Slide 1: Schedule 14A Information
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 14A (RULE 14a-101) SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant þ Filed by a Party other than the Registrant ¨ Check
Slide 2: The Best Path to Shareholder Value Creation
THE BEST PATH TO SHAREHOLDER VALUE CREATION April 1, 2013
Slide 3: Forward-Looking Statements Safe Harbor and Non-GAAP Financial Information
FORWARD-LOOKING STATEMENTS SAFE HARBOR AND NON-GAAP FINANCIAL INFORMATION 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
Slide 4: Overview
OVERVIEW • The California State Teachers’ Retirement System (“CalSTRS”) and Relational Investors (“Relational”) have put forth a proposal (1) to separate the Steel Business (“Steel”) and Bearings and Power Transmission Business (“Bearings”) • The Timken Company’s Board of Directors has carefully rev
Slide 5: A Record of Delivering Value
A RECORD OF DELIVERING VALUE 4
Slide 6: Timken Strategy to Deliver Shareholder Value
TIMKEN STRATEGY TO DELIVER SHAREHOLDER VALUE 5
Slide 7: Timken Has Delivered Top Quartile Financial Performance
TIMKEN HAS DELIVERED TOP QUARTILE FINANCIAL PERFORMANCE 5-Year Average (1) • Timken has delivered 16% 14.9% top quartile margin 14% 13.3% and ROIC performance versus comparable 12% companies 10% 9.7% 8% 6.8% 6% 4% EBITDA Margin ROIC (2) Comparable Company Average Timken (1) Source: Most recent compa
Slide 8: Delivering Strong Total Shareholder Returns
DELIVERING STRONG TOTAL SHAREHOLDER RETURNS Last 3 Years – Total Shareholder Return Last 5 Years – Total Shareholder Return Timken 111% SKF 77% Carpenter 100% Timken 56% Altra 80% Altra 34% Kennametal 60% Kennametal 12% SKF 43% S&P 500 (3%) S&P 500 28% Nucor (14%) Nucor 2% Carpenter (27%) NSK (6%) N
Slide 9: Transforming the Business to Drive Value
TRANSFORMING THE BUSINESS TO DRIVE VALUE Divestitures / Plant Closings Acquisition Strategy Shed under-performing / non-core Diversify and expand product portfolio in businesses attractive adjacencies Redeploy capital to drive returns Increase aftermarket sales Sharpen strategic focus Create new gro
Slide 10: Timken Steel Is a Strong Performer
TIMKEN STEEL IS A STRONG PERFORMER 3-Year Average EBIT Margins 3-Year Average ROIC 25% 25% 22% 21% 20% 19% 20% 17% 16% 15% 15% 14% 13% 13% 10% 10% 6% 5% 5% 3% 0% 0% Mobile Process Aerospace Steel Timken Mobile Process Aerospace Steel Timken Note: The above data represents an average of 2010 through
Slide 11: Synergies Between Steel and Bearings Create Meaningful Benefits
SYNERGIES BETWEEN STEEL AND BEARINGS CREATE MEANINGFUL BENEFITS FOR CUSTOMERS AND SHAREHOLDERS 10
Slide 12: Strong Ties Between Businesses Drive Value
STRONG TIES BETWEEN BUSINESSES DRIVE VALUE Process Industries | Mobile Industries | Steel | Aerospace & Defense • Energy • Aerospace & Defense • Automotive Common End- • Mining • Industrial Machinery • Rail Market Sectors • Construction • Agriculture • Heavy Truck Shared Customers • Best-in-class pr
Slide 13: Strong Synergistic Relationship Across Timken Businesses
STRONG SYNERGISTIC RELATIONSHIP ACROSS TIMKEN BUSINESSES PROCESS INDUSTRIES | MOBILE INDUSTRIES | STEEL | AEROSPACE & DEFENSE SUPPLY CHAIN SYNERGIES KNOWLEDGE-BASED SYNERGIES SIGNIFICANT SIGNIFICANT CUSTOMER BENEFITS SHAREHOLDER BENEFITS Best-in-Class Products and Reliability Increased Demand, Highe
Slide 14: Timken Steel Provides Critical Sourcing Benefits
TIMKEN STEEL PROVIDES CRITICAL SOURCING BENEFITS Process, Mobile and Aerospace & Defense have Sourced 58% of Steel Needs from Timken Steel over the Past Five Years 5-Year Average Steel • Ability to internally source steel Consumption by Source reduces impact of volatile end markets • Control of raw
Slide 15: Timken Value Begins in the Market
TIMKEN VALUE BEGINS IN THE MARKET We Improve the Reliability and Efficiency of Machinery Core Knowledge • Mechanical Power Transmission Applications • Metallurgy • Tribology • Load & Stress Analysis Bearings & Steel in Power • Gears Transmission • Bearings • Shafts • Seals • Bearings • Lubricants •
Slide 16: Relational's Flawed Analysis
RELATIONAL’S FLAWED ANALYSIS 15
Slide 17: Relational's Valuation Analysis Is Flawed
RELATIONAL'S VALUATION ANALYSIS IS FLAWED Relational's Claim Reality Check On average, analysts use six comparables for our "Our (Relational's) selection of peers Bearings business, compared to Relational’s one is appropriate, fair and balanced" (SKF) "Separating Timken's Bearings Relational's valua
Slide 18: Relational's Selection of Peers Is Not Fair and Balanced
1) RELATIONAL’S SELECTION OF PEERS IS NOT FAIR AND BALANCED Comparable Universe Used in SOTP # of Comparables Used by Sell Side Valuation Analysis (1) Analysts Used by Sell Side Analysts Used by SOTP Analysis Relational Sell Side Analysts Bearings Steel SKF (6) SKF KeyBanc 15 3 JTEKT (4) Longbow 8 7
Slide 19: Relational's Proposal Based on Unrealistic Bearings Trading Multiple
2A) RELATIONAL’S PROPOSAL BASED ON UNREALISTIC BEARINGS TRADING MULTIPLE 2013 P/E Multiple 18.6x 14.0x 14.0x 13.1x • Relational’s analysis implies an 18.6x Bearings P/E representing a 33% premium to SKF P/E (3) and the median P/E for Bearings peers (1) Timken Current P/E SKF Overall Bearings Relatio
Slide 20: Steel Standalone Business Would Be Smallest Compared to Other Steel Companies
2B) STEEL STANDALONE BUSINESS WOULD BE SMALLEST COMPARED TO OTHER STEEL COMPANIES Enterprise Value $16,781 • Due to size, standalone Steel would likely have non-investment grade rating and higher cost of capital • Given its small market cap, standalone Steel would likely have limited liquidity • Sta
Slide 21: Significant Synergies Would Be Lost in Steel Spin-off
3) SIGNIFICANT SYNERGIES WOULD BE LOST IN STEEL SPIN-OFF Components of Expected Lost Synergies Significant negative financial impacts of spin-off: 15% ~$200 million in expected one-time 35% transaction costs ~$60 to $80 million in expected 20% lost annual synergies Additional anticipated 30% competi
Slide 22: Analysts' Median SOTP Analysis Does Not Support Relational's Claim
4) ANALYSTS’ MEDIAN SOTP ANALYSIS DOES NOT SUPPORT RELATIONL’S CLAIM OF BREAK-UP VALUE Relational’s $68.36 Estimate Far Exceeds Median of Analyst SOTP Analysis of $61.75 Median SOTP = $61.75 $69.34 $69.00 $66.03 $62.00 $61.50 $56.00 $55.00 $54.00 Jefferies & Stifel Nicolaus (1) Bank of America KeyBa
Slide 23: Timken Practices Strong Corporate Governance
TIMKEN PRACTICES STRONG CORPORATE GOVERNANCE • 9 of 12 directors are independent; Joseph W. Ralston serves as lead independent director • Directors have diverse backgrounds and perspectives related to various aspects of the Company’s business • Approved declassification of Board in 2010 – fully impl
Slide 24: The Timken Company's Comprehensive Plan to Drive Value
THE TIMKEN COMPANY’S COMPREHENSIVE PLAN TO DRIVE VALUE 23
Slide 25: Comprehensive Plan to Drive Shareholder Value
COMPREHENSIVE PLAN TO DRIVE SHAREHOLDER VALUE • Investment program at Faircrest Plant to drive further efficiencies Strengthen Margins • Leaner, more variable cost structure • Ability to tightly control supply chain and react to market variability • Expanded Steel and Bearings portfolio, as well as
Slide 26: Three-Year Targets Reflect Strength of Strategic Plan
THREE-YEAR TARGETS REFLECT STRENGTH OF STRATEGIC PLAN Metric 2015 Target Sales • $5.9 to $6.1 billion (3-year CAGR of +6 to 11%) • Global GDP growth of 2.5% in 2013 & 3.5% to 4% in 2014 – 2015 expected (1) • Assumes roughly half of growth from inorganic investments EPS • $6.75 to $7.25 per diluted s
Slide 27: Our Strategy Is Working and We Are Committed to Building Shareholder Value
OUR STRATEGY IS WORKING AND WE ARE COMMITTED TO BUILDING SHAREHOLDER VALUE Timken has strong track record of delivering shareholder value as a result of its existing strategy Timken Steel is one of the Company’s highest ROIC businesses; Timken has invested to even further improve Steel’s cost struct
Slide 28: Appendix
TIMKEN APPENDIX Stronger. Commitment. Stronger. Value. Stronger. Worldwide. Stronger. Together. | Stronger. By Design
Slide 29: GAAP Reconciliation of EBIT and EBITDA
GAAP RECONCILIATION OF EBIT AND EBITDA This reconciliation is provided as additional relevant information about the Company’s performance. Management believes consolidated earnings before interest and taxes (EBIT), as adjusted to exclude impairment and restructuring charges and the receipts of US co
Slide 30: GAAP Reconciliation of ROIC
GAAP RECONCILIATION OF ROIC Reconciliation of ROIC to GAAP Operating Income Management believes ROIC is representative of the company’s performance and therefore useful to investors. 12-Months Ended 12/31/2012 12/31/2011 12/31/2010 12/31/2009 12/31/2008 GAAP Operating Income $692.9 $729.1 $436.2 ($5
Slide 31: GAAP Reconciliation of Segment ROIC
GAAP RECONCILIATION OF SEGMENT ROIC Reconciliation of ROIC (1) to GAAP Operating Income Management believes ROIC is representative of the company’s performance and therefore useful to investors. Segment EBIT results have been adjusted to include a proportional amount of unallocated corporate expense
Slide 32: Implied P/E Multiple and Post-Pension Enterprise Value of Steel
IMPLIED P/E MULTIPLE AND POST-PENSION ENTERPRISE VALUE OF STEEL Relational SOTP Analysis Segment Breakdown Bearings Steel Total (1) (1) EV Pre-Pension/OPEB $5,946 $1,474 $7,420 Memo: 80% 20% 100% Pension (2) (319) (79) OPEB (3) 0 (372) EV Post-Pension/OPEB $5,627 $1,023 Net Debt (4) (543) Implied Be
Slide 33: The Timken Comparable Company Universe Includes a Wide Variety of Industrial Peers
THE TIMKEN COMPARABLE COMPANY UNIVERSE INCLUDES A WIDE VARIETY OF INDUSTRIAL PEERS SOTP Analysis Comps # of Analysts SunTrust William Blair Jefferies Longbow KeyBanc BofAML Bearings James Kawai Samuel H. Elsner Stephen Volkmann Eli Lustgarten Steve Barger Ross Gilardi 11/14/2012 11/28/2012 11/29/201
Slide 34: Analysts' SOTP Adjustment for Lost Synergies and Transaction Costs
ANALYSTS’ SOTP ADJUSTMENT FOR LOST SYNERGIES AND TRANSACTION COSTS Implied 2013 EV / EBITDA in SOTP Analysis SOTP Adjustments Timken Case (2) Implied Lost Synergies $60 -- $80 Date SOTP EV EBITDA Multiple 2013 EV / EBITDA 6.7x BofAML 01/11/13 $6,472 $836 7.7x Value of Lost Synergies $399 -- $532 One
Slide 35: Timken
TIMKEN ommitmen Value. Together. | Stronge