Good morning. My name is Tim, and I will be your conference operator today. As a reminder, this call is being recorded. At this time, I would like to welcome everyone to Timken's Third Quarter Earnings Release Conference Call. [Operator Instructions] Thank you. Mr. Tschiegg, you may begin your conference.

Thank you, and welcome to our third quarter 2013 earnings conference call. I'm Steve Tschiegg, the company's Director of Capital Markets and Investor Relations. We appreciate you joining us today. If after our call you have further questions, please feel free to contact me at (330) 471-7446. Before we begin with our remarks this morning, I want to point out that we posted on the company's website presentation materials that supplement today's review of the quarterly results. You can also access this material through the download feature on the earnings call webcast link. With me today are Jim Griffith, President and CEO; Glenn Eisenberg, Executive Vice President of Finance and Administration and CFO; as well as Tim Timken, Chairman, Board of Directors; Rich Kyle, Chief Operating Officer, Bearings and Power Transmission; and Chris Coughlin, Group President. This morning, Jim and Glenn will offer a few remarks, and then all of us will be available for Q&A. During the Q&A, we'd ask that you please limit your question to one question and one follow-up at a time to allow everyone an opportunity to participate. Before I turn the call over to Jim, I'd like to remind you that 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. We describe these factors in greater detail on today's press release and in our reports filed with the SEC, which are available on the www.timken.com website. Reconciliations between non-GAAP financial information and its GAAP equivalent are included in the press release. Today's call is cooperated by The Timken company. Any use, recording or transmission of any portion without the express written consent of the company is prohibited. With that, I'll turn the call over to Jim.

Thanks, Steve, and good morning, everyone. In our earnings announcement earlier today, we reported third quarter sales of $1.1 billion and earnings of $0.54 per diluted share. Clearly, these results were lower than our own expectations. They reflected a weaker recovery in the global economy than we and our customers had expected, and we've lowered our outlook for the balance of the year as a result. To understand these results and the outlook for Timken as we complete 2013 and enter into 2014, you have to take into account a number of significant issues. First, our view of the global economy, and especially several key markets we serve, has changed over the last few months and we've taken significant steps to respond to that change. As we entered 2013, we expected slow economic growth in the first half of the year, followed by a sharp increase in the second half as customer inventory adjustments were completed, especially in the mining and energy sectors, and demand for our products grew to match the underlying pace of the markets. As the year progressed, we held to that belief but moved back to timing of the inflection point in demand. Our view has now changed. It's now clear to us that the weakness in several of the key markets we serve, including emerging market infrastructure, mining and energy exploration, is more structural and will be longer lasting than we had expected. This leads us to believe that the slow, steady improvement in demand that we've seen thus far in 2013 will extend well into next year. This situation has been exacerbated in the third and fourth quarter of this year by seasonal reductions in demand in some sectors. In response, we have initiated efforts to improve our cost structure to be in a…

Thanks, Jim. Sales for the third quarter were $1.1 billion, a decrease of $81 million or 7% from 2012. The decline is a result of lower demand across the company's broad end markets, as well as the impact of the company's market strategy in the Mobile Industries segment. The decrease was partially offset from acquisitions and pricing. From a geographic perspective, sales in North America and Asia were down throughout the prior year while Europe was essentially flat. Gross profit of $252 million was down $47 million from a year ago. The decrease was driven by lower volume, negative mix and higher manufacturing costs, which were partially offset by lower material costs and pricing. Gross margin of 23.7% for the quarter was down 250 basis points from a year ago. Impairment and restructuring costs, primarily related to the previously announced plant closures in St. Thomas and São Paulo totaled $4 million in the quarter, down from $12 million in the same period a year ago. For the quarter, SG&A was $159 million, up $6 million from last year due to acquisitions and costs associated with the Steel business separation. Partially offsetting this was lower variable compensation and reduced discretionary spending. SG&A was 15% of sales, an increase of 160 basis points over last year. As a result, EBIT for the quarter came in at $89 million or 8.4% of sales, 340 basis points lower than last year. Net interest expense of $4.4 million for the quarter was down $2 million from last year, primarily driven by higher capitalized interest and lower average debt balances. The tax rate for the quarter was 38.2%, compared to 36.7% last year. The increase was primarily due to nondeductible costs related to the Steel separation project, partially offset by a higher percentage of the company's…

[Operator Instructions] And we'll take our first question from Eli Lustgarten with Longbow.

The results are not only being a lot lower than we expected, but dramatically revised guidance. Can you maybe talk about what went on during the third quarter that gave the results such a drastic shift in the outlook? Because this is a very, very material revamping of what's going to take place for the rest of the year. So when did you see it? I mean, it probably almost warranted a preannouncement or something based on this kind of a dramatic shift. Can you give us some idea what happened, finally caused you to bite the bullet and just dramatically lower everything across the board?

Eli, this is Jim. I think the announcement that came out from Caterpillar yesterday puts it in perspective. I mean, Caterpillar came out with a very similar message. And it is a reflection of what we thought, looking forward, was going to be an inflection point in demand when they and companies like them got through their inventory adjustment. And we continued to push that out and we continued to sustain the ability to operate the company at sort of a $5 billion revenue level. And it was a recognition that, in fact, that inflection point is not visible to us and therefore, a decision to take actions to rightsize our corporation to be profitable at $4.5 billion, $4.4 billion, $4.3 billion, whatever the current run rate is. And so it is that, that changed the guidance from that point of view. The current performance was simply a reflection of the operating performance of the company as the demand that we anticipated didn't come back.

Okay. And as we look at, going forward or so, I mean, we're getting much level -- much lower levels of profitability across all 3 segments. It's fair to say that almost all but it just strictly volume related, there's nothing impinging the recovery to double-digit margins in both Steel and Mobile, and particularly the process going back to the 20% level. I mean, you just made quick changes there that's just all structural. Is this is all volume related more than anything else?

Yes. Well, again, let me step back and I'll answer at a global level and I'll let the business presidents then talk about the individual segment. If you look at the company that we are today, we see no reason that we cannot bring this company back to the target level of profitability that we've talked to, which is the 20-ish percent level EBIT margins in Process and the low to midteens in the Aerospace and Mobile business and with some volume in the Steel business getting back up to midteens. There's nothing structural going on. It is volume, but it's also a reflection that as we've implemented our market strategies shifting to higher-margin, more attractive segment, we have reduced the size of the company and we hadn't taken the appropriate reduction in the infrastructure costs of the company. And we're now in the process of implementing that structure. Now since you asked about Process, let me turn it to Chris and let him talk about Process and Mobile, and then Tim can talk about Steel.

Yes. Let me walk you through the process explanation so that you have it. The third quarter revenue, although it was relatively flat, there was a, clearly, a disappointment with the global distribution. So there was a mix shift underneath that revenue that I'll explain here in a minute from a margin perspective. We saw a weakness in distribution around North America and Asia. It was offset by some improvement in Europe. We continue to see a drag relative to our overweight exposure to mining, infrastructure and energy within our global distribution business. We also see distributors relatively cautious on inventory and we did have some inventory destocking in the quarter. So what we see from a revenue perspective, our second half revenue, at this point, we're estimating it's only going to be up 2% relative to the first half, which is significantly below where we were expecting relative to market recovery. On the margin, Eli, let me bridge it for you, it's the third quarter 2012. There are 2 primary drivers underneath the relatively 3-point differential, the 19.5% to the 16.5%. The first one is back to the revenue. Although the revenue was flat, there was a mix shift underneath that revenue. The high profit distribution revenue decreased, but it was offset by lower margin acquisition revenue. That acquisition margin is also being affected by acquisition accounting. If you take that whole shift there, that was roughly 2% of the drop from the 19% to the -- or the 19.2% to the 16.5%. The second, the balance of it was FX due to some negative currency. So there's the bridge on it, so we are obviously disappointed with the revenue performance but it was heavily driven by weakness in our global distribution business and that mix shift. So moving forward, we're now positioning the process industry group for a slow growth environment. Although we've been clearly managing the costs, we will now begin implementing more structural actions to rightsize the global infrastructure versus managing towards -- with an eye towards a market recovery. We believe the combination of any market recovery, coupled with the cost reduction, will get us back into the 19% to 20% EBIT range of this business.

Eli, this is Tim. For the Steel business, it very much is a volume and mix story year-to-year, with industrial markets being off, oil and gas being up modestly and mobile on-highway actually performing pretty well. Nothing structurally that we see that will affect that ongoing. It's just where we stand in the market recovery.

Can I just say one thing? Can you talk about pricing across it? That was a big thing Caterpillar yesterday also. So is there any shades to price competition that we're hearing in other sectors?

Well, pricing on the Process side is not a significant issue. Obviously, it's not an issue much of all in distribution. There is some price competition going on, on the large capital equipment OE side of the business. But once again, it's a small enough portion of the business that it's not significantly material.

On the Steel side, Eli, you know everybody's going through their negotiations right now in '14 contracts, which have been a little bit slower to come in than usual. There is -- we're still seeing a lot of product coming in from offshore, as well as domestic capacity coming up. So there is a bit of pricing pressure going on right now. But obviously, we've got a little bit of work to do on the contracts before you got a real good read on that.

And we'll take our next question from Stephen Volkmann with Jefferies.

I guess I'm still trying to understand and I apologize, I don't want to beat this too hard. But when I look at your performance this quarter against any other diversified industrial company other than Caterpillar, I just see a huge divergence here. Your largest competitor provides regional and market breakdowns and haven't really seen anything like this kind of things. So I guess I'm still struggling to understand, unless Caterpillar is just a way bigger piece of your business than I realized, there just seems like there's got to be more going on there. I mean, even the Aerospace business is significantly weaker than any of the other comps I can find. So again, I'm just struggling and I'm trying to understand. And obviously, what I'm trying to do is think about how, as we move forward, what the recovery scenario or a bottoming price, what it might look like.

Steve, let me take a high-level look at this. But I'd like to let Rich talk about Aerospace because Aerospace is an anomaly within it -- within the rest of the 4 segments. It's a different issue.

Yes, Steve, on the Aerospace side, while we certainly have some weakness in the critical motion markets and the things that Glenn alluded to. The miss sequentially from the second quarter was really some internal execution, shipping delays with some defense contracts. And we expect, in the fourth quarter, to be back to double-digit EBIT margins and up sequentially on revenue. So that's the anomaly that Jim referred to.

Okay. If I then come back and look at the company as a whole, and I think this is a case where you have to look at the company as a whole, over the last 5 to 7 years, we have been shifting this company to focus on markets where our knowledge created value for customers, and those tend to be infrastructure markets, those tend to be heavy markets. And they have increased our exposure to the mining markets and infrastructure markets of the world. We are in a situation, globally, where those markets have taken a dramatic downturn. And we had operated, as Chris reinforced, on the belief that they would be coming back relatively quickly once this inventory bubble came through. And these are infrastructure markets in India, these are infrastructure markets in Southeast Asia, these are infrastructure markets in Latin America. And because of our product range, that's a combination of large SBQ bar -- forging bars and the fact that we are historically the leader in the tapered-bearing market, we are much more prevalent on Mobile equipment that's used in those markets. And so then when you compare us against our competitors, this is a broad market exposure issue for us in a market that's just in a very weak period of time. And that is the answer. Now we believe these are, to your point, what's the bottoming of the market, we believe clearly, we're seeing the bottom of the market. We're preparing -- we're continuing to see the markets improve, but they're improving slowly. And we're simply telling you that we could -- we're now going to operate the company on the basis that we see those markets improving slowly, and we're going to take action to improve our cost structure -- or sorry, going to -- we are taking action to improve our cost structure so that we can achieve our target levels of profitability at this level of business. And we know how to do that.

Okay. So -- and I guess my follow-up is just you talked about adjusting the cost structure for this new level of business. Is this a major corporate global restructuring that you're starting out here? And are there going to be some significant costs that we're going to have to either run through the P&L or call out going forward?

The -- as we have told you, we've known, and in particular this is true on the bearing side of the business, that we, as a result of the market initiatives that we've done, that we have a need to continue to restructure the company and that we would see restructuring charges coming through the P&L on the tune of somewhere in the $20-ish million, $25-ish million a year. That's true in 2013 and we expect that to continue. We do not see this being a -- see there being a charge coming through, absent the separation issues that we've got going on, that would be much more significant than that. But the work is not done, and so we're not ready to give guidance as to specifics about what that would be.

Steve, this is Rich. I would add that the separation of the Bearings and Steel business is really being used as a catalyst to review the structures of the -- of what's going to be the 2 companies. So we're going to have 2 smaller, flatter, focused -- market product-focused companies. And again, to Jim's point, we have already factored in a separation cost and we're looking at that more collectively now.

All right. So I guess you guys have put up decremental margins of 50% or worse here this quarter and it looks like that will happen again next quarter. Can we think about incrementals at similar levels when thinking about it?

Yes, Steve. Obviously, from our standpoint, and Jim kind of alluded, we're operating right now at around 55% capacity and it's volume driven. And frankly, it's also mix driven. So when you look at the decline in the decremental margin, that mix plays a part because, actually, we've had favorable pricing. As we go forward, again, with the issues of taking costs out some of the strategic initiatives that we've put in place that will now be coming online and the help of an economy that rather than being robust, at least, is expected to improve as we go forward, you should see us leverage that well.

And we'll take our next question from David Raso with ISI Group.

Can we just talk about the balance sheet usage? The amount of share repo in the quarter, how much was that?

For the quarter, we repurchased I think 440,000 shares or call it around $26 million.

Okay. So I know the authorization at the moment might not allow these larger numbers, but can you help us understand, I had asked the question on the spin conference call about, is anything about the spin delay your use of the balance sheet? And the short answer was no. And so I'm just trying to understand why we're not using the balance sheet more aggressively. Right now, you could put $750 million to work and your net debt to cap is only 31%. I appreciate you have $125 million for the spin costs, so let's go ahead and just use $625 million of it for repo. At the current price, you can buy back 12% of the company. But can you help us understand, especially with the operational underperformance, why you're not rewarding shareholders with a stronger use of the balance sheet?

Yes -- no, a great question, Dave. And as we said before, when we went through the third quarter and, first of all, year-to-date, as you know, we bought back around 2 million shares. So we redeployed over $100 million just in the share repurchases, let alone the dividends that we provide. When the Strategy Committee was formed by the board, it was really to look at 3 things, right? There was the separation, there was capital structure and it was governance. And they addressed all the issues. And so coming out of that, as it relates now to the capital structure, we've said that we will use the balance sheet more, and especially with pensions now being settled with capital expenditures coming down and the positive free cash flow the company, that you should expect that between, call it, at least in this case, the buybacks, will become a much higher percentage of our return of capital than we've had historically. So I wouldn't get too focused on any one particular quarter because there a lot of things that come into play with being in the market. We're obviously looking at it over a period of time. But you used to get to 30% leverage, $600 million-ish. If you look at the remaining shares that we have under our already existing share repurchase program, we've got around 5.6 million shares, which would get you call it roughly half way there. So $300 million-ish plus or minus 15% leverage and, obviously, before going back to the board for additional shares where that -- the direction that the board wanted to do. The only caveat we will say is we will clearly be in the market repurchasing shares for the rest of this year and continuing to go forward, but that the board also wanted to make sure that as we go through the separation, which again is targeted in the middle of next year, we wanted to make sure that both companies, standalone, had strong balance sheets and as those new companies will reflect on their capital allocation strategies and have financial flexibility. So I think it's fair to say we will be active in repurchasing shares as part of our capital allocation strategy. Whether we get up to the 30% that you've quoted, we'll report out obviously each quarter. But you'll see us continuing to be in the market repurchasing our shares, again, relative to where the shares are trading and relative to other uses of capital. But that should be your expectation.

Can we get a little more quantification between now and the spin how much leverage should we expect to take on? I mean, you have to pursue it guys. If you do your fourth quarter EPS number, that will be, over 5 quarters, you're averaging $0.80 a quarter. Internally, a pretty tight band. So the idea of doing $1.75 a quarter for your 2015 target is a moonshot. So while people appreciate the spin, it seems like this is the moment to utilize the prior strength when those infrastructure markets were strong to reward your shareholders. So at $0.80 a quarter, I'm just trying to understand why we can't -- we come out and be a little bit stronger and this is how we plan to use the balance sheet before the spin to help people kind of navigate through what is now officially an $0.80 per quarter run rate company until told otherwise.

No, again, a great question. I don't think we're too far apart as far as where we're heading. That when you look at the -- first of all, your comment on the 2015 target, as you know, we established those targets, 3-year targets, at the beginning of each year, normally in February. And it's a target. And we don't, if you will, update that target until February of the following year, unlike our annual guidance that we do, obviously, each quarter, if you will. A lot's changed since February of this year. In fact, we had taken down our guidance for the year twice. So it's fair to say that, again, we're focused on the current environment that we're in. Where we seem to be agreeing with where you're trying to lead this is that our balance sheet is underlevered and we agree and, again, part of the Strategy Committee was an assessment that we will utilize more of the balance sheet. But we've been in the market, we were frankly in the market in 2012 where we bought back over $100 million of our stock, as well. But we have room on the balance sheet and we will allocate a higher percentage of our capital to share repurchases and dividends, if you will. Having said that, we did say we want to have a strong balance sheet for the separation. So whether we hit your number or not, and again that's yet to be determined, we may or we may not. What we are telling you is that we will be in the market, we're repurchasing shares, we believe it is a good return of capital for us in the current environment. But when you talk about this $0.80 now we're doing per quarter, again, we're in an economic environment as well that we're operating at around 55% capacity. So from our standpoint, while there's a lot to be done on the cost side and mix, if you will, we believe we're performing well relative to the market environment we're in. And again, we'll take out additional cost to even perform better, but our expectation is we will start to see the improving markets as we're going forward. So it's not a one or the other. We're going to continue to invest in the business. We expect to continue to see improved results in our business and we will continue to see more capital redeployed for repurchasing shares which, obviously, are at attractive levels, stock price right now for that purpose of our capital.

Well, I guess, one last question to help us frame the cost savings that you're -- the actions you're starting to take. If I gave you, say, a modest improvement in revenue from this run rate, but just modest, the mix doesn't get really any better, either. Simply from the cost actions, how much would you expect just, parameters here on, for an $0.80 per quarter company right now, but just a little better volume but more about the cost actions. How much can you improve that run rate with very modest help from the end market? Like how significant are these cost actions?

Yes. Again, a great question. We will be providing a pretty detailed view, especially of 2014, in total but -- and how we're going to get to that number in January. What we're prepared to say and what we have said, frankly, is, again, to your point, the economy we're not counting on helping us. It's going to, we believe, to be a modest improvement next year. So the improvement in our performance is going to come through execution and cost reductions. And you heard Jim and Rich, in particular, talk about the fact that, especially in light of the separation that we're going through, which net would have added costs, we're looking at streamlining the organizations for the 2 new companies so that there's an opportunity to take out substantial costs as we go forward. Rather than give you kind of parameters, we will give you our business plan, if you will, our outlook for 2014 in January, with cost being a component of that plan.

[Operator Instructions] We'll take our next question from Ross Gilardi with Bank of America Merrill Lynch.

Could you just give us a sense or can you comment at all on your steel pricing negotiations? You mentioned that you're seeing some volumes coming in from offshore and domestically, some of the new capacity. Is the new capacity having a more pronounced impact on the environment than you originally anticipated?

Well, we're certainly seeing -- this is Tim, sorry. We're seeing the capacity show up in the low end of the range from a size point of view. So there's a little bit more pressure there. We're seeing product come in from offshore really across the board from a size range point of view. So just kind of a little bit of everything.

I think, Ross, this is Jim. If I add a little more color to that, the issue that we're facing at the market is far more an overall level of demand issue than it is a competitiveness issue with new capacity coming in. I mean, that's the miss from what we thought where we thought we would be is that the absolute level of demand is lower than we thought. And I mean that on a -- in a global sense, this pulls in Tim's comment about stuff coming out of Asia. Those markets are slow and that creates an influx of demand. And then on top of that, it is the industrial markets and the oil and gas markets being generally slower. That on top of, obviously, there is an impact from the new capacity coming in.

And then in terms of -- the company has obviously gone through a dramatic repricing strategy over the last 5 years. I mean, do you find yourself in a situation where you price yourself out of the market in some of your key end markets? And as you mentioned, you're running at 55% capacity utilization, but yet it doesn't sound like you're planning on your shutting a lot of capacity. You're talking about a few facilities. So can you help us think about this? And was the risk you're not cutting enough capacity and that you're just sitting on a lot of underutilized overhead in a pretty soggy demand environment?

Let me -- again, this is Jim. Let me put that in some perspective. Sorry, I was getting some feedback on the microphone here. If you look at the market environment that we're sitting in today, it is remarkably similar to the market environment we had in 2001, where the North American auto market is very strong, the global commodities markets are weak. And in those markets, we were a breakeven company. As we've gone through our market strategy, what we've done is we've used pricing to shift our market focus to markets where we create value. And the fact that we are, year-to-date, at double-digit margins despite being in a weak commodity market is, in fact, what I said is testament to the definition of the new Timken Company. We will continue to operate this company relatively compared with typical steel and bearing companies at relatively low levels of capacity utilization because we're a very high-service market. And we will focus on creating that value. We do not see a need for large capacity rationalization given the markets that we choose to serve and the places that we create value in the marketplace.

Yes, I would add -- this is Rich. I would add to that, from a Bearing perspective, we clearly priced ourselves out knowingly out of a significant amount of heavy truck automotive business over the last 5 years. We have not priced ourselves out of business in any other markets. If anything, we have held our own or gained global share around those other markets. And as we've indicated on the -- this heavy truck and automotive business has been dropping off to the tune of $100 million to $200 million a year for the last several years and it's coming to an end. And that has certainly offset our penetration gains and growth in the other segments. And as that end, you'll see that those penetration gains will be more noticeable in the other segments.

Does the preparation for the spinoff in any way impede your ability to restructure the company as much as you might need to?

No. Quite frankly, you heard Rich speak to that. It provides a catalyst because it gives us the opportunity to look literally at everything we're doing and look at better ways to do it. A little bit of the discomfort we're in, though, is it adds a little bit of confusion in terms of our ability to get clarity as to the timing, the extent of the impact and the timing of that impact because it is the -- rightsizing of the company is mixed with the thinking about how the 2 companies will stand up as corporate entities. So that's a little bit of the confusion and a little bit of the lack of clarity we're providing at this point.

And the other thing I would add to that is we did close what was historically a sizable automotive plant earlier this year, started the prior year. So we have been -- closed the -- another plant a couple of years before us. So we have been taking that capacity off-line within the segments where we have specifically lost share and don't expect to get it back with a market recovery.

We'll take our next question from James Kawai with SunTrust.

I just wanted to maybe perhaps look at the different businesses on a sequential basis. And I guess on Mobile, if we look -- you strip out the charge, I'm assuming that the $4 million charge was in the Mobile business. It looks like, sequentially, we have a 60% decremental margin if we adjust for St. Thomas last year. And I was just kind of curious, you alluded to transition costs to the new lower volume run rate and I understand there's going to be formal restructuring charges coming down the road. But was there anything in the quarter that you guys wanted to call out that would help me kind of bridge that incremental margin decline?

James, this is Chris. No, not really. Other than the volume decreases relative to our ability to take out the cost infrastructure, we clearly -- that's a significant challenge for us. And the volume in the third quarter, obviously, was weak relative to the exited business, which was about 2/3 of the drop and then 1/3 of it by volume. And this is particularly an issue for us in the off-highway markets relative -- that is really not part of the restructuring. The restructuring is heavily focused on the automotive arena, if I can use that the terminology, relative to our manufacturing. On the off-highway side, where we have significant weakness obviously in mining and agriculture and in some of these other areas, our ability to get the cost out is a challenge relative to the volume decreases that we saw, which, clearly, were more than what we anticipated.

Great. And then on the Process side, the margins definitely seemed to hold in there much better, but that was more of a top line thing. If I layer in the acquisitions that you've been completing and strip those out, it looks like, organically, even on a sequential basis, you saw a mid single-digit kind of degradation and the margin run rate fully adjusted. I mean, was that mainly on the distribution side that you saw another step down?

Well, it's the similar explanation. With the weaker volumes, the -- our manufacturing infrastructure is running at less than desired volumes. And our -- once again, our ability to extract the cost out of that infrastructure, relative to what we anticipated the volume levels to be, is a challenge. Now we are significantly focused on that problem. So that's a little bit what Jim was referencing. And we are now no longer going to position ourselves from a manufacturing perspective from an anticipated recovery perspective.

Got you. And then, finally, most of the component suppliers into Caterpillar and the other large OEMs typically get a 3-month to 6-month production schedule or a lead time notification for their production demands. I mean, was there something that happened during the quarter that -- was there a sudden break? And can you kind of give us a sense for when it was and how it might have evolved versus what the normal course of business is? Because I imagine you guys had production schedules in advance.

Yes, we do and we are a very large supplier of Caterpillar. So we have really good insight into that. I guess I don't want to comment on Caterpillar internal data. That is really something I'd rather not comment on. Obviously, you heard from them, there are significant issues going on, particularly in the mining area, which really dominates our business with Cat. We're not as big in the construction markets, as an example, as we are in mining. But suffice to say, we did not -- we've been seeing issues for quite a while now. There was not some huge event this quarter, but I really don't want to comment on internal Caterpillar data.

We'll take our next question from Steve Barger with KeyBanc Capital Markets.

You gave some commentary on why your exposure to mining and infrastructure caused you to underperform some of the other industrial companies. So can some of the business leaders talk about what indicators they look to from a forecasting standpoint to help us get a better handle on the model or to think about when the turn might come for you?

Yes. We're looking at industrial activity. And we're looking at industrial activity type of things and we're looking at, what I'll call, commodity activity and I'll leave that undefined. There's lots of different ways you can look at that. That's -- but I don't mean that just via pricing. Because the activity levels of the mines, as an example, is very, very important to our global aftermarket business. So we are watching, obviously, those trends. We're watching the capital equipment market from that perspective, as well, in terms of capital investment and primarily in infrastructure for us and we're watching energy. Energy is a significant precursor to our business, at least, on the Mobile, Process industries side.

Steve, if I could kind of step above that, because it kind of -- this kind of bridges the fact that our businesses serve the same markets from different perspectives. The best indices to correlate with Timken's performance are the IPIs, Industrial Production Indices, that relate to the sectors that Chris talks about. They are similar, I think, Tim, on the Steel side from that perspective. What you see, though, in times of transition is then you see inventory adjustments to that. And if you look at both the Mobile and Steel difference in our outlook as opposed to the difference in the performance in the third quarter, the real question is trying to call when those inventories changed and we were anticipating that this inventory reduction would dissipate and the weakness in the mining sector and, again, Chris talked about the actual end-use mining sector, has been exacerbated by the fact that, A, they're not buying new equipment but; B, even when they're operating, they are cannibalizing their equipment for spares. And then sort of lay on top of that, we're going through a period where some of our industrial distributors who serve those markets are taking their inventory levels down. And so you get kind of a double or triple whammy in those periods of time where you're trying to see the inflection point. And that's what we're seeing right now. That's what gives us optimism as we look forward that the demand will continue to increase gradually, but it also -- it triggers us to resolve, to go through the process on the margin and rightsizing our manufacturing plants and rightsizing our overhead structure so that we can get back to our target levels of profitability at this level of revenue.

So how many quarters, would you say, that, that inventory reduction has been taking place and underperforming the end markets? And from your sales force commentary on the ground, is there an expectation that there's another 2 or 3 quarters of that or...

Well, the first answer is, if you go to the middle of 2012, that's when we began to talk about it. And again, Caterpillar just -- they're not -- to the earlier comment, they're not that big as a customer from that perspective, but they've been the most vocal in terms of -- and transparent in terms of their own inventory reduction that's going on, so you can see it in those sectors over those 4, now 5 quarters. And effectively, the intent of my comments is we're now operating the company on the basis that we're not going to see a dramatic -- we're not going to try to guess when that dramatic change will come. My history in these markets say, when it comes, it comes, and it comes with a fairly sharp inflection point. But we're not going to sit and wait for it. We're going to take action now to drive profitability and take control of that profitability ourselves.

Understood. And as you look at this rightsizing towards the current run rate of $4.4 billion, $4.5 billion, how are you modeling your future theoretical upside revenue? Does -- were you previously at $7.5 billion at 100%, which I know you don't want to run at? Is that going to down to $6.5 billion? And what utilization rate do you want to gear towards on a forward-revenue level?

I don't think trying to look at capacity utilization, I made that point earlier, I don't think it's the right measure for The Timken Company. today. We are able -- I mean, just for example, we're now in our steel company, we're a company that can achieve double-digit margins operating in the mid-50s capacity utilization. That's a good thing because it allows us to have very high service levels. I think you just come back and look at it at an overall revenue level, we're right now operating on an annualized revenue level of $4.3 billion, $4.4 billion. And we're going to take our actions around that kind of a number so that we can move ourselves back toward attractive levels -- target levels of profitability as we're there and seeing a gradual improvement in the market.

I would just add. The Steel business, through this, has not taken off and is not taking off any capacity. It's variabilizing cost. The Bearing business has closed 2 automotive heavy truck-focused plants that were certainly, at 1 time, $300 million-ish of revenue. But the expectation would be that, again, that those markets would necessarily come back and we would be able to invest and grow in other markets as those come back in different products and size ranges.

Just to clarify, we're just accruing on the Steel side to account for the differences in the marketplaces and we're actively doing that. And again, come back to the strategy of the company, we continue to see opportunities to grow the company. We talk about the issues of acquisition accounting and Process Industries, but we've done 4 acquisitions this year. They are moving us. We are launching new products, expanding our bearing range, we have new capabilities coming on in the Steel business. So there is organic growth, as well as market growth driving us forward. We just got to adjust so we can improve our profitability at the current level of sales. That's simply what we're going through.

Got it. And one final question for Glenn. Did you give the number specifically for the acquisition in the quarter and the spin-related cost in SG&A? And how should we think about the quarterly spend in 4Q and going forward?

Yes, the -- on the separation-related expenses in the fourth quarter, really none to speak of in the third. Just -- but in the fourth, I think we should talk about $0.07 a share. So rounding up, call it around $10 million of earnings that would've impacted that number. And what was the first part?

The -- was there acquisition-related costs in...

Well, again, let me say for the acquisitions, for the quarter, it was around, call it, on the revenue side, in total around $20 million plus or minus, then that includes what was in Process, as well as in Mobile. But from a profitability standpoint, again, it only generated a couple of million dollars of earnings but would've had, if you backed out purchase price accounting, midteens kind of operating margins. So that, obviously, will pick up as the quarters unfold.

And was there anything else unusual in the quarter in SG&A, in the $159 million?

Just in the SG&A?

Yes.

No, nothing of note.

And we'll take our next question from Holden Lewis with BB&T Capital. Holden Lewis - BB&T Capital Markets, Research Division: Great. When I think about sort of the idea of restructuring the business, I mean, you've kind of built these businesses with a pretty specific global view in mind, right? I mean, the Steel business, you've done some very deliberate investments there. And in Aerospace is -- that looks pretty positive. And Process, you obviously have a very good global view of. So I guess, philosophically, I understand why you might restructure to sort of preserve margins currently. But you're historically pretty profitable for this level of revenues, and I just kind of wonder if cutting the structure further, is that prudent unless you really changed, not just the next couple of quarters view, but the next few years view? And any sort of thought on that?

Yes, Holden, this is Rich. I agree. That wouldn't be prudent and that's not what we are doing. Take it back to -- as we've exited this light vehicle and heavy truck business, that would be prudent. So we got to get that portion of our infrastructure rightsized, which is -- this isn't a big catch-up, we've been doing that. But we lost another couple of hundred million dollars of revenue this year in that space. And I would take it back to restructuring around 2 smaller, more focused companies which gives us an opportunity of layers and other things. And Tim, you want to comment on Steel?

Yes. On the Steel side, Holden, it really is about standing up an independent company in the most cost-effective way. We've always run pretty lean on S&A. So as we add the functionality, we need to be independent. We're just taking a look at everything else we do to make sure we're spending appropriately. Holden Lewis - BB&T Capital Markets, Research Division: When you talk about restructuring, I mean, that's going to probably fall somewhat disproportionately on the Mobile side still.

Yes. I would say 2 things to that, in the corporate infrastructure of separating the businesses. Holden Lewis - BB&T Capital Markets, Research Division: Got it, okay. And did you suggest that the goal would be to be able to sort of achieve kind of your profit goals at this level of revenues? Is that kind of the scope of the effort? Or were you referring just to Mobile or the business as a whole?

I think if you look at it, and you can play plus or minus a couple hundred million dollars of revenue and the numbers don't change that much, in the Bearing segments, the answer is yes, we believe we should be able to achieve those -- that kind of target levels of profitability that we have. On the Steel side, we have talked about our Steel business as being a mid-teens business with upside from that. That would require additional volume on top of that. I'll let Tim talk a little bit about the nearer-term profitability.

Well, I think if you look where -- how we're performing given our utilization rate, I would say that the Steel business is actually performing pretty, pretty well and only gets better as our mix and our volume improves. So the fact that we can hit these kind of margin levels at an average of 55% of capacity for the year, I think is pretty impressive relative to the rest of the industry.

Yes. And I'll just add on the Bearings business on your point. It would -- we are not restructuring the business down to achieve peak margins on these sorts of revenue levels. We're adjusting the size of the business down to achieve lower end of our targeted range of margins through this business level, and then expect to leverage that very well as our markets recover. So we believe we are approaching this prudently, to use your word earlier, given the markets in -- we're at and the separation.

And at this time, there are no other questions in queue. I'll turn the call back over to Jim Griffith for any closing remarks.

Well, thank you. Again, we anticipated this would be a difficult call because these are surprising results. As we indicated, they were not up to our expectations. I think it's important for you to understand that we are continuing to redefine The Timken Company for long-term profitability. We appreciate your interest, your investment and your patience as we get through this fairly dramatic change in our history. Thank you.

And that concludes today's conference call. We appreciate your participation.