ManageMent’s Discussion anDanalysis of financial conDition anD Results of opeRations The following items highlight certain of the Company’s more significant strategic accomplishments in 2011: • In October 2011, the Company completed the acquisition of Drives LLC (Drives) for $92 million. Drives is a leading manufacturer  of highly engineered drive-chains, roller-chains and conveyor augers for the agricultural and industrial applications. Based in Fulton,  Illinois, Drives employs 430 associates and had trailing 12-month sales through September 2011 of approximately $100 million.  Sales and EBIT for the Timken Drives business is reported in the Company’s Mobile Industries and Process Industries segments  based on customer application. • In August 2011, the Company and The University of Akron announced an open-innovation agreement to accelerate technology.  The two organizations plan to combine their expertise in materials and surface engineering technologies at newly established  laboratories in The University of Akron’s College of Engineering. • In July 2011, the Company and Stark State College broke ground on a jointly developed 18,000 square foot Wind Energy Research  and Development Center in Canton, Ohio, on the Stark State College campus. This new center will be focused on advanced  development of bearing systems for wind turbines and other ultra-large applications. • In July 2011, the Company acquired the assets of Philadelphia Gear Corp. (Philadelphia Gear), a leading provider of high-performance  gear drives and components with a strong focus on value-added aftermarket capabilities in the industrial and military marine  sectors, for $200 million. Based in King of Prussia, Pennsylvania, with approximately 220 associates, Philadelphia Gear had trailing  12-month sales through June 2011 of approximately $100 million. The Timken Gears and Services business is included in the  Process Industries segment. • In 2011, the Company launched initiatives to enhance productivity and increase output at two of its Canton, Ohio steel facilities.  These changes will effectively create new capacity at both of these steel facilities to support growing demand for finished bar  products and billets for tubing product which serve customers in the global industrial, oil and gas, and mobile markets. These  initiatives include an investment of approximately $35 million for an in-line forge press at the Company’s Faircrest Steel Plant. • In August 2011, the Company announced that it is evaluating an investment of approximately $225 million at its Faircrest Steel  Plant. The potential investment would be expected to increase capacity, expand product range and strengthen the competitiveness  of Timken’s specialty alloy steel bars business. A ladle refiner and a new large-bloom continuous caster would be key components  of this investment and would likely target production in 2014. The Company entered into preliminary discussions with suppliers and  government agencies, and opened early negotiations with United Steelworkers of America Local 1123 (Union), which represents  operative associates in Canton, Ohio, under a collective bargaining agreement scheduled to expire in 2013. The Company and  representatives of the Union have tentatively agreed on a five-year contract to replace the existing labor agreement. A ratification  vote has been scheduled for February 21, 2012. THE TIMKEN COMPANY 18