The Timken Co. reported record net income of $58.2 million on record sales of $1.3 billion for the first quarter of 2005.

Record sales of $1.3 billion reflect a 19% increase over a year ago, driven by strong industrial demand. Record net income of $58.2 million ($0.63 per diluted share) compares to $28.5 million ($0.32 per diluted share) in the first quarter a year ago. Excluding special items, earnings per diluted share were $0.64, compared to $0.31 last year. Special items in the first quarter of 2005 totaled $1.1 million of pretax expense, compared to $0.7 million of pretax income a year ago. The company's tax rate for the quarter was 36%, compared to 38% in the same period a year ago, reflecting the benefit of tax planning strategies. Going forward, the company expects the tax rate to remain at 36%.

"We continued to see broad strength in industrial markets, leading the Industrial and Steel Groups to deliver solid earnings this quarter. The performance in these areas more than offset the results of the Automotive Group, which reflected the relative weakness of the North American automotive industry," said James W. Griffith, President and CEO. "Over the past few years, we have taken actions to improve competitiveness in preparation for the upturn in global markets, and we are now benefiting from these actions. Overall, we are pleased with our first-quarter results and are continuing to focus on improving margins and performance."

Total debt at March 31, 2005 was $837.5 million, 39.1% of capital. Debt was higher than the 2004 year-end level of $779.3 million due to higher working capital requirements, resulting from increased sales volume and seasonality. During the quarter, Standard & Poors Ratings Services and Moody's Investors Service improved their outlook on Timken debt from negative to stable and also reaffirmed their ratings of BBB- and Ba1, respectively. The company expects its leverage to be lower at the end of this year, compared to last year.

Segment Results—The Steel Group benefited from strong performance in both its alloy steel and specialty steel businesses. The group posted record sales of $467.4 million, up 51% from $309.3 million in the first quarter of last year. The increase was due to three factors: higher volume, with the strongest demand from aerospace, energy and general industrial customers; surcharges; and price increases. EBIT was a record $63.7 million, compared to $2.7 million last year. The group's improved profitability reflects increased volume, price increases and its success in recovering higher raw material costs through surcharges. In addition, high operating levels and labor productivity contributed to improved profitability.

The Industrial Group achieved record sales of $468.8 million in the first quarter, up 14% from $410.6 million last year. End market demand continued to be robust with the strongest growth in rail, mining, construction, agriculture and heavy industrial applications. The group is continuing to focus on customer service and expanding market opportunities. During the first quarter, for example, Timken expanded its industrial product line through a licensing and supply agreement with Federal-Mogul Corp. to sell National(R) industrial seal products in the U.S. and Canada under the Timken brand.

The Industrial Group's continued strong performance was reflected in earnings before interest and taxes (EBIT) of $47.0 million, up 31% from $35.8 million last year. Higher volume, price increases and improved productivity drove the EBIT increase, which was partially offset by increased costs for growth initiatives.

Automotive Group sales were $420.3 million, up 1% from $415.6 million in the first quarter of last year. Continued strong demand in the heavy truck market was nearly offset by a production decline in North American light vehicles. Sales also benefited from new platforms launched in 2004, such as the Nissan Titan and Pathfinder Armada and Ford F-150.

The Automotive Group recorded an EBIT loss of $5.1 million in the first quarter of 2005, compared to EBIT of $18.3 million last year. The loss was due primarily to higher raw material costs, which could not be completely offset due to contractual commitments with certain customers. However, the company is making progress in recovery of raw material cost increases. The Automotive Group's results were also negatively impacted by lower volume in passenger car applications.

Outlook—The company expects continued strong results in 2005 with estimated earnings per diluted share, excluding special items, of $0.55 to $0.60 for the second quarter and $2.05 to $2.20 for the full year. Continued strength of global industrial markets is expected to contribute to strong Industrial and Steel Group performance. North American light vehicle production is expected to be down slightly, while medium and heavy truck production is expected to remain strong. The Automotive Group should see improved profitability over
last year as a result of productivity gains, price increases and surcharges.