Steve D. Tschiegg – Director of Capital Markets and IR James W.

Griffith – President, CEO and Director Glenn A. Eisenberg – EVP of Finance and Administration Michael C.

Arnold – EVP, President – Bearings and Power Transmission Group Salvatore J. Miraglia, Jr.

– President of Steel Group

Andrew Obin – Banc of America Melissa Cook – Calyon Securities Mark L. Parr – Capital Markets Inc.

Eli Lustgarten – Longbow Research Barry Hanes – Sage Asset Management David Raso – ISI Group Martin Pollack – NWQ Investments [David Foundry] – Heartland

Thank you and welcome to our fourth quarter and full year 2008 conference call. I am Steve Tschiegg, Director of Capital Markets and Investor Relations.

Thank you for joining us today, and if after our call should you have further questions, please feel free to contact me at 330-471-7446. With me today are Jim Griffith, President and CEO, Glenn Eisenberg, Executive Vice President of Finance and Administration and CFO, Mike Arnold, Executive Vice President and President Bearings and Power Transmission Group, and Sal Miraglia, President of our Steel Group.

We have remarks this morning from Jim and Glenn, and will then all be available for Q and 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 the future financial results, plans, and business operations. Actual results may differ materially from those projected or employed 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, www.timken.com. Reconciliations between GAAP and non-GAAP financial information are included as a part of the press release, as well as on the investor's overview portion of our website.

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. First, a couple of quick comments on the fourth quarter and the full year of 2008.

Then I would like to spend most of my time reviewing what we were experiencing and what we are projecting for 2009. Earnings in the fourth quarter would have been in line with the estimate we shared with you at the end of the third quarter, except for the timing of LIFO charges, driven by significantly weaker automotive demand.

For the full year, as you have seen from today's earnings announcement, Timken generated strong results in 2008. Sales and earnings were both records and the company generated record free cash flow of $230 million.

Moreover, we had a good year strategically in 2008. We opened four new plants.

We completed two acquisitions, and we achieved improved market diversity with significant expansions in our targeted growth areas, including aerospace, energy, heavy industries, and in Asia. I wish I could stop there, but the world has changed dramatically.

During the third quarter of 2008, we saw the slowdown in the US auto market deepen. Then, as you all know, in the fourth quarter we saw significant reductions in most of the markets we served, setting the stage for a very different year in 2009.

For Timken, the North American auto segment has been a challenge for some time. It worsens significantly mid 2008 as spiking gasoline prices slowed SUV and light truck sales.

In the third quarter of 2008, the slowdown spread to passenger cars in both US and Europe, and then was exacerbated by the worsening credit crisis, and the slowdown quickly spread to related industry including trucking and rail. In the fourth quarter, as commodity prices fell prey to the broadening slowdown, metals, agriculture, and mining slowed.

In parallel as the credit crisis continued, we began to see cancellations in capital programs including many under development in India and China. The sum of these reductions resulted in fourth quarter sales that were down 10% from the previous year.

In spite of our successful growth programs in aerospace, energy, and in Asia, and despite very successful pricing programs. As we began 2009, we see the broadest economic slowdown affecting our customer base that we have experienced in many years.

We do not know how deep or how long the slowdown will be, but clearly it is severe. In our analysis, the only parallels we see are the global slowdown of the early '80s, and this one may be worse.

As a result, our expectation is we will see significantly lower sales and earnings in 2009, with earnings excluding special items in the range of $1.30 to $1.60 per share, compared with $3.26 in 2008. Our assumptions are based on an expectation of 2009 economic performance consistent with most published forecasts.

Global GDP is expected to be negative in 2009, after years of continued growth. The industrial production in the US and Europe is expected to decline, perhaps in the 6 to 8% range, and in China growth is expected to slow from double digit rates to around 6% for both GDP and industrial production.

North American light vehicle production is expected to be in the 10 million unit range, and the global economy is expected to be in recession, extending through 2009. In comparison, two segments continue to be relatively positive in our expectations.

Aerospace, where demand for us is still strong, heavily influenced by our exposure to the helicopter market, and in China where GDP growth continues, albeit at significantly slower rates. The impact of the economic slowdown is serious, but would have been much worse had we not improved the diversity of our market portfolio over the past years.

Our repositioned portfolio offers some confidence strategically, even as we are embroiled in these difficult times. But it is not enough.

Our performance during the slowdown will hinge on our improved operational capabilities. As we began to see the drop in demand in mid 2008, the new capabilities created by our Project One investments, improved our ability to anticipate fluctuations in demand.

As a result, we began to reduce employment levels in our factories early in the second quarter. During the past 15 months, we have reduced employment at Timken by approximately 2,500 associates in contract employees, about 10% of our workforce.

We have also reduced hours worked through temporary shutdowns, short work weeks, and other forms of short-term outages. These actions have allowed us to adjust our operating level to the point that despite the reductions in demand, we actually reduced our inventory in the fourth quarter and generated record cash flow.

We are also operating on the basis that this slowdown will not be short lived. As a result, we are taking appropriate actions.

In addition to balancing our manufacturing output to the current demand from our customers, we have cut sales and administrative spending twice in the past 12 months. We will enter 2009 with spending levels down more than 10%.

We also reduced our capital spending in 2008 by $40 million against the prior year, and 2009 levels will drop again, currently expected to be around $200 million, or 25% lower than 2008. In 2008, as contracts came up with our customers, we were successful in achieving pricing that reflects the value we are delivering.

We expect this to continue in 2009, which will partially mitigate the impact of lower volumes. As we monitor our customer's activities, and the demand for our product, we will continue to take actions as appropriate to optimize the performance of our company.

Each of these steps will be driven by our strategy to improve shareholder returns over the cycle, and increase the industry and geographic diversity of our portfolio, with a specific focus on growing in Asia and in the more attractive industrial sectors. In my 25 years at Timken, I have never seen a management team so aligned and so capable of leading the company in turbulent times.

We will undoubtedly be tested by the current economic situation, but the same way that our products are made better by the heat applied in processing them, we are confident that Timken will emerge from this cycle a stronger and more resilient company. Now I will turn it over to Glenn for a more detailed review of Timken results.

Thanks, Jim. For the quarter, the company's fully diluted earnings per share from continuing operations were a loss of $0.38.

Excluding special items, earnings were $0.07. These special items included $42 million of after-tax expense primarily related to a goodwill impairment charge in the mobile industry segment, reflecting deteriorating market conditions.

Restructuring, rationalize, and impairment charges were offset by the benefit of CDO payments in the quarter. The rest of my comments will exclude the impact of special items.

Sales for the fourth quarter were $1.2 billion, a decrease of 10% from 2007. The benefits of pricing, surcharges, and acquisitions, were more than offset by lower demand across most of the company's end markets, as well as currency.

Demand was the weakest in the automotive light vehicle market sector. Gross profit margin for the quarter was 15%, a decrease of 460 basis points from last year.

The negative impact of lower volume, higher raw material costs, and LIFO charge, were particularly or partially offset by pricing and surcharges. Fourth quarter results were negatively impacted by the timing of material cost recovery that benefited the third quarter.

The full year, the company was able to fully recover entire material costs. As a result of weaker market conditions, SG&A spending was reduced with margins improving 40 basis points over last year to 13%.

EBIT for the quarter came in at $16 million or 1.3% of sales, 470 basis points lower than last year. Net interest expense for the quarter was $10 million, down 1 million from last year due to lower debt levels driven by strong cash flow generation, as well as lower interest rates.

The tax rate for the year came in at 32.8%, compared to our expected 33% rate. The difference was primarily due to a favorable US R&D tax credit reinstated in October that was applied against the company's lower earnings in the fourth quarter.

As a result, the company's tax provision in the fourth quarter was negligible, resulting in a negative 5.6% tax rate. Going forward we expect a tax rate of 33%.

Income from continuing operations for the quarter was $6 million or $0.07 per diluted share, compared to $0.51 per diluted share last year. Earnings for the quarter came in lower than our previous estimate of $0.16 to $0.26 per share, primarily due to the impact of LIFO.

When establishing our prior estimate, we expected to have LIFO income during the quarter equivalent to around $0.11 per share, but ended the quarter with $0.19 per share of LIFO expense. This difference resulted from having higher cost inventory on hand at the end of the year.

The company expects to record LIFO outcome in 2009 as this inventory is converted into future sales. Now I will review our business segment performance.

Mobile industry sales for the quarter were $462, down 23% from a year ago. The decline was driven by lower demand from the North American and European light vehicle and heavy truck market sectors and currency.

Partially offsetting these factors were improved pricing, as well as strong demand in the off highway market sector. For the quarter, mobile industries had a loss of $32 million, or 6.8% of sales, 590 basis points below last year.

The benefit of improved pricing, restructuring, and SG&A savings, were more than offset by the effect of lower demand and higher material costs. Given uncertainties in the automotive industry, the company continues to actively manage its credit exposure and believes that it has sufficient reserves at this time.

We expect lower demand in mobile industries in 2009. Our forecast assumes North American light vehicle production of approximately 10 million units or down 20%.

Similar declines are expected in the heavy truck, off highway, and rail market sectors. Process industry sales for the quarter were $290 million, down 5% from a year ago.

The benefit from pricing was more than offset by lower volume and currency. For the quarter, process industry's EBIT was $44 million, unchanged from a year ago.

Margins were 15.2% of sales, 90 basis points higher than last year. Earnings benefited from pricing and reduced SG&A expense, which was offset by lower volume, higher material costs, and LIFO charges.

We expect lower demand for the process industries group in 2009 across both original equipment and after market sectors. Aerospace and defense sales for the quarter were $113 million, up 19% from a year ago.

Excluding the impact of acquisitions, sales were up 12%, driven by pricing and volume. EBIT for the quarter was $19 million or 16.5% of sales, 530 basis points higher than last year.

Improved earnings resulted from pricing, acquisitions, and strong demand. We expect continued improvement in the aerospace and defense segment in 2009.

While the defense market is expected to remain strong, the civil market is expected to weaken, but with little immediate impact to Timken, given our current backlog. Steel Group sales for the quarter were $371 million, down 2% from a year ago.

The decline was driven by lower volumes, particularly in the automotive sector which is partially offset by favorable mix, the acquisition of Boring Specialities and higher surcharges. Steel Group EBIT for the quarter was a loss of $3 million or 0.9% of sales, over 13 percentage points lower than last year.

The lower earnings resulted from higher raw material and manufacturing costs. During the quarter, the company had negative material cost recovery, primarily due to the timing of our recovery mechanism which benefited the third quarter.

We expect lower demand for the Steel Group in 2009. Most end markets are expected to be down between 10 to 15% and at current market rates for scrap and alloys, surcharges would be down even more.

Looking at our balance sheet, we ended the quarter with net debt of $508 million, 185 million lower than the end of last year due to strong cash generation from operations. Shareholders' equity at the end of 2008 was $1.6 billion or $338 million lower than the prior year.

The reduction of equity was due to an after-tax charge of $415 million, reflecting a valuation adjustment for pension and other post-retirement benefit obligations, primarily resulting from negative pension plan asset returns in 2008. The company's pension plans ended 2008 approximately 67% funded.

The company's leverage of net debt to capital improved to 23.8% from 26.1% at the end of 2007. Including cash and committed credit facilities, the company had approximately $700 million of liquidity at the end of 2008, including $175 million asset securitization facility that was renewed in December.

The company does not have any significant debt maturities coming due in 2009. Timken ended 2008 with investment grade credit ratings at both Moody's and S&P.

Pre-cash flow for the quarter was $168 million due to strong working capital management. Working capital contributed $244 million of cash flow in the quarter, half of which came from lower inventory levels.

Partially offsetting this benefit was capital expenditures of $85 million. In summary, our outlook reflects a deteriorating economic environment that is expected to last throughout the year, impacting most of the company's broad markets.

Timken expects earnings per diluted share for 2009, excluding special items, to be $1.30 to $1.60 for the year, down from the $3.26 per share in 2008. We expect to see lower sales across all of our business segments compared to last year, except for aerospace and defense.

The impact of lower volume and surcharges is expected to be partially offset by improved pricing and lower material and SG&A expense. The company will continue to take actions to align its business with market conditions.

Despite deteriorating markets, the company expects to generate strong free cash flow in 2009, driven by improved working capital management and lower capital investments, partially offset by higher pension contributions. Capital expenditures are expected to be approximately $200 million, compared to 272 million 2008, while pension contributions are expected to be approximately $90 million, compared to 22 million last year.

This ends our formal remarks and we will now be happy to answer any questions.

Andrew, are you there?

Great. Can you hear me?

We can hear you now.

Okay, great. So, just a question first in terms of assumptions for positive pricing in '09.

Just given the state of the world, can you just give us a better, I guess color, where have you seen pricing power in 4Q08, and what are the key areas for pricing power in '09, maybe by region and product?

Yeah. Andrew, this is Mike.

I will take it from a bearings and power transmission perspective. As I think you are aware, there is a significant piece of our business that this is negotiating contracts from time to time, and so much of that pricing that we see still remaining strong in 2009 is already under agreement.

So, there is some real positive moves with regards to that to offset some of the volume impact. Obviously you will see it very differently throughout many of those markets, again because of the timing, and/or if there are contractual obligations with that pricing.

So, as the markets deteriorate in many of these areas, I think as Glenn and Jim talked about, there will be ongoing pressure with regards to that, but we feel we still are in a pretty good position with regards to pricing across most of our markets.

Sorry, and just a follow up question. In terms of your new facilities in India and China, could you just perhaps — and perhaps I missed it, but could you provide a bit more color what are you seeing specifically in terms of demand in these two key end markets, and what has your experience been so far.

Sure. We have completed two additional facilities in 2008 in Asia.

We will complete another facility in 2009. Those facilities actually were put in place to serve the Asian markets, which as we said a little bit earlier, we do still see some growth, in particular in the China markets.

But I will tell you also at the same time there is pressure on that new capacity just because the global markets are weakening. So, we would have used the majority of that capacity to serve the Asian markets and its growth, some of that capacity being used to serve the global markets.

So, the first piece is still attractive, the second piece obviously will be weaker.

So that is a 4Q development that you have allocated some of the capacity, right?

I am not sure I understand your question, Andrew.

Well, the fact that you reallocated some of the capacity to serve as the global markets, is that a 4Q development?

No. This is something that we do on an ongoing basis.

As we put that capacity in Asia, and the manufacturing facilities that we have built over there, they are built primarily to serve the Asian markets, but they serve as global entities. So, they would serve all of our markets across the world and they —

I guess what I was trying to get at — if you are starting to see any weakness in those markets, but it certainly does not sound like you are seeing any, right?

Well, we are seeing in markets like India. Until they in fact get their focus around the infrastructure build across their country, so we are seeing some local weakness in the Indian markets.

The China markets, we are seeing weakness, but again, it is in a growth perspective. And if you look at the stimulus plans that are being brought forward by the Chinese government, and you go into the details — probably a little bit better than 50% of that total plan impacts our business in a positive sense going forward.

Great. Thank you very much.

You are welcome.

Hi, everybody. Just to follow on some of the questions about China.

I wonder if you can give us a sense for whether you have seen any order cancellations from the longer-term customers? And we have been starting to hear that some manufacturers are seeing early indications of orders based on the China stimulus spending.

Are you seeing anything from that? And then third, if you could just address your new wind capacity in China; are there any changes to the strategy for that capacity?

Thanks.

Yeah. Melissa, this is Michael.

Let me see if I can answer all three. Yes, we have seen order cancellations because there is a chance in the mix of where the focus on either the stimulus packages are going to put — inject cash into that marketplace, but at the same time we are seeing cancellation of orders, we are also seeing new opportunities n the China market that would be lined up to the stimulus plan.

In some cases we are beginning to see activity from our customers, in other cases we are seeing the forecasts from those customer as to how that stimulus plan will impact them. So that is kind of the first two questions.

On the wind perspective, we continue to expand our capacity in China for the wind energy market, and that is again coming from the stimulus plan and the expectations that the Chinese government will continue to push for their 20% renewable source of energy by the year 2020 and therefore they will continue to invest in the infrastructure around wind energy, and therefore we will continue our capacity expansion in China to serve that market.

Okay. Thank you.

You're welcome.

Hey, thanks very much. How are you guys doing today?

Good morning, Mark.

I had a couple of questions. First, I just wanted to get back to the pricing issue.

Based on — first, it might help to just get a sense of how much of your business is contract versus spot, or I guess where pricing is relatively fixed, how much of your volume is relatively fixed as opposed to highly variable based on monthly or weekly shifts in supply and demand dynamics?

Yeah, Mark, this is Sal. Good morning.

Hey, Sal.

First of all, for our steel business, we have 80 to 85% on annual contracts. And we are through our contractual negotiation periods and things are fairly steady.

From a volume point of view, I don't know what is not variable anymore quite frankly. This market is the most unusual and the weakest we have ever seen develop.

For the first time, just about every market segment seems to be synchronized with weakness. So, all I can tell you is we, like everyone else, saw the automotive segments of this weakening starting last September and they have clearly bottomed, although Lord knows whether or not they will stay that way, but our other segments are starting to make adjustments that reflect this economic environment that we see.

And I am sure there are going to be pricing pressures that come to the market's base just because of that. As of right now, those things are factored into our guidance as we put it together.

Yeah. Okay.

So, of your fixed-price business, do you have raw material surcharges included?

Yeah, Mark, we maintained all of our raw material surcharging mechanisms. Clearly as you know, you watched these numbers as closely as I do.

Those numbers have all kind of plummeted so that the indexes are simply not going to garner much. From a transactional price point of view in the customers' eyes, they are going to see dramatic price reductions because of the change in all those raw material costs.

Yeah. Until scrap goes back up to 900 bucks.

That is right.

Hey, Mike, in your business, how much of that business is contracted out?

Yeah, Mark, it is different by business unit. If you look at the mobile unit you would see the majority of that being under contractual obligations and those would vary from a year to, in some cases, two or three years, depending upon whether it is platform oriented when you start to talk about the automotive industry, or just more general business oriented which would lead you to be sort of from long contracts to short contracts.

Process industries not much — again you look at distribution markets across the world. A lot of that business is very project oriented and so you would not see as much from a contractual standpoint, especially nothing beyond a year.

And then the aerospace and defense is a mix because as you know now that we have moved about 37% of our business into an aftermarket piece of that, which again would not be held under contractual obligations, and then the remainder is a combination of the OEs that you would know and defend. So, it is a mix by the businesses.

So, almost when you rolled it all up and looked at it, maybe 50-50.

Okay. So it is fair to say when you are talking about pricing upside associated with contracts coming up for renegotiation, most of the pricing upside for '09 from that particular metric will flow through the mobile industry segment?

Is that fair?

Well, because that is where the majority of the contracts are —

Yeah. That is what I mean.

That would be correct, yeah.

Okay. Is there anything that you can say about — now, I recognize that everything is falling off, and it is just amazing what happens to the economy when the banks turn the credit spigot off.

Is there anything that you are seeing right now that would suggest that the credit markets would have an opportunity to resuscitate some end market areas? And also I would like your take — and I don't know, you might have said something about this and I could have missed it, but do you have a sense about some of the end market metrics?

I mean everything is going to be down, but are the industrial businesses likely to be down less because of a growth in China or could you give us a little color on the relative momentum of the various end markets?

Yeah. Let me try, Mark, to give you as much color as we can.

I appreciate it. Thanks.

Yeah. If we just take the mobile markets for a minute.

The light vehicle side or the automotive type industry, to a certain extent is beginning to bottom, right? I mean, once you get down around when you are looking at North American light vehicle production under 10 million, you are getting to a period that it is bottoming out, and so we are beginning —

But do you think that is below replacement level of production at 10 million?

I do not know if it's getting close. I mean, I do not know how to answer that.

Okay.

So, probably others better than us to do that, but I think we are at a point though where we're starting to see that flatten and it can't get much lower than it is. So, we have seen the worst on that side.

The rest of the mobile industries though, when you start to talk about the rail industry, the off highway industry, mining, etcetera, now you are starting to see areas that haven't hit the bottom yet. In varying ways rail stated to soften.

In the middle of 2008 we are beginning to see that to continue on through 2009. Some of the mining companies just began in late Q4 to take their schedules down and now you are seeing dramatic announcements in the marketplace with regards to what their expectations are for 2009 so the non auto side of mobile hasn't seen the bottom yet.

On the process industries, it is an interesting one because it is deteriorating very quickly because it's been the strongest. But this is the area where we are going to watch very closely what happens in China.

Because there is upside — as China puts their stimulus packages in place, they will spend an inordinate amount of that on infrastructure built going forward, and that will be good for our process industries business, it will be good for the capacity that we install. However, we don't expect that that is going to offset the deterioration across the rest of the world.

And then on aerospace — our aerospace business is just a little bit different than the general aerospace. We are just not that big in commercial, there is a lot of defense in helicopter, and so that actually still looks strong through 2009 and we have got basically a full order booked for the year.

Okay. If I could just — I realized I have already taken more questions than I should, so should I get back in line or can I ask one more?

How about you reflect on it so you can step in line and let some others and then come back?

Okay, Glenn. Thanks a lot for all the color though, Mike.

I really appreciate it.

Good morning.

Hi, Eli.

Good morning, Eli.

So you are surviving well. Can we talk a little bit more about your guidance of 2009 and color?

I realize you can't be specific, but there are two aspects; one, it looks like the first quarter is going to be quite difficult and whether it will be profitable or not and the magnitude of the LIFO income and does it come in the first quarter and how that shows. And then can you give us color on what's going on in segments?

You have profitability and process came down to 15%. Can you hold it?

I don't know what you're forecasting for down volume. Aerospace had a big profit quarter.

I know aftermarket (inaudible) aerospace company held up better. What kind of sustainable numbers should we send in, what kind of buy are you expecting, at least thinking about the 2009?

And what kind of loss do you expect to be generated in mobile — just really some color on what's going on in segments in businesses.

Eli, I'll start just maybe kind of from the enterprise basis and then have Mike and Salk talk maybe about further down in the business, but clearly the outlook that we have for the company is to be down. Obviously we have given the earnings guidance which is down fairly markedly from what we did in '08 albeit with the perspective that '08 was by far the strongest year we've ever had.

We expect down markets ,as Sal and Mike both alluded to across most of the end markets that we serve with the exception maybe of the aerospace and defense area. Volumes, again it is tough to tell.

Obviously the outlook is pretty difficult, but seeing what is out there, talking to our customers, we are looking at anywhere from kind of a 10 to 15% call it market decline across most of those end markets, again with the exception of aerospace being probably up some. And then on top of that it gets a little compounded because at the current levels of scrap and alloys, we expect that surcharges will also be down.

So, top line will be down fairly markedly. We are looking to leverage that as best as we can through the pricing that you heard Mike talk about, and not pricing just on the business that we are working on right now that probably the contracts are in the spot market, but the benefit of full year pricing that we would have gotten some of which last year that will get the full year impact and clearly monitoring our costs, our S&A, and so forth.

So again, from a leverage standpoint, we're managing that fairly negative top line outlook as best as we can, but it does bury across the different markets, so at least I'll ask Mike and Sal —

Is that first quarter as tough as I see it and could I possibly be in the red or do you expect to be profitable in the quarter?

Again, I at least put it this way. It is our expectation that we should be profitable as a company for the full reporting year.

I mean, clearly we are going to have our spots of weaknesses throughout each of the different segments and so forth, but based upon what we see, we are still coming off of obviously a low fourth quarter, but some of that was not seasonal issues per say, but timing related issues. So again, for us to hit the expectations that w have set for ourselves for the year, it is with the assumption that we will be profitable throughout the year.

Can we talk about the segments, particularly what is going on and what is sustainable and what is not, given the fourth quarter kind of numbers?

Yeah, Eli. This is Mike.

Let me give you a little view of the bearing and power transmission segments. I think on the mobile said, a little bit as I was answering Mark's question, we are seeing the light vehicle sort of flatten out.

The rest of it coming down pretty aggressively, so we are in the higher end of what I think Glenn put as the 10 to 15% on the mobile said. We do still expect to be profitable in 2009 and so we will attempt to at least hold that margin to that deterioration on the top line.

On the process industry side, we are kind of in that range that Glenn talked about, and that is just beginning to deteriorate more aggressively than probably what we saw as we started into the fourth quarter, and we really do not know where that is going to settle out as yet, but again, I think if you look at Q4 margins and talk about will we be able to hold those — those would certainly be our expectations. And then the aero business, again as Glenn said, we hear that slightly up for the year and as we have improved those margins throughout 2008 as we had expected, we again would expect those margins to remain higher than they have been in the previous two years.

But the fourth quarter was an anomaly, although if you look at Q1 for our business as a total versus Q4, it does not look a lot different, and then it obviously gets better from a bottom line perspective, even though the top line may continue to deteriorate.

Yeah, Eli, this is Sal. I guess I can give you a little color about the anomaly in the fourth quarter for steel.

We got hit by three different big things that we would not expect to see materialize gain all at one time. That was the precipitous drop in the index for bundles.

I mean, it went — you have seen those numbers. It went from nearly $900 to $200.

That was just incredible. Secondly, we saw the delay in LIFO as we had customers closing plants and shipments just coming to a halt.

That occurred in November and December. I mean, we had a record performance for our business in October and then things just fell apart in November and December with many customers just shutting plants and not operating during that entire time, even when they had other orders on the books.

That pushed us into having a position of having more than half our capacity just shut down and not scheduled for that period of time, and that is a very, very unusual set of conditions to all hit at the same time. A lot like our markets are behaving similarly — we do not have as much international exposure, but our automotive markets we believe have bottomed, and they are weak, but we believe replacements will continue.

We have not seen the bottoming of our industrial and our energy markets yet. With oil at $40 a barrel, we are definitely seeing drill count go down.

We are seeing inventory adjustments being made even as the activity levels in plants have gone down. There is the double hit of the adjustment in the pipeline of inventory to accommodate the lower levels.

And while I think we are going to continue to see that in the first quarter, we think our first quarter will be healthier than what we felt in the fourth quarter, but a lot weaker than what we saw anytime during the healthy part of 2008.

And do you have some idea of what the magnitude of the LIFO profit you are factoring into your thought process and if it is spread out over the year or how do we handle that?

I would say again, that is just one of so many different assumptions, Eli. I think just directionally we wanted to comment that it is our expectation that it will be a positive number.

It is not going to be that material, but at least we believe it will be positive or clearly for 2008. There was a reasonable expense for the year.

All right. I will get back in line.

Thank you.

Thanks, Eli.

Hi, good morning. I had a couple of different questions.

First, just flushing out the free cash flow, you gave the CapEx numbers, but do you have a number for expected depreciation for the year, and do you have a number for whether the change in working capital is either plus or minus for the year?

You are talking for our outlook?

Yes, '09.

Okay. Depreciation and amortization should not change that much from what we would have had in 2008.

I will give you the number in just a second — around 200 and — call it 30 million-ish of D&A.

Okay.

And the other part that we didn't provide —

Working capital in terms of change in working capital over the course of '09, do you expect it to be a use or a source of cash and if you have any estimate on that?

Yeah. Not to provide an estimate, but we do expect it to be a source of cash for us in '09.

We made good progress in the fourth quarter, obviously part of it just driven off by what's going on in the economy, but continued very strong progress and focus on it. So again, as we look to 2009 just in general terms, we expect a very strong year of free cash flow.

2008 would have been a record year for us, 2009, with the exception of 2008 would probably be our second best year, so a lot of positive things. Even despite the lower earnings, the higher pension contributions, we do expect a lot of positive working capital, lower CapEx, to drive that.

Great. And if I could throw in just one other on another topic.

You mentioned that the helicopter market is doing pretty well for you a couple of times. Could you give us a sense of how big a market that is relative to your sales and the customer end markets, are they mostly military or is there an oil and gas component ?

What are the key end markets there?

Yeah. The helicopter business is between 40 and 50% of our aerospace business.

A component of that is defense and oil and gas, and that is probably the downside is the oil and gas side of that helicopter is that softens the demand for the helicopters in that portion.

Thank you.

Hi, good morning. Regarding the inventory reduction in the fourth quarter — I appreciate it was positive to see the sequential decline, but you still have inventory growing faster year over year than sales — in fact, (inaudible) sales were down.

When you look at your guidance, baking in your working capital commentary and your EPS guidance, are you looking at production levels in the guidance that will be below the sales declines, essentially inventory coming out faster than the sales declines?

Yes. Again, we are looking for, as it happened in the fourth quarter, continual decline in our inventory levels relative to the sales that we are seeing coming down.

But in fact, in the fourth quarter that wasn't accomplished. The inventory were still up 5.3% year-over-year while the sales were down 9.7.

So, what I am trying to factor in for the '09 commentary, are you looking to underproduce your retail demand?

David, this is Jim. You have got to look at 2008 as a year and in the early part of the year we focused on improving customer service and actually built inventory.

In the fourth quarter, we took inventory out. So, in the fourth quarter we actually underproduced our shipments, and we will continue to do that to drive inventory out of the business.

Okay. Regarding the scrap assumption to try to get into the LIFO in a little more detail, would you mind sharing with us what do you now — and I know it changes every month or every quarter, but at least to give us some baseline to start given how well the LIFO swings have been in the last couple of quarters.

What are you assuming for your scrap assumptions at 1230-109?

We're expecting a scrap — of course it is different based on what different grades you're buying, but we're assuming it is going to be in the $200 to $300 a ton range.

Okay. Thank you.

The funded status for the pension at year end —

Yes. We are around 67%.

Okay. I mean there are a lot of assumptions for the year on liabilities, discount rates, and the asset returns and all that, but when it comes to the 90 million, just kind of philosophically, how are you thinking of that contribution level in the sense of giving it back to how quickly to get you back to an 80% funded status?

Because if the cash flow is obviously pretty healthy in the fourth quarter, the idea is '09 tends to be a little bit of a cash flow story, but is the pension going to maybe suck up more than 90 in '09? Or if that is not enough for '09, then '10, I know where my cash flow has to go.

It has to still go into pension. Can you help us think thorough that?

Yeah. I think if you look at the overall unfunded position that will end the year on the balance sheet, you will see around an $870 million number.

So, obviously we are not going to replenish that in any one year, so our expectation is that in 2009 it will be somewhere around 90 million that we'll contribute, but what it also means is that there will be fairly sizeable contributions as well as we go into 10, 11, and 12 subject to markets correcting or interest rates rising. So, from a cash flow standpoint, we're able to absorb those higher pension obligations still with strong operating cash flow such that we will still generate, again, a very strong cash flow, even after those contributions are made.

And last two quick questions; did I hear you correctly? Process industries, the margin guidance for '09, higher margins in '09 than '08?

Did I hear that properly?

No. The question that Eli asked was with reference to the fourth quarter.

But did you give '09 margin commentary on process?

Only as it related to the fourth quarter maintaining that level of margin.

Okay. And lastly, we obviously spoke for awhile the last 12, 15 months about if auto is still weak by the end of '08, and we start thinking of getting more serious about just shuttering and selling assets in auto — I know it is not the greatest market to be trying to sell auto assets, but can you give us an update on where your head is, given obviously auto is probably even weaker than you could have imagined 12 months ago.

I will just make a general comment on that. Clearly we have the strategy within all of our businesses, but clearly auto related business have been more challenged affixing or exiting business.

And by that, we mean that we're looking at everything that we can do to improve the performance, including if we have to exit product lines for like we have for business that we have, as well as any other opportunities that we have to either improve the performance or lessen the exposure we have there. So, we continue to actively pursue all the areas that we can to drive that improvement.

Well, I guess a little more pinpointed, I mean, some of the smaller diameter bearings that obviously have the volume in (inaudible) auto, is it at such a state — and taking Jim's comment earlier that we expect this to be a lengthy downturn, maybe even worse than the early '80s. Where are we in the thought process of taking the one time hit and truly exiting some of these businesses?

Well, David, let me take that just quickly. As you know, we have been going through a whole series of activities to fix this portion of the business, and that includes repricing our contracts in the marketplace at the value we can provide, taking costs out of the existing business which we have, taking working capital out, so reducing the invested capital side of that business.

And the good news is most of that has been very successful. The bad news is the volume in the marketplace has just completely dwarfed that.

And so, what we are assessing at this point is the positives of the improvements that we've made in the business versus the long term structural level of this industry and their needs for our products. If that actually comes back and is relatively strong and our position is good, then the fixes that we've put into the business will make it relatively attractive.

If it is not, then you would continue to look at exiting the business because you would say long term it is not profitable. So, we are in that process.

A lot of positive things going on. The volume is dwarfing it right now, but we're still in the assessment as to how thing comes back when it does come back.

Well again, not to sort of badger you on it, but we have been talking about this for awhile, and if there ever was a moment to see the death of this industry and the days of 15 and higher million bills — who knows if they come back whatever it may be. With the amount of losses that have been occurring within the auto piece of mobile, I appreciate it is not simply your decision to say let us exit and get a good sale price and so forth so I am not being naive about the market out there for buying these assets, but the decision to actually exit them — I assume they are absorbing a lot of cash, they are obviously losing a lot of money on a GAAP perspective —

Well, David, the comment I would make is we clearly understand all of that. We are taking the appropriate actions, and when we are ready to announce anything publicly, we will do so, but at this point we are not.

I appreciate that. Thank you for the time.

You bet.

— profitable in '09, even as some of the other non auto markets are getting weaker. Should one assume that in fact the other markets are still going to be profitable when automotive continues to be severely hemorrhaging losses or is there essentially auto's losses in '09 will actually be not as bad as in '08.

That is the first question if I may.

Yeah. We missed the first part of yours, Marty, but let me see if I have got your question.

As we look at 2009, are we still expecting significant losses in the old automotive —

Yeah. Essentially, if you look at mobile today, your comments for mobile will be positive.

That is what our guidance was for '09. Did I get that correctly?

I think that is what you said, '09 mobile will be overall in the black. Is that correct?

Correct, that is correct.

To the extent that that is how much you are making, you also made the comments that all the non automotive businesses are going to be severely declining quite a bit. So, I am just wondering if whether on a relative basis, does automotive actually lose less money so that you can be in the black overall in mobile?

Well, as I said previously on the earlier question, we continue to make improvements in that old automotive grouping as we looked at it previously which we now look at it as light vehicle systems. So, that continues to improve with the fixes that we have going in, and so there is some offsetting profitability of some improvements there and some weakening in the other.

But I also want to make sure that the point gets across that we are seeing continued improvement with regards to pricing across all of our markets. That is offsetting some of the downside on the volume and the deterioration in the markets.

So, there is a combination of things going on there.

Okay. Now, the second area, steel; if you look at your previous performance, you have been double digit margins '05, '06, '07, no matter what the steel markets have been doing, even before we had the significant surge.

However, as you alluded, third quarter was a peakish number because of what happened on the cost side and the surcharges reversing etcetera. Were the fourth quarter loss in steel being affected by the inflated third quarter numbers?

As we look into '09, should we assume some resumption of margins back in steel to historical levels or at least near the double digit level? Because, in a sense we are starting off and with fourth quarter being a loss, just wondering whether that is indicative of, in a sense, the '09 outlook for steel.

Yeah. Marty, this is Sal.

I think if we were in very more routine market conditions, I would say what we had made comment about on prior occasions where 10% EBIT margins as a very reasonable assumption, would have held. We are not in that kind of market right now though.

We're seeing weakness, and that weakness is going to result in unpredictable and a bit more erratic asset utilization which I think is going to put pressure on that. We think we are going to stay black, no question about that, but near double digit, but I think there is going to be a lot of downward pressure just because of the unusual synchronization of weakness across every market that we see, and not just in our industry, but across the whole globe as they exist.

You did say near double digit I believe?

Near.

Near? Okay.

So that suggests there is certainly recovery back, if not quite historic levels, but certainly a recovery. One last question, on the free cash flow, if we just take your 130 estimate on the low end and work through the D&A and CapEx, before working capital you look like you can generate about 150 million.

Some of that is dedicated away to the dividend and the pension, but should we expect with that, any working capital essentially to translate the further reduction in debt? I mean, is there a debt reduction goal to take your net debt down from the $500 million to a much lower number?

I guess when we look at our debt position, we feel pretty good about where it is. It is again, 500 million net debt position.

We do expect to accumulate cash or generate free cash flow above all of the needs that we have in 2009, and we will assess the opportunities and what to do with it. Clearly, barring other opportunities, paying down debt, especially in this market and having that extra liquidity is pretty positive, but we will look to see the best opportunities we can to redeploy the cash.

Okay. Thank you.

Yes. Good morning.

Good morning.

Going back to the mobile sector, and I apologize for this, but is it $31 million or $31.5 million EBIT loss, is that after or before the charge for the impairment?

That would be before. That excludes special items.

Okay. So, I mean that is a fairly significant hole to dig out of.

How do you turn that around for the first quarter or second quarter? How do you cut into that, absent taking some fairly significant restructuring actions?

Well, I think a couple of things, David. This is Mike.

I mean, first of all, you have to look at what happened in that fourth quarter. I mean, the industry essentially shut down and so did we.

We took the majority of our manufacturing facilities that were focused just on that mobile industry and I would say that between Thanksgiving at the end of the year, there was literally no activity. So, that was a very unusual period of time where the industry was shutting down, the liquidity issues, the whole supply base was shutting down, people were taking end of year inventories out, and so we saw significant impact on that business.

We'll start to see some recovery in the first quarter just as some of the manufacturing and our customers come back to work, but again, if you think about the first quarter that essentially when they shut down at Thanksgiving, they pretty much shut down to the middle of February. And so, we will begin to see some recovery of that industry in the second half of the first quarter, and then we will see improvements in the performance of the business for the remainder of the year.

Okay. And then my second question is, obviously equity was impacted by the pension plan additional liability that was recorded.

Any impact on any debt covenants, or are there any of your debt covenants that are driven by net worth, and do you anticipate any covenant concerns in 2009?

No. We do not have net worth tests.

We have kind of an interest coverage and a debt EBIDA kind of calculations, and we have substantial room across all the facilities that we have. No concerns on our part.

Very good. Thank you.

Hey, thanks very much. One thing I wanted to try to get a little more color on was the restructuring and kind of the non operating charges.

It looks like you had expensed about $8 million in that category through the first nine months of the year, and then excluding the goodwill write off, the number moved up to 14 million for the fourth quarter. I think my math is right there.

Could you talk a little bit about what was really within the change for the fourth quarter, and what you would expect for this category for '09 and so, what do you have assumed at this point?

Well, as we look through again for the year, we have probably around $9 million of restructuring in 2008, and again that was offset by fairly similar amount of CDO that came in so that the total year was really the goodwill impairment that caused it. We do assume that there will be additional restructuring.

Obviously we are not providing that as an estimate that we have, but we'll have ongoing restructuring. The biggest question will be what the market is going to be as we go through it.

Clearly we have a view of what it is going to take in order to drive the estimates that we provided, but that is just an estimate at this stage depending on our outlook and that will change, which is one of the reasons that we don't provide that as an estimate. But clearly there is still going to be some ongoing restructuring charges with the actions that we're currently taking.

Okay. Do you think, Glenn, is there kind of a light at the end of the tunnel on the restructuring charges?

Do you see yourself getting to a point sometime within the next 12 to 18 months where we could go for an extended period of time without these sorts of quarterly occurrences?

That is obviously a good question, Mark. Clearly when we establish restructuring, we have talked about some of the major programs that we had, and effectively, 2008 would have concluded those programs.

Yeah. That was kind of my thought.

That is why I brought it up.

Yeah. So as we now deal with the new environment, we're dealing with the fact that we do have a lot of — trying to balance supply and demand, trying to balance the cost structure of the company.

So, if you will, it is a new way to adapt. But, as we get through this recession, a lot of structural changes that we have made that we've restructured are now behind us, so we are looking for that light at the end of the tunnel as you say that once we'll get through this marketplace, we shouldn't see that or nearly not to the extent that we have before.

Okay. Terrific.

Thanks very much.

Yes. Thank you.

Thank you for your interest in the Timken Company. It is clearly a challenging time.

I hope this morning gave you the same confidence that I have that we have a leadership team that is on top of the issues. We have a solid balance sheet, action oriented, and continue to take prudent action to optimize our performance.

Our intent is to leverage the downturn to create a stronger and more resilient company. Thank you.

Thank you for joining us today. If you have any further questions, please feel free to give me a call.

This is Steve Tschiegg at telephone number 330-471-7446. This concludes our call.