Slide 1: The Timken Company Investor Presentation March 2011
The Timken Company Investor Presentation March 2011
Slide 2: Investor Relations Contact
INVESTOR RELATIONS CONTACT: Steve Tschiegg, Director - Capital Markets & Investor Relations PH: (330) 471-7446 E-mail: steve.tschiegg@timken.com
Slide 3: Safe Harbor
Safe Harbor Certain statements in this presentation (including statements regarding the company's forecasts, beliefs, estimates and expectations) that are not historical in nature are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particul
Slide 4: About The Timken Company
About The Timken Company A leading provider of friction management and power transmission solutions to diverse markets, including: - Aerospace - Construction - Mining - Truck - Energy / Wind - Automotive - Rail - Distribution Established in 1899 Headquartered in Canton, Ohio 2010 sales: $4.1 billion
Slide 5: Diverse Global Portfolio
Diverse Global Portfolio 2010 Sales: $4.1 Billion Broad-based end markets and customers Increased sales from demanding applications Expanded channels into the aftermarket Diversified global scope, growing faster outside the U.S. 34% of sales are outside the U.S. Excluding Steel Group, sales abroad r
Slide 6: Timken Position in Asia
Timken Position in Asia 2010 Sales: $470 million, 12% of Timken Employment: 4,500 Industrial market focus: Infrastructure Energy Aftermarket Services China and India "home markets" Expanding in ASEAN - Indonesia Growing brand reputation Broader product range Significant industrial bearing manufactur
Slide 7: The Strategy is Working
The Strategy is Working Enhance existing products and services Leverage technology to create value Capture lifetime of opportunity Structure portfolio for value creation Fix/Exit under-performing areas Refine lean operating model Improve efficiency and reduce cost structure Increase agility Deliver
Slide 8: Strategic Accomplishments
Strategic Accomplishments Improved leverage Increased productivity Less cycle vulnerability Each business better positioned to earn cost of capital through the cycle Dramatically changed portfolio via structural acquisitions, divestitures and organic business development High-margin Aerospace & Defe
Slide 9: Strategic Accomplishments
Strategic Accomplishments Record New Products Attractive Markets Focused Acquisitions Spherical roller bearings (wear-resistant type shown) Type-E Housed Units Integrated Systems (bearing, seal, lubrication) for Multi-megawatt Wind Turbines New steel products Expanding in diverse industries, channel
Slide 10: 2011 Outlook: Mobile Industries
2011 Outlook Sector Profile Mobile Industries Bearings, power transmission components and related products and services Serves diverse market sectors - Light Vehicle - Auto Aftermarket - Off Highway - Heavy Truck - Rail Customers: OEMs and aftermarket distributors Completed portfolio re-pricing Effe
Slide 11: 2011 Outlook: Process Industries
2011 Outlook Sector Profile Process Industries Key markets will continue to rebound and grow Strong leverage from manufacturing investments Expand Asia growth initiatives Penetrate global wind energy market Expand new products and services Growth launch in Latin America & ASEAN regions Segment Overv
Slide 12: Aerospace and Defense
Aerospace and Defense Power transmission systems and flight- critical components for civil and military aircraft: - Helicopter transmissions - Bearings - Rotor head assemblies - Gears - Turbine engine - Housings components Aftermarket engine overhaul, replacement parts, bearing and component repair
Slide 13: Steel Group
Steel Group Market leadership position in high quality air-melted alloy steel bars, tubes, precision components and value-added services Bars: 1" to 16" Serving niche high-end applications where demands on performance are significant Special machining characteristics Resistance to heat, stresses or
Slide 14: The Path Forward
The Path Forward Build on the momentum Execute for results: superior returns Advance the portfolio: diversified, balanced Accelerate growth: organic investments + acquisitions that fit Strengthen the team: global breadth & depth
Slide 15: Financial Review
Financial Review TIMKEN
Slide 16: 2010 Results
2010 Results Sales of $4.1 billion, up 29% from prior year Primarily due to stronger light-vehicle demand with a second half acceleration in heavy-truck, off-highway, energy and industrial distribution sectors, as well as surcharges and pricing EBIT of $440 million, or 10.8% of sales Driven primaril
Slide 17: 2010 Results: Free Cash Flow and Balance Sheet
2010 Results Free Cash Flow of $146 million From operating activities after pension contributions, capital expenditures and dividends Includes $230 million pension and $54 million VEBA trust contributions Strong Balance Sheet Cash position of $877 million, or $363 million in excess of total debt Pen
Slide 18: Sales
Sales 2013 Target 10-15% CAGR including organic & inorganic growth Note: 2003 includes Torrington acquisition as acquired February 2003. Historical results exclude the discontinued operations of Latrobe Steel (2006 divestment) and the Needle Roller Bearings (NRB) business (2009 divestment). NRB disc
Slide 19: Earnings Per Share (GAAP)
Earnings Per Share (GAAP) Earnings Per Share 2013 EPS Target $4.75-$5.25 including organic & inorganic growth Net Sales ($ in Millions) Note: Earnings are reported on a GAAP basis and include the impact of special items, such as restructuring and reorganization expenses, CDO payments and goodwill am
Slide 20: Free Cash Flow
Free Cash Flow Free Cash Flow ($ in Millions) 2013 Target $200M-$250M '91-'01 Avg: $16M '02-'09 Avg: $87M Note: Free cash flow defined as net cash provided by operating activities (includes pension contributions) minus capital expenditures and dividends. A reconciliation to GAAP and description of t
Slide 21: Net Debt
Net Debt Net Debt /Capital Net Debt ($ in Millions) Note: 2003 includes Torrington acquisition as acquired February 2003. Net Debt / Capital (leverage) defined as Net Debt / (Net Debt + Equity). A reconciliation to GAAP and description of this measure can be found in the Appendix. Target leverage of
Slide 22: Return on Invested Capital
Return on Invested Capital Cost of Capital Note: The company uses NOPAT/Average Invested Capital as a type of ratio that indicates return on capital (ROIC). A reconciliation to GAAP and description of this measure can be found in the Appendix. Return on Invested Capital '91-'01 Avg. : 6.2% '02-'09 A
Slide 23: Capital Allocation
Capital Allocation Organic growth and performance improvement initiatives Targeted in industrial market sectors; wind, aerospace, heavy industries, oil & gas Asia Growth Acquisitions Industrial and aftermarket focus Market-leading position Strong management team International focus Accretive to earn
Slide 24: Incentive Compensation
Incentive Compensation Short-Term Short-Term Intermediate Intermediate Long-Term Long-Term (Cash) (Cash) (Cash) (Cash) (Equity) (Equity) Program Annual Performance Award Annual Performance Award Intermediate Incentive Intermediate Incentive Restricted Non Qualified Plan (APA) Plan (APA) Plan (IIP) P
Slide 25: The Strategy is Working
The Strategy is Working Enhance existing products and services Leverage technology to create value Capture lifetime of opportunity Structure portfolio for value creation Fix/Exit under-performing areas Refine lean operating model Improve efficiency and reduce cost structure Increase agility Deliver
Slide 26: The Timken Company
The Timken Company Investor Presentation March 2011
Slide 27: Appendix
Appendix TIMKEN
Slide 28: Aerospace & Defense 2010 Performance Summary
Implemented business systems infrastructure Rationalized footprint Qualified over 150 new parts Late-cycle weakness in civil and defense markets Inventory destocking Earned 6% adjusted margin for the full year Performance Update Key Accomplishments Margins Revenue - $Mils. Earnings (EBIT) - $Mils. N
Slide 29: Process Industries 2010 Performance Summary
Accelerated growth in new products: spherical, cylindrical and housed units QM acquisition Continued expansion in Asia Gains in wind energy Process Industries 2010 Performance Summary Double digit growth Margin expansion YOY Strong working capital management Distribution recovered in 2nd half Heavy
Slide 30: Steel 2010 Performance Summary
Performance Update Key Accomplishments Pricing Secure iron source Accelerated ramp up Daido steel source Working Capital control Capital Investment Sales up 90% to $1.4 billion Growth drivers: Demand recovery, inventory restocking Improved capacity utilization Strong earnings rebound; 2x cost of cap
Slide 31: Reconciliation to GAAP
(continued next page) Reconciliation to GAAP
Slide 32: Reconciliation to GAAP
-~ Reconciliation to GAAP (Unaudited) CONDENSED CONSOLIDATED STATEMENT OF INCOME AS REPORTED AS ADJUSTED ") oo Full Year 2010 Full Year Full Year Full Year (Dollars in millions, except share data) 2009 2010 2009 Net Income (Loss) per Common Share Attributable to The Timken Company Common Shareholder
Slide 33: Reconciliation to GAAP
-~ Reconciliation to GAAP Reconciliation of net income (loss) attributable to The Timken Company and EPS - diluted. Inis reconciliation Is proviaea as aaaitional relevant intormation apout ine company s periormance. Management pelleves aqustea earnings per snare are more representative or ne company
Slide 34: Reconciliation to GAAP
-~ Reconciliation to GAAP (Dollars in millions) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Total Debt (a) 273 321 277 280 211 303 359 469 450 514 Less: Cash 2 8 5 12 7 5 10 0 8 11 Net Debt 271 313 271 267 204 297 350 469 442 503 Equity 1,019 985 685 733 821 922 1,032 1,056 1,046 1,005 Total D
Slide 35: Reconciliation to GAAP
Reconciliation to GAAP (Dollars in millions)
Slide 36: Reconciliation to GAAP
Reconciliation to GAAP (Dollars in millions)
Slide 37: Reconciliation to GAAP: Revised Segment Results
-~ Reconciliation to GAAP Revised Segment Results istQtr_ 2ndQtr_—_3rdQtr_— ath Qtr Year Year Year (Dollars in millions) (Dollars in millions) 2010 2010 2010 2010 2010 2009 2008 Net sales to Mobile Industries $ 367.5 $ 4004 $ 404.1 $ 3883 $ 1,560.3 $ 1,245.0 $ 1,771.9 external customers: Process Ind