Good morning. My name is Vicky and I will be your conference operator today. As a reminder, this call is being recorded. At this time, I would like to welcome everybody to Timken’s Fourth Quarter Earnings Release Conference Call. All lines have been placed on-mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) And at this time, I would like to turn the call over to Steve Tschiegg. Please go ahead sir.

Thank you and welcome to our fourth quarter 2012 earnings conference call. I am Steve Tschiegg, Director of Capital Markets and Investor Relations. Thanks for joining us today and should you have further questions after the call please feel free to contact me at 330-471-7446. Before we begin our call this morning, I wanted to point out that we posted to the company's website this morning presentation materials to supplement a review of the quarterly results as part of this earnings teleconference call. This material is also available via a download feature from our earnings call webcast link. With me today are Jim Griffith, President and CEO; Glenn Eisenberg, Executive Vice President of Finance and Administration and CFO and Group President’s Chris Coughlin and Rich Kyle. We have remarks this morning from Jim and Glenn and then all of us will be available for Q&A. At that time, I would ask that you please limit your questions to one question and one follow-up at a time to allow an opportunity for everyone to participate. Before we begin I would like to remind you that during our conversation today you may hear forward-looking statements related to future financial results, plans and business operations. Actual results may differ materially from those projected or implied due to a variety of factors. These factors are described in greater detail in today's press release and in our reports filed with the SEC which are available on our website at www.timken.com. Reconciliations between non-GAAP financial information and its GAAP equivalent are included as part of the press release. This call is copyrighted by the Timken Company. Any use, recording or transmission of any portion without the expressed written consent of the company is prohibited. With that I will turn the call over to Jim.

Thanks Steve and good morning. In our earnings announcement earlier today, we reported fourth quarter earnings of about $0.78 a share on sales of $1.1 billion ending the year with strong performance. The quarter unfolded about as expected with a decline in sales as a result of lower demand from the light vehicle, heavy truck, mining and oil and gas markets as well as customer inventory adjustments. Asia strengthened a bit in the quarter, but did not make up for the lower demand in North America and Western Europe. This level of performance was achieved against a backdrop of operating at only a little above 50% capacity utilization in the quarter across all of our operations. Our performance this quarter especially with that level of capacity utilization clearly demonstrates the improving resilience of our earnings in all four segments of the company. Looking at full-year, we finished with earnings per share of $5.07 on 4% lower sales; after backing out the one-time benefit from the CDSOA receipts, this stands as the second best year in our company’s history. While the year started with a record first quarter, the slowing demand across most of our end markets during the second half of the year called for quick and decisive action. We adjusted production schedules and inventory levels and carefully managed our cash and expenses. Our efforts representing continued implementation of our strategic plan. Our focus on key markets that value our technology and our ability to diversify our product portfolio has begun to tamper volatility in all parts of our company and allowed us to expand into the important industrial and energy markets. This continued focus on driving long-term value for our shareholders helped define 2012 for us and underpinned our success. Strong operating performance and free cash flow generation enabled…

Thanks, Jim. Sales for the fourth quarter were $1.1 billion, a decrease of a $184 million or 15% from 2011. The decline reflects lower volume across the company's light vehicle, heavy truck, mining and energy markets as well as lower surcharges in our steel segment as a result of lower scrap and alloy material costs. This was partially offset by favorable pricing across all four of our segments. From a geographic perspective, we posted strong gains in Asia, while North America and Europe were down. Gross profit of $279 million was down $64 million from a year ago. The decrease was driven by lower volume, mix, lower material surcharges and higher manufacturing costs as our operations ran slightly above 50% of capacity utilization in the quarter. This was partially offset by pricing; lower material costs as well as a favorable change in LIFO of roughly $20 million. The gross margin of 25.8% for the quarter was down a 130 basis points from a year ago. For the quarter, SG&A was $164 million, down $4 million from last year primarily reflecting lower discretionary spending. SG&A was 15.1% of sales, an increase of a 190 basis points over last year. As a result, EBIT for the quarter came in at $111 million or 10.2% of sales, 300 basis points lower than last year. Net interest expense of $6.2 million for the quarter was down $1.2 million from last year primarily driven by a change in capitalized interest reflecting the company's increased investment program as well as lower average debt balances. The tax rate for the quarter was 27.9% compared to 32.1% last year and the company's prior outlook of 36.5%. The lower tax rate primarily related to foreign tax credits which the company was able to utilize in the 2012 tax year.…

(Operator Instructions) We will take our first today from Eli Lustgarten with Longbow Securities. Please go ahead.

Just one clear clarification, Glenn, you said 33% tax rate for the year, is there R&D tax credit that's coming in the first quarter or have you taken or you (inaudible) 12 or how will that play through?

Yeah, now it is reflected in our first quarter numbers. Neil as you know quarter-to-quarter our tax rate is going to be volatile or loose, but normally within or a couple of percentage points plus or minus and so for the full year for 2013 we think 33% is a good targeted rate for us. Obviously it depends on where we make our money geographically and so forth, but a little bit similar to what we saw this year, we will probably see a slightly lower rate towards the latter part of the year than at the early part, but I think for modeling purposes using 33 just as a general number hopefully keeps us within a point or so each quarter.

So the R&D tax rate is really not a material number at this point.

Right, not a significant number but again it’s within a couple of points of our tax rate.

One of the main points you mentioned in the fourth quarter was the 50% minus operating [very close] to Company [47] steel. As we look into 2013 can you give us some feel for how operating rates will be and whether profitability can basically hold at the second half level and what kind or the full year levels of 2012 I mean what kind of levels of profitability across the corporation you expect as we look out to the second half of the year or probably the assumptions for guidance?

Again just on a general level and again we can have the businesses go through their areas, but overall as we’ve said we expect earnings to be down somewhat from last year and we've obviously provided an earnings guidance number that reflects the first half of ’12 to be call it, or first half of ’13 rather comparable to the second half of ’12 kind of as we expected before, and that while we still expect the ramp up in the second half compared to the first half of ’13. We now believe that that second half of ’13 will now be lower than the first half that we experienced in 2012, which as you know we are at very high levels. So from a cadent standpoint we expect the same trend to be there. We've just kind of backed off a little bit given the macro view of the world that the economy is still going to grow in the second half, but maybe not as strong. From a capacity utilization level our assumption is that on a full year basis our capacity level which last year was caught around in the low 60% range should be comparable in ’13. Just the timing of it will ramp up from lower levels of capacity in the first half to higher levels in the second half.

Could we get some guidance of what you are looking at profitability across the several businesses, you know, will each one be able to hold and show some improvement over the reported number for 2012 was really the focus of the question.

This is Rich. For aerospace we expect significant leverage on the incremental volume as we've talked. We are targeting to move that business closer to the mid-teens in EBIT margins and we expect another year of very good leverage due to mix cost reduction and then also leveraging the volume, so up a couple 100 basis points in aerospace. In steel for the full year we expect again double-digit EBIT margins and is [going such] starting off the year slower and moving up through the year to average into those numbers. And to give you a feel on the capacity utilization for steel we finished the fourth quarter at under 50% utilization. We expect that our backlog and order input for the first quarter to be up towards 60% and it can increase from the fourth quarter, but the year-over-year comps are obviously pretty difficult in that first quarter so that will be down significantly from the first quarter of ’12.

Mobile and process.

This is Chris. I'll just answer your question direct. On process, we're expecting for the year to be in the 20% range in 2013. We expect the first quarter to be a little bit challenging, but we should be in the 20%, 21% range for the year. On the mobile side, we will be in double-digits. That is our expectation. So the direct answer to your question is yes. We believe we can hold these margins through the balance of 2013.

We will take the next question from Stephen Volkmann with Jefferies. Please go ahead. Stephen Volkmann – Jefferies: I think maybe Jim had mentioned some customer inventory drawdown and so forth. I am just curios as to what you think your visibility in to that is and through your degree of confidence in terms of where they are and that process.

Since I mentioned, Steve, let me talk and then if we have specifics on specific markets, Rich or Chris can comment. When we’re doing our forecasting, we are touching our customers, we're looking at our order book and we're looking at the economics and so we see all of that. We have specific markets and they tend to be in the energy sector and in the mining sector where our customers really overbuilt for the run up in 2011 and early 2012 and they are very clear with us that they’ve got a inventory reduction to go through. It's different than we’ve had in some cycles, because it's not so much our inventory in their yards, it's their inventory of finished goods that they are working through. But the forecast that we've given are based on as a general statement, direct input from our customers as to what they see. The obviously translation of that is, it depends on their ability to forecast what their sales will be in the first half and ability to work through that inventory.

I would shed a little more color on that, within aerospace no issues; within steel, automotive, no issues demand strong; within oil and gas, much fewer issues than there would have been a quarter ago, seeing signs of that in order input and forecast, but there is still an inventory position there that’s not completely burned through and expect that and get based on Jim’s comments and customer feedback and order flow to be on sometime in the second quarter. And then industrial has improved but it makes a lot of mix markets within the industrial steel space and seeing some signs of recovery there in parts and other signs were still languishing. Stephen Volkmann – Jefferies: Great, a quick follow-up if I could on steel. We get a lot of questions about some of the capacity that’s being added both by you guys and by others and the [FPQ] market and my senses were sort of talking about a little different product types, but can you just give us your insight as to sort of why that shouldn’t bother us too much?

I think you largely hit on it on the different product types. Well, first let me say in 2013 the CapEx the projects that we have coming online are not really around capacity there are some small capacity increases, but of the two big projects one is really around cost reduction and the other one is around product expansion, capabilities and entering new markets and furthering our product line. Our big capacity investment comes on line in mid 2014 and that’s focused around large products most of the capacity that you are reading about is focused more on smaller products and more around automotive markets whereas our is more focused on industrial, oil and gas markets. Stephen Volkmann – Jefferies: Is there any additional capacity in the [FPQ] market in those markets on which you are focused?

Yes, there is some, and we would estimate with our increase and the market that’s around a 15% increase in capacity. Stephen Volkmann – Jefferies: Total increase is 15% to the industry?

Yes, Steve put it in some numerical terms in terms of the product overlap. The [securest], which is we are adding that capability affectively run from about six inch diameter bar up to 16. The above about 9 inches in diameter there is nobody in North America who can produce, so that's a unique space for us. Conversely where the capacity is being added in the industry it is in the under for argument sake seven or six, seven or eight inch diameter. So there is a small overlap, but its relatively small overlap. As Rich said they are really focused on very different market. They are focusing on the high volume, automotive mobile equipments markets primarily; obviously that's where the demand is. A chunk of it’s to replace the Lorain capacity of the public that went out during the 2009 recession, whereas ours is really dealing with a different market opportunity then they are targeting. Stephen Volkmann – Jefferies: That's perfect, thanks Jim.

We’ll now take a question from Ross Gilardi with Bank of America-Merrill Lynch.

Yeah, good morning, thanks very much. I wanted to ask just more about your cash flow outlook. As you have said you generated $600 million of operating cash flow this year and you are guiding that $300 million, I think I have got that on the apples-to-apples basis and you mentioned about some working capital build in the second half; it would seem like it’s a pretty big working capital build and is that just in preparation for the capacity changes on the steel side, could you flush that out a bit more?

Yes, when you look at the cash obviously we had an extremely strong year in 2012 driven off of obviously very strong earnings, the fact that we generated cash from working capital given that we were in a declining market environment. When you look at what's happening or at least our expectations for 2013, we do have earnings coming down again reflecting obviously the issues that we just spoke about. We have capital budget for the investment opportunities we see are increasing compared to a year ago and to your point, from a working capital standpoint instead of generating cash like we did in 2012, our expectation is that we will use cash for working capital in ’13 so that delta is compounded on a change basis and that assumes again this second half recovery that would cause us on a point-to-point period which obviously is cash for working capital that will be of use. In addition, last year we had the benefit of CDO receipts for the tune of around $100 million that we received, that we won't have this year and then comparably we will probably put a little bit less in the pensions this year than we did in the last. But net-net its kind of the culmination of all those issues, good investment opportunities, working capital to support our growth, not having the unusual CDO receipts and still a high level of profitability, but a little less than what we had last year.

And just in terms of your pension funding and you mentioned that you are fully funded now, are you, if you see this second half recovery evolve as the year progresses do you think about returning cash more aggressively, I mean clearly you've got the buyback authorization in place, but how are you thinking about cash flow prioritization and returning more?

Yeah, it’s a great question; we ended again close to 90% funded this year and our expectation is based upon around $300 million contributed in 2013, most of that would go into pension, some of that would go into our post-retiree medical, but it should get us essentially fully funded on pensions. So what has been a significant use of our cash over the past several years will now obviously go away from that respect which then frees up that cash to use for other purposes, again of which, again we have a larger share repurchase authorization that the Board had granted last year and we started repurchasing more shares in 2012 and we would expect that to continue as well.

Just the last one, just on rail real quickly, I mean you cited that as a source of strength again, could you just talk a little bit more, I mean how much of that is, is any of that secular do you think or is it just a more of a cyclical trend, any additional color you can provide on that will be helpful?

Sure. I think rail first of all you need to look geographically, because actually North American rail is a little bit weak because of what's going on in coal. A lot of our rail activity or success is actually international, particularly in Asia, particularly in places like Australia, China, India. So in summary, our rail business is doing very well. Its solidly profitable, its been growing, but our growth rate would actually be even better if it was not for the slightly depressed North America market which once again is heavily tied to coal. The other issue to remember about our rail business is we are primarily a freight rail participant. We do some passenger freight, but it’s really freight rail that drives The Timken Company performance.

We will now go to James Kawai with SunTrust.

Hey, good morning. Thanks for taking my call. Could you go through, I believe in the past you’ve characterized this as period of elevated capital spending. We're looking at around $360 million this year and my understanding or recollection of the past is maintenance CapEx is around $175 million or so. Could you breakdown, some of the major projects for this year and maybe specifically address, how much of Faircrest falls this year and then just kind of give some perspective on where CapEx may go over next couple of years? Thanks.

No, I would say it’s just a general comment, we would normally say that the targeted level of capital spending overtime would fall under around the 4% level. So clearly, last year, 2013 coming up and then frankly even a little bit beyond that. We do expect to see heightened capital spending. The good news is we see very good investment opportunities. So our maintenance level still remains low at around $80 million. So these are all discretionary dollars for where we feel we have good returns. Obviously, we're seeing a pick up in our capital spending more on the steel side of the business than we have given several very good investments that will be spent over the next three years but maybe I ask Rich to at least talk a little bit about those three investments then Chris a little bit within the Mobile and Process side as well.

The bulk of the Steel spending in 2012 was around on the (inaudible) in intermediate positioning wide to the two projects I described earlier that one is focused around a significant cost productivity, safety gain within the business and the other one is around product capabilities and market expansion. There are still some carryover spending of those in the ‘13 but the bulk of the spending on ‘13 is on the caster which is the significant capacity increase within Faircrest as well as a significant cost improvement from primarily around yield and energy utilization and that is intended to come online in 2014. So that mid-2014 so that's the spend that carries on through the first part of ‘14 as Glenn alluded to.

Yeah, on the Process Mobile side, the majority of our capital expenditures if you move away from just basic maintenance capital, is really focused on growth primarily in international markets and so there are variety of investments particularly in the Asia region which are focused on diversifying our product portfolio and service portfolio and expanding our ability to grow.

And then just in terms of the seamless tube in the forge press you kind of alluded to some cost savings is there anyway, can you give us kind of a sense for when those savings may start to accrue relative to the financials and kind of order of magnitude kind of may be from return on invested capital perspective or may be from a straight out overall segment margin perspective either one would be helpful?

On the seamless mechanical tubing automation project kicks fully in the second half of the year. Obviously some of the savings depends on the volumes but well over well under the eight figure annual cost reduction generation from that and we would expect to see that in the third and fourth quarter. The forge press has a cost savings element which will kick-in in the second quarter. The product expansion part of it is a little slower to play out as we look to target those markets and sell additional product through, but we will get the cost benefit of that project as well kicking in the second quarter.

And terrific is that, finally I have a clarification on the earnings bridge that you guys provided from the fourth quarter of 11, to the fourth quarter of 12. You noted $35 million of pricing and then $20 million of LIFO, and now I was just curious how much of that was within the steel business, so I can kind of dial it doubt into a underlying margin rate there?

The LIFO one would have essentially been all steel related and your first one was…

Price.

At the $35 million of price, yeah.

Was price for the most part was really spread across all of our businesses, the biggest component of it would have been in steel, but all of our segments had pricing power fourth quarter over fourth quarter a year ago.

Got it, okay, great, thank you very much.

(Operator Instructions) And we will now take a question from Blaine Marder with Loeb Capital Management. Please go ahead.

Hi, guys. Just a quick clarification and then a question. You mentioned that you thought the pension would be fully funded at the end of 2013, I assume -- this assumes no underlying changes in interest rates or that sort of thing. And would that mean that going forward in 14, there'd be no further contributions?

Yeah. From the standpoint of the assumptions that we have next year, you're right, it assumes that the contributions we make that our asset returns call it -- around 8% that our discount rate would be around 4% would get us essentially fully funded on the pension side. So going forward again no cash essentially minimal cash would need to be put into the plans. If we wanted to just maintain the pension at that level. We're continuing to evaluate as we I think spoken about before ways of just not funding the pensions and being susceptible to the changes in rates and other things outside of our control. We begun to do lump sum distributions in 2012 at the beginning of the year for people that are retiring and are deferred (Inaudible). And we're also considering or contemplating the potential to annuitize a portion of it as well such that we can continue to drive down the call it the gross liability because from our pension standpoint, we're still looking at liabilities gross of $3 billion, we're just sitting on comparable assets that are susceptible to those changes and rates but to your point we have assumed that interest rates will hold in the discount rate would maintain at the 4% level.

Okay, and then on the CapEx I heard your comments, on an absolute dollar basis would you expect some decline in capital expenditures in '14 versus '13.

Yeah, as again a general rule we told you about where we were targeting our longer term capital spend we'll probably still be a little bit above that level of the targeted 4% next year but the expectation is it will be down from 2013 and that's just we still have additional capital investments that are going into the caster that will be in '14 that then will be done with thereafter.

Okay, and just lastly at the end of November you guys put out a press release responding to a 13 D from one of your investors and this investor put forth a credible analysis on separating the steel business and you indeed responded that you've evaluated that over the years that you've hired bankers as recently as the summer. And that now is not the right time and I guess the question is what did that decision hinge on and what would you look for or what factors would make you consider spinning that business out. Thank you very much.

Blaine, the discussion that we've had with our board and the discussion we had with relational investors started with the point of agreement that our stock is undervalued from an earnings point of view. But if you dive to the next level of the analysis you, very quickly come to some of the pension issues that Glenn talked about, that we actually are valued at a premium from a cash flow point of view largely because of the pensions. You come to issues of growth and then you come to issues of earnings volatility and sustainability and we have been implementing over the past half dozen years a very aggressive strategy that is addressing those and we continue to have steps that we can take when alluded to some of the ones that relates to pension that will continue to improve those circumstances. And we explained that to relational, our Board's very clear on that. Having said that we're in business to create value for shareholders. And so we will constantly circle back and address and assure that the portfolio we have has the best long term shareholder value potential that we can put together.

Okay, so it's somewhat of an evolution, not a revolution. Thank you very much.

We will now go to Stephen Volkmann with Jefferies. Stephen Volkmann – Jefferies: I just had a quick follow-up probably for Jim I guess, I mean given the lot of things seem to be kind of going in the right direction here for you guys and I guess I'm focused on the $1.4 billion I think was Glenn's number of liquidity that you guys have now and you'll add to that a little bit during 2013 and presumably interest rates will go up a little bit rather than down as we go forward, here so economy comes back so it would seem like you have a pretty meaningful nest egg here and if you're right about your business Jim why not do like a $1 billion share repurchase or something and presumably your stock is going to be a lot more expensive in a couple years if your view the world pans out here. And I guess I am wondering you know, if that's something you guys are considering, is there some potential large acquisition that would make you want to sit on your powder a little bit or what's the right way to think about that strategic direction?

Steve, the key to remember is come back to the last discussion we just had in terms of the valuation of the company. We have a multi-faceted issue that we're dealing with and we have been dealing with over the last five six years. And the answer to it is a multi-faceted answer and if you look at our investment presentation, Glenn talks about our capital redeployment program and we look to invest organically or we can put capital work for the shareholders. We have a very successful and ongoing program to look for acquisitions that we will diversify, our product range and give us a bigger exposure to the aftermarket which deals with earnings volatility. We have a large pension liability that we put $1 billion against in the last three years. I mean that's a fairly big move and as you saw in 2012, we got from our board an approval to expand our buyback. We raised our dividend because we were reflect in our building confidence that we will continue to generate significantly more cash flow than we've done historically but we will continue in this procedural manner or dealing with all segments of the capital issue and the idea of $1 billion buyback is the same idea the relational flows, it deals with one of those elements. It doesn't deal with all of them and so we'll continue down the path of driving long-term shareholder value by reallocating capital in ways that create returns to shareholders. Stephen Volkmann – Jefferies: Alright fair enough, thank you.

(Operator Instructions) It appears there are no other questions so I would like to turn the call back over to Jim for any additional or closing remarks.

Thank you and thank you all for your interest and good questions. Obviously, as I said in my opening comments this is an exciting time for Timken. We are stronger company today than we were just even a few years ago. Our customers count on our knowledge, collaboration and our high performance steel and mechanical components to improve their performance. We appreciate your continued support of the Timken Company. Thank you very much.

And thank you very much. That does conclude our conference for today. You may now disconnect.