Timken Co (TKR) 2006 Q1 法說會逐字稿

Good morning. My name is Zendra and I will be your conference that operator today. And I would like to welcome everyone to the Timken first quarter 2006 earnings release conference call.

[OPERATOR INSTRUCTIONS]. Thank you. Mr. Tschiegg, you may begin your conference.

Welcome to our first quarter conference call. I am Steve Tschiegg, manager, Investor Relations. Thank you for joining us today and after our call should you have further questions please feel free to contact me at 330-471-7446. With me today are Jim Griffith, President and CEO, Glenn Eisenberg, Executive Vice President of Finance and Administration, Mike Arnold, President of our Industrial Group, Jacqui Dedo, President of our Automotive Group and Sal Miraglia, President of our Steel Group.

We have remarks this morning from Jim and Glenn, and we will all be available for Q. and A. At that time I would ask that you please limit yourself to one question and one follow up at a time to allow for an opportunity for everyone to participate. Before we begin, I would like to remind you that during our conference today you may here forward-looking statements related to future financial results, plans and business operations. Actual results may differ materially from those projected or implied due to a variety of factors. Those factors are described in greater detail in today's press release and in our report filed with the SEC which are available on our Web site at www.timken.com.

Reconciliation between GAAP and non-GAAP financial information are included as a part of the press release as well as on the investor overview portion of the Web site. This call is copyrighted by The Timken Company, any use, recording or any portions without express written consent of the Company is prohibited. With that I will turn the call over to Jim.

Thanks, Steve, and good morning. I'm pleased to report Timken achieved another solid quarter of profitable growth. The first quarter we achieved record sales of $1.3 billion and earnings excluding special items of $0.71 per diluted share. More important many the combination of markets, solid executions leads to continued improvement.

I'd like to make four key points for the quarter. First, industrial markets are growing, demand for Timken's products and services. We see this plan going well into 2007 and probably longer. Second, we have increased capital spending in the industrial group, adding capacity to meet this strong industrial demands. This should translate into continued sales growth with the beneficial impacts on this. Third, Steel Group delivered better than expected results this quarter due to improved pricing, mix and operating performance, as well as better than anticipated energy costs. Finally Automotive Group continues to improve structurally and is on track to deliver improved performance throughout the rest of the year.

With that introduction let's turn to the business group results.The industrial group continues to experience strong demands across its broad industrial markets. Major capacity exchanges in industrial plants in North and South Carolina, Romania and China, our ability to serve higher levels of global market demands focused on the growing energy, distribution and mining markets. Industrial sales for the quarter were $504 million, up 70% from a year ago, benefiting from our capacity expansion program -- up 7% from a year ago, benefiting from our capacity expansion program.

Industrial EBIT was $46 million or 9.1% of sales. The performance continues to be favorably impacted by higher volumes. However, compared to a year ago margins were lower in the quarter due to higher manufacturing costs associated with the rapid ramp up of large forebearing capacity, hire raw material and energy costs and planned investments in our Asia growth project one initiatives. We expect EBIT margins to be constrained in the second quarter versus a year ago but expect full year margins to be improved over 2005 levels due to volume, manufacturing performance and pricing action.

In the Automotive Group we are achieving structural improvement, primarily resulting from pricing and improved manufacturing performance. The group actually would have been profitable in the first quarter if we had not added to reserves for potential auto industry craft exposure. Group sales for the quarter were $421 million, essentially flat from last year. To see the benefits of improved pricing but gains were offset by volumes decline in the North American light truck market. The Automotive Group had a loss before interest and taxes of $3 million for the quarter compared to the loss of $5 million last year. We expect the auto group to return to profitability in the full year.

During the quarter we took an additional restructuring move as we communicated a work force reduction plan in our plant. This action follows the previously announced restructuring in our automotive engineering group and the closure of our Clinton, South Carolina, plant. In the Steel Group, strong plant utilization levels of productivity led to a number of new production and shipment records in both the alloy and specialty steel segments. Sales for the quarter were a record $468 million, up slightly from a year ago. The group benefited from increased pricing and continued high demand in the aerospace and energy markets which more than offset a decline in automotive sales. EBIT in the quarter was a record $71 million, up 12% from last year.

The increased results were due to pricing, favorable mix and productivity. Looking forward we expect aerospace and energy markets to continue to show strength while automotive demand is expected to be slightly down from last year's level. We now expect steel groups results for the year to approach last year's record levels. Overall we are pleased with the quarter and confident that Timken is on the right path to continued improvement in financial performance. Longer term, we remain focused on our strategy to accelerate profitable growth in key industrial markets and in Asia while aggressively repositioning our automotive portfolio to improve profitability.

Now I will turn it over to Glenn for a more detailed review of our financials.

Thanks, Jeff.

For the first quarter we reported fully diluted EPS of $0.70, excluding special items earnings per share came in at $0.71. The quarter included $5 million of pretax expense primarily related to the manufacturing rationalization and reorganization of our industrial and Automotive Group. In the first quarter of 2005 special items totaled pretax expense of $1 million. The rest of my comments consistent with those by Jim will exclude the impact of these special items.

Sales for the first quarter were $1.3 billion, a record for the company and 3% over 2005 driven by strong industrial demand and favorable pricing. Gross profit margin for the quarter was 21.6%, an improvement of 70 basis points from last year, reflecting strong performance in our Steel Group. Improved margins in the Automotive Group were offset by declines in industrial due to higher manufacturing costs. SG&A margin of 12.9% was 40 basis points higher than last year due to a $5 million increase in our reserve for automotive industry credit exposure. Given the uncertainties within the industry, we've increased these reserves by $13 million over the past nine months. In the quarter we also invested $5 million more in our project one and Asia growth initiatives compared to last year.

EBIT for the quarter came in at $112 million or 8.3% of sales, 30 basis points better than 2005. Net income for the quarter was $67 million or $0.71 per diluted share, EPS was up 11% over last year and compares favorably to our previous estimate for the quarter at $0.55 to $0.60. Effective tax rate for the quarter was 33%, which we expect to maintain going forward. We ended the quarter with net debt of $737 million, 82 million higher than the end of 2005 due to seasonal working capital requirements. The company's leverage of net debt to capital increased to 31.9%, compared to 30.5% at the end of 2005.

By the end of 2006 we expect both our net debt and leverage to be below year end 2005 levels due to strong cash generation driven off of expected record earnings and cash flow. Operating working capital increased $97 million during the quarter due to seasonality and higher sales. We continue to focus on working Capital Management and expect working capital to be a source of cash throughout the rest of the year and for the year in total.

Capital expenditures for the quarter were $41 million or 3% of sales, below depreciation and amortization of $52 million. This spending level will increase over the course of the year as we continue to make investments in support of our business and add conditional capacity to meet strong industrial demand. We contributed $50 million to our domestic pension plan during the first quarter. Our full year 2006 contributions are expected to be approximately $150 million, compared to 226 million last year. As with last year, we will consider makeing additional contributions based on our pension fund status and financial leverage.

Our outlook for 2006 is for continued improvement in our businesses. We recently increased our earnings per share estimate excluding special items. From $2.80 to $2.95 for the year. For the second quarter, we expect EPS to be $0.75 to $0.80. Our industrial and automotive groups are expected to see improved results for the year. Industrial benefiting from strong markets and pricing, while automotive benefiting from pricing and manufacturing performance.

Our Steel Group profitability is now projected to approach last year's record performance. From a cash flow standpoint, we expect to see higher free cash flow in 2006 benefiting from earnings growth, better working Capital Management, and lower pension contributions which will be partially offset by higher capital expenditures targeted at around 5% of sales to support our growth initiatives. We are very encouraged about the prospects for 2006 with the potential to deliver record sales, earnings and free cash flow.

This ends our formal remarks and we will now been pleased to answer any questions. Operator?

[OPERATOR INSTRUCTIONS]. Your first question comes from Gary McManus' line from JP Morgan.

Looking at your second quarter outlook it's basically unchanged from a year ago. Can you talk about any of the plusses and minuses you see year over year? I assume you are thinking about a similar tax rate. Is there any, of the three segments, do you expect any of them to be down or up or are they flat? Give me a sense of a little bit more meat on the second quarter guidance.

The second quarter will probably be a lot like the first, the expectations relative to a year ago are relatively flat with the guidance we provided. We expect that our automotive and steel businesses improve over last year's results while industrial will be down compared to last year as was in the first quarter. But as you know, as we talk about the full year guidance that we are providing, obviously we are giving a range, kind of the midpoint of the range, up 14, 15% with both the automotive and industrial above last year's level for the full year with steel being a little bit down but approaching the record performance that they had last year. But this similar issues that impacted the business is in the first quarter and we expect it to continue in the second.

Okay. And my follow up just talking on steel specifically, you are saying you expect profits this year to approach last year's levels. If I assume flat then you have down profits in the rest of the year because they were up $7 million or so year over year. So why -- and I think the first quarter represented the toughest comparison when you look at 2005. So why do we see steel profits declining in the remaining nine months year over year and secondly, steel revenues were basically flat. I assume had you some pricing that suggests volumes were down the first quarter. Is that right as well?

Gary, this is Sal Miraglia. Actually our volume in the first quarter was up. We had high operating levels and high shipment levels and that's helped considerably in terms of fixed costs to give us very good results. In fact that very point that we view our concern in terms of the second, not concerned but we will see it moderate to some extent. We know we will see a reduction in heavy truck and we believe we will see a reduction in other parts of the automotive marketplace as GM recovers inventory issues that we think that it will, that they are building it as it stands right now. And for the most part that's a slightly weaker operating level. It will have a negative effect on our latter half of the years' performance. The profit in the first half, though, were very much influenced as you say, the volumes were flat, pretty much influenced by a very rich mix with aerospace, energy, industrial up, auto down.

Revenue basically in steel, if I include the that was flat, you are saying volumes were up, does that mean pricing year over year was down?

Gary, let me see if I can help, this is Jim. When you talk to us about pricing, you have to understand that we think of pricing in two pieces. One is the absolute level of price that we are getting for the steel and the second is the surcharge that we have for raw material costs. And a big part of our forecasts are estimate for 2006 has to do with the believe that raw material costs will come down this year and therefore the forecast or surcharge levels and some of the variances that happen with surcharge levels will come down.

Okay. That's helpful. Thank you.

[OPERATOR INSTRUCTIONS]. We do have a question from Holden Lewis' line. Holden, your line has been opened. Mr. Holden your line is open. If you have on a spoken please lift your handset. We are going to proceed with the next question. Your next question comes from Eli Lustgarten. Eli, your line is open.

Can you hear me?

Yes.

We had the same problem before. Can we get a clarification of Gary's question? I was also confused. You reported flattish first quarter sales of steel.

I mean that's the actual number that comes in, 468 versus 467. With the sales are up sales down a little bit. We are trying to understand what caused the flattish sales and the strong demand. Was the surcharge down a lot or what caused the number to be flat?

Eli, it's Sal Miraglia again. As I mentioned earlier we saw a shift in our mix. We had lower automotive sales, a little bit higher what we know are more profitable sales in terms of energy and aerospace. So that was responsible for the flatness in the actual sales level but it had a different influence on our profitability.

I understand but the actual numbers, if automotive was down more than the other products made up for it the volume was relatively flat.

Yes, that is correct.

Volume was flat in the quarter.

Volume was flat in the quarter, right.

And the surcharge?

We collected -- we had surcharge collections, Eli, but we began to lose some that we had seen before that was compensated for, though, by the fact that our buying costs for scrap also reduced. So we essentially maintained flat on our profitability in.

The was essentially flat year over year?

But the effect on pricing remained flat quarter over quarter and year over year, right.

And you are expecting that -- let me stay on steel for a second. The heavy truck mark for the rest of 2006, have steel volumes because of people, anticipation of '07 and by the time of, is that what you are looking at?

That is correct, we are probably the front end of that supply chain. So ours will start to take the notice dive earlier than other parts of the industry.

You haven't seen it yet, you are anticipating it.

Right, we an anticipate that the second half.

Let me start with the industrial market. You said there was 5 million charge for S. A. T. in the Asia initiative and what have you. Was that all in the industrial sector? Where was that recognized and how will that flow for the rest of the year?

Eli, if you looked at the quarter we had between our projects one in issue sharks we incurred around $7 million in cost which was around five, $6 million higher than the same period a year ago because obviously those initiatives were ramping up in the latter half of last year. So of the 7 million you are looking at roughly 4 million of that cost flowing through our industrial results and 3 million through the automotive results. But that both initiatives would be up roughly around $11 million year over year. So call it around $20 million, $22 million of additional expense for those initiatives and the break out between the two would probably be around, call it 15 within the industrial side within the --

And moving to the charges for restructuring and impairment, was that that, in the income statement, was that also in industrial and automotive or $5 million?

The restructuring which would not show up in the segmentation of the cash financials that you would have received because we treat that as again the usual one time item, the 5 million was fairly evenly spread between our industrial and Automotive Group. But within those two.

I sort of calculate a general corporate expense level which seems very low in the quarter of 1.8 million. You take the difference between the operating profits and the EBIT number. Is that, is that, that's quite a bit lower than what we've seen recently. Is that a trend that's going to continue.

When you say, maybe I misunderstood you, a corporate expense?

Yeah, in other words, if you take the difference between the operating profit that you get for the quarter and get the EBIT number, you get a very small difference of corporate expense.

Again and I'm not necessarily following how you are getting to the number but I can tell you just overall from a corporate expense standpoint it should be relatively flat year over year. We allocate those costs to our businesses but they do flow through but we don't have it separately we do break out a separate line of other expense outside of the SG&A which is not a corporate expense, nonoperating expenses and again those would be allocated as well into the segmented information we have. But the expense control is clearly a focus where we are spending the money is in support of the key business initiatives such as the project one in our Asia growth initiative but were it not for that our S. and A. would be flat or down clearly as a percent of sales.

Can you give us an idea of how much capacity you would be able to combat in this industrial as we go through the rest of the year? Obviously -- the general guidance has been about 5%. Is that what we should expect for the rest of the year on a basis?

Mike, you want to handle the capacity benefits within the industrial group?

Sure, Eli, Mike Arnold. Five is probably a good number on the bottom side from a capacity year on year expansion. So you will see top line sales that will be a mix of sales plus volume and capacity. The majority of the capacity expansion is in the larger part of our size range of products which equates to about 25% of our total business. So you have to go through the math a little bit on that. So I think if you look at volume increases year on year it will probably be pretty consistent with the 7% we saw quarter on quarter.

One final question. Automotive you had, you were repricing the last part of the legacy issues that were affecting that group. Has that been settled already? Has that volume been lost or what's the outlook for that?

Eli, this is Jacqui Dedo. As we said last year we continue to through as our contracts come up up. We are on track with that and have at least three quarters of that completed. And we will be finalizing that as contracts come up this year.

That doesn't come up until the fall, then?

It varies.

And at this point are you maintaining your business and repricing it or some of it is just walking a way?

We are moving away from some pricing, from some programs, about $70 million worth last year on an annual basis. That's being replaced by new growth more profit annual, that are differentiate the products of about the same rate.

Thank you.

[OPERATOR INSTRUCTIONS]. Your next question comes from Wendy Caplan's line. Wendy, you may proceed.

Jacqui, can you give us a snapshot of what we are seeing today in terms of who we are supplying in terms of a couple of different cuts, customers, geographies, car types and which parts of the pies will be growing if we were having this discussion next year at this time?

Yes, Wendy, good morning. I think in three parts, customers, geographies and part times if we were having this discussion next year we would see an improvement from the, let's say the North American big three to the rest of world of about five percentage points on our total revenue. We are seeing an improvement rate of customer diversification about five percentage points a year, 5% of our entire revenue, and we see that accelerating.

On a geography standpoint, we are about 65% dependent on North America and that is improving at about the same rate, five to maybe 7% a year. And on car types, let's say vehicle types, we have a mixture that's about a third, a third, a third, white truck, half car, medium heavy. Actually I understand medium heavy is closer to 25% and a third and we see the medium heavy globally growing as commercial vehicle needs are growing and that in expanding markets like Asia and we see half car and light truck beginning to grow proportion to the market at about three to 4% a year.

Thank you very much much that's helpful. Also I think I may have missed this but should we expect more auto reserves to be taken from the balance of the year and if you are excluding them, you were a bit profitable a little bit above break even this quarter it appears, should we expect to be profitable in the auto segment for the balance of the year and do you anticipate sequentially that improving or how should we look at that picture?

Wendy, we don't, at this stage we don't anticipate additional accruals but I would say we have a process in place where we are continuing evaluating the overall risks to the corporation based on exposure and we are also actively working through our negotiation with our customers to minimize our risk. And at this stage we feel we've anticipated that properly and have it prudently covered. I could also tell you that based on that assumption when you look at our operating levels of revenue and effectiveness we expect to see continued profitability improvement quarter over quarter.

Thanks, Jacqui, that's real helpful.

Your next question comes from Holden Lewis' line. You may proceed.

Are you able to hear me?

Yes.

Great. I was trying to get a little bit of color about some of the trends also on the automotive revenue side. It seems like last year production was also flat to down. I think in the first half of last year. One of things that comp rate easier but even though the production was down last year you still managed to achieve pretty good rates of revenue growth within the automotive segment. And then in the past couple of quarters you've really seen that opportunity and production is down but certainly no worse than last year at this time. And I was curious why we have really seen the rates of growth scaling back the way they have.

Holden, this is Jacqui Dedo. I would tell you that what you are seeing is the effect of implementation of our portfolio management. As you know, we are working to change the overall portfolio to a more diversified mix of customers balanced with the market as well as a better mix of differentiated product as our contracts come up.

So while the overall market would be similar to last year with a slight mix difference you are seeing a big transition of our intend intended portfolio management with our, as contracts coming up, exiting programs at about the same rate with which we are replacing them with new business. And you should continue to see that over the next year to year and a half as we finish through this before we go back at a steady state portfolio and a straight growth rate.

So basically that's 70 million in annual sales that you are referring to that is sort of coming off this year?

Yes. And as we continue to through the portfolio management we are completely comfortable with that becoming larger if we find together with our customers that those products come off contract are not viewed as differentiated.

Right. Okay. Now, the 70 million, that represents the 4% of last year's automotive revenue, if I'm doing the math right. And obviously you haven't taken it yet to that extent. Does that suggest that you are actually offsetting 70 million with new platforms or what is the difference there?

Yeah, we are offsetting that with new platforms and better pricing. As you may have heard in my commentary to Wendy, we are changing up our customer mix so to our balance and we are gaining a nice share of new programs with nonvictory customers.

Okay. All right. Great. Thank you.

Again, [OPERATOR INSTRUCTIONS]. Your next question comes from Gary McManus line.

Glenn, I missed this number. You said the reserves for the auto [inaudible], how much had that been cumulatively?

Around $13 million, 12.5, $13 million over the past three quarters.

And so you had 3.5 million in the first quarter, I think it was 3 million in the fourth quarter, is that right? So was there some in the second and third quarter of '05 as well?

There was some in the third quarter and fourth quarter of last year -- the first quarter we had 5 million. It was 3.5 and impacted the Automotive Group and then.

That's right, that's right. Okay. I guess a question for Jacqui, I know you don't want to talk about '07 but I know a piece of the automotive segment is heavy truck and everyone expects heavy truck to drop 30% or so, the Steel Group is expecting declines later there this year. So just conceptually, you think you can overcome what looks to be a big drop in your heavy truck business in 2007 through higher profits presumably in the light vehicle side.

Yes, Gary, we have -- we've modeled '07 pro forma at both in North American heavy trucked as well as 50% reduction which surely nobody would anticipate but it's interesting to model and look at how we would utilize as I mentioned earlier, the growth and need for medium and heavy truck opportunities and in the emerging market to offset those production requirements through that cycle. And as you know at the end of '07, beginning of '08 we will be back into a ramp up period in North America for the heavy truck in time for the 2010

Heavy truck is how much of auto segment revenues roughly?

Heavy is roughly 200 million.

Great. Thank you.

Your final question comes from Ben Barenson. Sir, your line is open.

Hi, thanks for taking my call. It seems like you've been experiencing some significant fluctuation of raw material prices recently. How long do you expect to be able to pass that on to your consumers and is there any particular group in your business where you see that there's a limit that you can do that?

This is Sal Miraglia. Let me start on the answer to that. As of currently we've managed to put that surcharge capability into virtually all of our contracts and believe we will be able to retain that for the remainder of this year and probably extended into next year. So the primary we have with high confidence the ability to maintain that within our pricing structure.

Okay. Thank you.

[OPERATOR INSTRUCTIONS]. Holden Louis does have a follow-up question.

On the industrial bearing revenue growth are you able to break out how much of that specifically was price and how much currency and how much volume?

Yeah, Holden, this is Mike Arnold. In general as we look at those volumes you could put them in the terms of about a third on the pricing side, a little bit better than a third obviously of the organic growth. And then throughout the year we have continued to make small acquisitions in our growth initiatives. So that would be.

So that's about another third?

Well, it would be less than a third. You are probably talking a third, maybe 50% and then sort of 10% of some of the top line growth. Also be careful because as you compare quarter on quarter, first quarter, first quarter '05, we actually had a divestment later in the year of '05 that actually took $11 million off the top line in comparison so you have to be careful with that.

Okay. And give us a sense on steel again, sort of when you look out beyond 2006, you have sort of given us what to expect there. What are the moving pieces that would cause us either to do as well or better than this 12.5% as we go forward versus firing somewhat worse? I mean are you sort of coming to the impression that low teens type of margins are possible in this business as long as demand remains good or is there a feeling that some of this remains somewhat temporary in nature?

Well, this is Sal Miraglia again. We feel pretty good about some of the mix enrichment strength continuing. The area of oil in particular or energy more generally and industrial growth. From the mix point of view we see that to be strong. If anything we have less confidence in what will happen with raw material pricings but in long-term and in our long-term view we believe that that is going to stay strong and stay high and therefore mechanisms we have in place to kind of collect that extra cost will keep us whole relative to it.

So we see being able to maintain pretty good performance. Now whether it will stay in the teams or be in the 10% area that's a call that's hard for us to make but we think it's going to be pretty strong.

And it sounds like you are comfortable thinking that in a good environment double-digit is a reasonable expectation.

We think so, yes.

Okay, thank you.

[OPERATOR INSTRUCTIONS]. At this time there are no further questions. You may proceed.

All right. Well, let me draw it to a close simply by saying thank you for your interest and your investment in the company. In summary, it seems that there are two key points. One is strong markets are improving the mix and the performance of the company in our own tackle efforts to improve our portfolio are driving the company forward. positively. Operator, we seen to Mark Parr lined up. We would be happy to take a question.

And Mark Parr, you may proceed.

Can you hear me all right?

Yes.

Okay. I've been trying to ask a question a here for quite awhile. I don't understand why -- I had a couple of things, first of all, just to ask about getting some additional color on the anticipated downturn in heavy truck, you had talked about 30% reduction in a $200 million business for '07, or about a $60 million impact in the bearing side. What would be a reasonable corresponding number on the steel side for a heavy truck exposure?

Sal, while you think about that I would like to clarify that two he wasn't million dollars is our medium heavy business, two-thirds of that or less than two-thirds of that is our heavy portion for your modeling purposes. So the number actually --, Mark, we lost you.

Mr. Parr, your line is still open. Sir, you may proceed. Mr. Parr your line is open. You may want to lift your handset. Mr. Parr has disconnected at this time. [OPERATOR INSTRUCTIONS]. Mr. Parr, you may proceed.

Thank you. I'm not sure what's going on but we are having a technical difficulty. Can you hear me?

Yes, we can, Mark.

Okay. Now if you have a corresponding number for the heavy truck on the steel side?

Yes, I do, Mark. I'm estimating it's about on the order of, a little bit less than $50 million annual sales which will be affected by about a third, the same kind of change, so it's that order of magnitude.

Mark, this is Jim. I have to step back and make sure you are not drawing yourself down the lines to a conclusion that isn't as obvious as it might seem. In both the steel business and in the automotive business or the bearing business, the assets that make the product of the heavy truck are almost 100% transferable to other markets.

And just from a bearing point of view, for example, they translate directly to the rail market where we've got a backlog of demand. So what we have been able to do thus far through the automotive cycle across the majority of our business is actually to mix up when we have a downturn in one segment or another. That's the power of the strength of the general industrial market. And at this point, I can't guarantee we will match dollar for dollar but our outlook of the market says in general we should be able to continue to grow through that period as a corporation.

So that's for the potential reduction on the heavy truck market moving into '07 or late '06 and into '07, you are seeing plenty of opportunities to shift that capacity into other areas.

Jacqui talked about there's a rapidly growing heavy truck market in Asia that we are playing with and that capacity translate into the rail market and the steel business this quarter. We were able to offset low automotive demand with high energy market sales. So there is just a lot of ways to be able to do that. We are seeing strong, deep demand across the vast majority of the assets.

So I mean I guess where I was a bit confused about Sal's earlier comments that demand was really going to take a downward movement in the second half of '06.

Well, the question, and there's the conservativeness of a steel business, is if you don't have the orders it's hard to project it. But as a general statement, we have been able to see other markets come in and fill in where that happens. Some of the difficulty with us forecasting earnings is when you don't see them it's difficult to forecast them but as a general statement as a Company we see strong demand across the assets for the balance of the year.

Okay. Terrific. I had a couple of other follow up questions that if I could related to the automotive business. Could you tell us what the DSOs for your automotive receivables look like compared to the corporate average?

I would say, I don't have it in front of me but I would tell you that overall we are probably around 50 days, 52 days overall for the company. We don't expect that we would see anything different frankly between the businesses, obviously it depends on the terms that we have. But if the inference is, are we seeing extension in those days because of the industry, the dynamic, the answer is no. We are current, very current frankly on all of the issues and frankly our receivables to build up reserve wasn't a function of extension of days that hadn't been paid as much as potential risk associated with some of our customers.

Okay. All right. On pricing momentum in the automotive arena, Jacqui, I know that on previous calls you talked a little bit about the how much pricing momentum you've been able to achieve. Could you give us a year over year comparison on pricing for automotive bearings in the first quarter?

Year over year our pricing '05 versus '06 for first quarter is about $10 million improved.

Okay. Terrific. Is there an outlook for that to move higher over the second or third quarter?

There is an outlook that holds it relatively flat over the second quarter based on our performance last year and the timing of collecting it and improved in the third and fourth.

Okay. Terrific. I just want to wish you good luck with that and also congratulations on the progress you made so far.

Thanks, Mark.

Okay. Terrific. I really appreciate all the color. Congratulations on the solid quarter.

Thanks, Mark, and sorry for the problems of not being able to hook-up with us.

There are no further questions at this time. You may proceed.

All right. Again, thank you for your interest in the Timken company. I think Mark sums it up well with a very solid quarter looking for better things coming down the track.

This does conclude today's Timken first quarter 2006 earnings release conference call. You may now all disconnect.