	%

Refer to the Consolidated Statement of Cash Flows for a discussion of the decrease in cash and cash equivalents. Accounts receivable, net increased as a result of higher sales in the first quarter of 2012 compared to the fourth quarter of 2011. Inventories increased primarily to support higher sales and expected future demand. Other current assets decreased as a result of a $17 million decrease in short-term marketable securities. These short-term marketable securities matured during the first quarter of 2012 and were converted to cash and cash equivalents.

Property, Plant and Equipment – Net:


	March 31, 2012			December 31, 2011			$ Change			% Change
Property, plant and equipment	$	3,642.0		$	3,589.4		$	52.6			1.5	%
Less: allowances for depreciation		(2,328.7	)		(2,280.5	)		(48.2	)		(2.1	)%

Property, plant and equipment – net	$	1,313.3		$	1,308.9		$	4.4			0.3	%

The increase in property, plant and equipment – net in the first quarter of 2012 was primarily due to the impact of foreign currency translation. During the first quarter of 2012, capital expenditures were offset by current-year depreciation.

In November 2010, the Company entered into an agreement to sell the real estate of its former manufacturing facility in Sao Paulo, Brazil. The transfer of this land is expected to be completed in 2013 after the Company has completed the soil remediation of the site and the groundwater remediation has been approved. Based on the terms of the agreement, once the title transfers, the Company expects to receive approximately $33.7 million, including interest, subject to fluctuations in foreign currency exchange rates, over an 18-month period.

Other Assets:


	March 31, 2012		December 31, 2011		$ Change			% Change
Goodwill	$	311.1	$	307.2	$	3.9			1.3	%
Other intangible assets		253.4		261.6		(8.2	)		(3.1	)%
Deferred income taxes		133.8		141.9		(8.1	)		(5.7	)%
Other non-current assets		45.4		40.2		5.2			12.9	%

Total other assets	$	743.7	$	750.9	$	(7.2	)		(1.0	)%

The decrease in other intangible assets was primarily due to current-year amortization, as well as an adjustment to the value of the intangible assets acquired as part of the Drives acquisition. The decrease in deferred income taxes was primarily due to the tax impact of amortization of actuarial losses and prior-year service costs for defined benefit pension and postretirement plans.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Current Liabilities:


	March 31, 2012		December 31, 2011		$ Change			% Change
Short-term debt	$	13.0	$	22.0	$	(9.0	)		(40.9	)%
Accounts payable		310.6		287.3		23.3			8.1	%
Salaries, wages and benefits		186.8		259.3		(72.5	)		(28.0	)%
Income taxes payable		121.5		70.2		51.3			73.1	%
Deferred income taxes		3.7		3.1		0.6			19.4	%
Other current liabilities		168.1		188.4		(20.3	)		(10.8	)%
Current portion of long-term debt		12.8		14.3		(1.5	)		(10.5	)%

Total current liabilities	$	816.5	$	844.6	$	(28.1	)		(3.3	)%

The decrease in short-term debt was primarily due to a reduction in the utilization of the Company’s foreign lines of credit in Asia. The increase in accounts payable was primarily due to higher volume. The decrease in accrued salaries, wages and benefits was the result of the payout of the 2011 performance-based compensation, partially offset by current-year accruals for 2012 performance-based compensation. The increase in income taxes payable was primarily due to the current-year provision for income taxes, partially offset by income tax payments in 2012. The decrease in other current liabilities was primarily due to the payout of customer rebates and the payment of interest on the Company’s $250 million fixed-rate senior unsecured notes.

Non-Current Liabilities:


	March 31, 2012		December 31, 2011		$ Change			% Change
Long-term debt	$	478.8	$	478.8	$	—			0.0	%
Accrued pension cost		388.3		491.0		(102.7	)		(20.9	)%
Accrued postretirement benefits cost		392.7		395.9		(3.2	)		(0.8	)%
Deferred income taxes		6.9		7.5		(0.6	)		(8.0	)%
Other non-current liabilities		92.1		91.8		0.3			0.3	%

Total non-current liabilities	$	1,358.8	$	1,465.0	$	(106.2	)		(7.2	)%

The decrease in accrued pension cost was primarily due to the Company’s contributions of approximately $96 million to its defined benefit pension plans during the first quarter of 2012.

Shareholders’ Equity:


	March 31, 2012			December 31, 2011			$ Change			% Change
Common stock	$	937.1		$	942.3		$	(5.2	)		(0.6	)%
Earnings invested in the business		2,137.9			2,004.7			133.2			6.6	%
Accumulated other comprehensive loss		(853.2	)		(889.5	)		36.3			4.1	%
Treasury shares		(38.0	)		(29.2	)		(8.8	)		(30.1	)%
Noncontrolling interest		14.4			14.2			0.2			1.4	%

Total shareholders’ equity	$	2,198.2		$	2,042.5		$	155.7			7.6	%

Earnings invested in the business increased in the first quarter of 2012 by net income of $155.7 million, partially offset by dividends declared of $22.5 million. The decrease in accumulated other comprehensive loss was primarily due to a $23.4 million increase in foreign currency translation and a $12.3 million after-tax pension and postretirement adjustment as a result of the amortization of actuarial losses and prior-year service costs for defined benefit pension and postretirement plans. The foreign currency translation adjustments were due to the weakening of the U.S. dollar relative to other currencies, such as the Euro, the British pound, the Canadian dollar and the Polish zloty. See “Foreign Currency” for further discussion regarding the impact of foreign currency translation. The increase in treasury shares was primarily due to the Company’s purchase of 500,000 of its common shares for an aggregate of $26.2 million, partially offset by shares issued for stock compensation plans.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Cash Flows:


	For the Three Months Ended March 31,
	2012			2011			$ Change
Net cash used by operating activities	$	(38.7	)	$	(197.6	)	$	158.9
Net cash used by investing activities		(29.2	)		(32.2	)		3.0
Net cash used by financing activities		(47.5	)		(23.9	)		(23.6	)
Effect of exchange rate changes on cash		5.9			14.2			(8.3	)

Decrease in cash and cash equivalents	$	(109.5	)	$	(239.5	)	$	130.0

Net cash from operating activities used cash of $38.7 million in the first quarter of 2012, after using cash of $197.6 million in the first quarter of 2011. The change in cash from operating activities was primarily due to lower pension contributions and other postretirement benefit payments, lower cash used for working capital items, particularly accounts receivable and inventories, and higher net income. Pension contributions and other postretirement benefit payments were $104.7 million in the first quarter of 2012, compared to $166.0 million in the first quarter of 2011. Net income attributable to The Timken Company increased $43.0 million in the first quarter of 2012 compared to the first quarter of 2011.

The following chart displays the impact of working capital items on cash during the first quarters of 2012 and 2011, respectively:


	For the Three Months Ended March 31,
	2012			2011
Cash Provided (Used):
Accounts receivable	$	(112.0	)	$	(149.6	)
Inventories		(21.4	)		(80.4	)
Trade accounts payable		22.1			54.8
Other accrued expenses		(103.4	)		(81.3	)

The net cash used by investing activities of $29.2 million in the first quarter of 2012 decreased slightly from the same period in 2011 primarily due to a $30.8 million decrease in investments in short-term marketable securities, partially offset by a $25.9 million increase in capital expenditures. Short-term marketable securities provided cash of $17.5 million in the first quarter of 2012 after using cash of $13.3 million in the first quarter of 2011. The Company expects to increase capital expenditures by approximately $130 million in 2012 compared to the 2011 level.

The net cash flows from financing activities used cash of $47.5 million in the first quarter of 2012, after using cash of $23.9 million in the first quarter of 2011. The Company reduced its net borrowings by $11.4 million during the first quarter of 2012 after increasing its net borrowings, net of restricted cash, by $3.5 million during the first quarter of 2011. In addition, the Company increased dividends paid to shareholders by $4.9 million in the first quarter of 2012 compared to the first quarter of 2011.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Liquidity and Capital Resources

Total debt was $504.6 million and $515.1 million at March 31, 2012 and December 31, 2011, respectively. At March 31, 2012, total debt of $504.6 million exceeded cash and cash equivalents and restricted cash of $358.9 million by $145.7 million. At December 31, 2011, total debt of $515.1 million exceeded cash and cash equivalents and restricted cash of $468.4 million by $46.7 million. The net debt to capital ratio was 6.2% and 2.2%, respectively, at March 31, 2012 and December 31, 2011.

Reconciliation of total debt to net debt and the ratio of net debt to capital:

Net Debt:


	March 31,			December 31,
	2012			2011
Short-term debt	$	13.0		$	22.0
Current portion of long-term debt		12.8			14.3
Long-term debt		478.8			478.8

Total debt		504.6			515.1
Less: Cash and cash equivalents		(355.3	)		(464.8	)
Restricted cash		(3.6	)		(3.6	)

Net debt	$	145.7		$	46.7

Ratio of Net Debt to Capital:


	March 31,			December 31,
	2012			2011
Net debt	$	145.7		$	46.7
Shareholders’ equity		2,198.2			2,042.5

Net debt + shareholders’ equity (capital)	$	2,343.9		$	2,089.2

Ratio of net debt to capital		6.2	%		2.2	%

The Company presents net debt because it believes net debt is more representative of the Company’s financial position than total debt due to the amount of cash and cash equivalents.

At March 31, 2012, the Company had no outstanding borrowings under its two-year Accounts Receivable Securitization Financing Agreement (Asset Securitization Agreement), which provides for borrowings up to $150 million, subject to certain borrowing base limitations, and is secured by certain domestic trade receivables of the Company. The Company had full availability under the Asset Securitization Agreement as of March 31, 2012.

At March 31, 2012, the Company had no outstanding borrowings under its Senior Credit Facility, but had letters of credit outstanding totaling $17.2 million, which reduced the availability under the Senior Credit Facility to $482.8 million. The Senior Credit Facility matures on May 11, 2016. Under the Senior Credit Facility, the Company has two financial covenants: a consolidated leverage ratio and a consolidated interest coverage ratio. At March 31, 2012, the Company was in full compliance with the covenants under the Senior Credit Facility and its other debt agreements. The maximum consolidated leverage ratio permitted under the Senior Credit Facility is 3.25 to 1.0. As of March 31, 2012, the Company’s consolidated leverage ratio was 0.49 to 1.0. The minimum consolidated interest coverage ratio permitted under the Senior Credit Facility is 4.0 to 1.0. As of March 31, 2012, the Company’s consolidated interest coverage ratio was 31.23 to 1.0.

The interest rate under the Senior Credit Facility is based on the Company’s consolidated leverage ratio. In addition, the Company pays a facility fee based on the consolidated leverage ratio multiplied by the aggregate commitments of all of the lenders under this agreement.

Other sources of liquidity include lines of credit for certain of the Company’s foreign subsidiaries, which provide for borrowings up to $274.0 million. The majority of these lines are uncommitted. At March 31, 2012, the Company had borrowings outstanding of $36.8 million and guarantees of $11.7 million, which reduced the availability under these facilities to $225.5 million.

The Company expects that any cash requirements in excess of cash on hand and cash generated from operating activities will be met by the committed funds available under its Asset Securitization Agreement and the Senior Credit Facility. Management believes it has sufficient liquidity to meet its obligations through at least the term of the Senior Credit Facility.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

At March 31, 2012, approximately $240.0 million, or 67.6%, of the Company’s cash and cash equivalents resided in jurisdictions outside the United States. Repatriation of these funds to the United States could be subject to government restrictions and domestic and foreign taxes. Part of the Company’s strategy is to grow in attractive market sectors, many of which are outside the United States. This may include making investments in facilities and equipment and potential new acquisitions. The Company plans to fund these investments, as well as meet working capital requirements, with cash and cash equivalents and unused lines of credit within the geographic location of these investments when possible.

The Company expects to remain in compliance with its debt covenants. However, the Company may need to limit its borrowings under the Senior Credit Facility or other facilities in order to remain in compliance. As of March 31, 2012, the Company could have borrowed the full amounts available under the Senior Credit Facility and Asset Securitization Agreement, and would have still been in compliance with its debt covenants.

The Company expects cash from operations in 2012 to improve 167% over 2011 as the Company anticipates higher net income, as well as lower working capital increases and a decrease in pension and postretirement contributions. The Company expects to make approximately $375 million in pension and postretirement contributions in 2012, compared to $416 million in 2011. The Company also expects to increase capital expenditures to $335 million in 2012 compared to $205 million in 2011, primarily due to the Company’s investment at its Faircrest steel plant in Canton, Ohio.

Financing Obligations and Other Commitments

During the first three months of 2012, the Company made contributions of approximately $96 million to its global defined benefit pension plans, of which $93.8 million was discretionary. The Company currently expects to make contributions to its global defined benefit pension plans in 2012 totaling approximately $275 million, of which $255 million is discretionary. The Company also currently expects to make contributions to a Voluntary Employee Beneficiary Association (VEBA) trust to fund retiree healthcare costs totaling $100 million. The Company may consider making additional discretionary contributions to either its defined benefit pension plans or its postretirement benefit plans during 2012. Returns for the Company’s global defined benefit pension plan assets in 2011 were below the expected rate-of-return assumption of 8.5 percent due to broad decreases in global equity markets. These lower returns negatively impacted the funded status of the plans at the end of 2011 and are expected to result in higher pension expense and required pension contributions in future years. The impact of these unfavorable returns in 2011, as well as the impact of the lower discount rate for expense in 2012 compared to 2011 will increase pension expense to approximately $60 million, compared to $41 million in 2011. Returns for the Company’s U.S. defined benefit plan pension assets for the first three months of 2012 were approximately 7%.

During the first quarter of 2012, the Company purchased 500,000 of its common shares for approximately $26.2 million in the aggregate under the Company’s 2012 common share purchase plan. This plan authorizes the Company to buy, in the open market or in privately negotiated transactions, up to ten million common shares, which are to be held as treasury shares and used for specified purposes. The authorization expires on December 31, 2015.

The Company does not have any off-balance sheet arrangements with unconsolidated entities or other persons.

Critical Accounting Policies and Estimates:

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The Company reviews its critical accounting policies throughout the year. The Company has concluded that there have been no changes to its critical accounting policies or estimates, as described in its Annual Report on Form 10-K for the year ended December 31, 2011, during the three months ended March 31, 2012.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Other Matters:

Foreign Currency

Assets and liabilities of subsidiaries are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rates of exchange prevailing during the quarter. Related translation adjustments are reflected as a separate component of accumulated other comprehensive loss. Foreign currency gains and losses resulting from transactions are included in the Consolidated Statements of Income.

Foreign currency exchange losses included in the Company’s operating results for the three months ended March 31, 2012 were $1.1 million, compared to a loss of $2.2 million during the three months ended March 31, 2011. For the three months ended March 31, 2012, the Company recorded a positive non-cash foreign currency translation adjustment of $23.4 million that increased shareholders’ equity, compared to a positive non-cash foreign currency translation adjustment of $33.0 million that increased shareholders’ equity for the three months ended March 31, 2011. The foreign currency translation adjustment for the three months ended March 31, 2012 was positively impacted by the weakening of the U.S. dollar relative to other currencies, such as the Euro, the British pound, the Canadian dollar and the Polish zloty.

New Labor Agreement

On February 21, 2012, the Company reached a new labor agreement with the United Steelworkers (USW) Local 1123. The agreement covers four facilities in Canton, Ohio through September 2017 and replaces an agreement that would have expired in September 2013. In the first quarter of 2012, the Company recognized approximately $5.6 million of expense as a result of ratification of this agreement.

Continued Dumping and Subsidy Offset Act

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.

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 ended 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. Several countries objected that this U.S. legislation is not consistent with WTO rulings, and were 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.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Forward-Looking Statements

Certain statements set forth in this Form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (including the Company’s forecasts, beliefs and expectations) that are not historical in nature are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, Management’s Discussion and Analysis contains numerous forward-looking statements. Forward-looking statements generally will be accompanied by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “may,” “possible,” “potential,” “predict,” “project” or other similar words, phrases or expressions. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Form 10-Q. The Company cautions readers that actual results may differ materially from those expressed or implied in forward-looking statements made by or on behalf of the Company due to a variety of factors, such as:

•

deterioration in world economic conditions, including additional adverse effects from the global economic slowdown, terrorism or hostilities. This includes: political risks associated with the potential instability of governments and legal systems in countries in which the Company or its customers conduct business, and changes in currency valuations;

•

the effects of fluctuations in customer demand on sales, product mix and prices in the industries in which the Company operates. This includes: the ability of the Company to respond to rapid changes in customer demand, the effects of customer bankruptcies or liquidations, the impact of changes in industrial business cycles, and whether conditions of fair trade continue in the U.S. markets;

•

competitive factors, including changes in market penetration, increasing price competition by existing or new foreign and domestic competitors, the introduction of new products by existing and new competitors, and new technology that may impact the way the Company’s products are sold or distributed;

•

changes in operating costs. This includes: the effect of changes in the Company’s manufacturing processes; changes in costs associated with varying levels of operations and manufacturing capacity; availability of raw materials and energy; the Company’s ability to mitigate the impact of fluctuations in raw materials and energy costs and the operation of the Company’s surcharge mechanism; changes in the expected costs associated with product warranty claims; changes resulting from inventory management and cost reduction initiatives and different levels of customer demands; the effects of unplanned work stoppages; and changes in the cost of labor and benefits;

•

the success of the Company’s operating plans; the ability to integrate acquired companies; the ability of acquired companies to achieve satisfactory operating results, including results being accretive to earnings; and the Company’s ability to maintain appropriate relations with unions that represent Company associates in certain locations in order to avoid disruptions of business;

•

unanticipated litigation, claims or assessments. This includes: claims or problems related to intellectual property, product liability or warranty, environmental issues, and taxes;

•

changes in worldwide financial markets, including availability of financing and interest rates, which affect: the Company’s cost of funds and/or ability to raise capital; the Company’s pension obligations and investment performance; and/or customer demand and the ability of customers to obtain financing to purchase the Company’s products or equipment that contain the Company’s products;

•

retention of CDSOA distributions; and

•

those items identified under Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Additional risks relating to the Company’s business, the industries in which the Company operates or the Company’s common shares may be described from time to time in the Company’s filings with the Securities and Exchange Commission. All of these risk factors are difficult to predict, are subject to material uncertainties that may affect actual results and may be beyond the Company’s control.

Readers are cautioned that it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results and that the above list should not be considered to be a complete list. Except as required by the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Refer to information appearing under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q. Furthermore, a discussion of market risk exposures is included in Part II, Item 7A. Quantitative and Qualitative Disclosure about Market Risk, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. There have been no material changes in reported market risk since the inclusion of this discussion in the Company’s Annual Report on Form 10-K referenced above.

Item 4.

Controls and Procedures

(a)

Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based upon that evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

(b)

Changes in Internal Control Over Financial Reporting

During the Company’s most recent fiscal quarter, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

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 1A.

Risk Factors

Our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 includes a detailed discussion of our risk factors. There have been no material changes to the risk factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Common Stock

The following table provides information about purchases by the Company of its common stock during the quarter ended March 31, 2012.


					Total number		Maximum
					of shares		number of
					purchased as		shares that
					part of publicly		may yet
	Total number		Average		announced		be purchased
	of shares		price paid		plans or		under the plans
Period	purchased ⁽¹⁾		per share ⁽²⁾		programs		or programs ⁽³⁾
1/1/12 – 1/31/12		97,262	$	48.84		—		2,000,000
2/1/12 – 2/29/12		197,417		52.23		—		10,000,000
3/1/12 – 3/31/12		501,840		52.39		500,000		9,500,000

Total		796,519	$	51.91		500,000		9,500,000

⁽¹⁾

The shares purchased in January, February and 1,840 of the shares purchased in March represent shares of the Company's common stock that are owned and tendered by employees to exercise stock options, and to satisfy withholding obligations in connection with the exercise of stock options and vesting of restricted shares.

⁽²⁾

For shares tendered in connection with the vesting of restricted shares, the average price paid per share is an average calculated using the daily high and low of the Company's common stock as quoted on the New York Stock Exchange at the time of vesting. For shares tendered in connection with the exercise of stock options, the price paid is the real-time trading stock price at the time the options are exercised.

⁽³⁾

Pursuant to the Company’s 2006 common stock purchase plan, the Company was authorized to purchase up to four million shares of common stock at an amount not to exceed $180 million in the aggregate until December 31, 2012. On February 10, 2012, the Board of Directors of the Company approved a new stock purchase plan pursuant to which the Company may purchase up to ten million shares of its common stock in the aggregate. This new stock purchase plan replaces the Company's 2006 common stock purchase plan and expires on December 31, 2015.

Item 6. Exhibits

10.1

The Timken Company 2012 Performance-Based Restricted Stock Unit Agreement for key employees.

10.2

The Timken Company 2012 Time-Based Restricted Stock Unit Agreement for key employees.

Computation of Ratio of Earnings to Fixed Charges.

31.1

Certification of James W. Griffith, President and Chief Executive Officer (principal executive officer) of The Timken Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Glenn A. Eisenberg, Executive Vice President – Finance and Administration (principal financial officer) of The Timken Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certifications of James W. Griffith, President and Chief Executive Officer (principal executive officer) and Glenn A. Eisenberg, Executive Vice President – Finance and Administration (principal financial officer) of The Timken Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

Financial statements from the quarterly report on Form 10-Q of The Timken Company for the quarter ended March 31, 2012, filed on May 2, 2012, formatted in XBRL: (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


						THE TIMKEN COMPANY
Date: May 2, 2012						By: /s/ James W. Griffith
						James W. Griffith President, Chief Executive Officer and Director (Principal Executive Officer)

Date: May 2, 2012						By: /s/ Glenn A. Eisenberg
						Glenn A. Eisenberg Executive Vice President – Finance and Administration (Principal Financial Officer)

Exhibit 10.1

THE TIMKEN COMPANY

Performance-Based Restricted Stock Unit Agreement

WHEREAS, (“Grantee”) is an employee of The Timken Company (the “Company”) or a Subsidiary; and

WHEREAS, the grant of performance-based Restricted Stock Units evidenced hereby was authorized by a resolution of the Compensation Committee (the “Committee”) of the Board that was duly adopted on , and the execution of a performance-based Restricted Stock Unit Agreement in the form hereof (this “Agreement”) was authorized by a resolution of the Committee duly adopted on .

NOW, THEREFORE, pursuant to The Timken Company 2011 Long-Term Incentive Plan (the “Plan”) and subject to the terms and conditions thereof and the terms and conditions hereinafter set forth, the Company hereby confirms to Grantee the grant, effective (the “Date of Grant”), of Restricted Stock Units (the “PRSUs”). Subject to the attainment of the Management Objectives described in Section 3 of this Agreement, Grantee may earn between 0% and % of the PRSUs. All terms used in this Agreement with initial capital letters that are defined in the Plan and not otherwise defined herein shall have the meanings assigned to them in the Plan.

Payment of PRSUs . The PRSUs will become payable in accordance with the provisions of Section 6 of this Agreement if the Restriction Period lapses and Grantee’s right to receive payment for the PRSUs becomes nonforfeitable (“Vest,” “Vesting” or “Vested”) in accordance with Section 3 and Section 4 of this Agreement.

PRSUs Not Transferrable . None of the PRSUs nor any interest therein or in any Common Shares underlying such PRSUs will be transferable other than by will or the laws of descent and distribution prior to payment.

Vesting of PRSUs .

(a)

Subject to the terms and conditions of Section 4 and Section 5 of this Agreement, the PRSUs will Vest on the basis of the relative achievement of the Management Objective or Management Objectives approved by the Committee on the Date of Grant (the “Performance Metrics”) for the period from January 1, 2012 through December 31, 2014 (the “Performance Period”) as follows:

(i)

The applicable percentage of the PRSUs that shall be earned by Grantee for the Performance Period shall be determined by reference to the Performance Matrix for the Performance Period approved by the Committee on the Date of Grant (the “Performance Matrix”);

(ii)

In the event that the Company’s achievement with respect to one of the Performance Metrics is between the performance levels specified in the Performance Matrix, the applicable percentage of the PRSUs that shall be earned by Grantee for the Performance Period shall be determined by the Committee using straight-line interpolation; and

(iii)

The Vesting of the PRSUs pursuant to this Section 3 or pursuant to Section 4 shall be contingent upon a determination of the Committee that the Performance Metrics, as described in this Section 3, have been satisfied.

(b)

If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, the manner in which it conducts business or other events or circumstances render the Performance Metrics specified in this Section 3 to be unsuitable, the Committee may modify such Performance Metrics or any related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate; provided , however , that no such action may result in the loss of the otherwise available exemption of the PRSUs under Section 162(m) of the Code.

(c)

All determinations involving the Performance Metrics set forth in this Section 3 shall be calculated based on U.S. Generally Accepted Accounting Principles in effect at the time the Performance Metrics are established without regard to any change in accounting standards that may be required by the Financial Accounting Standards Board after the Performance Metrics are established.

(d)

Subject to Section 3(a), Section 3(b) and Section 3(c), the PRSUs earned with respect to the Performance Period will Vest if Grantee is in the continuous employ of the Company or a Subsidiary from the Date of Grant through the last day of the Performance Period. For purposes of this Agreement, the continuous employment of Grantee with the Company or a Subsidiary will not be deemed to have been interrupted, and Grantee shall not be deemed to have ceased to be an employee of the Company or a Subsidiary, by reason of the transfer of Grantee’s employment among the Company and its Subsidiaries.

Alternative Vesting of PRSUs . Notwithstanding the provisions of Section 3 of this Agreement, and subject to the payment provisions of Section 6 hereof, Grantee shall Vest in some or all of the PRSUs under the following circumstances:

(a)

Death or Disability : If Grantee should die or become permanently disabled while in the employ of the Company or a Subsidiary, then Grantee shall Vest in a number of PRSUs equal to the product of (i) the

number of PRSUs in which Grantee would have Vested in accordance with the terms and conditions of Section 3 if Grantee had remained in the continuous employ of the Company or a Subsidiary from the Date of Grant until the end of the Performance Period or the occurrence of a Change in Control to the extent a Replacement Award is not provided, whichever occurs first, multiplied by (ii) a fraction (in no case greater than 1) the numerator of which is the number of whole months from the Date of Grant through the date of such death or permanent disability and the denominator of which is 36. PRSUs that Vest in accordance with this Section 4(a) will be paid as provided for in Section 6(a) of this Agreement. For purposes of this Agreement, “permanently disabled” means that Grantee has qualified for long-term disability benefits under a disability plan or program of the Company or, in the absence of a disability plan or program of the Company, under a government-sponsored disability program and is “disabled” within the meaning of Section 409A(a)(2)(C) of the Code.

(b)

Retirement : If Grantee should retire with the Company’s consent, then Grantee shall Vest in a number of PRSUs equal to the product of (i) the number of PRSUs in which Grantee would have Vested in accordance with the terms and conditions of Section 3 if Grantee had remained in the continuous employ of the Company or a Subsidiary from the Date of Grant until the end of the Performance Period or the occurrence of a Change in Control to the extent a Replacement Award is not provided, whichever occurs first, multiplied by (ii) a fraction (in no case greater than 1) the numerator of which is the number of whole months from the Date of Grant through the date of such retirement and the denominator of which is 36. PRSUs that Vest in accordance with this Section 4(b) will be paid as provided for in Section 6(a) of this Agreement. For purposes of this Agreement, “retire with the Company’s consent” means: (i) the retirement of Grantee prior to age 62 under a retirement plan of the Company or a Subsidiary, if the Board or the Committee determines that his retirement is for the convenience of the Company or a Subsidiary; or (ii) the retirement of Grantee at or after age 62 under a retirement plan of the Company or a Subsidiary.

(c)

Change in Control :

(i)

Upon a Change in Control occurring during the Restriction Period while Grantee is an employee of the Company or a Subsidiary or during the period that Grantee is deemed to be in the continuous employ of the Company or a Subsidiary pursuant to Section 4(a), 4(b), 4(d) or 4(e), to the extent the PRSUs have not been forfeited, the PRSUs will Vest (except to the extent that a Replacement Award is provided to Grantee for the PRSUs) as follows: the Performance Period will terminate and the Committee as constituted immediately before the Change of Control will

determine and certify the Vested PRSUs based on actual performance through the most recent date prior to the Change of Control for which achievement of the Performance Metrics can reasonably be determined. PRSUs that Vest in accordance with this Section 4(c)(i) will be paid as provided for in Section 6(b) of this Agreement.

(ii)

For purposes of this Agreement, a “Replacement Award” means an award (A) of performance-based restricted stock units, (B) that has a value at least equal to the value of the PRSUs, (C) that relates to publicly traded equity securities of the Company or its successor in the Change in Control (or another entity that is affiliated with the Company or its successor following the Change in Control), (D) the tax consequences of which, under the Code, if Grantee is subject to U.S. federal income tax under the Code, are not less favorable to Grantee than the tax consequences of the PRSUs, (E) that vests upon a termination of Grantee’s employment with Company or its successor in the Change in Control (or another entity that is affiliated with the Company or its successor following the Change in Control) for Good Reason by Grantee or without Cause by such employer within a period of two years after the Change in Control based on actual performance through the date of such termination, and (F) the other terms and conditions of which are not less favorable to Grantee than the terms and conditions of the PRSUs (including the provisions that would apply in the event of a subsequent Change in Control). A Replacement Award may be granted only to the extent it conforms to the requirements of Treasury Regulation 1.409A-3(i)(5)(iv)(B) or otherwise does not result in the PRSUs or Replacement Award failing to comply with Section 409A of the Code. Without limiting the generality of the foregoing, the Replacement Award may take the form of a continuation of the PRSUs if the requirements of the preceding sentence are satisfied. The determination of whether the conditions of this Section 4(c)(ii) are satisfied will be made by the Committee, as constituted immediately before the Change in Control, in its sole discretion.

(iii)

without reasonable belief that Grantee’s action or omission was in or not opposed to the best interest of the Company; provided , that for any Grantee who is party to an individual severance or employment agreement defining Cause, “Cause” will have the meaning set forth in such agreement. For purposes of Section 4(c)(ii), “Good Reason” will be defined to mean: a material reduction in the nature or scope of the responsibilities, authorities or duties of Grantee attached to Grantee’s position held immediately prior to the Change in Control, a change of more than 60 miles in the location of Grantee’s principal office immediately prior to the Change in Control, or a material reduction in Grantee’s remuneration upon or after the Change in Control; provided , that no later than 90 days following an event constituting Good Reason Grantee gives notice to the Company of the occurrence of such event and the Company fails to cure the event within 30 days following the receipt of such notice.

(iv)

If a Replacement Award is provided, notwithstanding anything in this Agreement to the contrary, any outstanding PRSUs which at the time of the Change in Control are not subject to a “substantial risk of forfeiture” (within the meaning of Section 409A of the Code) will be deemed to be Vested at the time of such Change in Control and will be paid as provided for in Section 6(b) of this Agreement.

(d)

Divestiture : If Grantee’s employment with the Company or a Subsidiary terminates as the result of a divestiture, then Grantee shall Vest in a number of PRSUs equal to the product of (i) the number of PRSUs in which Grantee would have Vested in accordance with the terms and conditions of Section 3 if Grantee had remained in the continuous employ of the Company or a Subsidiary from the Date of Grant until the end of the Performance Period or the occurrence of a Change in Control to the extent a Replacement Award is not provided, whichever occurs first, multiplied by (ii) a fraction (in no case greater than 1) the numerator of which is the number of whole months from the Date of Grant through the date of such termination and the denominator of which is 36. PRSUs that Vest in accordance with this Section 4(d) will be paid as provided for in Section 6(a) of this Agreement. For the purposes of this Agreement, the term “divestiture” shall mean a permanent disposition to a Person other than the Company or any Subsidiary of a plant or other facility or property at which Grantee performs a majority of Grantee’s services whether such disposition is effected by means of a sale of assets, a sale of Subsidiary stock or otherwise.

(e)

Layoff : If (i) Grantee’s employment with the Company or a Subsidiary terminates as the result of a layoff and (ii) Grantee is entitled to receive severance pay pursuant to the terms of any severance pay plan of the Company in effect at the time of Grantee’s termination of employment that provides for severance pay calculated by multiplying Grantee’s base compensation by a specified severance period, then Grantee shall Vest in a number of PRSUs equal to the product of (x) the number of PRSUs in which Grantee would have Vested in accordance with the terms and conditions of Section 3 if Grantee had remained in the continuous employ of the Company or a Subsidiary from the Date of Grant until the end of the Performance Period or the occurrence of a Change in Control to the extent a Replacement Award is not provided, whichever occurs first, multiplied by (y) a fraction (in no case greater than 1) the numerator of which is the number of whole months from the Date of Grant through the end of the specified severance period and the denominator of which is 36. PRSUs that Vest in accordance with this Section 4(e) will be paid as provided for in Section 6(a) of this Agreement. For purposes of this Agreement, a “layoff” shall mean the involuntary termination by the Company or any Subsidiary of Grantee’s employment with the Company or any Subsidiary due to (A) a reduction in force leading to a permanent downsizing of the salaried workforce, (B) a permanent shutdown of the plant, department or subdivision in which Grantee works, or (C) an elimination of position.

Forfeiture of PRSUs . Any PRSUs that have not Vested pursuant to Section 3 or Section 4 at the end of the Performance Period will be forfeited automatically and without further notice after the end of the Performance Period (or earlier if, and on such date that, Grantee ceases to be an employee of the Company or a Subsidiary prior to the end of the Performance Period for any reason other than as described in Section 4).

Form and Time of Payment of PRSUs .

(a)

General . Subject to Section 5 and Section 6(b), payment for Vested PRSUs will be made in cash or Common Shares (as determined by the Committee) between January 1, 2015 and March 15, 2015.

(b)

Other Payment Event . Notwithstanding Section 6(a), to the extent that the PRSUs are Vested on the date of a Change in Control, Grantee will receive payment for Vested PRSUs in cash or Common Shares (as determined by the Committee) on the date of the Change in Control; provided , however , that if such Change in Control would not qualify as a permissible date of distribution under Section 409A(a)(2)(A) of the Code, and the regulations thereunder, and where Section 409A of the Code applies to such distribution, Grantee is entitled to receive the corresponding payment on the date that would have otherwise applied pursuant to Section 6(a).

No Dividend Equivalents . No dividend equivalents will accrue, be credited or be paid or payable with respect to the PRSUs.

Detrimental Activity and Recapture .

(a)

Notwithstanding anything in this Agreement to the contrary, in the event that, as determined by the Committee, Grantee shall engage in Detrimental Activity during employment with the Company or a Subsidiary, the PRSUs will be forfeited automatically and without further notice at the time of that determination notwithstanding any other provision of this Agreement.

(b)

If a Restatement occurs and the Committee determines that Grantee is personally responsible for causing the Restatement as a result of Grantee’s personal misconduct or any fraudulent activity on the part of Grantee, then the Committee has discretion to, based on applicable facts and circumstances and subject to applicable law, cause the Company to recover all or any portion (but no more than 100%) of the PRSUs earned or payable to Grantee for some or all of the years covered by the Restatement. The amount of any earned or payable PRSUs recovered by the Company shall be limited to the amount by which such earned or payable PRSUs exceeded the amount that would have been earned by or paid to Grantee had the Company’s financial statements for the applicable restated fiscal year or years been initially filed as restated, as reasonably determined by the Committee. The Committee shall also determine whether the Company shall effect any recovery under this Section 8(b) by: (i) seeking repayment from Grantee; (ii) reducing, except with respect to any non-qualified deferred compensation under Section 409A of the Code, the amount that would otherwise be payable to Grantee under any compensatory plan, program or arrangement maintained by the Company (subject to applicable law and the terms and conditions of such plan, program or arrangement); (iii) by withholding, except with respect to any non-qualified deferred compensation under Section 409A of the Code, payment of future increases in compensation (including the payment of any discretionary bonus amount) that would otherwise have been made to Grantee in accordance with the Company’s compensation practices; or (iv) by any combination of these alternatives. For purposes of this Agreement, “Restatement” means a restatement of any part of the Company’s financial statements for any fiscal year or years after 20 due to material noncompliance with any financial reporting requirement under the U.S. securities laws applicable to such fiscal year or years.

Compliance with Law . The Company shall make reasonable efforts to comply with all applicable federal and state securities laws; provided, however, notwithstanding any other provision of this Agreement, the Company shall not be obligated to issue any of the Common Shares covered by this Agreement if the issuance thereof would result in violation of any such law.

10.

Adjustments . Subject to Section 12 of the Plan, the Committee shall make any adjustments in the number of PRSUs or kind of shares of stock or other securities

underlying the PRSUs covered by this Agreement that the Committee may determine to be equitably required to prevent any dilution or expansion of Grantee’s rights under this Agreement that otherwise would result from any (a) stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, (b) merger, consolidation, separation, reorganization or partial or complete liquidation involving the Company or (c) other transaction or event having an effect similar to any of those referred to in Section 10(a) or 10(b) hereof. Furthermore, in the event that any transaction or event described or referred to in the immediately preceding sentence shall occur, the Committee may provide in substitution of any or all of Grantee’s rights under this Agreement such alternative consideration as the Committee may determine in good faith to be equitable under the circumstances.

11.

Withholding Taxes . To the extent that the Company is required to withhold federal, state, local or foreign taxes in connection with the delivery of Common Shares to Grantee or any other person under this Agreement, the number of Common Shares to be delivered to Grantee or such other person shall be reduced (based on the Market Value per Share as of the date the PRSUs become payable) to provide for the taxes required to be withheld, with any fractional shares that would otherwise be delivered being rounded up to the next nearest whole share. In no event, however, shall the Company accept Common Shares for payment of taxes in excess of required tax withholding rates. Unless otherwise determined by the Committee at any time, Grantee may surrender Common Shares to satisfy any tax obligations resulting from any such transaction. The Committee may, at its discretion, adopt any alternative method of providing for taxes to be withheld

12.

Right to Terminate Employment . No provision of this Agreement will limit in any way whatsoever any right that the Company or a Subsidiary may otherwise have to terminate the employment of Grantee at any time.

13.

Relation to Other Benefits . Any economic or other benefit to Grantee under this Agreement or the Plan will not be taken into account in determining any benefits to which Grantee may be entitled under any profit-sharing, retirement or other benefit or compensation plan maintained by the Company or a Subsidiary and will not affect the amount of any life insurance coverage available to any beneficiary under any life insurance plan covering employees of the Company or a Subsidiary.

14.

Amendments . Any amendment to the Plan will be deemed to be an amendment to this Agreement to the extent that the amendment is applicable to this Agreement; provided, however, that no amendment will adversely affect the rights of Grantee with respect to the Common Shares or other securities covered by this Agreement without Grantee’s consent. Notwithstanding the foregoing, the limitation requiring the consent of Grantee to certain amendments will not apply to any amendment that is deemed necessary by the Company to ensure compliance with Section 409A of the Code.

15.

Severability . In the event that one or more of the provisions of this Agreement is invalidated for any reason by a court of competent jurisdiction, any provision so invalidated will be deemed to be separable from the other provisions of this Agreement, and the remaining provisions of this Agreement will continue to be valid and fully enforceable.

16.

Governing Law . This Agreement is made under, and shall be construed in accordance with, the internal substantive laws of the State of Ohio.

17.

Compliance with Section 409A of the Code. To the extent applicable, it is intended that this Agreement and the Plan comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to Grantee. This Agreement and the Plan shall be administered in a manner consistent with this intent. Reference to Section 409A of the Code is to Section 409A of the Internal Revenue Code of 1986, as amended, and will also include any regulations or any other formal guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.

[SIGNATURES ON FOLLOWING PAGE]

The undersigned Grantee hereby acknowledges receipt of an executed original of this Agreement and accepts the award of PRSUs covered hereby, subject to the terms and conditions of the Plan and the terms and conditions herein above set forth.




Grantee

Date:

This Agreement is executed by the Company on this day of , 20 .


The Timken Company

By
		William R. Burkhart
		Sr. Vice President and General Counsel

Exhibit 10.2

THE TIMKEN COMPANY

Time-Based Restricted Stock Unit Agreement

WHEREAS, (“Grantee”) is an employee of The Timken Company (the “Company”) or a Subsidiary; and

WHEREAS, the grant of Restricted Stock Units evidenced hereby was authorized by a resolution of the Compensation Committee (the “Committee”) of the Board that was duly adopted on , and the execution of a Restricted Stock Unit Agreement in the form hereof (this “Agreement”) was authorized by a resolution of the Committee duly adopted on .

NOW, THEREFORE, pursuant to The Timken Company 2011 Long-Term Incentive Plan (the “Plan”) and subject to the terms and conditions thereof and the terms and conditions hereinafter set forth, the Company hereby confirms to Grantee the grant, effective (the “Date of Grant”), of Restricted Stock Units (the “RSUs”). All terms used in this Agreement with initial capital letters that are defined in the Plan and not otherwise defined herein shall have the meanings assigned to them in the Plan.

Payment of RSUs . The RSUs will become payable if the Restriction Period lapses and Grantee’s right to receive payment for the RSUs becomes nonforfeitable (“Vest,” “Vesting” or “Vested”) in accordance with Section 3 and Section 4 of this Agreement.

RSUs Not Transferrable . None of the RSUs nor any interest therein or in any Common Shares underlying such RSUs will be transferable other than by will or the laws of descent and distribution prior to payment.

Vesting of RSUs . Subject to the terms and conditions of Section 4 and Section 5 of this Agreement, the RSUs will Vest (a) to the extent of one-quarter (1/4) of the RSUs after Grantee shall have been in the continuous employ of the Company or a Subsidiary for one full year from the Date of Grant and (b) to the extent of an additional one-quarter (1/4) of the RSUs after each of the next three successive years thereafter during which Grantee shall have been in the continuous employ of the Company or a Subsidiary. For purposes of this Agreement, the continuous employment of Grantee with the Company or a Subsidiary will not be deemed to have been interrupted, and Grantee shall not be deemed to have ceased to be an employee of the Company or a Subsidiary, by reason of the transfer of Grantee’s employment among the Company and its Subsidiaries.

Alternative Vesting of RSUs . Notwithstanding the provisions of Section 3 of this Agreement, and subject to the payment provisions of Section 6 hereof, the RSUs will Vest earlier than the times provided for in Section 3 under the following circumstances:

(a)

Death or Disability : If Grantee should die or become permanently disabled while in the employ of the Company or a Subsidiary, then the RSUs will immediately Vest in full. If Grantee should die or become permanently disabled during the period that Grantee is deemed to be in the continuous employ of the Company or a Subsidiary pursuant to Section 4(b), 4(d) or 4(e), then the RSUs will immediately Vest in full, except that to the extent that Section 4(e) applies, the RSUs will immediately Vest only to the extent that the RSUs would have become Vested during the severance period. For purposes of this Agreement, “permanently disabled” means that Grantee has qualified for long-term disability benefits under a disability plan or program of the Company or, in the absence of a disability plan or program of the Company, under a government-sponsored disability program and is “disabled” within the meaning of Section 409A(a)(2)(C) of the Code.

(b)

Retirement : If Grantee should retire with the Company’s consent, then Grantee shall Vest in the RSUs in accordance with the terms and conditions of Section 3 as if Grantee had remained in the continuous employ of the Company or a Subsidiary from the Date of Grant until the end of the four-year period described in Section 3 or the occurrence of a circumstance referenced in Section 4(a) or Section 4(c), whichever occurs first. For purposes of this Agreement, “retire with the Company’s consent” means: (i) the retirement of Grantee prior to age 62 under a retirement plan of the Company or a Subsidiary, if the Board or the Committee determines that Grantee’s retirement is for the convenience of the Company or a Subsidiary; or (ii) the retirement of Grantee at or after age 62 under a retirement plan of the Company or a Subsidiary.

(c)

Change in Control :

(i)

Upon a Change in Control occurring during the Restriction Period while Grantee is an employee of the Company or a Subsidiary, to the extent the RSUs have not been forfeited, the RSUs will immediately Vest in full (except to the extent that a Replacement Award is provided to Grantee for the RSUs). If Grantee is deemed to be in the continuous employ of the Company or a Subsidiary pursuant to Section 4(b), 4(d) or 4(e), upon a Change in Control during the Restriction Period, then the RSUs will immediately Vest in full, except that to the extent that Section 4(e) applies, the RSUs will Vest only to the extent that the RSUs would have become Vested during the severance period.

(ii)

For purposes of this Agreement, a “Replacement Award” means an award (A) of restricted stock units, (B) that has a value at least equal to the value of the RSUs, (C) that relates to publicly traded equity securities of the Company or its successor in the Change in Control (or another entity that is affiliated with the Company or its

successor following the Change in Control), (D) the tax consequences of which, under the Code, if Grantee is subject to U.S. federal income tax under the Code, are not less favorable to Grantee than the tax consequences of the RSUs, (E) that vests in full upon a termination of Grantee’s employment with Company or its successor in the Change in Control (or another entity that is affiliated with the Company or its successor following the Change in Control) for Good Reason by Grantee or without Cause by such employer within a period of two years after the Change in Control, and (F) the other terms and conditions of which are not less favorable to Grantee than the terms and conditions of the RSUs (including the provisions that would apply in the event of a subsequent Change in Control). A Replacement Award may be granted only to the extent it conforms to the requirements of Treasury Regulation 1.409A-3(i)(5)(iv)(B) or otherwise does not result in the RSUs or Replacement Award failing to comply with Section 409A of the Code. Without limiting the generality of the foregoing, the Replacement Award may take the form of a continuation of the RSUs if the requirements of the preceding sentence are satisfied. The determination of whether the conditions of this Section 4(c)(ii) are satisfied will be made by the Committee, as constituted immediately before the Change in Control, in its sole discretion.

(iii)

For purposes of Section 4(c)(ii), “Cause” will be defined not less favorably with respect to Grantee than: any intentional act of fraud, embezzlement or theft in connection with the Grantee’s duties with the Company, any intentional wrongful disclosure of secret processes or confidential information of the Company or a Subsidiary, or any intentional wrongful engagement in any competitive activity that would constitute a material breach of Grantee’s duty of loyalty to the Company, and no act, or failure to act, on the part of Grantee shall be deemed “intentional” unless done or omitted to be done by Grantee not in good faith and without reasonable belief that Grantee’s action or omission was in or not opposed to the best interest of the Company; provided , that for any Grantee who is party to an individual severance or employment agreement defining Cause, “Cause” will have the meaning set forth in such agreement. For purposes of Section 4(c)(ii), “Good Reason” will be defined to mean a material reduction in the nature or scope of the responsibilities, authorities or duties of Grantee attached to Grantee’s position held immediately prior to the Change in Control, a change of more than 60 miles in the location of Grantee’s principal office immediately prior to the Change in Control, or a material reduction in Grantee’s remuneration upon or after the Change in Control; provided , that no later than 90 days following an event constituting Good Reason Grantee gives notice to the Company of the occurrence of such event and the Company fails to cure the event within 30 days following the receipt of such notice.

(iv)

If a Replacement Award is provided, notwithstanding anything in this Agreement to the contrary, any outstanding RSUs which at the time of the Change in Control are not subject to a “substantial risk of forfeiture” (within the meaning of Section 409A of the Code) will be deemed to be Vested at the time of such Change in Control.

(d)

Divestiture : If Grantee’s employment with the Company or a Subsidiary terminates as the result of a divestiture, then Grantee shall Vest in the RSUs in accordance with the terms and conditions of Section 3 as if Grantee had remained in the continuous employ of the Company or a Subsidiary from the Date of Grant until the end of the four-year period described in Section 3 or the occurrence of a circumstance referenced in Section 4(a) or Section 4(c), whichever occurs first. For the purposes of this Agreement, the term “divestiture” shall mean a permanent disposition to a Person other than the Company or any Subsidiary of a plant or other facility or property at which Grantee performs a majority of Grantee’s services whether such disposition is effected by means of a sale of assets, a sale of Subsidiary stock or otherwise.

(e)

Layoff : If (i) Grantee’s employment with the Company or a Subsidiary terminates as the result of a layoff and (ii) Grantee is entitled to receive severance pay pursuant to the terms of any severance pay plan of the Company in effect at the time of Grantee’s termination of employment that provides for severance pay calculated by multiplying Grantee’s base compensation by a specified severance period, then Grantee shall Vest in the RSUs in accordance with the terms and conditions of Section 3 as if Grantee had remained in the continuous employ of the Company or a Subsidiary from the Date of Grant until the end of the severance period or the occurrence of a circumstance referenced in Section 4(a) or Section 4(c), whichever occurs first. For purposes of this Agreement, a “layoff” shall mean the involuntary termination by the Company or any Subsidiary of Grantee’s employment with the Company or any Subsidiary due to (A) a reduction in force leading to a permanent downsizing of the salaried workforce, (B) a permanent shutdown of the plant, department or subdivision in which Grantee works, or (C) an elimination of position.

Forfeiture of RSUs . Any RSUs that have not Vested pursuant to Section 3 or Section 4 prior to the fourth anniversary of the Date of Grant will be forfeited automatically and without further notice on such date (or earlier if, and on such date that, Grantee ceases to be an employee of the Company or a Subsidiary prior to the fourth anniversary of the Date of Grant for any reason other than as described in Section 4).

Form and Time of Payment of RSUs .

(a)

General : Subject to Section 5 and Section 6(b), payment for Vested RSUs will be made in cash or Common Shares (as determined by the Committee) within 10 days following the Vesting dates specified in Section 3.

(b)

Other Payment Events . Notwithstanding Section 6(a), to the extent that the RSUs are Vested on the dates set forth below, payment with respect to the RSUs will be made as follows:

(i)

Change in Control . Upon a Change in Control, Grantee is entitled to receive payment for Vested RSUs in cash or Common Shares (as determined by the Committee) on the date of the Change in Control; provided , however , that if such Change in Control would not qualify as a permissible date of distribution under Section 409A(a)(2)(A) of the Code, and the regulations thereunder, and where Section 409A of the Code applies to such distribution, Grantee is entitled to receive the corresponding payment on the date that would have otherwise applied pursuant to Sections 6(a) or 6(b)(ii) as though such Change in Control had not occurred.

(ii)

Death or Disability . On the date of Grantee’s death or the date Grantee becomes permanently disabled, Grantee is entitled to receive payment for Vested RSUs in cash or Common Shares (as determined by the Committee) on such date.

Payment of Dividend Equivalents . With respect to each of the RSUs covered by this Agreement, Grantee shall be credited on the records of the Company with dividend equivalents in an amount equal to the amount per Common Share of any cash dividends declared by the Board on the outstanding Common Shares during the period beginning on the Date of Grant and ending either on the date on which Grantee receives payment for the RSUs pursuant to Section 6 hereof or at the time when the RSUs are forfeited in accordance with Section 5 of this Agreement. These dividend equivalents will accumulate without interest and, subject to the terms and conditions of this Agreement, will be paid at the same time, to the same extent and in the same manner, in cash or Common Shares (as determined by the Committee) as the RSUs for which the dividend equivalents were credited.

Detrimental Activity and Recapture .

(a)

In the event that, as determined by the Committee, Grantee shall engage in Detrimental Activity during employment with the Company or a Subsidiary, the RSUs will be forfeited automatically and without further notice at the time of that determination notwithstanding any other provision of this Agreement.

(b)

If a Restatement occurs and the Committee determines that Grantee is personally responsible for causing the Restatement as a result of Grantee’s personal misconduct or any fraudulent activity on the part of Grantee, then the Committee has discretion to, based on applicable facts and circumstances and subject to applicable law, cause the Company to recover all or any portion (but no more than 100%) of the RSUs earned or payable to Grantee for some or all of the years covered by the Restatement. The amount of any earned or payable RSUs recovered by the Company shall be limited to the amount by which such earned or payable RSUs exceeded the amount that would have been earned by or paid to Grantee had the Company’s financial statements for the applicable restated fiscal year or years been initially filed as restated, as reasonably determined by the Committee. The Committee shall also determine whether the Company shall effect any recovery under this Section 8(b) by: (i) seeking repayment from Grantee; (ii) reducing, except with respect to any non-qualified deferred compensation under Section 409A of the Code, the amount that would otherwise be payable to Grantee under any compensatory plan, program or arrangement maintained by the Company (subject to applicable law and the terms and conditions of such plan, program or arrangement); (iii) by withholding, except with respect to any non-qualified deferred compensation under Section 409A of the Code, payment of future increases in compensation (including the payment of any discretionary bonus amount) that would otherwise have been made to Grantee in accordance with the Company’s compensation practices; or (iv) by any combination of these alternatives. For purposes of this Agreement, “Restatement” means a restatement of any part of the Company’s financial statements for any fiscal year or years after 20 due to material noncompliance with any financial reporting requirement under the U.S. securities laws applicable to such fiscal year or years.

Compliance with Law . The Company shall make reasonable efforts to comply with all applicable federal and state securities laws; provided , however , notwithstanding any other provision of this Agreement, the Company shall not be obligated to issue any of the Common Shares covered by this Agreement if the issuance thereof would result in violation of any such law.

10.

Adjustments . Subject to Section 12 of the Plan, the Committee shall make any adjustments in the number of RSUs or kind of shares of stock or other securities underlying the RSUs covered by this Agreement that the Committee may determine to be equitably required to prevent any dilution or expansion of Grantee’s rights under this Agreement that otherwise would result from any (a) stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, (b) merger, consolidation, separation, reorganization or partial or complete liquidation involving the Company or (c) other transaction or event having an effect similar to any of those referred to in Section 10(a) or 10(b) hereof. Furthermore, in the event that any transaction or event described or referred to in the immediately preceding sentence shall occur, the Committee may provide in substitution of any or all of Grantee’s rights under this Agreement such alternative consideration as the Committee may determine in good faith to be equitable under the circumstances.

11.

Withholding Taxes . To the extent that the Company is required to withhold federal, state, local or foreign taxes in connection with the delivery of Common Shares to Grantee or any other person under this Agreement, the number of Common Shares to be delivered to Grantee or such other person shall be reduced (based on the Market Value per Share as of the date the RSUs become payable) to provide for the taxes required to be withheld, with any fractional shares that would otherwise be delivered being rounded up to the next nearest whole share. In no event, however, shall the Company accept Common Shares for payment of taxes in excess of required tax withholding rates. Unless otherwise determined by the Committee at any time, Grantee may surrender Common Shares to satisfy any tax obligations resulting from any such transaction. The Committee may, at its discretion, adopt any alternative method of providing for taxes to be withheld.

12.

13.

14.

Amendments . Any amendment to the Plan will be deemed to be an amendment to this Agreement to the extent that the amendment is applicable to this Agreement; provided , however , that no amendment will adversely affect the rights of Grantee with respect to the Common Shares or other securities covered by this Agreement without Grantee’s consent. Notwithstanding the foregoing, the limitation requiring the consent of Grantee to certain amendments will not apply to any amendment that is deemed necessary by the Company to ensure compliance with Section 409A of the Code.

15.

16.

Governing Law . This Agreement is made under, and shall be construed in accordance with, the internal substantive laws of the State of Ohio.

17.

[SIGNATURES ON FOLLOWING PAGE]

The undersigned Grantee hereby acknowledges receipt of an executed original of this Agreement and accepts the award of RSUs covered hereby, subject to the terms and conditions of the Plan and the terms and conditions herein above set forth.




Grantee

Date:

This Agreement is executed by the Company on this day of , .


The Timken Company

By
		William R. Burkhart
		Sr. Vice President and General Counsel

EXHIBIT 12

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(Dollars in millions, except ratio amounts)


	Three Months Ended March 31,					Years Ended December 31,
	2012			2011		2011		2010			2009			2008			2007
Income (loss) from continuing operations before tax		237.5			171.2		696.8		405.5			(94.2	)		439.6			264.7
Share of undistributed (losses) income from 50%-or-less-owned affiliates, excluding affiliates with guaranteed debt		(0.1	)		—		0.5		(0.2	)		0.9			(1.4	)		1.3
Amortization of capitalized interest		0.5			0.5		2.0		2.0			1.9			1.8			1.4
Interest expense		8.6			9.8		36.8		38.2			41.9			44.4			42.3
Interest portion of rental expense		2.1			1.8		7.2		8.0			8.5			8.7			7.5

Earnings (loss)		248.6			183.3		743.3		453.5			(41.0	)		493.1			317.2

Interest		9.2			9.9		38.0		38.9			43.7			47.4			48.0
Interest portion of rental expense		2.1			1.8		7.2		8.0			8.5			8.7			7.5

Fixed Charges		11.3			11.7		45.2		46.9			52.2			56.1			55.5

Ratio of Earnings to Fixed Charges		22.0			15.67		16.44		9.67			(0.79	)		8.79			5.72

EXHIBIT 31.1

PRINCIPAL EXECUTIVE OFFICER’S CERTIFICATIONS

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James W. Griffith, certify that:

I have reviewed this Form 10-Q of The Timken Company;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting: and

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

EXHIBIT 31.2

PRINCIPAL FINANCIAL OFFICER'S CERTIFICATIONS

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Glenn A. Eisenberg, certify that:

I have reviewed this Form 10-Q of The Timken Company;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of The Timken Company (the “Company”) on Form 10-Q for the period ended March 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.




Date: May 2, 2012	By:	/s/ James W. Griffith
	Name:	James W. Griffith
	Title:	President and Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Glenn A. Eisenberg
	Name:	Glenn A. Eisenberg
	Title:	Executive Vice President – Finance and Administration
		(Principal Financial Officer)

The foregoing certification is being furnished solely pursuant to 18 U.S.C. 1350 and is not being filed as part of the Report or as a separate disclosure document.