FORWARD-LOOKING STATEMENTS

Transcription

1 Goldman Sachs Industrials Investor Conference Boston November 12, 2014

2 FORWARD-LOOKING STATEMENTS 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 Private Securities Litigation Reform Act of In particular, the statements related to Timken s plans, outlook, future financial performance, targets, projected sales, cash flows, liquidity and expectations regarding the future financial performance of the company, including the information under the headings What You ll Hear Today, Timken Transformation, The Growth Plan: What You Can Expect, Investment Summary, Pro Forma Revenue and EPS, Pro Forma EBIT Margin and Free Cash Flow Conversion, Balance Sheet and Leverage, Capital Allocation Priorities, Capital Spending, M&A Strategy, Capital Allocation Summary, 2014 Full-Year Outlook, Long-Term Financial Objectives, Key Take-Aways, Mobile Industries Portfolio Context: , Process Industries Strategy A Look Forward and Aerospace Restructuring & Reorganization are forward-looking. The company cautions that actual results may differ materially from those projected or implied in forward-looking statements due to a variety of important factors, including: the company s ability to respond to the changes in its end markets that could affect demand for the company s products; unanticipated changes in business relationships with customers or their purchases from the company; changes in the financial health of the company s customers, which may have an impact on the company s revenues, earnings and impairment charges; fluctuations in raw-material and energy costs; the impact of the company s last-in, first-out accounting; weakness in global or regional economic conditions and financial markets; changes in the expected costs associated with product warranty claims; the ability to integrate acquired companies to achieve satisfactory operating results; the impact on operations of general economic conditions; fluctuations in customer demand; the impact on the company s pension obligations due to the changes in interest rates or investment performance, the company s ability to complete and achieve the benefits of its announced plans, programs, initiatives and capital investments; the taxable nature of the spinoff; and the company s ability to realize the potential benefits of the spinoff of the steel business and avoid possible indemnification liabilities under certain agreements it entered into with TimkenSteel Corporation in connection with the spinoff. Additional factors are discussed in the company s filings with the Securities 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 of new information, future events or otherwise. This presentation includes certain non-gaap financial measures as defined by the rules and regulations of the Securities and Exchange Commission. Reconciliation of those measures to the most directly comparable GAAP equivalents are provided in the Appendix to this presentation. 2

3 Company Overview and Direction Rich Kyle President and CEO

4 TIMKEN AT A GLANCE Leader in Bearings, Power Transmission and Related Services Ticker Legacy 2013 Sales Employees Global Footprint Dividend NYSE: TKR; listed 1922 c. 1899; 115 years of operations $3B* 17,000 worldwide Headquarters in North Canton, OH 28 countries 61 manufacturing facilities 92 years of consecutive quarterly payouts A Proud History and A Compelling Future *Excludes Steel business sales spun-off as TimkenSteel Corporation on June 30,

5 WHAT YOU'LL HEAR TODAY Exciting time for Timken Accountable, results-oriented management team Differentiated business model Clear strategy to achieve long-term targets Multiple growth opportunities Innovation, product expansion Aftermarket and services Emerging markets Disciplined and strategic M&A Focus on operational excellence Improved FCF generation leads to increased return of capital and funding of growth 5

6 Global Recession TIMKEN TRANSFORMATION The Timken Transformation Timken Improved Financial Performance (Ex. Steel) Exited automotive business that did not meet value proposition criteria See Appendix for GAAP reconciliations. 6 $1B exited and business restructured Completed in December 2013 Built capabilities to win in the marketplace Global ERP system Global footprint expansion Product expansion Service capabilities Company-wide operational excellence initiative TimkenSteel spinoff Aerospace restructure Pension plans fully funded; derisking deployed $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 5-Year Avg Sales: $3.7B Margin: 5.0% (1) Financial performance excludes Steel segment mid-point estimates based on outlook dated October 28, Year Avg E Sales: $3.1B Margin: 12.6% 16% 14% 12% 10% 8% 6% 4% 2% 0% E Net Sales ($ M) Adj. EBIT Margin Margin Improvements Achieved through Transformation

7 TIMKEN OVERVIEW End-Market Sectors Product Offering Channel Overview Industrial Machinery Automotive Heavy Truck Rail Agriculture Defense Metals Aerospace Mining Industrial Services Energy Construction Other 19% 15% 10% 9% 7% 7% 6% 6% 5% 5% 4% 4% 3% Power Trans. Other Bearings Services 9% 9% 22% 60% Tapered Roller Bearings Aftermarket 47% 37% 16% OEM New Equipment Builds OEM Aftermarket Parts Highly diverse endmarket sectors, customer base and applications Attractive business mix Expanding beyond tapered roller bearings Power transmission increasingly important part of diversification Reflects new products, acquisitions and global expansion Large installed base drives aftermarket Lifetime of revenue Higher margin mix 1/3 of OEM business is OEM service 7 Driving a More Balanced and Profitable Portfolio of Businesses Note: Based on 2013 pro forma sales of $3.0B. Business mix was adjusted to remove the impact of $110M less sales in Mobile Industries going forward due to planned program exits that concluded at the end of 2013.

8 Disciplined Filter for Attractive Opportunities THE TIMKEN BUSINESS MODEL Challenging Applications Growth Markets Driven by Strong Macros Technology & Know How Aftermarket & Rebuild Fragmentation High Service Requirements Value Creation Expand Global Reach with Adjacent Products & Services Business Capabilities Operational Excellence Talent Timken Competitive Differentiators 8

9 THE GROWTH PLAN: WHAT YOU CAN EXPECT 1. Capture Share and Market Growth Apply Timken Business Model 2. Win Globally Grow International Sales and Focus on Emerging Markets 3. Leverage Technology and Know-How to Grow Organically Accelerate Product Development Rate 4. Pursue Strategic, Bolt-on Acquisitions Focus on: Bearings International Adjacencies Services 9

10 1. CAPTURE SHARE AND MARKET GROWTH APPLY TIMKEN BUSINESS MODEL Focus on Markets with Strong Marco Fundamentals Challenging Applications Mission-Critical, Demanding Applications High costs of failure High costs of substitution Harsh environments Reliability Urbanization Structure Development Sustainability System Differentiation Energy efficiency Power density Performance Aftermarket & Rebuild Large installed base enables lifetime of revenue opportunity High Service Requirements Thousands of End Users Require High Service and Reliability Oil & Gas Example Equipment Life Typical Lifecycle Lifetime Revenue Opportunity Metals Example Equipment Impact Mud Pump Years 5 7 Years ~$625K Rolling Mill Shutdown ~$18K - $50K per hour 10

11 2. WIN GLOBALLY VAST GLOBAL FOOTPRINT FOR INTERNATIONAL GROWTH EMEA 18% Russia NA 59% Canada U.S. Mexico LatAm 8% U.K. Germany Poland Czech Republic France Japan Italy Spain Romania China Turkey South Korea India U.A.E. Taiwan Thailand Vietnam APAC 15% Singapore Brazil Indonesia Plants/Service Centers 61 Distribution/Shipping 23 Technology Center 5 Argentina South Africa Australia 24% of 2013 Revenue Derived from Developing Markets Note: Based on 2013 sales of $3.0B, ex. Steel business sales. 11

12 Billion 3. LEVERAGE TECHNOLOGY AND KNOW-HOW TO GROW ORGANICALLY ACCELERATE PRODUCT DEVELOPMENT RATE Potential for Continued Penetration of $55B Engineered Bearings Market Still Very High Cylindrical Timken Share $55 Bearings $10 Billion TRB $3B 4-6% 8 1 0% Housed Unit New Product Sales From Grew 33%, on average (Incl. bolt-on acquisitions) 6-8% Spherical 12 Continue to Exploit White Space through NPD and Bolt-Ons Note: New product sales from cylindrical roller bearings, roller housed units and spherical roller bearings. Based on internal Timken projections and analysis of third-party source materials.

13 Billion 4. PURSUE STRATEGIC, BOLT-ON ACQUISITIONS MARKET EXPANSION We Have also Widened the Lens Defining Our Market Space beyond Bearings Mechanical Power Transmission Chains, belts, gear drives, couplings, brakes, sprockets, clutches, services, conditioning monitoring, rebuild, repair $500 Billion Bearings Spherical, cylindrical, housed unit, ball Tapered Roller Bearings $55 $10B $3B Unleashing Potential to Pursue Growth across End-User Value Chain 13 Note: Based on internal Timken projections and analysis of third-party source materials.

14 INVESTMENT SUMMARY Timken is a Compelling Investment High-Margin Business Based on Differentiated Business Model Fragmented, diverse end-markets and customers Attractive mix Global growth opportunity Strong Management Team Focused on Results Shift from Transformation to: Margin performance Capital allocation Growth Prepared to Deliver Strong Shareholder Value 14

15 Financial Review Phil Fracassa Executive Vice President, CFO

16 PRO FORMA REVENUE AND EPS $2.8 Revenue ($B) Adj. EPS (1) 8%+ $3.3 $3.4 $3.0 Growth $3.1 $3.03 $2.95 $2.05 $2.05 $ %+ Growth LT Target 16 Historical Trend Long-Term Drivers Market growth Share gains from new products and services Acquisitions Mid-point (over cycle) Program exits in Mobile Industries segment partially offset strong growth in Process Industries segment LT Target Long-Term Drivers Leverage on higher sales Improved mix Cost discipline (manufacturing and SG&A) Share repurchases expected to drive further near-term benefit (1) Earnings Per Share adjusted to exclude Steel business earnings, spin separation costs and other unusual items mid-point estimates based on outlook dated October 28, 2014 See Appendix for GAAP reconciliations. Mid-point (over cycle)

17 PRO FORMA EBIT MARGIN AND FREE CASH FLOW CONVERSION Pro Forma EBIT Margin Free Cash Flow Conversion (2) Adj. EBIT Margin (1) 14.5% 14.1% ~ % 0.7x 0.7x 0.8x >1x 11.4% 10.7% E Margin Expansion Walk 14%+ 0.4x ~12% <0.1x 2014E SG&A Mfg. Volume / Mix LT Target (over cycle) Long-Term Goal Achieve 14%+ margins over the cycle Levers include: Expect to generate 100 bps in 2015 Reduced SG&A as a percent of sales Lower manufacturing costs Operating leverage on higher sales; improved volume/mix E LT Target (over cycle) Timken (with Steel) Timken CO Stronger, More Consistent Cash Generation Long-Term Goal 100%+ FCF conversion Levers include: Improved cash earnings Minimal pension contributions CapEx and working capital discipline 17 (1) EBIT Margin adjusted to exclude Steel business earnings, spin separation costs and other unusual items and 2014E is based on outlook dated Oct. 28, (2) FCF = cash from operations less capital expenditures; FCF Conversion = FCF/Net Income. 2014E FCF conversion is based on outlook dated Oct. 28, See Appendix for GAAP reconciliations.

18 BALANCE SHEET AND LEVERAGE Timken (Ex. Steel) Balance Sheet (9/30/14) Capital Structure Cash $253 Debt 531 Net Debt 278 Equity 1,644 Net Capital $1,922 Leverage $M Total Debt/Capital 24% $M $800 $600 $400 $200 $0 -$200 -$ Net Debt / Capital Net Debt Net Debt/ Capital Target: 30 40% Sept'14 Jun' % 40% 30% 20% 10% 0% -10% -20% -30% Net Debt/Capital 14% Timken (incl. Steel) Timken CO Strategy Target investment-grade ratings (current ratings Moody s: Baa2; S&P: BBB-, Fitch: BBB) Optimize capital structure over time, targeting: Net Debt/Capital of 30 40% Adjusted Debt/EBITDA of x Intend to reach Net Debt/Capital target in 2015 Balance Sheet Presents Value-Creation Opportunity 18 See Appendix for GAAP reconciliations.

19 CAPITAL ALLOCATION PRIORITIES Disciplined Approach to Drive Shareholder Value Capital Expenditures Organic Growth and Margin Improvement CapEx: 4% of Sales Dividend Target: 25 35% Payout Ratio Acquisitions Target Accretive Bolt-on Transactions to Drive Portfolio Expansion Share Repurchases Buybacks to Enhance Shareholder Value; 9M shares available (as of 9/30/14) Allocate Capital to Generate Highest Returns 19

20 CAPITAL SPENDING Long-Term Target: 4.0% of Sales Outlook ~2% Organic Growth 1 2% Performance Improvement 1% Maintenance Increased focus on growth New products Capacity expansions Growth CapEx IRRs generally > 20% Performance improvement targeted at expanding gross margins Capital Spending Drives Organic Growth and Margins 20

21 M&A STRATEGY Acquisitions are an Important Part of Growth Strategy You Can Expect Robust pipeline of attractive targets; emphasis on bolt-ons YTD Focus on bearings, adjacent products and industrial services # of Deals Total Spent Total Sales Acquired M&A to expand capabilities 8 ~$400M ~$300M Product/services offering Geographic footprint Aftermarket exposure Financial criteria: Accretive to earnings in Year 1 Earn cost of capital within 3 years IRRs above hurdle rates Risk-adjusted returns exceeding other opportunities Target: Acquisition Spend to Generate 3 5% Revenue Growth Disciplined, Systematic Approach to Drive Value 21

22 CAPITAL ALLOCATION SUMMARY Yesterday and Tomorrow CapEx Dividends M&A Share Repurchases Pension 100% 33% 11% 12% 12% 32% Outlook Pension: Fully funded CapEx: 4% of sales; focus on growth Dividends: Higher, more consistent payout Share Repurchases: 9M shares available thru 12/31/15 (as of 9/30/14) Pre-Spin (Incl. TimkenSteel) Illustrative Next 18 Mos. Strategy M&A: Increase pace to achieve growth targets Higher Percentage of Cash Flow Allocated to Capital Return 22

23 2014 FULL-YEAR OUTLOOK Sales (vs. 2013) Up 2% Mobile Industries Down ~5% Process Industries Up ~11% Aerospace Down ~5% Earnings Per Share (EPS) $ $1.45 Includes: Aerospace restructuring costs $(0.95) Expected pension liability settlement charges $(0.25) Cost-reduction and plant rationalizations $(0.10) Gain on the sale of land in Brazil $0.20 Earnings Per Share (EPS); excluding $ $2.55 unusual items Free Cash Flow ($ Millions) Cash from operations $305M Less: CapEx $115M Free Cash Flow $190M Sales: up approximately 2% Driven by organic growth in targeted sectors (incl. rail and wind energy) and the industrial aftermarket as well as the benefit of acquisitions, partially offset by negative currency Assumes $110 million less sales in Mobile Industries driven by impact of planned program exits that concluded in Q-14 sales expected to be up ~3% YOY, despite currency headwind EPS Estimate: $1.35 to $1.45 per diluted share EPS Estimate of $2.45 to $2.55 per diluted share excluding unusual items Reflects adj. EBIT margin of % 4Q-14 adj. EBIT margins expected to be lower than 3Q-14 due to seasonally lower revenue and actions to reduce inventory 2014 FCF Estimate: $190M Down from prior estimate primarily due to inventory 23 The company s outlook reflects its continuing operations for the full 12 months of Free cash flow is defined as net cash provided by operating activities (includes pension contributions) minus capital expenditures.

24 LONG-TERM FINANCIAL OBJECTIVES Timken Continuing Operations (CO) 2014 Outlook Long-Term Target Revenue Growth Organic Inorganic Up 2% Up 8%+ (Up ~5.5% ex. impact of planned exits in Mobile) 4 5% 3 5% Adj. EBIT Margin ~ % 14%+ Adj. EPS Growth Up ~22% Up 12%+ (Mid-point) FCF Conversion (NI/FCF) 0.8x > 1x ROIC ~10% ~15% 24 Adj. EBIT Margin and Adj. EPS Growth for 2014 Outlook and Long-Term Target exclude special items including: restructuring, rationalization and impairment costs, expected pension liability settlement charges, cost reduction initiative related expenses and gain on land sale.

25 KEY TAKE-AWAYS A Compelling Investment 2014 financial performance underscored by operating margin expansion and improving cash flow A more disciplined and robust approach to capital allocation Maintained $0.25 quarterly dividend despite lost earnings from spinoff Repurchased 5.1 million shares year-to-date in 2014 (as of Sept. 30); 9 million additional shares authorized for buyback through 2015 Intend to reach Net Debt/Capital target in 2015 Strategy will drive strong sales and earnings growth going forward New long-term targets set in June Well-Positioned to Deliver Strong Shareholder Value 25

26 Appendix

27 LARGE, HIGHLY FRAGMENTED ADDRESSABLE MARKET #1 or #2 in Key Targeted End-Markets Competitive Landscape Peer 1 Industry-Leading Positions NORTH AMERICA Roller bearings 51% 49% Peer 2 Peer 3 Peer 4 Peer 5 All other (100+) Aftermarket bearings Gear drive repair GLOBAL Tapered roller bearings Rail bearings and repair Aerospace roller bearings Bearing services and repair Significant Opportunity to Penetrate Markets Note: Based on internal Timken projections and analysis of third-party source materials. 27

28 MOBILE INDUSTRIES OVERVIEW Snapshot 2013 Results $1.5B Sales, 11.2% EBIT margin (12.0% Adj.) Products & Services Premium bearings, lubricants, seals, engineered chain, augers and aftermarket services End-Market Sector Exposure Sales By Geography Light Vehicle Off-Highway Heavy Truck 30% 29% 21% LatAm 10% APAC 12% 21% 57% EMEA NA Rail 20% 28 Note: Based on 2013 sales of $1.5B. End-market data does not reflect lost business totaling $110M from planned program exits concluded in See appendix for GAAP reconciliation.

29 MOBILE INDUSTRIES PORTFOLIO CONTEXT: A Two-Part Story Part I Transformed mix; restructured ~$1.0B unattractive businesses divested; completed 4Q 13 Part II Result A Stronger, More Profitable Mobile Industries Poised for Growth $2.3B Automotive & Heavy Truck Off-Highway & Rail Positioned for growth ~$200M added from higher margin/higher value-added segments New Light Vehicle platform wins continue to mount 33% 67% $1.5B 49% 51% Solid execution has enabled non-lvs / HT business to remain flat and profitable despite severe miningrelated headwinds Adj. EBIT Margin Breakeven ~12% 29 See appendix for GAAP reconciliation.

30 PROCESS INDUSTRIES OVERVIEW Snapshot 2013 Results $1.2B Sales, 16.4% EBIT margin (16.8% Adj.) Products & Services Precision-engineered bearings and power transmission products Revenue by Channel Sales By Geography OE Service 11% OE 19% 70% Aftermarket LatAm 7% APAC 21% 55% 17% EMEA NA See Appendix for GAAP reconciliation. 30

31 PROCESS INDUSTRIES STRATEGY A LOOK FORWARD 31 Strategy Leverages Process Industries Operating Model for Sustained, Above-Market Growth and Strong Returns Continue to feed the installed base Aggressive commitment to innovation/product pipeline Rapid development of product breadth beyond tapered roller bearings (organic and inorganic) Leverage the large, attractive Asia opportunity Take advantage of growing Timken presence, strong capabilities and scale Further penetrate other growing markets outside the U.S. Africa, LatAm and Eastern Europe/CIS Seize robust growth opportunity in Power Systems (previously Industrial Services) Maximize lifetime of profits Reap benefits from strong global distribution channels Continue to drive operational and commercial excellence

32 AEROSPACE OVERVIEW Snapshot 2013 Results $0.3B Sales, 8.0% EBIT margin (8.9% Adj.) Products & Services Bearings, transmission system and engine components, reconditioning and repair (35% non-bearing) End-Market Sector Exposure Sales By Geography Defense 49% EMEA APAC 9% 10% Civil Commercial General 36% 81% NA Non-aerospace 15% See Appendix for GAAP reconciliation. 32

33 AEROSPACE RESTRUCTURING & REORGANIZATION Launched initiative to improve Aerospace sector performance and position for growth Segment leadership positions eliminated Closure of aerospace engine overhaul business (Mesa, AZ) by year-end Evaluating strategic alternatives for MRO parts business (Mesa, AZ) Closing facility in Wolverhampton, U.K., expected by end of 2015 Charges and related financial implications $118 million (pre-tax) non-cash charge comprised of goodwill and inventory recorded 3Q-14 Beginning 4Q-14, aerospace business results reported primarily through Mobile Industries Approx. $10 million year-over-year negative impact expected on Timken 2015 revenue Expect to maintain targeted Mobile Industries EBIT margins of 10-13% Future charges, primarily consisting of severance, expected to be less than $10 million Actions Expected to Improve Performance and Growth Prospects 33

34 GAAP RECONCILIATION: Reconciliation of Sales, EBIT to Net Income, EBIT After Adjustments to Net Income, EBIT as a Percentage of Sales and EBIT After Adjustments as a Percentage of Sales; all excluding the Steel Business: The following reconciliation is provided as additional relevant information about the Company's performance. Management believes that EBIT and EBIT margin, after adjustments, are representative of the Company's core operations and therefore useful to investors. (Dollars in millions) Twelve Months Ended December 31, E (Midpoint) Net sales (as reported) $ 4,513.7 $ 5,168.4 $ 4,973.4 $ 5,236.0 $ 5,663.7 $ 3,548.4 $ 4,055.5 $ 5,170.2 $ 4,987.0 $ 4,341.2 Net sales attributable to TimkenSteel 1, , , , , , , , ,305.8 Net sales - The Timken Company (pro forma) $ 3,292.0 $ 3,586.3 $ 3,645.5 $ 3,820.9 $ 3,969.7 $ 2,875.4 $ 2,798.6 $ 3,333.6 $ 3,359.6 $ 3,035.4 $ 3, Year Average Net sales: Year Ending ( ) $ 3, Year Average Net sales: Year Ending ( ) $ 3,124.7 Net Income (as reported) $ $ $ $ $ $ (138.6) $ $ $ $ Provision for income taxes Gain (loss) on divesiture (19.9) Interest expense Interest income (3.7) (5.6) (2.9) (1.9) Consolidated earnings before interest and taxes (EBIT) $ $ $ $ $ $ (116.9) $ $ $ $ EBIT attributable to TimkenSteel (57.9) EBIT - The Timken Company $ $ $ 92.3 $ $ $ (59.0) $ $ $ $ EBIT - The Timken Company (pro forma) % to Net Sales 5.9% 6.1% 2.5% 2.7% 5.1% -2.1% 10.5% 13.9% 16.3% 10.3% Adjustments: Gain on sale of real estate in Brazil (5.4) Cost-reduction initiatives and plant rationalization costs Loss on divestitures (0.0) 19.9 Impairment and restructuring Other Special Items, including CDSOA expense (receipts) (43.0) (85.4) (94.7) (13.2) (29.3) 2.0 (2.3) (2.4) (108.0) 2.8 Total Adjustments $ (2.5) $ (42.1) $ 38.9 $ 62.2 $ 40.8 $ $ 25.7 $ 19.6 $ (70.9) $ 13.3 Adjusted EBIT - The Timken Company (pro forma) $ $ $ $ $ $ $ $ $ $ Adjusted EBIT - The Timken Company (pro forma) % to Net Sales 5.8% 4.9% 3.6% 4.4% 6.1% 6.6% 11.4% 14.5% 14.1% 10.7% 12.25% 5 Year Average Adjusted EBIT Margin: Year Ending ( ) 5.0% 5 Year Average Adjusted EBIT Margin: Year Ending ( ) 12.6% 34

35 GAAP RECONCILIATION: NET DEBT / CAPITAL Reconciliation of Net Debt to Total Debt and the Ratio of Net Debt to Capital: This reconciliation is provided as additional relevant information about the Company's financial position. Capital, used for the ratio of total debt to capital, is defined as total debt plus total shareholders' equity. Capital, used for the ratio of net debt to capital, is defined as total debt less cash and cash equivalents plus total shareholders' equity. Management believes Net Debt is an important measure of the Company's financial position, due to the amount of cash and cash equivalents. (Dollars in millions) Total Debt (a) $ 779 $ 721 $ 598 $ 723 $ 624 $ 513 $ 514 $ 515 $ 479 $ 476 Less: Cash Net Debt $ 728 $ 656 $ 497 $ 693 $ 490 $ (243) $ (363) $ 47 $ (107) $ 91 Equity $ 1,270 $ 1,497 $ 1,476 $ 1,961 $ 1,663 $ 1,596 $ 1,942 $ 2,043 $ 2,247 $ 2,649 Net Debt to Capital 36% 30% 25% 26% 23% -18% -23% 2% -5% 3% (a) Total Debt is the sum of Commercial Paper, Short-Term Debt, Current Portion of long-term debt and Long-term debt 35

36 GAAP RECONCILIATION: NET DEBT / CAPITAL (2Q-2014) Reconciliation of Total Debt to Net Debt and the Ratio of Net Debt to Capital: This reconciliation is provided as additional relevant information about the Company's financial position. Capital, used for the ratio of total debt to capital, is defined as total debt plus total shareholders' equity. Capital, used for the ratio of net debt to capital, is defined as total debt less cash and cash equivalents plus total shareholders' equity. Management believes Net Debt is an important measure of the Company's financial position, due to the amount of cash and cash equivalents. (Dollars in millions) (Unaudited) June 30, 2014 Short-term debt $ Long-term debt Total Debt $ Less: Cash, cash equivalents and restricted cash (310.1) Net Debt $ Total equity $ 1, Ratio of Total Debt to Capital 21.4 % Ratio of Net Debt to Capital 9.1 %

37 GAAP RECONCILIATION: NET DEBT / CAPITAL (3Q-2014) Reconciliation of Total Debt to Net Debt and the Ratio of Net Debt to Capital: This reconciliation is provided as additional relevant information about the Company's financial position. Capital, used for the ratio of total debt to capital, is defined as total debt plus total shareholders' equity. Capital, used for the ratio of net debt to capital, is defined as total debt less cash and cash equivalents plus total shareholders' equity. Management believes Net Debt is an important measure of the Company's financial position, due to the amount of cash and cash equivalents. (Dollars in millions) (Unaudited) September 30, 2014 Short-term debt $ 9.4 Long-term debt Total Debt $ Less: Cash, cash equivalents and restricted cash (253.5) Net Debt $ Total equity $ 1,643.9 Ratio of Total Debt to Capital 24.4 % Ratio of Net Debt to Capital 14.5 % 37

38 GAAP RECONCILIATION: PRO FORMA EPS Reconciliation of Earnings Per Share and Earnings Per Share After Adjustments to Net Income; excluding the Steel Business: The following reconciliation is provided as additional relevant information about the Company's performance. Management believes that earnings per share (EPS), after adjustments, are representative of the Company's core operations and therefore useful to investors. Twelve Months Ended December 31, Reported EPS $ 2.81 $ 4.59 $ 5.07 $ 2.74 Adjustments: EPS Attributable to TimkenSteel (0.99) (1.78) (1.68) (0.91) Tax expense on cash repatriation 0.27 Reversal of income tax reserves (0.18) Gain on sale of real estate in Brazil (0.06) Cost-reduction initiatives and plant rationalization costs Impairment and restructuring Special items - other (income) expense (0.02) Tax impact of discrete items 0.02 (0.04) CDSOA expense (receipts) (0.02) (0.69) 0.02 Provision for income taxes (0.04) - Total Adjustments $ (0.76) $ (1.56) $ (2.12) $ (0.69) EPS - The Timken Company, after adjustments (pro forma) $ 2.05 $ 3.03 $ 2.95 $

39 GAAP RECONCILIATION: FREE CASH FLOW Reconciliation of Free Cash Flow to GAAP Net Cash Provided (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 that is available for the execution of its business strategy and that Free Cash Flow Conversion is a useful measure to investors. (Dollars in millions) Net Cash Provided by Operating Activities $ $ $ $ Capital expenditures $ (115.8) $ (205.3) $ (297.2) $ (325.8) Free Cash Flow (1) $ $ 4.1 $ $ Net Income Attributable to The Timken Company $ $ $ $ Free Cash Flow Conversion (FCF/NI) 0.7x 0.0x 0.7x 0.4x (1) Free cash flow defined as net cash provided by operating activities (incl. pension contributions) minus capital expenditures. 39

40 GAAP RECONCILIATION: SEGMENT ADJUSTED EBIT Reconciliation of EBIT After Adjustments and EBIT as a Percentage of Sales: The following reconciliation is provided as additional relevant information about the Company's performance. Management believes that EBIT and EBIT margin, after adjustments, are representative of the Company's core operations and therefore useful to investors. (Dollars in millions) 2013 Mobile Industries Total net sales $ 1,474 Earnings before interest and taxes (EBIT) $ 166 EBIT Margin 11.2% Special Items* $ (11) Adjusted EBIT - Excluding Special Items $ 177 Adjusted EBIT Margin 12.0% Process Industries Total net sales $ 1,232 Earnings before interest and taxes (EBIT) $ 202 EBIT Margin 16.4% Special Items* $ (5) Adjusted EBIT - Excluding Special Items $ 207 Adjusted EBIT Margin 16.8% * Special items include: restructuring, rationalization and impairment costs, cost reduction initiative related expenses and gain on land sale 40 Aerospace Total net sales $ 330 Earnings before interest and taxes (EBIT) $ 26 EBIT Margin 8.0% Special Items* $ (3) Adjusted EBIT - Excluding Special Items $ 29 Adjusted EBIT Margin 8.9%