rEsulTs OF OPErATIONs 2011 compared to 2010 OVERVIEw: The Company reported net sales for 2011 of $5.2 billion, compared to $4.1 billion in 2010, a 27.5% increase. The increase in sales was  primarily due to higher volume across all business segments except for the Aerospace and Defense segment, higher surcharges,  pricing, the impact of acquisitions and the effect of currency rate changes. In 2011, net income per diluted share was $4.59, compared  to net income per diluted share of $2.81 in 2010. The Company’s net income for 2011 reflects continued improvement in the end market  sectors served by the Mobile Industries, Process Industries and Steel segments. In addition, net income for 2011 reflects higher  surcharges and pricing and the impact of acquisitions, partially offset by higher raw material and logistics costs and selling, general and  administrative expenses. The income from discontinued operations recognized in 2010 was the result of favorable working capital adjustments from the sale of  the Company’s Needle Roller Bearings (NRB) operations, completed in December 2009. The Company expects higher sales in the range of approximately 5% to 8% in 2012 compared to 2011, primarily driven by higher volumes  across the Process Industries, Aerospace and Defense and Steel business segments, as well as favorable pricing and the full-year  impact of acquisitions completed in 2011, partially offset by the effect of currency-rate changes. The Company expects to leverage sales  growth from these segments to drive improved operating performance. However, the strengthening margins will be partially offset by  lower utilization of manufacturing capacity, higher raw material costs and slightly higher selling, general and administrative expenses  to support the higher sales. From a liquidity standpoint, the Company expects to generate cash from operations of approximately $515 million, which is a 143%  increase over 2011, primarily driven by lower working capital increases and lower pension and postretirement contributions. Pension  and postretirement contributions are expected to be approximately $265 million in 2012 compared to $416 million in 2011. The Company  expects to increase capital expenditures to approximately $345 million in 2012 compared to $205 million in 2011. Outlook MANAgEMENT’s dIsCussION ANd ANAlYsIs OF FINANCIAl CONdITION ANd rEsulTs OF OPErATIONs  2011 2010 $ Change  % Change  Net sales $ 5,170.2  $  4,055.5  $ 1,114.7  27.5 %  Income from continuing operations  456.6   269.5   187.1  69.4 %  Income from discontinued operations –  7.4   (7.4) (100.0)% Income attributable to noncontrolling interest  2.3   2.1   0.2  9.5 %  Net income attributable to The Timken Company $ 454.3  $  274.8  $  179.5  65.3 %  Diluted earnings per share: Continuing operations $ 4.59 $  2.73  $  1.86  68.1 %  Discontinued operations –  0.08   (0.08) (100.0)% Diluted earnings per share  $ 4.59 $  2.81  $  1.78  63.3 %  Average number of shares – diluted 98,655,513  97,516,202 –  1.2 % THE TIMKEN COMPANY 19