THE TIMKEN COMPANY 2014 ANNUAL REPORT FINANCIAL SUMMARY CONTINUING OPERATIONS (Dollars in Millions) OPERATING DATA 2014 2013 Net Sales $ 3,076.2 $ 3,035.4 Gross Profit 898.0 868.4 Adjusted EBIT* 375.6 329.2 Adjusted EBIT Margin* 12.2 % 10.8 % Net Cash Provided by Operating 281.5 292.8 Activities Capital Expenditures 126.8 133.6 Free Cash Flow* 154.7 159.2 SHAREHOLDER RETURNS Adjusted EPS* 2.55 2.06 Dividends 1.00 0.92 KEY RATIOS TO OUR VALUED SHAREHOLDERS: Net Debt to Capital* 12.9 % 1.7 % Adjusted Return on Invested Capital* 11.5 % 9.7 % The Timken Company of 2014 stands as a different company than it was just a year ago. We have concluded a period of TOTAL SHAREHOLDER RETURNS** DIVIDENDS PER SHARE strategic realignment, the core of which was the multi-year 5-Year Annualized, Ending Dec. 31, 2014 $1.00 reshaping of our portfolio and the spinoff of our steel business. 22.4% $0.92 $0.92 We have emerged a stronger, more focused Timken, performing 18.1% at higher levels for customers and shareholders alike. 15.4% $0.78 We are focused on the fundamentals. That means a decisive management team, operational excellence, global growth and solid margins. We are committed to our customers and to $0.53 identifying and solving their most complex friction management and power transmission needs. S&P 500 S&P 400 Timken 2010 2011 2012 2013 2014 Industrials For the year, Timken revenues were $3.1 billion, up modestly from 2013. We fell short in achieving our aspirations for top-line REVENUE ADJUSTED EARNINGS PER SHARE* Dollars in Billions growth, yet the company’s profitability and overall performance improved significantly over 2013. Operating margins were $3.3 $3.4 $3.04 $3.06 12.2 percent, with adjusted EBIT of $376 million. We increased $3.0 $3.1 $2.55 adjusted earnings per share by 23 percent over 2013 by $2.8 $2.01 $2.07 improving our mix and reducing our cost structure. We returned $360 million of capital to our shareholders through dividends and share repurchases. Our 92 years of uninterrupted quarterly dividend payouts remains one of the longest on the New York Stock Exchange. Our cash flow and balance sheet are strong. Our global pensions are essentially fully funded and we continue 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 to take actions designed to reduce risk in this area. Company shares closed up for the year at $42.68, representing share * See Appendix on last page for reconciliations to the most comparable GAAP equivalents. ** Total Shareholder Return for the Company was calculated on an annualized basis, price growth of 8.3 percent and a market capitalization increase assumes quarterly reinvestment of dividends and takes into account the value of of $110 million compared to 2013. TimkenSteel common shares distributed in the Spinoff on June 30, 2014. A FUNDAMENTAL FOCUS 1 Stronger and leaner than before, we have more to achieve together. In 2014, our Process Industries business grew sales 10 percent business. We launched DeltaX, a multi-year initiative to accelerate over 2013 and has now achieved a compound growth rate of growth that includes redesigning our product management, 12 percent since the 2009 recession. The business delivered engineering and business systems resources. This drives an EBIT margin of nearly 20 percent and is well-positioned to product development to commercialization more efficiently, so continue its growth trajectory at this level of performance. This we can better meet customer needs. year we also concluded the final stages of our Mobile Industries portfolio changes. As a result of this seven-year process, Mobile We invested in talent to expand our geographic reach in 2014, Industries is generating excellent returns and is now positioned adding key resources to our sales and marketing teams. To to begin to grow. To spur better performance within Aerospace, serve our customers in a more coordinated and efficient way, we integrated it within our Mobile Industries business. While we also opened our new World Headquarters in North Canton, still early, we have already begun to see improvements from this Ohio. This facility brings our product and business management segment reorganization. teams together with engineering, research and product development, allowing us to engage collaboratively and more Midyear, we spun off our steel business as an independent easily share complex product knowledge. company. Doing so allowed us to fully focus on our global bearings and power transmission business. We completed Many have contributed to our success this year and we thank this work on time and within our planned budget, all without you – our shareholders, directors, customers, communities and interruption to our core business or customers. especially Timken associates – for your support. Stronger and leaner than before, we have more to achieve together. During the year, we transitioned leadership and quickly developed a cohesive, action-oriented and aligned management team who shares a clear vision of our priorities: excellence, growth Sincerely, and knowledge-based product leadership. The team launched several new growth initiatives, improved operating margins and delivered solid returns to shareholders. Richard G. Kyle We also pursued a number of strategic acquisitions, introduced President & Chief Executive Officer new products, expanded existing product lines and won new March 2, 2015 FOCUSED LEADERSHIP 2 Strong + Ready An exceptionally strong executive leadership team sharpens sectors such as wind energy and in emerging markets such as Timken know-how with deep experience across specialties – China. Combined, their efforts provide the fuel for Timken to from manufacturing to finance to technology. Each member of deliver future growth and value. Whether at the edges of space this team brings a seasoned understanding of our proven or at the borders of an emerging economy, the Timken leadership engineering approach, the customers we serve and where team is focused on engineering what comes next. we must win. They are focused on a singular destination: reliable global growth across our diversified markets, driven by Clear + Decisive operational excellence. Markets emerge larger than ever. Needs develop faster than Aligned + Driven ever. Customers demand solutions sooner than ever. Winning in this environment requires moving at the speed of opportunity. With company strategy clearly articulated, the Timken leadership This is where the Timken team thrives – in the midst of complexity. team manages for disciplined execution across businesses, Throughout 2014, Timken leadership set clear priorities, took operations, markets and geographies. This year the team invested more decisive actions and moved with greater velocity. We did in sales initiatives to advance organic growth meaningfully in this because our customers value it, our shareholders expect it the future and positioned Timken to continue 2014’s progress in and our mission demands it. Winning in this environment requires moving at the speed of opportunity. With CEO Richard Kyle, company officers Philip Fracassa, executive vice president and CFO; Christopher Coughlin, executive vice president and group president; and William Burkhart, executive vice president, general counsel and secretary, work together to turn the promise of Timken into the performance shareholders expect. 3 The Timken Company of the We recognize and thank than ever, making it more future came sharply into focus former Directors Phillip Cox unpredictable. The Timken in 2014. We see exciting and Diane Creel, who Company, though, is steady, times ahead, filled with assumed seats on the strong and sure. What we opportunities to prove and new steel company board. know today will change what realize our full value. We have And we welcome our newest we make tomorrow, ensuring reached this important time Directors Maria Crowe, we remain a vital part of because of the remarkable Christopher Mapes and industry around the world. leadership and vision of Ajita Rajendra, who bring We will continue to be those who preceded us. Both an enormous wealth of guided by our founding vision Jim Griffith, who retired as experience and fresh and philosophy, removing JOHN M. TIMKEN, JR. president and CEO midyear, perspective to our boardroom. friction and smoothing the Chairman, Board of Directors, and former Chairman Ward J. progress of business. The Timken Company “Tim” Timken, Jr., as much Our Board of Directors is as anyone in Timken history, energized by the work that set a course for what this lies ahead. The world through company can truly be and the which we now navigate is John M. Timken, Jr. value we can create. more complex and connected Chairman BOARD OF DIRECTORS Winning in this environment requires moving at the speed of opportunity. JOHN A. LUKE, JR. FRANK C. SULLIVAN RICHARD G. KYLE CHRISTOPHER L. MAPES Chairman and Chief Executive Officer, Chairman and Chief Executive Officer, President and Chief Executive Officer, Chairman, President and Chief Executive Officer, MeadWestvaco Corporation RPM International Inc. The Timken Company Lincoln Electric Holdings, Inc. JACQUELINE F. WOODS JOSEPH W. RALSTON AJITA G. RAJENDRA MARIA A. CROWE Retired President, AT&T Ohio Retired General, USAF; Chairman, President and Chief Executive Officer, President of Manufacturing Operations, WARD J. TIMKEN, JR. Vice Chairman, The Cohen Group A. O. Smith Corporation Eli Lilly and Company Chairman, Chief Executive Officer & President, JOHN M. TIMKEN, JR. JOHN P. REILLY TimkenSteel Corporation Chairman, Board of Directors, Retired Chairman, President and Chief Executive The Timken Company Officer, Figgie International Vikram Bedekar, the first industrial engineer to win the prestigious F.W. Taylor Medal for his research in materials science, performs an atomic-level microstructure analysis, which helps enhance bearing life. THE WORLD IN FOCUS ANSWERING THE RIGHT CHALLENGES by CREATING THE RIGHT PRODUCTS and OPENING THE RIGHT MARKETS through LEVERAGING THE RIGHT CHANNELS thus DELIVERING VALUE AND GROWTH WORLDWIDE.