ManageMent’s Discussion anDanalysis of financial conDition anD Results of opeRations busINEss sEGMENTs: MObIlE INDusTRIEs sEGMENT: THE TIMKEN COMPANY 22 Effective January 1, 2011, the primary measurement used by management to measure the financial performance of each segment is  EBIT (earnings before interest and taxes). Prior to January 1, 2011, the primary measurement used by management to measure the  financial performance of each segment was adjusted EBIT (earnings before interest and taxes, excluding the effect of impairment  and restructuring, manufacturing rationalization and integration charges, one-time gains or losses on the disposal of non-strategic  assets, allocated receipts received or payments made under the U.S. Continued Dumping and Subsidy Offset Act (CDSOA) and gains  and losses on the dissolution of subsidiaries). The change in 2011 was primarily due to the completion of most of the Company’s  previously-announced restructuring initiatives. Segment results for 2010 and 2009 have been reclassified to conform to the 2011  presentation of segments. Refer to Note 14 – Segment Information in the Notes to the Consolidated Financial Statements for the  reconciliation of EBIT by segment to consolidated income before income taxes. The presentation below reconciles the changes in net sales for each segment reported in accordance with U.S. GAAP to net sales  adjusted to remove the effects of acquisitions made in 2011 and 2010 and currency exchange rates. The effects of acquisitions and  currency exchange rates are removed to allow investors and the Company to meaningfully evaluate the percentage change in net sales  on a comparable basis from period to period. During the third quarter of 2011, the Company completed the acquisition of substantially  all of the assets of Philadelphia Gear, which is part of the Process Industries segment. During the fourth quarter of 2011, the Company  completed the acquisition of Drives, the results of which are reported in the Mobile Industries and Process Industries segments based  on customer application. During the fourth quarter of 2010, the Company completed the acquisition of substantially all of the assets of  City Scrap and Salvage Co. (City Scrap), which is part of the Steel segment. During the third quarter of 2010, the Company completed  the acquisition of QM Bearings, which is part of the Process Industries segment. The year 2010 represents the base year for which the  effects of currency are measured; as such, currency is assumed to be zero for 2010. The Mobile Industries segment’s net sales, excluding the effects of acquisitions and currency-rate changes, increased 10.7% in  2011 compared to 2010, primarily due to higher volume of approximately $140 million and pricing and surcharges of approximately  $30 million. The higher volume was seen across most market sectors, led by an approximately 30% increase in off-highway, an  approximately 30% increase in rail and an approximately 15% increase in heavy truck, partially offset by an approximately 10%  decrease in light-vehicle. EBIT was higher in 2011 compared to 2010, primarily due to the impact of higher volume of approximately  $60 million and the impact of pricing and surcharges of approximately $30 million, partially offset by higher raw material and logistics  costs of approximately $45 million and higher selling, general and administrative costs of approximately $10 million. Sales for the Mobile Industries segment are expected to be relatively flat in 2012 compared to 2011, as the full-year impact of 2011  acquisitions, as well as higher pricing, offset lower volume. The expected decrease in volume is primarily due to an approximately  25% decrease in light-vehicle and a 15% decrease in heavy truck, partially offset by a 15% increase in rail. Sales for the Mobile  Industries segment, excluding the effect of acquisitions and currency-rate changes, are expected to decrease approximately 5% in  2012, compared to 2011. EBIT for the Mobile Industries segment is expected to decline in 2012 compared to 2011 as a result of lower  volumes and higher raw material costs. 2011 2010 $  Change  Change  Net sales, including intersegment sales  $ 1,769.4  $ 1,560.6  $  208.8  13.4%  EBIT $ 243.2  $  207.6  $  35.6  17.1%  EBIT margin  13.7% 13.3% – 40 bps 2011 2010 $  Change  % Change  Net sales, including intersegment sales  $ 1,769.4  $  1,560.6  $  208.8  13.4%  Acquisitions  11.1  –  11.1  NM Currency  30.4  –  30.4  NM Net sales, excluding the impact of acquisitions  and currency  $ 1,727.9  $  1,560.6  $  167.3  10.7% 