rIsK FACTOrs Unexpected equipment failures or other disruptions of our operations may increase our costs and reduce our  sales and earnings due to production curtailments or shutdowns. The global nature of our business exposes us to foreign currency fluctuations that may affect our asset values,  results of operations and competitiveness. Interruptions in production capabilities, especially in our Steel segment, would inevitably increase our production costs and reduce  sales and earnings for the affected period. In addition to equipment failures, our facilities are also subject to the risk of catastrophic  loss due to unanticipated events such as fires, explosions or violent weather conditions. Our manufacturing processes are dependent  upon critical pieces of equipment, such as furnaces, continuous casters and rolling equipment, as well as electrical equipment, such  as transformers, and this equipment may, on occasion, be out of service as a result of unanticipated failures. In the future, we may  experience material plant shutdowns or periods of reduced production as a result of these types of equipment failures. We are exposed to the risks of currency exchange rate fluctuations because a significant portion of our net sales, costs, assets and  liabilities, are denominated in currencies other than the U.S. dollar. These risks include a reduction in our asset values, net sales,  operating income and competitiveness. For those countries outside the United States where we have significant sales, devaluation in the local currency would reduce the value  of our local inventory as presented in our Consolidated Financial Statements. In addition, a stronger U.S. dollar would result in reduced  revenue, operating profit and shareholders’ equity due to the impact of foreign exchange translation on our Consolidated Financial  Statements. Fluctuations in foreign currency exchange rates may make our products more expensive for others to purchase or increase  our operating costs, affecting our competitiveness and our profitability. Changes in exchange rates between the U.S. dollar and other currencies and volatile economic, political and market conditions in  emerging market countries have in the past adversely affected our financial performance and may in the future adversely affect the  value of our assets located outside the United States, our gross profit and our results of operations. Global political instability and other risks of international operations may adversely affect our operating costs,  revenues and the price of our products. Our international operations expose us to risks not present in a purely domestic business, including primarily: • changes in tariff regulations, which may make our products more costly to export or import; • difficulties establishing and maintaining relationships with local OEMs, distributors and dealers; • import and export licensing requirements; • compliance with a variety of foreign laws and regulations, including unexpected changes in taxation and environmental or other  regulatory requirements, which could increase our operating and other expenses and limit our operations; • disadvantages of competing against companies from countries that are not subject to U.S. laws and regulations, including the  Foreign Corrupt Practices Act; • difficulty in staffing and managing geographically diverse operations; and • tax exposures related to cross-border intercompany transfer pricing and other tax risks unique to international operations. These and other risks may also increase the relative price of our products compared to those manufactured in other countries,  reducing the demand for our products in the markets in which we operate, which could have a material adverse effect on our  revenues and earnings. THE TIMKEN COMPANY 8