timken 2014 investor presentation march

8/10/2019 Timken 2014 Investor Presentation March

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THETIMKENCOMPANY

Investor Presentation

MARCH2014


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FORWARD-LOOKINGSTATEMENTSSAFEHARBORANDNON-GAAP FINANCIALINFORMATIONCertain statements in this presentation (including statements regarding the company's forecasts, estimates andexpectations) that are not historical in nature are "forward-looking" statements within the meaning of the Private Securities

Litigation Reform Act of 1995. In particular, the statements related to expectations regarding each company's futurefinancial performance, plans for executing the spinoff, the taxable nature of the spinoff, future prospects of the companiesas independent companies, revenue and market growth and similar statements, including the information in the sectionstitled, Overview of Planned Separation, Steel Separation Update and Cost Reduction Initiatives are forward-looking.The company cautions that actual results may differ materially from those projected or implied in forward-lookingstatements due to a variety of important factors, including: each company's ability to respond to the changes in its endmarkets that could affect demand for the company's products; unanticipated changes in business relationships withcustomers or their purchases from each company; changes in the financial health of each company's customers, which mayhave an impact on each company's revenues, earnings and impairment charges; fluctuations in raw material and energycosts and their impact on the operation of each company's surcharge mechanisms; the impact of each company's last-in,

first-out accounting; weakness in global or regional economic conditions and financial markets; changes in the expectedcosts associated with product warranty claims; the ability to achieve satisfactory operating results in the integration ofacquired companies; the impact on operations of general economic conditions; higher or lower raw material and energycosts; fluctuations in customer demand; the impact on each companys pension obligations due to changes in interest ratesor investment performance; each companys ability to achieve the benefits of announced programs, initiatives, and capitalinvestments; each companys ability to fund its pension plans; the timing and amount of any additional repurchases of thecompanys common shares; the timing and amount of dividends on the companys common shares; changes to the actualamount of one-time spinoff costs compared to the companys estimate; the taxable nature of the spinoff; and thecompanys ability to successfully complete the spinoff. Additional factors are discussed in the company's filings with theSecurities and Exchange Commission, including the company's Annual Report on Form 10-K for the year ended Dec. 31,

2013, quarterly reports on Form 10-Q and current reports on Form 8-K. Except as required by the federal securities laws,the company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result ofnew information, future events or otherwise.

This presentation includes certain non-GAAP financial measures as defined by the rules and regulations of the Securities andExchange Commission. A reconciliation of those measures to the most directly comparable GAAP equivalent is provided inthe Appendix to this presentation.

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Strategic Update & Review


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TIMKENOVERVIEW

A global industrial technology leader

Deep knowledge of materials, friction management and mechanical

power transmission

Focused on improving the reliability and efficiency of industrial machineryand equipment all around the world

High-performance steel, bearings and related mechanicalcomponents support diversified markets worldwide

Established in 1899 and headquartered in Canton, Ohio

2013 sales: $4.3B

Global footprint with operations in 28 countries comprising19,000 associates

4

Bearings

Specialty steel bars & tubes

Transmission components

Gearboxes

Engineered chain

Related products & services


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CREATE

UNPARALLELED

VALUE

Offeringa broad array ofmechanical power transmissioncomponents, high-performancesteel and related solutions

and services.

Extending our knowledge,products, services and channelsto meet customer needs,wherever they are in the world.

Delivering exceptionalresults with a passionfor superior execution.

Using our knowledge of metallurgy,friction management and mechanicalpower transmission to create uniquesolutions used in demanding

applications.

TIMKENSTRATEGYTODELIVERSHAREHOLDERVALUE

5


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Markets

Geographies

Products

Performance

A MULTI-FACETEDTRANSFORMATION

6


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GEOGRAPHIC& END-MARKETDIVERSIFICATION

Note: Based on 2013 sales of $4.3 billion

Industrial

Automotive

Broad-based end markets and customers

Increased sales from demanding applications

Expanded channels into aftermarket; represents nearly 30% of 2013 global sales

Emerging markets: a source of growth with 10% 10-Year CAGR

7

Europe

12%

Asia

Pacific11%

LatinAmerica

6%

U.S.67%

RoW4%

Geographic Sales End-Market Sector Mix

Portfolio Diversification

18%

17%12%

10%

9%

7%

7%

6%

4%

4%

3%

2%

3%

Industrial Aftermarket

Industrial MachineryLight Truck

Passenger Car

Energy

Aerospace & Defense

Rail

On-Highway Aftermarket

Agriculture

Heavy Truck

Mining

Construction

Other


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PRODUCTLINEEXPANSION& DIVERSIFICATION

8

Bearings

SpecialtySteels

PowerTransmission

Services

RelatedProducts


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Growth Synergies Capture lifetime of revenue opportunity

Leverage distribution channel

Opportunities for cross-selling and development of product lines

Global expansion

NEWACQUISITIONS, NEWCAPABILITIESDifferentiated performance Industrial focus Strong aftermarket Supply chain synergy

Note: Sales for Philadelphia Gear, Drives and Wazee Companies reflect last 12-month sales at time of purchase.

Interlube, Smith Services, and Standard Machine sales reflect full-year 2012.`

December 31, 2012October 1, 2011 March 13, 2013July 1, 2011 April 12, 2013 May 13, 2013

Sales: $17MProduct Offering

Electric motorrepair and fieldtechnicalservices

Sales: $30MProduct OfferingCritical motor andgenerator services,and up-tower windmaintenanceand repair

Sales: $13MProduct OfferingManufacturingand installation oflubrication deliverysystems and related

components

Sales: $100MProduct OfferingEngineered chainsand augers

Sales: $31MProduct OfferingGearbox serviceand repair, opengearing, largefabrication,machining and fieldtechnical services

Sales: $85MProduct OfferingEngineered geardrive repair andmanufacture

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Sa le s : $ 1 . 2 B

Global growth beyond bearings,diversified, strong aftermarket

Sa le s : $ 1 . 5 B

Transformed portfolio, moreaftermarket focus

Sa l e s : $ 3 3 0M

Diversified intoTransmissions andAftermarket

OURBUSINESSTODAY

Sa le s : $ 1 . 4 B

High-performance,customized alloy steels

Note: Based on 2013 financial results. Steel segment sales figure noted above includes $75M of inter-segment sales.

2013 Total Sales

$4.3B

MobileIndustries

34%

Steel30%

ProcessIndustries

28%

Aerospace8%

10


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MOBILEINDUSTRIES

($ Millions)

2013 Financial Performance

2013 Sector Profile

Segment Overview

Off-Highway

27%

Rail 19%

LightTruck18%

On-HighwayAft Mkt

17%

PassengerCar 10%

HeavyTruck 9%

Bearings, power transmissioncomponents & related

products/services

Customers: OEM and aftermarketdistributors

Continued portfolio shift towardhigher growth, higher marginmarkets

Sales

EBIT

EBIT Margin

$1,475

$165

11.2%

11


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PROCESSINDUSTRIES

($ Millions)


2013 Sector Profile

Segment Overview

Service16%

Metals

6%

Machinery6%

Energy6%

Precision-engineered bearings andrelated mechanical components and

services for diverse industrialmarket sectors

Diversified global customer baseand product portfolio

Consistent, profitable business

Growing market share in spherical& cylindrical roller bearings, housed

units, other bearings & services

Sales

EBIT

EBIT Margin

$1,236

$202

16.3%

Gear Drives4%

Infrastructure1%

After Market61%

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Flight critical components andservices for fixed-wing and

rotorcraft applications Strong aftermarket channel

Precision bearings, assemblies,encoders, sensors for criticalmotion market sector

Health and motion control

AEROSPACE

($ Millions)


2013 Sector Profile

Segment Overview

Defense50%

Civil 39%

MotionControl

11%

Sales

EBIT

EBIT Margin

$330

$27

8.1%

13


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Leadership position in high qualityair-melted alloy steel bars, seamless

mechanical tubes, precisioncomponents, value-added services

Bars: 1 to 16 | Tubes: 2 to 13

Thermal treat

Machining

Providing customized solutions fordemanding applications used in high-

stress environments

STEEL

($ Millions)


2013 OEM Sector Profile(1)

Segment Overview

Pass Car26%

LightTruck22%

Sales

EBIT

EBIT Margin

$1,381

$140

10.2%

Other(2)

12%

Mining 3%

Industrial

5%

Oil & Gas20%

14

Sales figure noted above includes $75M of inter-segment sales

(1) Distribution sales were 20%of 2013 sales

(2) Other: 2% each ofConstruction, Metal Recycle,Rail, Military/Defense,

Heavy/Med. Truck, Agriculture

Machinery12%


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The transformation haspositioned the company for itsnext evolution

OURFUTURE: TWOSTRONGCOMPANIES

15

The execution of a plan to buildtwo independent market-leadingpublic companies

We are committed to drive valuefor our shareholders and ourcustomers


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OVERVIEWOFPLANNEDSEPARATION

16

Timing &Approvals

Structure andCompany Make-up

ExpectedCapital Structure &Financial Policies

Tax-free spin-off of TimkenSteel Corporation

Two separate publicly traded companies(1)

The Timken Company: $3.0B revenue global bearings & power transmission

TimkenSteel: $1.4B revenue engineered steel

Upon spin, 100% of TimkenSteel to be owned by Timken shareholders

Targeted completion mid-2014

Subject to regulatory approval, legal opinion on tax-free nature of thetransaction and final approval by Timken Board of Directors

Strong balance sheets and fully funded pension obligations

Financial policies aligned with investment-grade metrics

Liquidity for growth and investment

Focus on return of capital to shareholders via dividends and share repurchases

ExperiencedLeadership( p o s t s e p ar a t i o n )

The Timken Company

President & CEO Rich Kyle

CFO Phil Fracassa

(1) Revenue figures are based on 2013 segment sales, including intercompany sales for the Steel segment.

TimkenSteel Corporation

Chairman & CEO Tim Timken, Jr.

CFO Chris Holding


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Financial Review


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2013 RESULTS

1919

Note: See Appendix for reconciliation of EBIT, EBIT Margin, adjusted EBIT, adjusted EBIT margin and adjusted EPS to their most directly

comparable GAAP equivalents. CDSOA is a reference to the US Continued Dumping Subsidy and Offset Act.

Sales of $4.3B, down 13% YoY

Lower demand for off-highway, industrial distributionand oil & gas, negative impact of light-vehicle sector

market strategy and lower surcharges

Top line benefited from pricing and acquisitions(i.e. Wazee, Interlube, Smith Services, StandardMachine)

EBIT of $440M (10.1% of sales) vs. prioryear of $794M (15.9% of sales)

Decrease driven by lower volume, unfavorable salesmix and higher manufacturing costs, which werepartially offset by pricing, lower material costs andlower SG&A and restructuring expense

2012 EBIT includes CDSOA receipts of $108M

Excluding unusual items, EBIT of $467M, or 10.7%,compares to EBIT of $724M, or 14.5% a year ago

EPS of $2.74 per diluted share vs. prior year$5.07

Excluding unusual items, EPS of $3.09 compares to$4.76 a year ago

$4,987

$4,341

$3,500

$4,000

$4,500

$5,000

$5,500

2012 2013

Sales ($ Mils.)

14.5%

10.7%

0%

5%

10%

15%

20%

2012 2013

EBIT Margin (Adjusted)


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2013 RESULTS

2020

Note: Free cash flow (FCF) is defined as net cash provided by operating activities (includes pension contributions) minus capital

expenditures and dividends. See Appendix for reconciliation of FCF to the most directly comparable GAAP equivalent.

Free Cash Flow of $17M vs. $238M in prior year

From operating activities after pension contributions, CapEx of $326M and dividends of $88M

CapEx includes ~$125M for Steel investment program

Includes $66M of discretionary pension contributions, net of tax

Strong Balance Sheet

Cash position of $385M or $91M net debt (3% net debt to capital)

Repurchased 3.4M shares for $189M; ~4M shares remaining under authorization (as of year-end 2013)

Invested $65M in strategic acquisitions

Year-end pension net asset of $157M, compared to liability of $398M at year-end 2012

Global pensions funded at roughly 105% compared to 89% a year ago

Improvement driven by increase in the discount rate, favorable asset returns and pensioncontributions

Total liquidity of $1.2B


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COSTREDUCTIONINITIATIVES

Launched 4Q13 to address lowermarket demand within bearingsand power transmission business

Pre-tax costs of ~$20M ($6Mincurred in 4Q13) to achieve

targeted annual pre-tax SG&Asavings of ~$25M

Operations further aligned withmarket needs during 2013through on-going initiatives

Supply chain improvements Work force reductions

Plant capacity rationalizations

Manufacturing cost reductions

Launched 4Q13

Pre-tax costs of ~$15M ($6Mincurred in 4Q13) related to acorporate cost-reduction initiativetargeted to generate $20M of

annualized SG&A savings

Savings intended to mitigate theincremental enterprise costsassociated with operatingTimkenSteel as an independentpublic company

Responding to Market DemandMitigate SG&A Impact of

Separation

21Note: Estimate of pre-tax costs and targeted annual pre-tax SG&A savings identified above were established on January 30, 2014.


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SALES

2222

Net Sales($ Mils.)

Note: 2003 includes Torrington acquisition as acquired February 2003. Historical results exclude the discontinued operations of LatrobeSteel (2006 divestment) and the Needle Roller Bearings (NRB) business (2009 divestment). NRB discontinued operations for 2003 and

2004 are based on internal estimates.

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Sales

91 to 01 Cycle: 4% CAGR 02 to 09 Cycle: 4% CAGR


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EARNINGSPERSHARE

2323

Net Sales($ Mils.)

($1)

$0

$1

$2

$3

$4

$5

$6

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

EPS

Note: Earnings are reported on a GAAP basis and include the impact of special items, such as restructuring and reorganization expenses,CDSOA payments and goodwill amortization. EPS assumes dilution. 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 discontinued operations for 2003 and 2004 are based on internal estimates

91 to 01 Cycle 02 to 09 Cycle

Sales EPS


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FREECASHFLOW

2424

FCF($ Mils.)

-$150

-$50

$50

$150

$250

$350

$450

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

91 to 01 Cycle:$16M

02 to 09 Cycle:$87M

Note: Free cash flow (FCF) is defined as net cash provided by operating activities (includes pension contributions) minus capitalexpenditures and dividends. Results include discontinued operations until divested. See Appendix for reconciliation of FCF to the most

directly comparable GAAP equivalent.


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NETDEBT

2525

Net Debt($ Mils.)

Note: 2003 includes Torrington acquisition as acquired February 2003. Net debt is not a GAAP measure. Net Debt / Capital (leverage) isdefined as Net Debt / (Net Debt + Equity). See Appendix for reconciliation of Net Debt to the most directly comparable GAAP equivalent.

Net Debt/Capital

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

-$600

-$400

-$200

$0

$200

$400

$600

$800

$1,000

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Long-termLeverageTarget:

30% - 35%


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CAPITALALLOCATION

26

Target spend in industrial sectors withstrong aftermarket: energy, infrastructure,heavy industries, aerospace and rail

Emerging market growth

CapEx

Focus: Industrial & aftermarket,international

Accretive to earnings in Year 1

Earn cost of capital within 3 years

Acquisitions

Dividends: 90+ years of consecutivequarterly payout

Continued share repurchase: ~4M sharesremaining under Board authorized program(as of year-end 2013)

Dividends/Repurchases

No discretionary contributions planned for2014

Pension/OPEBFunding

$326M invested in growth,continuous improvement

and maintenance

Interlube

Smith Services

Standard Machine

Rail bearing reconditioningassets

A total of $277M returnedto holders

366thconsecutivedividend paid

3.4M shares repurchased

Discretionary contributionsof $66M, net of tax (1Q13)

~105% funded at YE13

2013 HIGHLIGHTS

Note: Pension/OPEB 2014 discretionary contribution plan identified above was established on January 30, 2014.


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RETURNONINVESTEDCAPITAL

2727

Long-termCost ofCapital:

~9%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

ROIC Cost of Capital

91 to 01 Cycle Avg:6.2%

02 to 09 Cycle Avg:7.8%

Note: The company uses NOPAT/Avg. Invested Capital as a type of ratio that indicates return on invested capital (ROIC).

See Appendix for reconciliation of ROIC to the most directly comparable GAAP equivalent.


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Appendix


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GAAP RECONCILIATIONOFEBIT & EBIT (UNADJUSTED&ADJUSTED) MARGIN

30

(Dollars in millions, except share data)

2013

Percentage

to

Net Sales

2012

Percentage

to

Net Sales

Net Income 263.0$ 6.1 % 495.9$ 9.9 %

Provision for income taxes 154.1 3.5 % 270.1 5.4 %

Interest expense 24.4 0.6 % 31.1 0.6 %

Interest income (1.9) % (2.9) (0.1)%

Consolidated earnings before interest and taxes (EBIT) 439.6$ 10.1 % 794.2$ 15.9 %

Adjus tments:

Steel separation-related costs(1)

13.0 0.3 % %

Severance due to cost-reduction initiatives (2) 5.9 0.1 % %

Gain on sale of real estate in Brazil(3)

(5.4) (0.1)% %

Charges due to plant closures (4) 10.6 0.2 % 37.8 0.8 %

CDSOA expense (receipts)(5)

2.8 0.1 % (108.0) (2.2)%

Consolidated earnings before interest and taxes (EBIT), after adjustments 466.5$ 10.7 % 724.0$ 14.5 %

(5) CDSOA receipts for the year ended December 31, 2012 were $108.0 milli on.

Reconciliation of EBIT Margin, After Adjustments , to Net Income as a Percentage of Sales and EBIT, After Adjustments , to Net Income:

December 31,

(1) Steel separation-related costs include severance costs and professiona l costs associated with the Company's proposed spinoff of the steel

business.(2)

Severance due to cost-reduction initiatives relate to reductions in headcount in the bearing and power transmis sion bus iness .(3)

Gain on the sale of real es tate relates to the sale of the former manufacturing facility in Sao Paulo, Brazil.(4)

Charges due to plant closures relate to the Company's former manufacturing facilities in Sao Paulo, Brazil and St. Thomas, Ontario, Canada.

The following reconciliation is provided as additional relevant information about the Company's performance. Management believes that EBIT and

EBIT margin, after adjus tments, are repres entative of the Company's core operations and therefore useful to investors.

Twelve Months Ended


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GAAP RECONCILIATIONOFADJUSTEDEPS

31

(Dollars in millions, exc ept share data)

2013 EPS 2012 EPS

Net Income Attributable to The Timken Company 262.7$ 2.74$ 495.5$ 5.07$

Adjustments:

Tax expense on cash repatriation(1) 26.2 0.28 - -

Reversal of income tax reserves(2) (12.3) (0.13) - -

Steel separation-related cos ts (3) 10.3 0.11 - -

Severance due to cost-reduction initiatives(4)

3.9 0.04 - -

Gain on sale of real es tate in Brazil(5)

(5.4) (0.06) - -

Charges due to plant closures(6) 8.3 0.09 37.1 0.38

CDSOA expense (receipt)(7) 1.8 0.02 (68.0) (0.69)

Net Income Attributable to The Timken Company, after adjus tments 295.5$ 3.09$ 464.6$ 4.76$

Reconciliat ion of Net Income Att ributable to The Timken Company, After Adjustments , to GAAP Net Income Attributable to The Timken

Company and Adjusted Earnings Per Share to GAAP Earnings Per Share:

Twelve Months Ended

This reconciliation is provided as additional relevant information about the Company's performance. Management believes that net income

attributable to the Timken Company and diluted earnings per share, adjusted to remove:(a) taxexpense on cash repatriation; (b) reversal of

income tax reserves; (c) Steel separation-related costs; (d) severance due to cost-reduction initiatives; (e) gain on sale of real estate in Brazil;(f) charges due to plant closures; and (g) CDSOA expense (receipt) are representative of the Company's performance and therefore useful to

investors.

December 31,

(4) Severance due to cost-reduction initiatives relate to reductions in headcount in the bearings and power transmiss ion bus iness , net of tax.

(1) Includes the impact from a one-time non-cas h tax charge on the repatriation of overseas cash related to a global cash planning initiative.

(7) CDSOA receipts for the year ended December 31, 2012 were $108.0 million, net of tax expense of $40.0 mil lion.

(6)Charges due to plant closures relate to the Company's former manufacturing facilities in Sao Paulo, Brazil and St. Thomas, Ontario,

Canada, net of tax.

(5) Gain on the sale of real estate relates to the sale of the former manufacturing facility in Sao Paulo, Brazil.

(3)Steel separation-related costs include severance costs and professional costs associated with the Company's proposed spinoff of the

steel business, net of tax.

(2) Includes the impact of tax benefits associated with the reversal of certain incom e tax reserves from prior years.


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(1) Free cash flow is defined as net cash provided by operating activities (including pension contributions) minus capitalexpenditures and dividends. Results include discontinued operations until divested.

Reconciliation o f Free Cash Flow to GAAP Net Cash Prov ided (Used) by Operating Activities

Management believes that free cash flow is useful to investors because it is a meaningful indicator of cash generated from operating activities

available for the execution of its business strategy.

33

GAAP RECONCILIATIONOFFREECASHFLOW($ Mils.)

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Net Cash Provided by Operating Act ivities 140 116 154 147 224 186 312 292 277 157

Capital expenditures (140) (136) (89) (114) (129) (151) (233) (238) (165) (159)

Cash dividends paid to shareholders (23) (22) (25) (26) (28) (30) (39) (45) (45) (44)

Free Cash Flow (1) (23) (43) 39 6 67 5 40 9 68 (46)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Net Cash Provided by Operating Act ivities 178 206 204 121 319 337 337 569 588 313 209 624 430

Capital expenditures (91) (85) (119) (155) (221) (296) (314) (272) (114) (116) (205) (297) (326)

Cash dividends paid to shareholders (40) (32) (42) (47) (55) (58) (63) (67) (43) (51) (76) (89) (88)

Free Cash Flow (1) 47 89 43 (81) 43 (17) (40) 230 430 146 (72) 238 17


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Note: (a) Total Debt is the sum of commercial paper, short-term debt, current portion of long-term debt and long-term debt

Reconciliation of Net Debt to Total Debt and the Ratio of Net Debt to Capital

Management believes Net Debt is an important measure of Timken's financial position, due to the amount ofcash and cash equivalents.

($ Mils.)

34

GAAP RECONCILIATIONOFNETDEBT

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 Debt to Capital 21.1% 24.5% 28.7% 27.6% 20.5% 24.7% 25.8% 30.8% 30.1% 33.8%Net Debt to Capital 21.0% 24.1% 28.4% 26.7% 19.9% 24.4% 25.3% 30.8% 29.7% 33.4%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Total Debt (a) 497 461 735 779 721 598 723 624 513 514 515 479 476

Less: Cash 33 82 29 51 65 101 30 133 756 877 468 586 385

Net Debt 464 379 706 728 656 497 693 490 (243) (363) 47 (107) 91

Equity 782 609 1,090 1,270 1,497 1,476 1,961 1,663 1,596 1,942 2,043 2,247 2,649

Total Debt to Capital 38.9% 43.1% 40.3% 38.0% 32.5% 28.8% 26.9% 27.3% 24.3% 20.9% 20.1% 17.6% 15.2%Net Debt to Capital 37.2% 38.4% 39.3% 36.5% 30.5% 25.2% 26.1% 22.8% -18.0% -23.0% 2.2% -5.0% 3.3%


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Reconciliation of ROIC to GAAP Operating IncomeManagement believes ROIC is representative of the companys performance and therefore useful to investors.

($ Mils.)GAAP RECONCILIATIONOFROIC

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

GAAP Operating Income(1) (9) 42 14 132 203 247 280 225 133 106

GAAP Other Income / (Expenses) (8) (2) (6) 2 (5) (5) 7 (16) (10) (7)

Earnings Before Interest and Taxes (EBIT)(2) (17) 41 8 135 198 242 287 209 123 99

Provision for income taxes (6) 15 3 51 73 93 102 80 45 35

Adjusted tax rate 37.6% 37.6% 37.6% 37.6% 36.9% 38.3% 35.7% 38.2% 36.8% 35.0%

Net Operating Profit After Taxes (NOPAT)(3) (10) 25 5 84 125 149 184 129 78 64

Invested Capital:

Total Debt 266 273 321 277 280 211 303 359 469 450 514

Shareholders' Equity 1,075 1,019 985 685 733 821 922 1,032 1,056 1,046 1,005

Total 1,341 1,292 1,306 962 1,012 1,032 1,225 1,392 1,526 1,496 1,519

Average Invested Capital (4) 1,317 1,299 1,134 987 1,022 1,129 1,308 1,459 1,511 1,507

ROIC: NOPAT / Average Invested Capital(4)

-0.8% 1.9% 0.4% 8.5% 12.2% 13.2% 14.1% 8.9% 5.2% 4.3%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

GAAP Operating Income(1) (18) 79 98 237 327 219 295 462 (54) 436 729 693 436

GAAP Other Income / (Expenses) 22 37 10 12 68 80 5 16 (0) 4 (1) 101 4

Earnings Before Interest and Taxes (EBIT)(2) 4 115 108 249 395 299 300 478 (54) 440 728 794 440

Provision for income taxes 2 46 43 80 129 91 61 171 (16) 148 251 280 163

Adjusted tax rate 39.8% 39.8% 40.0% 32.1% 32.6% 30.6% 20.4% 35.7% 29.9% 33.5% 34.5% 35.3% 37.0%

Net Operating Profit After Taxes (NOPAT)(3) 3 69 65 169 266 208 239 307 (38) 292 477 514 277

Invested Capital:

Total Debt 497 461 735 779 721 598 723 624 513 514 515 479 476

Shareholders' Equity 782 609 1,090 1,270 1,497 1,476 1,961 1,623 1,596 1,942 2,043 2,247 2,649 Total 1,279 1,070 1,824 2,049 2,218 2,074 2,684 2,246 2,108 2,456 2,558 2,726 3,125

Average Invested Capital (4) 1,399 1,175 1,447 1,937 2,134 2,146 2,379 2,465 2,177 2,282 2,507 2,642 2,925

ROIC: NOPAT / Average Invested Capital(4) 0.2% 5.9% 4.5% 8.7% 12.5% 9.7% 10.0% 12.5% -1.7% 12.8% 19.0% 19.5% 9.5%

(1)GAAP Operating Income excludes discontinued operations for Latrobe Steel (divested Dec. 8, 2006) for years 2004 through 2006 and the Needle Roller Bearings business

for years 2007 through 2009 (divested Dec. 31, 2009).(2) EBIT is defined as operating income plus other income (expense) - net.(3)NOPAT is defined as EBIT less an estimated provision for income taxes. This tax provision excludes the tax ef fect of pre-tax special items on the company's eff ective tax rate,

as w ell as the the impact of discrete tax items recorded during the year.(4)The company uses NOPAT/Av erage Invested Capital as a type of rat io that indicates return on capital (ROIC). Average Invested Capital is the sum of Total Debt and Share-

holders' Equity taken at the beginning and ending of each year and then averaged. Total Debt is the sum of commercial paper, ST-debt, cur r. portion of LT-debt & LT-debt.

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