The Timken Co. reported net income of $135.7 million on record sales of $4.5 billion for 2004.

Fourth Quarter Results—Net income of $64.4 million compares to net income of $22.5 million for the fourth quarter of 2003. Earnings per diluted share were $0.71, compared to $0.25 in the same period a year ago. Sales were a record $1.2 billion, an increase of 16% from a year ago. Fourth quarter performance was driven by strong volume, operating performance and material cost recovery. Excluding special items, the company reported adjusted earnings per diluted share of $0.44, versus $0.26 per diluted share a year ago.

Full Year Results—Net income of $135.7 million ($1.49 per diluted share) compares to net income of $36.5 million ($0.44 per diluted share) in 2003. Record sales of $4.5 billion represent a 19% increase from the prior year.

Adjusted net income, which excludes the impact of special items, was $122.3 million ($1.35 per diluted share), which compares to adjusted net income of $56.0 million ($0.67 per diluted share) in 2003. Special items excluded from adjusted net income comprise the following, with a total impact to net income of $13.3 million:

• $44.4 million of pretax income received under the Continued Dumping and Subsidy Offset Act (CDSOA).
• $6.3 million pretax income related to the sale of real estate and dissolution of operations in Duston, England.
• $30.3 million of pretax charges related to the integration of Torrington.
• $10.2 million pretax impairment charge in the company’s Steel Group related to a facility closure.
• $6.9 million of pretax expense primarily associated with the sale of assets and businesses.
• Recognition of a non-recurring benefit from tax planning strategies in the fourth quarter that decreased the annual reported tax rate to 32%. The adjusted tax rate and assumed rate going forward remains at 38%.

Comments—Commenting on 2004 results, James W. Griffith, President and CEO, said: "The strategic actions we have taken to improve our competitiveness enabled us to capitalize on the global industrial recovery and deliver improved performance. We achieved record sales and strong earnings growth over last year despite unprecedented high raw material costs. The rapid improvement in industrial market demand for our products that buoyed our performance in 2004 is continuing. Our momentum remains strong as we enter 2005, and we will be taking steps to further improve margins, customer service and productivity in the face of these strong markets."

Timken implemented surcharges and price increases in 2004 to recover high raw material costs. Including pro forma results for Torrington for the full year of 2003, sales were up 15 percent. The company also continued its successful integration of Torrington, achieving pretax savings of approximately $80 million in 2004.

Timken also continued its expansion in emerging markets in 2004, completing construction of a joint-venture plant in Suzhou, China, the company's fourth bearing plant in that country. Timken also acquired the remaining interest in a bearing joint venture in Wuxi, China. The company also divested certain non-strategic assets and completed two small acquisitions, enhancing industrial product and service capabilities.

Timken ended the year with total debt at $779 million. After deducting cash and cash equivalents, net debt was $728 million, compared to $706 million at the end of 2003. However, net debt to capital of 36.5% was lower than the 39.3% ratio at the end of 2003 as earnings strengthened the company's equity base.

Outlook—The company expects continued improvement in 2005 with estimated earnings per diluted share, excluding special items, of $1.70 to $1.85 for the full year and $0.38 to $0.43 for the first quarter. As a result of strategic actions, including the Torrington acquisition, the company has a more diversified product portfolio and increased capacity to capitalize on strong markets. Global industrial markets are expected to continue to grow, supporting strong performance in the Industrial and Steel Groups. North American light vehicle production is expected to be down slightly, while medium and heavy truck production is expected to grow but at a lower rate. All three business groups should see improved performance due to productivity, price increases and surcharges, which should recover a significant portion of material cost increases.