MANAgEMENT’s dIsCussION ANd ANAlYsIs OF FINANCIAl CONdITION ANd rEsulTs OF OPErATIONs  lIquIdITY ANd CAPITAl rEsOurCEs Total debt was $515.1 million and $513.7 million at December 31, 2011 and December 31, 2010, respectively. Debt exceeded cash and  cash equivalents by $46.7 million at December 31, 2011. Cash and cash equivalents exceeded total debt by $363.4 million at December  31, 2010. Debt in excess of cash as a percentage of total capital was 2.2% at December 31, 2011, compared to cash in excess of debt  as a percentage of total capital of 23.0% at December 31, 2010. Reconciliation of total debt to net (cash) debt and the ratio of net debt to capital: The Company presents net debt (cash) because it believes net debt (cash) is more representative of the Company’s financial position  than total debt due to the amount of cash and cash equivalents. At December 31, 2011, the Company had no outstanding borrowings under its two-year Asset Receivable Securitization Financing  Agreement (Asset Securitization Agreement), which provides for borrowings up to $150 million, subject to certain borrowing base  limitations, and is secured by certain domestic trade receivables of the Company. The Company had full availability under the Asset  Securitization Agreement at December 31, 2011. On May 11, 2011, the Company amended and restated its Senior Credit Facility, replacing the Former Senior Credit Facility, which was  due to expire on July 10, 2012. The Senior Credit Facility now matures on May 11, 2016. At December 31, 2011, the Company had no  outstanding borrowings under the Senior Credit Facility but had letters of credit outstanding totaling $17.2 million, which reduced the  availability under the Senior Credit Facility to $482.8 million. Under the Senior Credit Facility, the Company has two financial covenants:  a consolidated leverage ratio and a consolidated interest coverage ratio. At December 31, 2011, the Company was in full compliance  with the covenants under the Senior Credit Facility and its other debt agreements. The maximum consolidated leverage ratio permitted  under the Senior Credit Facility is 3.25 to 1.0. As of December 31, 2011, the Company’s consolidated leverage ratio was 0.54 to 1.0.  The minimum consolidated interest coverage ratio permitted under the Senior Credit Facility is 4.0 to 1.0. As of December 31, 2011,  the Company’s consolidated interest coverage ratio was 29.12 to 1.0. The interest rate under the Senior Credit Facility is based on the Company’s consolidated leverage ratio. In addition, the Company pays  a facility fee based on the consolidated leverage ratio multiplied by the aggregate commitments of all of the lenders under the Senior  Credit Facility. Other sources of liquidity include lines of credit for certain of the Company’s foreign subsidiaries, which provide for borrowings up  to $266.2 million. The majority of these lines are uncommitted. At December 31, 2011, the Company had borrowings outstanding of  $54.1 million against these lines, which reduced the availability under these facilities to $212.1 million. THE TIMKEN COMPANY 35$^{ }$ NET DEbT: December 31, 2011 2010 Short-term debt  $ 22.0 $ 22.4 Current portion of long-term debt   14.3   9.6  Long-term debt   478.8   481.7  Total debt   515.1   513.7  Less: Cash and cash equivalents   (464.8)  (877.1) Restricted cash  (3.6) – Net debt (cash) $ 46.7 $ (363.4) RaTIO OF NET DEbTTO caPITal: December 31, 2011 2010 Net debt (cash) $ 46.7 $ (363.4) Total equity   2,042.5   1,941.8  Net debt (cash) + total equity (capital)  $ 2,089.2 $ 1,578.4  Ratio of net debt (cash) to capital  2.2% (23.0)%