MANAgEMENT’s dIsCussION ANd ANAlYsIs OF FINANCIAl CONdITION ANd rEsulTs OF OPErATIONs  sTEEl sEGMENT: 2010 2009 $ Change  Change  Net sales, including intersegment sales  $ 1,359.5 $ 714.9 $ 644.6 90.2%  EBIT  $ 146.2 $ (63.4) $ 209.6 330.6%  EBIT margin  10.8% (8.9)% – 1,970 bps 2010 2009 $ Change  % Change  Net sales, including intersegment sales  $ 1,359.5 $ 714.9 $ 644.6 90.2%  Currency  0.7  –  0.7  NM Net sales, excluding the impact of currency  $ 1,358.8 $ 714.9 $ 643.9 90.1%  The Steel segment’s net sales for 2010, excluding the effects of currency-rate changes, increased 90.1% compared to 2009, primarily  due to higher volume of approximately $445 million, across all market sectors, and higher surcharges of approximately $250 million,  partially offset by an unfavorable sales mix of approximately $50 million. Surcharges increased to $350.4 million in 2010 from $100.1  million in 2009. The average scrap index for 2010 was $426 per ton, compared to $258 per ton for 2009. Steel shipments for 2010  were 1,026,000 tons, compared to 595,000 tons for 2009, an increase of 72%. The Steel segment’s average selling price, including  surcharges, was $1,323 per ton for 2010, compared to an average selling price of $1,202 per ton for 2009. The increase in the average  selling prices was primarily the result of higher surcharges, partially offset by unfavorable sales mix. The higher surcharges were the  result of higher prices for certain input raw materials, especially scrap steel, molybdenum and nickel. The Steel segment’s EBIT increased $209.6 million in 2010 compared to 2009, primarily due to higher surcharges, the impact of higher  sales volume of approximately $175 million and lower manufacturing costs of approximately $110 million, partially offset by the impact  of higher raw material costs of approximately $255 million and higher LIFO expense of approximately $40 million. In 2010, the Steel  segment recognized LIFO expense of $2.8 million, compared to LIFO income of $37.1 million in 2009. Raw material costs consumed in  the manufacturing process, including scrap steel, alloys and energy, increased 38% in 2010 compared to the prior year, to an average  cost of $455 per ton. Corporate expenses increased in 2010 compared to 2009, as a result of higher performance-based compensation of approximately  $18 million. cORPORaTE: 2010 2009 $ Change  Change  Corporate expenses $ 67.4 $ 51.4 $ 16.0 31.1%  Corporate expenses % to net sales 1.7% 1.6% – 10 bps 31 THE TIMKEN COMPANY