reserves. In the third quarter, the company announced a restructuring plan as part of its effort to improve Automotive Group performance and address challenges in the automotive markets.

 

In the fourth quarter, the Automotive Group had sales of $406.9 million, a 4% increase from a year ago. The Automotive Group had a loss of $7.5 million in the fourth quarter of 2005, compared to a loss of $1.9 million for the same period a year ago. Despite higher pricing, fourth quarter results were negatively impacted by higher manufacturing costs, investments in Project ONE and an increase in accounts receivable reserves.

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Steel Group Results
Steel Group 2005 sales, including inter-segment sales, were a record $1.8 billion, up 27% from 2004. The sales growth reflected record shipments, driven by strong industrial markets, as well as surcharges and price increases to offset higher raw material and energy costs. For 2005, EBIT increased to $219.8 million from $54.8 million in 2004, driven by higher volume, raw material surcharges and price increases. High capacity utilization and record productivity also improved the results.

 

Steel Group sales in the fourth quarter, including inter-segment sales, were $419.7 million, an 8% increase from the prior year. Fourth-quarter EBIT was $49.6 million, compared to $32.2 million a year ago.

The Timken Company, Canton, OH, had record sales of $5.2 billion in 2005, up 15% from a year ago. Profit in 2005 increased sharply to a record $260.3 million, from $135.7 million.

 

“In 2005, demand across a broad range of industrial markets drove record sales. The combination of strong markets and our execution translated into significantly improved results,” said James W. Griffith, president and CEO. “We have made considerable strides in our efforts to structurally improve Timken’s profitability. We continued that process in 2005 by launching several key initiatives to position the company for continued success.”

 

During 2005, the company:

Leveraged demand and implemented surcharges and price increases to recover high raw material costs;
Improved the business mix and increased production capacity in targeted areas, including significant investments in the U.S., China and Romania;
Launched a growth initiative in Asia with the objective of increasing market share, influencing major design centers and expanding our network of sources of globally competitive friction management products;
Initiated Project ONE, a five-year program designed to improve business processes and systems to deliver enhanced customer service and financial performance. With an expected cost of $90 million, Project ONE is targeted to achieve annual savings of about $75 million upon project completion, as well as improved working capital management;
Began restructuring automotive operations to address challenging market issues, with expected costs of $80 million to $90 million and targeted annual savings of approximately $40 million by the end of 2007;
Reached a new four-year agreement with the United Steelworkers union, covering employees in the Canton, Ohio bearing and steel plants. As a result of the contract settlement, the company has refined its plans to rationalize the Canton bearing operations, with expected costs of approximately $35 to $40 million over the next four years and targeted annual savings of approximately $25 million;
Improved the business portfolio. The company expanded its presence in the aerospace aftermarket through acquisitions and alliances, providing a broader range of engine bearing repair and reconditioning, while also completing the divestiture of several non-strategic product lines.

Fourth quarter results
For the quarter ended Dec. 31, 2005, sales were $1.3 billion, an increase of 8% from a year ago. Sales across all three business groups improved from the fourth quarter of 2004.

 

>Industrial Group Results
Industrial Group 2005 sales increased 13% from the prior year to a record $1.9 billion. The increase was driven by higher volume and improved product mix. Many end markets were strong, especially mining, metals, rail, aerospace and oil and gas, which also drove strong distribution sales. The Industrial Group also benefited from growth in emerging markets, especially China.

Industrial Group sales in the 2005 fourth quarter increased to $491.9 million, up 10% from the prior year with continued market strength. EBIT was $41.9 million, down from $47.6 million a year ago.

 

>Automotive Group Results
Automotive Group 2005 sales increased 5% to a record $1.7 billion. Sales grew due to favorable pricing actions and growth in medium and heavy truck markets. The Automotive Group had a loss in 2005 of $19.9 million, compared to EBIT of $15.9 million in 2004. Increased volume and pricing were more than offset by higher manufacturing costs associated with ramping up plants serving industrial customers and from reduced unit volume from light vehicle customers.

 

Automotive results were also impacted by investments in Project ONE and an increase in accounts receivable