The Timken Co. reported net income of $39.8 million on record sales of $1.3 billion for the third quarter of 2005.

Third Quarter Results—The $39.8 million net income ($0.43 per diluted share) was more than double last year's third quarter net income of $17.5 million ($0.19 per diluted share). Excluding special items, earnings per diluted share of $0.58 were more than double the $0.27 per diluted share reported a year ago. Special items totaled $28.3 million of pretax expense, which was primarily for restructuring automotive operations as well as for industrial manufacturing rationalization. Record sales of $1.3 billion reflect a 15% increase compared to $1.1 billion last year.

"We delivered strong performance this quarter as we continued to capitalize on the ongoing strength of global industrial markets," said James W. Griffith, President and CEO. "While we had record third quarter results in the Industrial and Steel Groups, our Automotive Group performance continued to be challenged."

"We are focusing our growth initiatives to take advantage of the strong industrial demand. We have continued to add industrial bearing capacity around the world and invest in acquisitions in key markets to complement organic growth," Mr. Griffith said. "The record performance in our steel business reflects leveraging strong demand in industries such as aerospace and energy. In our automotive operations, we began our restructuring program to reduce fixed costs and improve performance as we deal with the difficult environment in the North American automotive industry."

Nine Month Results—Earnings per diluted share for the first nine months were $1.79 in 2005 versus $0.79 in 2004. Excluding special items, earnings per diluted share in the first nine months of 2005 were $1.99 versus $0.91 in 2004. Special items in the first nine months of 2005 totaled $33.1 million of pretax expense, compared to $18.0 million a year ago. Sales of $3.9 billion reflect an increase of 17% from the prior year.

The company's effective tax rate for the first nine months was 31.4%, down from 34.8% in the first half due primarily to benefits related to export tax incentives as well as improved earnings in certain foreign jurisdictions. Excluding special items, the effective tax rate for the first nine months was 33.1%. The company expects to maintain this rate going forward.

Total debt on September 30, 2005 was $802.6 million, or 36.4% of capital. Total debt was reduced $39.5 million from the end of the second quarter. The company expects to continue to reduce its debt levels and leverage during the fourth quarter.

Steel Group Results—Timken’s Steel Group had record third quarter sales of $427.9 million, up 20% from $355.3 million last year. The increase was due to strong demand in industrial, aerospace and energy segments as well as price increases and surcharges to recover high raw material costs.

The Steel Group reported record third quarter EBIT of $49.7 million, compared to $16.8 million last year. EBIT margin was 11.6%, compared to 4.7% a year ago. Price increases, surcharges for scrap steels and alloys, increased volume and high labor productivity drove the strong EBIT performance. While scrap costs fell below last year's extremely high levels, alloy costs increased from a year ago. The company continues to expect lower profitability in the fourth quarter due to seasonal factors.

For the first nine months, Steel Group sales were $1.3 billion, up 35% over the same period last year. EBIT for the first nine months was $170.2 million - or 12.7% of sales - compared to 2.3% of sales in the first nine months of 2004.

Outlook—The company is increasing its full-year earnings estimate, excluding special items, to $2.55 to $2.65 per diluted share from the prior estimate of $2.40 to $2.55. Strong industrial markets should continue to benefit Industrial and Steel Group performance in the fourth quarter. The company also expects to see continued improvement in its Automotive Group, despite the challenging environment in the North American automotive industry.

In commenting on the financial outlook, Mr. Griffith said: "We expect to continue benefiting from our participation in diverse industrial markets. In particular, increased activity in mining, oil and gas and other energy-related markets should result in additional demand for our products."