ManageMent’s Discussion anDanalysis of financial conDition anD Results of opeRations FORwaRD-lOOKING sTaTEMENTs Certain statements set forth in this Annual Report on Form 10-K and in the Company’s 2011 Annual Report to Shareholders (including  the Company’s forecasts, beliefs and expectations) that are not historical in nature are “forward-looking” statements within the  meaning of the Private Securities Litigation Reform Act of 1995. In particular, Management’s Discussion and Analysis on pages 17  through 41 contains numerous forward-looking statements. Forward-looking statements generally will be accompanied by words  such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “guidance,” “intend,” “may,” “possible,” “potential,” “predict,”  “project” or other similar words, phrases or expressions. You are cautioned not to place undue reliance on forward-looking statements,  which speak only as of the date of this Annual Report on Form 10-K. The Company cautions readers that actual results may differ  materially from those expressed or implied in forward-looking statements made by or on behalf of the Company due to a variety of  factors, such as: a) deterioration in world economic conditions, including additional adverse effects from the global economic slowdown, terrorism or  hostilities. This includes: political risks associated with the potential instability of governments and legal systems in countries in  which the Company or its customers conduct business, and changes in currency valuations; b) the effects of fluctuations in customer demand on sales, product mix and prices in the industries in which the Company operates.  This includes: the ability of the Company to respond to rapid changes in customer demand, the effects of customer bankruptcies or  liquidations, the impact of changes in industrial business cycles, and whether conditions of fair trade continue in the U.S. markets; c) competitive factors, including changes in market penetration, increasing price competition by existing or new foreign and domestic  competitors, the introduction of new products by existing and new competitors, and new technology that may impact the way the  Company’s products are sold or distributed; d) changes in operating costs. This includes: the effect of changes in the Company’s manufacturing processes; changes in costs  associated with varying levels of operations and manufacturing capacity; availability of raw materials and energy; the Company’s  ability to mitigate the impact of fluctuations in raw materials and energy costs and the operation of the Company’s surcharge  mechanism; changes in the expected costs associated with product warranty claims; changes resulting from inventory management  and cost reduction initiatives and different levels of customer demands; the effects of unplanned work stoppages; and changes in  the cost of labor and benefits; e) the success of the Company’s operating plans; the ability to integrate acquired companies; the ability of acquired companies  to achieve satisfactory operating results, including results being accretive to earnings; and the Company’s ability to maintain  appropriate relations with unions that represent Company associates in certain locations in order to avoid disruptions of business; f) unanticipated litigation, claims or assessments. This includes: claims or problems related to intellectual property, product liability or  warranty, environmental issues, and taxes; g) changes in worldwide financial markets, including availability of financing and interest rates, which affect: the Company’s cost of  funds and/or ability to raise capital; the Company’s pension obligations and investment performance; and/or customer demand  and the ability of customers to obtain financing to purchase the Company’s products or equipment that contain the Company’s  products; and h) those items identified under Item 1A. Risk Factors on pages 6 through 10. Additional risks relating to the Company’s business, the industries in which the Company operates or the Company’s common stock  may be described from time to time in the Company’s filings with the Securities and Exchange Commission. All of these risk factors  are difficult to predict, are subject to material uncertainties that may affect actual results and may be beyond the Company’s control. Readers are cautioned that it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future  results and that the above list should not be considered to be a complete list. Except as required by the federal securities laws, the  Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information,  future events or otherwise. THE TIMKEN COMPANY 42