Shelly Chadwick - IR Richard Kyle - CEO Philip Fracassa - CFO

Stephen Volkmann - Jefferies Eli Lustgarten - Longbow Securities David Raso - Evercore ISI Ross Gilardi - Bank of America Larry Pfeffer - Avondale Partners Steve Barger - KeyBanc Capital Markets Schon Williams - BB&T Capital Markets Samuel Eisner - Goldman Sachs Justin Bergner - Gabelli & Company

Thank you, Matt and welcome to our fourth quarter 2015 earnings conference call. This is Shelly Chadwick, Vice President of Treasury and Investor Relations for the Timken Company.

We appreciate you joining us today. If after our call you should have further questions, please feel free to contact me directly at 234-262-3223.

Before we begin our opening remarks this morning, I want to point out that we have posted on the company's website presentation materials that we will reference as part of 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 the Timken Company's President and CEO, Rich Kyle; and Phil Fracassa, our Chief Financial Officer. We will have opening comments this morning from Rich and Phil, before we open the call up for your questions.

During the Q&A, I would ask that you please limit your questions to one question and one follow-up at a time to allow everyone an opportunity to participate. During today's call, you may hear forward-looking statements related to our future financial results, plans and business operations.

Our actual results may differ materially from those projected or implied due to a variety of factors which we describe in greater detail in today's press release and in our reports filed with the SEC which are available on timken.com website. We have included reconciliations between non-GAAP financial information and its GAAP equivalent in the press release and presentation materials.

Today's call is copyrighted by the Timken Company. Without expressed written consent, we prohibit any use, recording, or transmission of any portion of the call.

With that, I would like to thank you for your interest in the Timken Company, and I will now turn the call over to Rich.

Thanks, Shelly. Good morning, everyone and thanks for joining us on the conference today.

As Shelly said, Phil and I will reference several slides from the deck that we posted on our investor website earlier today and I will start with slide four. The fourth quarter played out better than our expectations while we did experience the sequential softening that we expected from weak markets and normal OEM seasonality.

We also saw less destocking in our channels than we anticipated. Demand across our global industrial distribution channel, as well as our industrial services business were both stronger than anticipated which in addition to helping our revenue also helped our mix.

We also saw the benefit in our mobile business of our DeltaX initiative with organic revenue holding flat for the segment despite the difficult of highway equipment market. Our adjusted earnings per share of $0.59 was our best quarter of the year as we saw the benefit of continued cost reduction initiatives, as well as our share buyback.

In the fourth quarter we announced the new plant in Romania when combined with other manufacturing investments underway in India and China. These operations will introduce new and proprietary process technology that will expand our product range, improve our balance of currency exposure and provide an improved cost structure.

During the full year of 2015, for the year we posted a revenue decline of 7% and adjusted earnings per share decline of 13% in what were very challenging markets for us with the strong dollar compounding already weak global industrial markets. Despite the tough markets, we delivered double-digit return on invested capital and double-digit adjusted EBIT margins, as well as $269 million of free cash flow.

2015 was a year of strong execution in a year of building a stronger Timken Company for customers and shareholders. In our first full year of our DeltaX initiative, we improved market penetration via new customers and new applications in wind, rail, marine and light truck markets.

We build our application pipeline to put us in position to increase penetration again in '16 and '17. We expanded global sales and engineering resources, invested in new sales pricing and engineering tools, to continue to deliver the best technical sales experience in the industry and we launched products, add new options to our portfolio to solve our customers friction management and power transmission challenges.

Our operational excellence initiative were second best year for safety in our history, we continue to deliver the quality levels that our customers expect from us. We provided excellent customer service across our diverse channels and markets, and we drove over $60 million of cost reduction initiatives while committing to an additional $60 million for 2016.

In regards to capital allocation, we invested $106 million of CapEx back into our business for cost reduction, capacity, and new capabilities. We increased our quarterly dividend by 4% in May, and paid our 374th consecutive dividend in the fourth quarter, acquired the Carlisle Belts product line, increasing our scale and presence in the industrial distribution channel and increasing the breadth of our power transmission product portfolio.

We reduced our gross pension liability in the year by over 50% while we fulfilled our commits to our retirees and we did so with no incremental cash contributions. And we purchased approximately 10% of the outstanding shares of the company during the year.

We entered 2016 as a stronger player in the global bearings and power transmission space and with a pipeline of initiatives to further improve our business. We also entered 2016 with a strong balance sheet, strong cash flow and confidence in the long term value we will create.

As we look at our markets for 2016, we project the year that will look very similar to 2015 in regards to tough market conditions. On the left column on slide nine, we summarize the organic year-on-year outlook for our end markets.

We can quickly see that only the automotive market is projected to grow year-on-year. Several of our markets like heavy truck, rail and wind are projected to remain -- that will be historically robust levels but at the same time the decline from 2015 levels.

Other markets like Ag and Oil & Gas are projected to continue to contract through the course of '16. We remain focused on managing our mix and profitably increasing our penetration in these markets by increasing our application wins at OEMs and our share at end users through the after-market channels.

I want to emphasize that in many of these markets our visibility beyond the next several months is limited and we could certainly see stronger, global, industrial markets in the second half of '16 but based on our backlog and orders, as well as general market outlook and input from our customers, we are planning for a slow start to the year as compared to the first quarter of 2015 and then from this low base we are planning for stabilization where markets and channels with normal seasonality. On slide 10, the net of our market and penetration outlook is down 5% to 6% organic and additional 2% down due to currency, partially offset by the positive 3% from acquisitions for a net 4% to 5% down.

At the adjusted earnings per share line, the benefit of 2015 share buyback, as well as our cost reduction initiatives will partially offset reduction in volume and currency, resulting in $1.95 EPS at our mid-point which will be a 12% reduction from 2015. At the GAAP EPS line we are planning to increase our restructuring spend in 2016 to approximately $0.30 a share.

Some of that spend is carry over from already announced plant rationalizations and SG&A reduction initiatives. Remainder will focus on improving our manufacturing footprint and reducing our SG&A cost and will be communicated when appropriate to do so.

We expect to again generate solid cash flow in 2016 and after investing in CapEx and paying our dividend we will continue to way our opportunities for M&A and share buyback. Our Board yesterday approved a $5 million share buyback authorization that will run through the year.

With that, I will turn it over to Phil before we open the lines for questions.

Okay, thanks Rich, and good morning everyone. Let's start on slide 12.

For the fourth quarter, Timken posted sales of $714 million, down 6.3% from last year with currency reducing our sales by 35 million in the quarter or around 4.5%. Excluding currency, our sales were off just under 2%.

We continue to experience soft demand in most of the industrial end markets we serve, driven by low commodity prices and weakness in emerging markets like China. However, this was offset partially by growth in the automotive, wind energy and military marine sectors.

We also benefited from the recent Carlisle Belts acquisitions. Overall demand declined a bit less than expected in the fourth quarter with less inventory destock in other channels than we thought.

Regionally, excluding currency our sales increased 6% in Europe but were down across the rest of the world, specifically sales were down 3% in North America, 4% in Asia Pacific, and 4% in Latin America. Europe's increase was driven by wind energy in Western Europe, and industrial growth in Eastern Europe.

In North America, weak industrial off-highway and rail markets were partially offset by strength in automotive and the benefit of acquisitions. In Asia, we continue to see growth in India but this was more than offset by industrial declines in China and the rest of the region.

And Latin America's results reflect the broad economic slowdown there with the exception of Mexico which was up slightly in the quarter. On slide 13, you can see that our gross profit in the fourth quarter was $191 million or 26.7% of sales, down 230 basis points from last year as lower volume and the negative impact of currency were only partially offset by favorable material and operating cost.

SG&A expense in the quarter was $119 million, down $13 million from last year. The decrease reflects our ongoing cost reduction initiatives, as well as the favorable impact of currency.

In the quarter, SG&A was 16.7% of sales, an improvement of 60 basis points from last year. Below the SG&A line, you can see the $242 million in pension selling charges we posted in the fourth quarter as we completed our second large annuity transaction which moved about $475 million of retiree liabilities to put out [ph].

We also recorded a gain from the sale of our Aerospace PMA parts business and books around $3 million of restructuring in the quarter. Our fourth quarter EBIT was the loss of $150 million on a GAAP basis.

When you back out pension settlement charges, the PMA divestiture gain and non-recurring fixed asset write-offs and other unusual items, adjusted EBIT in the quarter was $79 million or 11.1% of sales compared to $89 million or 11.7% of sales last year. On slide 14, you can see that the decline in adjusted EBIT was driven by lower volume and unfavorable currency, offset partially by lower SG&A expense and favorable material and operating costs.

As outlined on slide 15, we posed a net loss of $36 million or $0.44 per share in the quarter on a GAAP basis. On an adjusted basis, our EPS came in at $0.59 of income per diluted share compared to $0.65 last year.

Note that earnings per share benefited from share buybacks, including 2.7 million shares repurchased during the fourth quarter. Our GAAP tax rate in the quarter was 78% which represents a tax benefit on our pretax loss.

This was due to the geographic mix of our GAAP earnings, as well as the reversal of approximately $35 million of deferred tax asset valuation allowances and other tax reserves in the quarter. Excluding these items, on an adjusted basis, our tax rate was 31% in the quarter compared to 29% a year ago.

We expect our adjusted tax rate to remain 31% in 2016. Now turning to slide 16, let's take a look at our business segments starting with mobile industries.

In the fourth quarter, mobile industry sales were $380 million, off 2.4% from last year. Excluding the negative currency of around 5%, sales were up about 2.5% driven entirely by the net benefit of acquisitions.

Organically sales were flat as growth in the automotive sector was offset by lower off-highway and rail demand. For the fourth quarter, mobile industry's EBIT was $59 million; adjusted EBIT was $36 million or 9.5% of sales compared to $29 million or 7.3% of sales last year.

The increase in earnings was driven by the impact of favorable material and operating costs and lower SG&A expense offset partially by the impact of lower production volume and the net impact of acquisitions. Our outlook for mobile industry sales in 2016 is to be down roughly 5% with currency accounting for negative 2%, and the net impact of acquisitions accounting for positive 2%.

So organically we're planning for sales to be down around 5%, driven by lower off-highway, rail and aerospace demand, offset partially by growth in automotive. Slide 17 shows that process industry sales for the fourth quarter was $334 million, a decrease of 10.4% from last year.

Excluding negative currency of 4.3%, sales were down about 6% driven by lower demand in the industrial after-market and heavy industries, especially oil & gas and other commodity related sectors. This was offset partially by stronger performance in military marine and wind energy, and the benefit of acquisitions.

For the quarter, process industry's EBIT was $45 million, adjusted EBIT was $56 million or 16.7% of sales compared to $79 million or 21.3% of sales last year. The decrease in earnings resulted from lower volume in currency which were partially offset by favorable material costs, lower SG&A expenses, and the benefit of acquisitions.

Mix was less of a headwind this quarter due to distribution in military marine. Our 2016 outlook for process industries is for sales to be down 4% with currency accounting for negative 2% and acquisitions accounting for positive 4%.

So organically we're planning for sales to be down around 6% driven by declines across the industrial after-market and heavy industries. Turning to slide 18, you will see that free cash flow for the quarter was $88 million, up $19 million from the same period last year despite lower adjusted earnings.

The improvement in free cash flow was driven primarily by favorable working capital. You don't see it on the slide but for the year we generated free cash flow of almost $270 million, or over 140% of our adjusted net income.

Looking at our balance sheet and capital allocation on slide 19, we managed both cash and debt well in 2015, ended the year with $130 million of cash on hand. We ended the quarter with net debt of $528 million or 28% of capital compared to $236 million or 13% of capital at the end of 2014.

Following our capital allocation framework, we made good progress in 2015 as we invested for growth and returned significant capital to our shareholders. In particular, we invested $106 million or 3.7% of sales back into our business through CapEx, increased our quarterly dividend by 4% and paid dividend totaling $1.03 for the year, acquired the Carlisle Belts product line, adding an exciting new platform to our portfolio.

The integration of the business is on track and despite some in-markets challenges, we are pleased with what we see so far. And lastly, we brought back approximately 8.6 million shares for $310 million, reducing our share count by roughly 10% in 2015.

We substantially completed our prior $10 million share buyback authorization, and last week our Board approved the new authorization of 5 million shares for 2016. Looking ahead, we will employ a balanced approach to capital allocation, we expect slightly higher CapEx in 2016.

As we advance our global footprint initiatives, we intend to maintain our dividend and we'll continue to look at strategic acquisitions and share buybacks. We expect to be in the market buying back shares in the first quarter and will update our progress as we go.

On slide 20, just to comment on pensions, as we've discussed before, we've taken important steps to de-risk our pensions in order to lessen volatility and the risk of significant cash contributions. In 2015, we reduced our gross liabilities by roughly 50% or more than $1 through a number of initiatives including two large group annuity transactions.

We are pleased to report that the annuity purchases were funded entirely with planned assets, our effective plans remain fully funded and we have no significant contributions required in 2016. Turning to the outlook on slide 21, as Rich mentioned earlier, we're expecting another challenge, another year of challenging markets with our backlog and industrial order books down significantly from where they were a year ago.

As a result we are planning for sales to be down 4% to 5% in 2016 with currency negatively impacting us on the top line by around 2%. The net benefit of acquisitions completed in 2015 should add around 3%.

So organically, we're planning for sales to be down 5% to 6% in 2016 as a result of continued declines across the industrial landscape, including distribution and services off-highway, rail, and heavy industries offset partially by growth in automotive. We estimate GAAP earnings per diluted share will be in the range of $1.35 to $1.45 per share.

Included in our earnings outlook are two unusual items totaling net expense of $0.55 related to restructuring and pension settlement charges. Excluding unusual items, we estimate adjusted earnings per share to range from $1.90 to $2 per share, with our adjusted EBIT margin for the year in the range of 9.5% to 10% at the corporate level.

Note that our visibility into the second half of the year is limited, and at this time we see no catalyst for recovery in 2016. We expect free cash flow of roughly $175 million in 2016 after CapEx spending at around 4.5% of sales.

This represents about 110% of adjusted net income at the mid-point. We included slide 22 to provide a quick walk from our 2015 earnings to our estimate for 2016.

At the mid-point our 2016 adjusted EPS estimate is down $0.26 from 2015. The biggest driver of the year-on-year decline in EPS is organic.

We're forecasting a 5% to 6% decline in revenues organically and that after net outgrowth we expect to achieve in sectors like automotive, rail and wind energy. We expect price mix to be negative in 2016 but we continue to expect price cost to be favorable.

On the cost side, we expect to drive roughly $60 million in additional cost reductions over 2015. This includes the full year effect of actions taken last year and the net impact of current year actions.

Note that for 2016, we're targeting SG&A spending of around $475 million at the enterprise level. This implies net $20 million of cost downs from 2015, and that after absorbing a full year of Belts SG&A, as well as normal inflation.

So in aggregate, we're estimating the 5% to 6% organic decline, net of the cost savings to reduce earnings per share by around $0.26 at the mid-point. Hitting just to couple of the other items, we expect the lower share count to add roughly $0.10, this includes share buybacks completed in 2015 and we'll update our guidance for 2016 buybacks as we go through the year.

The Belts acquisition should add roughly $0.07 to our earnings. This is consistent with the low end of the range we've provided at the time of the acquisition, and reflects softer Ag and industrial markets.

And currency is estimated at negative $0.13, this was based on year end 2015 exchange rate. In summary, Timken and our employees delivered a solid finish to a very challenging year in 2015.

While we are planning for 2016 to be another difficult year, we will stay focused on outgrowing our end markets through DeltaX, driving operational excellence and deploying our capital effectively. This concludes our formal remarks and we'll now open the line for questions.

Operator?

Good morning.

Good morning, Steve.

Good morning, Steve.

So I guess both of you sort of talked a little bit about the destock being less than anticipated in the fourth quarter, so it kind of caught my attention. I am wondering if you can sort of give us a little more detail on that.

And obviously, the bigger question is kind of where are we in that big picture of sort of customer destocking and if you even wanted to do that kind of by segment, that would be quite useful as well. Thanks.

Yes Steven, let me take a shot at that. We generally have pretty good visibility to our demand picture, three months out – three/four months out, some parts of the business longer, some shorter.

And exception to that is the end of the year where we sometimes get customers taking extended shutdowns, inventory reduction initiatives, request to push shipments out, that's the negative side. The positive at the end of the year that makes it hard to predict, we also see at times increased maintenance expenditures and at times increased production builds as well.

So the end of the year is always a little choppier, tougher for us to call, and as we looking to where our trends were heading into the fourth quarter, we put a pretty cautious outlook that we expected push outs from OEMs, basically destocking through their channels and then also some inventory reduction in the distribution channel. And we did see some of that, right, so sales were down year-on-year and sales were down slightly, sequentially; it was just much less than what we anticipated.

As you look across our markets, I would not say we have any areas where we are looking at significant inventory reduction in the first quarter or anticipated through the year but obviously with our guidance down organically in the range that we're projecting. We're just generally expecting some light in demand and inventory to reflect that.

Okay, good. So I think what you're saying is that basically you're going to be reflecting end market demand rather than any destock or restock?

Yes.

And do you mind is there anything to say relative to mobile versus process on this issue?

I don't think so, I think our indicators would be that inventory is roughly in line with we admit [ph]. If certainly there are some sectors -- as you go to the OEM channel that are still destocking at their end, and that would be generally what we have read on our slide nine, right.

So, the Ag market is still reducing OEM equipment and distributor channels and we're seeing that pressure on our side. There is some anticipation of that this year with the North American heavy truck build being down that will see some reductions in that, and that's all baked into our guidance.

Okay, thanks very much.

Thanks, Steve.

Good morning, everyone.

Good morning, Eli.

Good morning, Eli.

That's a nice quarter, it's a bit of a surprise. Following up Steve's question on the inventory destocking, can you build an idea what is happening as you entered -- as we entered 2016, you talk about backlogs being down and that to extent of demand -- what current demand trends look like?

And you indicated the top line impact and the expected declines in organic sales, looking towards profitability in both sectors also -- that mean you do have -- you should have goals of 10% to 13% in mobile and 17% to 20% in process and how close you think you can come to some of those numbers, I mean the profitability in the fourth quarter was quite good and do we have a chance to getting to the lower end of the guiding range in fiscal '16 despite the lower volume?

Eli, if you extrapolate the mid-point of our guidance and the mid-point of the revenue and earnings and take that down and split it out between the two segments, you would be a little bit below margins and the target margins, as you said we're targeting 10% to 13% and mobile 17% to 20% in process, we don't generally hold those ranges through cycles, we were above that not too long ago in process and operating below it through last year. And we still believe those are good ranges and over cycles we will be able to largely be in those ranges.

As you look at next year, and what happened last year -- we were chasing the volume down last year with our cost reduction, looking at volume are down again this year. So we're looking at being close to the range in mobile but slightly under, and under a little bit more in process and that would pretty much add up to what we are guiding.

I still believe we can get there and if volume comes in better than what we're anticipating, we could certainly be right back in the margin ranges of above the segment.

And how weak are the backlog environment as we enter this year? You sort of indicated that -- I mean, it is obviously the warning sign but can you give us some color of where things are versus last year in some of this business?

I mean how far down that's what?

If you look at slide 9, everything there on the left that's in red is, we would be starting off the year lower and you could have backlogs down 5% to 20% plus in those end markets. Automotive and wind for us is both up, wind would be more market penetration, they enforce -- the ones in the yellow would generally be flattish.

Both on Ag and rail, we're offsetting some of that as you see over on the right side, both with the inorganic, as well as some of our continued penetration tactics in rail. But definitely some of these are down double-digit percentages.

Yes, I would just add Eli, this is Phil. The ones that obviously, really standout would be no surprise, industrial distribution, heavy industries because again the oil & gas was still little bit higher last year, off highway as Rich mentioned.

And then probably more recently real and heavy truck, and those markets have started to weaken and they weakened late in the year, rail was down in the fourth quarter; we've seen those order books, orders get pushed out there as well as order book declines there as well. So it's -- as Rich said, it's the markets we've highlighted on that slide and really some of the same markets we dealt with in 2015.

The reason for -- I guess you're more optimistic in heavy truck despite the market being down, is that penetration also?

No, I think it's probably more where we play and if you look at our business we're probably around 50% after market at the very global business. So the North America build will definitely be down, we'll feel the effect of that in the OE sector but initiatives that we've been working on to gain share in the after-market in heavy truck around the world continue to advance and that's probably mitigating.

That market decline -- it's going to be down, heavy truck will be down next year, just not down as much as markets like rail off-highway and aerospace are expected to be.

And one final question, you talked about pricing across the products and maybe price cost relationships assuming materials are going down, and -- are prices sort of stable or where we think softness will -- at this point?

Yes Eli, let me start actually with what we ended up experiencing in 2015 and pricing ended up being a slight positive in 2015 and call it less than 0.5%, so fairly small number, and what was a fairly difficult market. And two dynamics there; one, we did raise prices due to course of the year in geographies where we, as well as our competitors are largely importers of product and there was a significant currency impact.

So places like Russia, Brazil, Canada, we raised prices through the course of the year. And then also as you know we have some contractual agreements where steel surcharges get passed on and through to some of our larger OEMs so that's a negative force but price cost on that is generally positive.

So, clearly we did not move prices -- the 0.5% was fairly small in terms of the squeeze that we experienced from currency and volume but we did hold it. In our guidance for this year we expect some further pass-through of steel cost through to some of the larger OEM customers, again would expect price cost to be favorable and expect price to be flat to maybe down 0.5% across the Board.

Thank you very, very much.

Thanks, Eli.

Hi, good morning.

Good morning, David.

You mentioned a slow start to the year, can you just give me some sense of the cadence of getting to the $1.95 on accounts for the quarters?

I think if you look at how we performed this year, you could probably put that into the next year's model relatively closely. The first quarter has been down from the -- fourth quarter sequentially really since we changed the mix of our automotive business four/five years ago.

It has generally been our lowest earnings quarter of the year. And then second and third -- usually a little higher than obviously last couple of years the fourth quarter has been good but certainly if you looked at the split on the 2:20-ish from this year and took that to next year the $1.95 could be a good benchmark.

Okay, that's helpful. When it comes to the 20% implied decremental on the volume price and restructuring -- the restructuring you alluded to a little bit by giving a cadence but the restructuring benefits, are they off the bat -- the incremental ones right here to start the year?

Did you mean obviously the decrementals have been a little more severe the last couple of years? So my first take when I saw the 20% decrementals on that kind of volume decline was from skepticism.

Can you help us on the pace of this incremental restructuring, how quickly it can show up?

Yes, so we have been reducing cost all through the course of 2015. So certainly -- and spent less on it, much of the benefit though -- what we'd be doing with the $0.30, some of that you will see in the first quarter and would be flowing through this.

I think it's very much similar numbers playing out in '16 to '15, the revenue -- and really what's happening is, currency was down more in '15, volume a little less. In '16 we're looking at those two flipping but similar numbers, so we start the year really with the carryover from last year, most of what we would spend, the $30 million on this year, a lot of it anyway would be more second half for the year and into 2017.

Yes, if I could just add a couple of things there David. When you think about the cost reduction, so we delivered a lot of '15 as we talked about, it sort of ran throughout the year.

As Rich said, last quarter we started probably little bit later than we wanted to, and '16 it's underway as we speak. So while there will be a ramp, like they always use particularly on the SG&A side -- I think we're starting earlier than we did last year and then really what's driving the better decrementals than you might think if the cost reduction is obviously and that's materials, it's manufacturing on cost, as well as the SG&A and our ability to deliver the $60 million in 2016 will really drive that decremental that we've guided to.

Alright, helpful. And then on the balance sheet cash flow usage, you obviously alluded to you -- when you continue to look at acquisitions.

So in alter to free cash flow guidance, dividends, $85 million to $90 million, would it seem you'd have $85 million to $90 million to play with on free cash flow and then ability to lever up a little bit more on the balance sheet? Should I think of the willingness to go up to 30% net debt to cap is still the parameters because that would give you another $100 million to play with on top of the $85 million to $90 million of excess free cash flow post dividends.

Is that the right way to frame it?

Let me make a few comments here Dave, the 30% to 40% is a range, it's not concrete, and obviously we're operating normally below that range. We would -- for the right opportunity be very willing to temporarily go over that level and the range is intended to signal that if we did go over that level you could expect us to use our free cash flow to pay down debt towards getting to that level.

We're a little below it this year and as Phil said, we are going to be in the market in the first quarter, as the year progresses we're going to look at our opportunities and surely would not expect us to move too far backwards towards that away from that range. I mean we'll be looking at the accommodation of M&A and buyback opportunities as we go forward.

And one last small thing, maybe my memory fails me but was there some limitation to the size and timing of the share repurchase, the new authorization related to some lingering issues around the TimkenSteel spend?

David, I will just say first -- Phil and I know that your memory never fails you. I will let Phil answer that question.

Great memory, I can tell you that. But you know, you're right David, there were some restrictions related to the spin off in terms of the amount of shares we can have authorized during the first two years.

So we put a 5 million authorization in for 2016, safely within the parameters related to the spin and once we cross the mid-point of the year those restrictions no longer apply.

So essentially the one year exploration on this authorization -- something had to do -- had a bit to do with up to this, this anniversary we have a little more flexibility on the size and scope of future authorizations. I mean, would it think that right?

I think normally we would have a larger multi-year authorization outstanding and we've had these two -- giving up to the two-year point. So I mean this authorization will cover '16, the 5 million shares, as we've said we'll evaluate it as we go and then in the second half of the year or maybe a year from now the Board and management will consider another authorization at that time.

And again, so it's -- on this 5 million just to provide a little bit of guidance, if we were to do the whole authorization it's about -- be about $0.05 incremental on the EPS relative to the 2016 guidance. And again, we'll provide updates as we progress throughout the year with M&A, share buyback vice versa.

Yes, it just seem like you are more flexible in the balance sheet using that through the 30% to 40% range then that authorization suggested. So, just wanted to understand that that limitation was there the way I remembered it.

Okay, thank you very much. I appreciate it.

Thanks, David.

Yes, good morning guys. Thank you very much.

I'm just wondering can you talk a little bit more about rail, I mean I see you're calling for the U.S. market Dow which currently makes sense but you're saying share gains mitigate -- are you saying share gains will fully mitigate or just partly mitigate.

And can you remind us, are we talking locomotives or rail cars?

Yes, thanks Ross, this is Phil. Now we are primarily in freight rail, and obviously North America is our biggest market.

Our business is global though as we talked about many times, as well as there is a service of after-market component. So we are expecting North America freight to be down as has been projected by the OE freight car builders.

We expect to mitigate that slightly, it will still be down at the Timken level, pretty significantly from 2015 but we are continuing to pursue opportunities outside of the U.S., we'll continue to do that and look to eke out some outgrowth relatively to the markets we serve around the world in real because again that's an area where we bring some great capabilities and technology to the table and we're going to continue to advance those initiatives.

Got it, thank you. And we've gotten this question from a number of investors, so forgive me in advance for asking but there is some uncertainty I think with TimkenSteel and just wanted to get your sense is there any potential liability to Timken in absolute worst case scenario that TimkenSteel had to file for bankruptcy?

Ross, we aren't going to comment or speculate on the prospects of TimkenSteel or in area our other suppliers or customers but specifically in relation to the spin-off process, we conducted a robust process when we completed the spin-off of TimkenSteel clearing full team of financial and legal advisors and we are confident that our decisions and actions in connection with that spin-off were appropriate and prudent and do not envision any risk with that.

Okay, thanks Rich, I appreciate that. And then just -- can you discuss room for additional cost savings and facility rationalization in any event that the end markets did turn out to be worse than you expected?

If markets are lower than where we're at, we would continue to pull the levers that additional levers of labor reductions and rightsizing -- and obviously the lever -- the other lever we have is, it allows us to shift production to lower cost facilities that are generally running at higher utilization levels. But with that as I said earlier, we're operating below our target margins ranges, we are still catching up from last year's volume erosion with our cost reduction.

So clearly if markets are down lower than that we'll take out more cost but it would continue to pressure the margin profile. On the positive side of that, if volumes are better a lot of the cost reduction we've done is particularly on the SG&A side as structural, and we would expect some really good leverage if we're being too cautious on our market outlook.

You have that much room to shift production to -- I mean, I know you're adding in Romania but I mean I would think overseas you are already operating pretty full out in your facility, so much flexibility do you actually have to shift by region?

We are operating relatively full out and so last year's market softened, we shifted production. So I was trying to share that if markets were below other -- few percent below, obviously that would open up some capacity and we could shift more than what we have in this plant.

Got it. Thanks very much.

Good morning, gentlemen.

Good morning, Larry.

Good morning, Larry.

So, just looking at the regional breakdown, APAC maybe came in not quite as bad as I might have thought. Have you seen China and just the overall region progressing in recent months?

Yes, thanks Larry, this is Phil. So -- yes, Asia Pacific for us -- really the two biggest markets are China and India.

India is actually -- actually grew in 2015, it was pretty broad, we saw it in rail, we saw it in industrial distribution, we saw in industrial OE market etcetera. So India was the bright spot.

Rest of the region was soft, China -- to speak to China specifically, we continue to see the wind market has been very strong in that region but where we play in China which would be heavy industries, wind, off-highway and to a lesser degree rail, but rail as well, we're seeing those markets continuing to decline, they decline throughout the year, that's continuing. Wind is actually moderating a bit in China but still at relatively good levels but there is lot of capacity in China in metal and other industrial markets and that it seems like we're going to have to work through that for the next probably few quarters, at least.

Understood. Then on the cost saving side, looking at material -- can you kind of walk through how you expect the cost price dynamic to play out sequentially across the year?

Yes, I'd expect -- the material, as we talked about last year, material -- there is a bit of a lag, so the first quarter last year, it really ramped -- certainly the ramp at the end of the first quarter, so we'll get some of the benefit there. The prices are continuing to decline, so we'd expect to benefit throughout the year on material and then on the manufacturing cost and the SG&A, as I said, we'll get off the $60 million, half of that is carry over from $15 million, so we're at the run rate sort of as we speak, the other half will ramp and then the ramp will occur slowly, probably slightly back half weighted I would say but while we're working on the initiative as we speak, so we would expect a relatively faster ramp than we saw in 2015.

Okay, thanks guys. Best of luck in this year.

Thanks, Larry.

Thanks, Larry.

Good morning, guys.

Good morning, Steve.

Going back to slide 9, you only have auto expected to grow. The question is, with the outlook for everything else being flat to down, why do you have confidence or how much confidence do you have that auto can hang in in 2016?

Two things; one, we're generally going off, customer outlook, general industry outlook etcetera. And then we are weighted towards the favorable part of that market as well, we're generally on premium passenger cars and light trucks which is a more -- when you will take a cut below, it's already a generally pretty positive outlook, we're on the positive side of that.

And obviously there is risk of that, just like there is a risk on the rest of these but that's what it's based on.

Okay. And the flipside, when you look at metals, mining, oil & gas on decline, do you get the sense that your customers are starting to adopt a bunker mentality where they see continued deterioration for this foreseeable future.

Were there any areas where they see capacity getting to sustainable levels?

It is -- I will take the one that is getting the most wide speculation right now, you know on oil & gas where you can find experts predicting $30 a year, by the end of the year it can get $60 a year by the end of the year. And it's obviously an industry that's still contracting and consolidating.

We're relatively small and that is a direct end-market but obviously it's had a contagion effect if you will on a lot of our other markets and capital spending in general. What I would say though to -- if I got the question, you look at mining, heavy truck, still a lot of investment at the OEM level on new equipment, new platforms, focus on fuel efficiency and differentiation of their products.

We are not seeing a reduction across these places in long term investments and in product technology which is where we have the opportunity to when do business and different for longer terms. So -- but clearly, a lot of these markets are going through short term cycles.

Right. And, sorry if I missed this, but the $60 million in additional cost savings you're targeting for 2016, any more detail on how you're sizing that relative to variable cost, physical capacity reductions, outsourcing programs or I guess anything else?

Yes Steve, we said about a net $20 million is going to hit the SG&A line and that is after absorbing the Belts and some other thing. So we'll have about $20 million in the SG&A line and the remainder would be on the cost to sales lines but between material and manufacturing, kind of similar to the breakout we saw in 2015.

And it's a mix of initiatives in that -- right there the material element which is pretty straightforward, we have one plant closure that's in process, that we announced some time ago, we announced that we're moving a significant part of our information technology resources to our operation in India. There is an element of right siding in our plant, so a combination of initiatives some of which are structural, again, that does line comes back we expect to leverage others of which are more volume related.

Okay. Last question, on the manufacturing side itself, is the focus more on shifting capacity or shifting product lines into existing facilities to improve absorption or are there areas where you want to decapitalize and outsource programs to essentially save that cost permanently?

We've had a general trend towards reduction in vertical integration for over a decade, that's -- I would say that's going to continue to be a general trend where you see us, obviously, there are some exceptions that the spin-off of steel business was a huge step in reduction of vertical integration. Most of the others have been more that we have not invested in new capital equipment in some of the earlier stages of our processing and focus more on the differentiated parts of our process.

So no major moves there, but as we -- again, as we look at the Romanian plant investment as an example, now it's a lower labor cost region but it's also new assets, new technology that we put in there and we get benefit of that as we either shift or retire older processes and technology.

Got it, thanks for the time.

Thank you.

Thanks, Steve.

Hi, good morning. Thanks for squeezing me in.

Good morning, Schon.

I wanted to just reconcile some of your other comments from some popular [ph] comments that have been made, I mean one of your key channel partners on the process side talked about some strategic initiatives in Q4 to take on product, potentially to make the rebate hurdle for the year but then there would be significant destocking over the next two quarters. I mean just help me reconcile is that's a different product mix versus -- in bearings is that -- it's a timing issue, just -- maybe help me understand those comments versus your earlier commentary?

I think those comments would be in line with my earlier commentary and which is why the challenges that we have in the last couple of months of the fourth quarter and getting whether distributors are going to reduce inventory or increase inventory, and we saw both. So China as an example, we saw general destocking and a reduction at demand.

In the U.S. we saw mix where we saw some of our distributors increase inventory in the fourth quarter, we saw others hold and we saw some reduce.

So I don't think there is anything inconsistent there unless it was a universal -- a global statement if you will, across our network and we generally have pretty good visibility into what happens with those inventory levels and if we saw a specific customers inventory go up in the fourth quarter and not the sale of that product, then we've got that baked into our lower estimate for the first quarter.

I think Schon, that's consistent with as Rich said, our order book and backlogs being down at the end of the year from last year. So sales were better than the fourth quarter than we anticipated and the order book -- we don't have the order at the end of the year like we did last year, so clearly we're not expecting -- we didn't see a trend necessarily in the fourth quarter that we expect to repeat.

Alright, that's very helpful. I appreciate the clarification.

And then, maybe Phil just -- you talked about what is the Delta on the pension contribution and 2016 versus 2015, how much incremental should -- I don't know, kind of available cash did that produce?

Yes, we are just really minimum contributions we've got, probably flat year-on-year relative to mostly outside of the U.S. and call it it's been running -- call it $10 million or so year-on-year out.

So the good news is with the annuitisations we did we won't have any significant required contributions and lot of those contributions are really just voluntary steps by us to keep our plans funded where we want them to be outside of the U.S. So not nothing real significant -- no significant change planned at this point '15 to '16 from a pension contribution standpoint.

Alright, that's helpful guys, thanks.

Yes, good morning everyone. So just -- going back to the mobile, you know your margins are up year-on-year without organic growth, I want to better understand some of the costs savings there and then I want to walk through some of your -- the $0.26 that you guys are calling out on the organic basis, so maybe starting with the mobile case, just walk through why margins are up without organic growth?

Yes, I mean I think Sam it really comes down to the cost savings we've enabled to achieve during the year. And that's probably -- I think probably the biggest driver.

And then obviously we can just continue to pursue the cost. The aerospace restructuring that we did in 2014 certainly impacted '15.

So, again it's not a profit reporting segment but at a gross margin level the aerospace part of our business improved in '15 from '14, so we got the leverage from the efforts that we did there. Just some -- on the mix side, I would say there is a little bit of variations in mix, generally with some of the newer products that we put in or newer applications, I probably should say we mix ourselves up a little bit.

In real, mix is up a little bit, on the other side very tough year for off-highway and that was a little bit of a mix down. But to Phil's point, it's the cost reduction initiatives with aerospace being a factor.

That's helpful. And then, on this $0.26 that you guys are calling out from volume, mix and price; I just want to better unpack that.

So it sound as though the $0.26 is roughly $30 million on a pre-tax basis so you're going to hold that much, you've seen roughly $60 million of costs savings. It sounds like price are going to be down 15 bps around $15 million.

So am I thinking about the right way? Maybe you can just help us understand the decremental on volume and mix into next year that you could get better about $0.26.

Hi Sam, this is Phil, I'll take it. What we assumed relative to that decremental was that we would delever on the volume kind of -- as we historically have, we said price mix would be negative for the year although price cost would be -- would continue to be positive.

And then cost reductions that would be the $60 million coming in, now the restructuring is excluded from that, obviously we'll adjust for that as we incur it. But I'd say kind of normal deleverage that we've run this year and then with probably less net price mix than we had in 2015 in terms of less of a negative and then again also by the caution of…

Yes, and you've got the $20 million that we're targeting for the year-on-year net reduction in SG&A spend and again recognizing as Phil said in his comments that we pick up a full year of Carlisle and that so the gross number is larger, that's -- obviously that's helping offset some of the gross margin deleverage that Phil was talking about.

Okay. And then just lastly on the guidance you're on the EPS guidance you commented obviously that your visibility is not as great to the back half for the year, if I think about the phasing for the year that let's call it 195 mid-point.

How you're thinking about the mix between the first half and the second half of the year in that 195? Thanks.

Similar to 2015.

Great, thanks so much.

Thanks, Sam.

Good morning everyone.

Good morning, Justin.

A couple of quick questions here. First, on the Carlisle Belts acquisition, it seems like it's running at a revenue run rate in the fourth quarter and guidance of about $120 million to $125 million, is that accurate?

Yes, directionally that's accurate and the trailing 12 months of what we've acquired would have been closer to $140 million to $145 million. Seasonality of the business is that fourth quarter is usually low and when we acquired it we knew they were facing some headwinds on the Ag market.

Those headwinds are little greater since the acquisition but we still expect the acquisition to deliver on the low end of the EPS range of when we acquired it.

Great. And the ability to deliver on the low end of the EPS range related to I guess more successful factor that are offsetting the revenue weakness or was this sort of the low end of your revenue range associated with the accretion range when you went to the deal?

I'd say everything except the revenue is closer to the high end so that -- and then the revenue is probably a little below it and netting out to be at the low end of the range.

Got it, thanks. Secondly, you haven't talked as much on this call about potential acquisitions in 2016.

Clearly you still have balance sheet capacity, evaluations have come down, where does M&A stand in sort of the free cash flow priority spectrum for '16?

We're going to work the process hard as we have been for some time, we're going to wear opportunities. As I sit here today I would tell you nothing of size is likely eminent in this quarter.

That being said, we're working a lot of things and frankly, I'll be disappointed if it doesn't have some contribution through the course of the year.

Great, thanks. And one more if I may, on wind, I guess flat-to-down is perhaps a bit more cautious view on '16 and where things to the quarter go.

Is China win demand rolling over or is the flat-to-down more a function of sort of North America and the cadence there?

I would say Justin, it's probably, clearly moderating. And then obviously a win like any other heavy industrial market, it goes through cycle, so there is some expectation that China will be bit softer in 2016 than it was although we're at pretty good levels.

I think as we think about wind, it's probably I think flat and then maybe with some of the outgrowth initiatives slightly up as oppose to flat to slightly down but we're kind of viewing the market as globally as largely flat than really any growth we get will really be a function of -- markets flat-to-down and then our outgrowth initiatives getting Timken to kind of flat up.

Okay, great. Thanks.

I hadn't realized that was more of a market view than a Timken view. That's it for me.

Thanks, Justin.

Thank you. I'd like to take this opportunity to thank you for joining us today.

If you have further questions, please call me. This is Shelly Chadwick and my number is 234-262-3223.

This concludes our call.