ManageMent’s Discussion anDanalysis of financial conDition anD Results of opeRations GROss PROFIT: 2010 2009 $ Change  Change  Gross profit  $ 1,021.7 $ 582.7 $ 439.0 75.3 %  Gross profit % to net sales  25.2% 18.5% –  670 bps Rationalization expenses included in cost of products sold  $ 5.5 $ 8.2 $ (2.7) (32.9)% 2010 2009 $   Change  Change  Selling, general and administrative expenses  $ 563.8 $ 472.7 $ 91.1 19.3%  Selling, general and administrative expenses % to net sales  13.9% 15.0% – (110) bps 2010 2009 $ Change  Impairment charges  $ 4.7 $ 107.6 $ (102.9) Severance and related benefit costs   6.4   52.8   (46.4) Exit costs   10.6   3.7   6.9  Total  $ 21.7 $ 164.1 $ (142.4) IMPaIRMENT aND REsTRucTuRING chaRGEs: sEllING, GENERal aND aDMINIsTRaTIVE EXPENsEs:  Workforce Reductions Torrington Campus On July 20, 2009, the Company sold the remaining portion of its Torrington, Connecticut office complex. In anticipation of the loss  that the Company expected to record upon completion of the sale of this property, the Company recorded an impairment charge of  $6.4 million during the second quarter of 2009. In 2009, the Company began the realignment of its organization to improve efficiency and reduce costs as a result of the economic  downturn that began during the latter part of 2008. The initiative was completed in 2010 and included both selling and administrative cost  reductions, as well as manufacturing workforce reductions. During 2010, the Company recorded $5.6 million of severance and related  benefit costs to eliminate approximately 200 employees. Of the $5.6 million charge for 2010, $2.0 million related to the Aerospace and  Defense segment, $1.6 million related to the Process Industries segment, $1.4 million related to the Mobile Industries segment and  $0.6 million related to Corporate positions. During 2009, the Company recorded $42.9 million of severance and related benefit costs,  to eliminate approximately 3,280 employees. Of the $42.9 million charge, $26.0 million related to the Mobile Industries segment, $8.5  million related to the Process Industries segment, $3.3 million related to the Steel segment, $3.1 million related to the Aerospace and  Defense segment and $2.0 million related to Corporate positions. The following discussion explains the major impairment and restructuring charges recorded for the periods presented; however, it is not  intended to reflect a comprehensive discussion of all amounts in the tables above. Refer to Note 10 – Impairment and Restructuring in  the Notes to the Consolidated Financial Statements for further details by segment. THE TIMKEN COMPANY 26 The increase in selling, general and administrative expenses of $91.1 million in 2010 compared to 2009 was primarily due to higher  expense related to incentive compensation plans of approximately $65 million, with the remainder of the increase relating to higher  employee and professional costs. In 2010, rationalization expenses of $5.5 million included in cost of products sold primarily related to the closure of the manufacturing  facility in Sao Paulo, Brazil and the continued rationalization of Process Industries’ Canton, Ohio bearing facilities. In 2009, rationalization  expenses of $8.2 million included in cost of products sold primarily related to certain Mobile Industries’ and Aerospace and Defense  manufacturing facilities and the continued rationalization of Process Industries’ Canton, Ohio bearing facilities. Rationalization expenses  in 2010 primarily consisted of relocation and closure costs. Rationalization expenses in 2009 primarily included the write-down of  inventory, accelerated depreciation on assets and the relocation of equipment. Gross profit margins increased in 2010 compared to 2009, due to the impact of higher sales volume of approximately $280 million,  higher steel surcharges of approximately $250 million, improved manufacturing utilization of approximately $150 million and improved  pricing of approximately $100 million. These increases were partially offset by higher raw material costs of approximately $275 million  and related LIFO expense of approximately $90 million.