UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 1-1169

THE TIMKEN COMPANY

(Exact name of registrant as specified in its charter)

OHIO (State or other jurisdiction of incorporation or organization)		34-0577130 (I.R.S. Employer Identification No.)
1835 Dueber Ave., SW, Canton, OH (Address of principal executive offices)		44706-2798 (Zip Code)

330.438.3000
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [ x ]                 No [ ]     

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [ ]                 No [ ]     

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ x ]		Accelerated filer [ ]		Non-accelerated filer [ ]		Smaller reporting company [ ]
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ]                 No [ x ]     

      Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at June 30, 2009
Common Stock, without par value		96,817,639 shares

PART I. FINANCIAL INFORMATION

Consolidated Statement of Income

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
(Dollars in thousands, except per share data)
Net sales		$	828,927			$	1,535,549			$	1,789,305			$	2,970,219
Cost of products sold			710,092				1,191,805				1,518,344				2,314,938
Gross Profit			118,835				343,744				270,961				655,281
Selling, administrative and general expenses			142,315				196,603				281,311				374,549
Impairment and restructuring charges			54,915				1,807				69,659				4,683
Gain on divestitures			-				-				-				(8	)
Operating (Loss) Income			(78,395	)			145,334				(80,009	)			276,057
Interest expense			(8,491	)			(11,643	)			(16,965	)			(22,641	)
Interest income			549				1,515				939				2,913
Other income (expense), net			(573	)			(701	)			6,895				14,766
(Loss) Income before Income Taxes			(86,910	)			134,505				(89,140	)			271,095
Provision (benefit) for income taxes			(23,040	)			44,584				(20,192	)			95,824
Net (Loss) Income			(63,870	)			89,921				(68,948	)			175,271
Less: Net income (loss) attributable to noncontrolling interest			647				978				(5,301	)			1,863
Net (Loss) Income Attributable to The Timken Company		$	(64,517	)		$	88,943			$	(63,647	)		$	173,408
Net (Loss) Income per Common Share Attributable to The Timken Company Common Shareholders
Basic (loss) earnings per share		$	(0.67	)		$	0.92			$	(0.66	)		$	1.80
Diluted (loss) earnings per share		$	(0.67	)		$	0.92			$	(0.66	)		$	1.80
Dividends per share		$	0.09			$	0.17			$	0.27			$	0.34

See accompanying Notes to Consolidated Financial Statements.

Consolidated Balance Sheet

		(Unaudited)
		June 30,				December 31,
		2009				2008
(Dollars in thousands)
ASSETS
Current Assets
Cash and cash equivalents		$	277,086			$	133,383
Accounts receivable, less allowances: 2009 - $62,766; 2008 - $56,459			465,068				609,397
Inventories, net			930,141				1,145,695
Deferred income taxes			84,830				83,438
Deferred charges and prepaid expenses			15,806				11,066
Other current assets			45,846				50,486
Total Current Assets			1,818,777				2,033,465
Property, Plant and Equipment - Net			1,653,212				1,743,866
Other Assets
Goodwill			229,699				230,049
Other intangible assets			166,264				173,704
Deferred income taxes			312,782				314,960
Other non-current assets			41,421				40,006
Total Other Assets			750,166				758,719
Total Assets		$	4,222,155			$	4,536,050
LIABILITIES AND EQUITY
Current Liabilities
Short-term debt		$	68,404			$	91,482
Accounts payable and other liabilities			316,284				443,430
Salaries, wages and benefits			146,608				218,695
Income taxes payable			-				22,467
Deferred income taxes			5,186				5,131
Current portion of long-term debt			269,293				17,108
Total Current Liabilities			805,775				798,313
Non-Current Liabilities
Long-term debt			254,845				515,250
Accrued pension cost			844,333				844,045
Accrued postretirement benefits cost			609,038				613,045
Deferred income taxes			9,921				10,388
Other non-current liabilities			97,096				91,971
Total Non-Current Liabilities			1,815,233				2,074,699
Shareholders’ Equity
Class I and II Serial Preferred Stock without par value:
Authorized - 10,000,000 shares each class, none issued
Common stock without par value:
Authorized - 200,000,000 shares
Issued (including shares in treasury) (2009 - 96,980,935 shares; 2008 - 96,891,501 shares)
Stated capital			53,064				53,064
Other paid-in capital			835,473				838,315
Earnings invested in the business			1,490,299				1,580,084
Accumulated other comprehensive loss			(791,226	)			(819,633	)
Treasury shares at cost (2009 - 163,296 shares; 2008 - 344,948 shares)			(4,206	)			(11,586	)
Total Shareholders’ Equity			1,583,404				1,640,244
Noncontrolling Interest			17,743				22,794
Total Equity			1,601,147				1,663,038
Total Liabilities and Equity		$	4,222,155			$	4,536,050

See accompanying Notes to Consolidated Financial Statements.

(Unaudited)

		Six Months Ended
		June 30,
		2009				2008
(Dollars in thousands)
CASH PROVIDED (USED)
Operating Activities
Net (loss) income attributable to The Timken Company		$	(63,647	)		$	173,408
Net income (loss) attributable to noncontrolling interest			(5,301	)			1,863
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			116,949				117,080
Impairment charges			35,630				362
Loss (gain) on disposals of property, plant and equipment			1,416				(15,452	)
Deferred income tax (benefit) provision			(758	)			2,001
Stock based compensation expense			8,222				9,572
Pension and other postretirement expense			49,050				43,940
Pension and other postretirement benefit payments			(35,472	)			(41,781	)
Changes in operating assets and liabilities:
Accounts receivable			148,134				(132,793	)
Inventories			228,005				(122,050	)
Accounts payable and accrued expenses			(231,109	)			52,116
Other - net			2,325				2,450
Net Cash Provided By Operating Activities			253,444				90,716
Investing Activities
Capital expenditures			(54,618	)			(127,447	)
Proceeds from disposals of property, plant and equipment			3,880				29,741
Acquisitions			(353	)			(56,906	)
Other			1,896				(1,606	)
Net Cash Used by Investing Activities			(49,195	)			(156,218	)
Financing Activities
Cash dividends paid to shareholders			(26,138	)			(32,709	)
Net proceeds from common share activity			-				15,708
Accounts receivable securitization financing borrowings			-				210,000
Accounts receivable securitization financing payments			-				(45,000	)
Proceeds from issuance of long-term debt			-				631,303
Payments on long-term debt			(10,259	)			(662,689	)
Short-term debt activity - net			(32,100	)			(6,474	)
Net Cash (Used) Provided by Financing Activities			(68,497	)			110,139
Effect of exchange rate changes on cash			7,951				5,920
Increase In Cash and Cash Equivalents			143,703				50,557
Cash and cash equivalents at beginning of year			133,383				42,884
Cash and Cash Equivalents at End of Period		$	277,086			$	93,441

See accompanying Notes to the Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(Dollars in thousands, except per share data)

Note 1 – Basis of Presentation

The accompanying Consolidated Financial Statements (unaudited) for The Timken Company (the Company) have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by the accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to the Consolidated Financial Statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008. Certain amounts in the 2008 Consolidated Financial Statements have been reclassified to conform to the 2009 presentation.

During the second quarter of 2009, the Company evaluated the classification of its investments held by the Company’s operations in India and concluded that a portion of these investments should be considered Cash and cash equivalents on the Company’s Consolidated Balance Sheet. The Company’s conclusion was based on the short-term and highly-liquid nature of the investments. At December 31, 2008, the Company held $23,640 of investments, of which $17,077 has been reclassified from Other current assets to Cash and cash equivalents to conform to the 2009 presentation for these investments.

Management has evaluated and disclosed all material events occurring subsequent to the date of the financial statements up to August 5, 2009, the filing date of this quarterly report on Form 10-Q.

Note 2 – New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157 (SFAS No. 157), “Fair Value Measurements.” SFAS No. 157 establishes a framework for measuring fair value that is based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information to develop those assumptions. Additionally, the standard expands the disclosures about fair value measurements to include separately disclosing the fair value measurements of assets or liabilities within each level of the fair value hierarchy. In February 2008, the FASB issued FASB Staff Position (FSP) FAS 157-2, “Effective Date of FASB Statement No. 157.” FSP FAS 157-2 delayed the effective date of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. On January 1, 2009, the Company implemented the previously delayed provisions of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities recorded at fair value, as required. The implementation of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities did not have a material impact on the Company’s results of operations and financial condition.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (SFAS No. 141(R)). SFAS No. 141(R) provides revised guidance on how acquirers recognize and measure the consideration transferred, identifiable assets acquired, liabilities assumed, noncontrolling interests and goodwill acquired in a business combination. SFAS No. 141(R) also expands required disclosures surrounding the nature and financial effects of business combinations. SFAS No. 141(R) is effective, on a prospective basis, for fiscal years beginning after December 15, 2008. The implementation of SFAS No. 141(R), effective January 1, 2009, did not have a material impact on the Company’s results of operations and financial condition.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51.” SFAS No. 160 establishes requirements for ownership interests in subsidiaries held by parties other than the Company (sometimes called “minority interests”) to be clearly identified, presented, and disclosed in the consolidated statement of financial position within equity, but separate from the parent’s equity. All changes in the parent’s ownership interests are required to be accounted for consistently as equity transactions and any noncontrolling equity investments in deconsolidated subsidiaries must be measured initially at fair value. SFAS No. 160 is effective, on a prospective basis, for fiscal years beginning after December 15, 2008. However, presentation and disclosure requirements must be retrospectively applied to comparative financial statements. The implementation of SFAS No. 160, effective January 1, 2009, did not have a material impact on the Company’s results of operations and financial condition.

Note 2 – New Accounting Pronouncements (continued)

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133.” SFAS No. 161 requires entities to provide greater transparency through additional disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The implementation of SFAS No. 161, effective January 1, 2009, expanded the disclosures on derivative instruments and related hedged items and did not have a material impact on the Company’s results of operations and financial condition. See Note 16 – Derivative Instruments and Hedging Activities for the expanded disclosures.

In June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSP No. EITF 03-6-1 clarifies that unvested share-based payment awards that contain rights to receive nonforfeitable dividends are participating securities. FSP No. EITF 03-6-1 provides guidance on how to allocate earnings to participating securities and compute earnings per share using the two-class method. FSP No. EITF 03-6-1 is effective for fiscal years beginning after December 31, 2008, and interim periods within those fiscal years. FSP No. EITF 03-6-1 did not have a material impact on the Company’s disclosure of earnings per share. See Note 10 – Earnings Per Share for the computation of earnings per share using the two-class method.

In December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” FSP FAS 132(R)-1 requires the disclosure of additional information about investment allocation, fair values of major categories of assets, development of fair value measurements and concentrations of risk. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. The adoption of FSP FAS 132(R)-1 is not expected to have a material impact on the Company’s results of operations and financial condition.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” SFAS No. 165 establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009 and was adopted by the Company in the second quarter of 2009. The adoption of SFAS No. 165 did not have a material impact on the Company’s results of operations and financial condition.

Note 3 – Inventories

		June 30,				December 31,
		2009				2008
Inventories:
Manufacturing supplies		$	82,636			$	89,070
Work in process and raw materials			357,954				474,906
Finished products			489,551				581,719
Inventories - net		$	930,141			$	1,145,695

An actual valuation of the inventory under the last-in, first-out (LIFO) method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on management’s estimates of expected year-end inventory levels and costs. Because these are subject to many factors beyond management’s control, annual results may differ from interim results as they are subject to the final year-end LIFO inventory valuation. The LIFO reserve at June 30, 2009 and December 31, 2008 was $294,273 and $307,544, respectively. The Company’s Steel segment recognized a decrease in its LIFO reserve of $3,805 and $16,188, respectively, during the second quarter and first six months of 2009 as a result of expected lower year-end inventory quantities and material costs, especially scrap steel costs. The decrease in the Company’s Steel segment LIFO reserve for the respective periods of 2009 compares to an increase in the LIFO reserve of $28,639 and $45,239, respectively, during the second quarter and first six months of 2008.

Note 4 – Property, Plant and Equipment

The components of property, plant and equipment are as follows:

		June 30,				December 31,
		2009				2008
Property, Plant and Equipment:
Land and buildings		$	720,639			$	705,701
Machinery and equipment			3,346,047				3,323,695
Subtotal			4,066,686				4,029,396
Less allowances for depreciation			(2,413,474	)			(2,285,530	)
Property, Plant and Equipment - net		$	1,653,212			$	1,743,866

At June 30, 2009 and December 31, 2008, machinery and equipment included approximately $125,400 and $128,800, respectively, of capitalized software. Depreciation expense for the three months ended June 30, 2009 and 2008 was $55,675 and $55,986, respectively. Depreciation expense for the six months ended June 30, 2009 and 2008 was $109,622 and $109,981, respectively. Depreciation expense on capitalized software for the three months ended June 30, 2009 and 2008 was approximately $5,800 and $4,400, respectively. Depreciation expense on capitalized software for the six months ended June 30, 2009 and 2008 was approximately $10,900 and $8,800, respectively.

There were no assets held for sale at June 30, 2009 compared to $7,020 at December 31, 2008. In January 2009, the Company sold one of the buildings at its former office complex in Torrington, Connecticut and recognized a pretax gain of $1,322. On July 20, 2009, the Company sold the remaining portion of this office complex. In anticipation of the loss that the Company expected to record upon completion of the sale of the office complex, the Company recorded an impairment of $6,376 during the second quarter of 2009. The Company expects to incur a pretax loss of approximately $800 upon completion of this transaction. This former office complex was classified as assets held for sale at December 31, 2008.

On February 15, 2008, the Company completed the sale of its former seamless steel tube manufacturing facility located in Desford, England for approximately $28,400. The Company recognized a pretax gain of approximately $20,200 during the first quarter of 2008 and recorded the gain in Other income (expense), net in the Company’s Consolidated Statement of Income.

Note 5 – Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill for the six months ended June 30, 2009 are as follows:

		Beginning												Ending
		Balance				Acquisitions				Other				Balance
Segment:
Process Industries		$	52,856			$	-			$	(567	)		$	52,289
Aerospace and Defense			167,558				347				(136	)			167,769
Steel			9,635				6				-				9,641
Total		$	230,049			$	353			$	(703	)		$	229,699

Acquisitions represent opening balance sheet allocation adjustments for acquisitions completed in 2008. Other primarily includes foreign currency translation adjustments.

Note 5 – Goodwill and Other Intangible Assets (continued)

The following table displays intangible assets as of June 30, 2009 and December 31, 2008:

		As of June 30, 2009												As of December 31, 2008
		Gross								Net				Gross								Net
		Carrying				Accumulated				Carrying				Carrying				Accumulated				Carrying
		Amount				Amortization				Amount				Amount				Amortization				Amount
Intangible assets subject to amortization:
Customer relationships		$	101,098			$	19,155			$	81,943			$	101,098			$	16,470			$	84,628
Engineering drawings			5,001				5,001				-				5,001				5,001				-
Know-how			2,104				838				1,266				2,122				784				1,338
Land-use rights			7,643				2,961				4,682				7,508				2,593				4,915
Patents			22,729				15,396				7,333				22,729				14,101				8,628
Technology use			46,445				8,989				37,456				46,120				7,298				38,822
Trademarks			6,517				4,718				1,799				6,632				4,670				1,962
PMA licenses			8,792				1,980				6,812				8,792				1,753				7,039
Non-compete agreements			2,710				846				1,864				2,710				493				2,217
Unpatented technology			18,425				11,900				6,525				18,425				11,000				7,425
		$	221,464			$	71,784			$	149,680			$	221,137			$	64,163			$	156,974
Intangible assets not subject to amortization:
Goodwill		$	229,699			$	-			$	229,699			$	230,049			$	-			$	230,049
Tradename			1,400				-				1,400				1,400				-				1,400
Land-use rights			-				-				-				146				-				146
Industrial license agreements			964				-				964				964				-				964
FAA air agency certificates			14,220				-				14,220				14,220				-				14,220
		$	246,283			$	-			$	246,283			$	246,779			$	-			$	246,779
Total intangible assets		$	467,747			$	71,784			$	395,963			$	467,916			$	64,163			$	403,753

Amortization expense for intangible assets was approximately $3,760 and $7,230, respectively, for the three and six months ended June 30, 2009. Amortization expense for intangible assets is estimated to be approximately $14,900 for 2009; $14,600 in 2010; $13,600 in 2011; $13,000 in 2012 and $9,900 in 2013.

Note 6 – Equity Investments

The Company’s investments in less than majority-owned companies in which it has the ability to exercise significant influence are accounted for using the equity method except for when they qualify as variable interest entities and are consolidated in accordance with FASB Interpretation No. 46 (revised December 2003) (FIN 46(R)), “Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51.”

Equity investments are reviewed for impairment when circumstances (such as lower-than-expected financial performance or change in strategic direction) indicate that the carrying value of the investment may not be recoverable. If impairment does exist, the equity investment is written down to its fair value with a corresponding charge to the Consolidated Statement of Income. No impairments were recorded during the first six months of 2009 and 2008 relating to the Company’s equity investments.

Investments accounted for under the equity method were $13,911 and $13,634 at June 30, 2009 and December 31, 2008, respectively, and were reported in Other non-current assets on the Consolidated Balance Sheet.

Note 6 – Equity Investments (continued)

The Company’s Mobile Industries segment has a joint venture with Advanced Green Components, LLC (AGC). AGC is engaged in the business of converting steel to machined rings for tapered bearings and other related products. During the third quarter of 2006, AGC refinanced its long-term debt of $12,240. The Company guaranteed half of this obligation. The Company concluded the refinancing represented a reconsideration event to evaluate whether AGC was a variable interest entity under FIN 46(R). The Company concluded that AGC was a variable interest entity and that the Company was the primary beneficiary. Therefore, the Company consolidated AGC, effective September 30, 2006. At June 30, 2009, net assets of AGC were $1,942, primarily consisting of the following: inventory of $5,876; property, plant and equipment of $21,231; short-term and long-term debt of $18,085; and other non-current liabilities of $7,365. All of AGC’s assets are collateral for its obligations. Except for AGC’s indebtedness for which the Company is a guarantor, AGC’s creditors have no recourse to the general credit of the Company.

The Company has no other variable interest entities, other than AGC, for which it is a primary beneficiary.

Note 7 – Financing Arrangements

Short-term debt at June 30, 2009 and December 31, 2008 was as follows:

		June 30,				December 31,
		2009				2008
Variable-rate lines of credit for certain of the Company’s foreign subsidiaries with various banks with interest rates ranging from 1.20% to 11.75%		$	68,404			$	91,482
Short-term debt		$	68,404			$	91,482

The lines of credit for certain of the Company’s foreign subsidiaries provide for borrowings up to $370,823. At June 30, 2009, the Company had borrowings outstanding of $68,404, which reduced the availability under these facilities to $302,419.

The Company has a $175,000 Accounts Receivable Securitization Financing Agreement (Asset Securitization Agreement), renewable every 364 days. Under the terms of the Asset Securitization Agreement, which expires on December 18, 2009, the Company sells, on an ongoing basis, certain domestic trade receivables to Timken Receivables Corporation, a wholly-owned consolidated subsidiary that in turn uses the trade receivables to secure borrowings, which are funded through a vehicle that issues commercial paper in the short-term market. Borrowings under the agreement are limited to certain borrowing base calculations. Any amounts outstanding under this Asset Securitization Agreement would be reported on the Company’s Consolidated Balance Sheet in Short-term debt. As of June 30, 2009, there were no outstanding borrowings under the Asset Securitization Agreement. Although the Company had no outstanding borrowings under the Asset Securitization Agreement as of June 30, 2009, certain borrowing base limitations reduced the availability under the Asset Securitization Agreement to $75,425. The yield on the commercial paper, which is the commercial paper rate plus program fees, is considered a financing cost and is included in Interest expense in the Consolidated Statement of Income.

Note 7 – Financing Arrangements (continued)

Long-term debt at June 30, 2009 and December 31, 2008 was as follows:

		June 30,				December 31,
		2009				2008
Fixed-rate Medium-Term Notes, Series A, due at various dates through May 2028, with interest rates ranging from 6.74% to 7.76%		$	175,000			$	175,000
Variable-rate State of Ohio Water Development Revenue Refunding Bonds, maturing on November 1, 2025 (0.45% at June 30, 2009)			12,200				12,200
Variable-rate State of Ohio Air Quality Development Revenue Refunding Bonds, maturing on November 1, 2025 (1.42% at June 30, 2009)			9,500				9,500
Variable-rate State of Ohio Pollution Control Revenue Refunding Bonds, maturing on June 1, 2033 (1.09% at June 30, 2009)			17,000				17,000
Variable-rate Unsecured Canadian Note, maturing on December 22, 2010 (1.01% at June 30, 2009)			39,816				47,104
Fixed-rate Unsecured Notes, maturing on February 15, 2010 with an interest rate of 5.75%			251,769				252,357
Variable-rate credit facility with US Bank for Advanced Green Components, LLC, maturing on July 17, 2009 (1.48% at June 30, 2009)			12,240				12,240
Other			6,613				6,957
			524,138				532,358
Less current maturities			269,293				17,108
Long-term debt		$	254,845			$	515,250

At June 30, 2009, the Company had no outstanding borrowings under its then existing $500,000 Amended and Restated Credit Agreement (former Senior Credit Facility) but had letters of credit outstanding totaling $39,243, which reduced the availability under the former Senior Credit Facility to $460,757. Under the former Senior Credit Facility, the Company had two financial covenants: a consolidated leverage ratio and a consolidated interest coverage ratio. At June 30, 2009, the Company was in full compliance with the covenants under the former Senior Credit Facility and its other debt agreements.

On July 10, 2009, the Company entered into a new $500 million Amended and Restated Credit Agreement (new Senior Credit Facility). This new Senior Credit Facility matures on July 10, 2012. Under the new Senior Credit Facility, the Company has three financial covenants: a consolidated leverage ratio, a consolidated interest coverage ratio and a consolidated minimum tangible net worth test. These covenants are effective with the Company’s third quarter ending September 30, 2009.

In December 2005, the Company entered into an unsecured loan in Canada. The principal balance of the loan is payable in full on December 22, 2010. The interest rate is variable based on the Canadian LIBOR rate and interest payments are due quarterly. The Company repaid a portion of this loan in June 2009 and repaid the remaining balance on July 10, 2009.

The Company is the guarantor of $6,120 of AGC’s $12,240 credit facility. Refer to Note 6 – Equity Investments for additional discussion. Effective as of July 17, 2009, AGC renewed its $12,240 credit facility with US Bank for another 365 days. The Company continues to guarantee half of this obligation.

Note 8 – Product Warranty

The Company provides limited warranties on certain of its products. The Company accrues liabilities for warranty based upon specific claims and a review of historical warranty claim experience in accordance with SFAS No. 5, “Accounting for Contingencies.” Should the Company become aware of a specific potential warranty claim for which liability is probable and reasonably estimable, a specific charge is recorded and accounted for accordingly. Adjustments are made quarterly to the accruals as claim data and historical experience change. The following is a rollforward of the warranty accruals for the six months ended June 30, 2009 and the twelve months ended December 31, 2008:

		June 30,				December 31,
		2009				2008
Beginning balance, January 1		$	13,515			$	12,571
Expense			3,779				7,525
Payments			(6,123	)			(6,581	)
Ending balance		$	11,171			$	13,515

The product warranty accrual at June 30, 2009 and December 31, 2008 was included in Accounts payable and other liabilities on the Consolidated Balance Sheet.

Note 9 – Equity

An analysis of the change in capital and earnings invested in the business for the six months ended June 30, 2009 is as follows:

						The Timken Company Shareholders
														Earnings				Accumulated
										Other				Invested				Other
						Stated				Paid-In				in the				Comprehensive				Treasury				Noncontrolling
		Total				Capital				Capital				Business				Income				Stock				Interest
Balance at December 31, 2008		$	1,663,038			$	53,064			$	838,315			$	1,580,084			$	(819,633	)		$	(11,586	)		$	22,794
Net loss			(68,948	)											(63,647	)											(5,301	)
Foreign currency translation adjustment			22,515																22,515
Pension and postretirement liability adjustment (net of income tax of $8,143)			6,897																6,897
Unrealized gain on marketable securities (net of income tax of $35)			67																54								13
Change in fair value of derivative financial instruments, net of reclassifications			(1,059	)															(1,059	)
Total comprehensive loss			(40,528	)
Capital investment of Timken XEMC (Hunan) Bearings Co.			1,000																								1,000
Dividends declared to noncontrolling interest			(763	)																							(763	)
Dividends - $0.27 per share			(26,138	)											(26,138	)
Issuance of 181,652 shares from treasury and 89,434 shares from authorized			4,538								(2,842	)											7,380
Balance at June 30, 2009		$	1,601,147			$	53,064			$	835,473			$	1,490,299			$	(791,226	)		$	(4,206	)		$	17,743

The total comprehensive loss for the three months ended June 30, 2009 was $840. The total comprehensive income for the three and six months ended June 30, 2008 was $108,862 and $230,444, respectively.

Note 10 – Earnings Per Share

The following table sets forth the reconciliation of the numerator and the denominator of basic earnings per share and diluted earnings per share for the three and six months ended June 30, 2009 and 2008:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Earnings per share - Basic:
Numerator:
Net (loss) income attributable to The Timken Company		$	(64,517	)		$	88,943			$	(63,647	)		$	173,408
Less: distributed and undistributed earnings allocated to nonvested stock			-				(600	)			-				(1,206	)
Net (loss) income attributable to common shareholders - basic			(64,517	)			88,343				(63,647	)			172,202
Denominator:
Weighted-average number of shares outstanding - basic			96,147,809				95,604,374				96,082,491				95,440,281
Basic (loss) earnings per share		$	(0.67	)		$	0.92			$	(0.66	)		$	1.80
Earnings per share - Diluted:
Numerator:
Net (loss) income attributable to The Timken Company		$	(64,517	)		$	88,943			$	(63,647	)		$	173,408
Less: distributed and undistributed earnings allocated to nonvested stock			-				(600	)			-				(1,206	)
Net (loss) income attributable to common shareholders - diluted			(64,517	)			88,343				(63,647	)			172,202
Denominator:
Weighted-average number of shares outstanding - basic			96,147,809				95,604,374				96,082,491				95,440,281
Effect of dilutive options			-				564,810				-				479,282
Weighted-average number of shares outstanding, assuming dilution of stock options			96,147,809				96,169,184				96,082,491				95,919,563
Diluted (loss) earnings per share		$	(0.67	)		$	0.92			$	(0.66	)		$	1.80

In periods in which a net loss has occurred, as is the case for the three and six months ended June 30, 2009, the dilutive effect of stock options is not recognized and thus is not utilized in the calculation of dilutive earnings per share.

The exercise prices for certain stock options that the Company has awarded exceed the average market price of the Company’s common stock. Such stock options are antidilutive and were not included in the computation of diluted earnings per share. The antidilutive stock options outstanding were 4,129,493 and zero for the three months ended June 30, 2009 and 2008, respectively. The antidilutive stock options outstanding were 4,533,820 and 784,510 for the six months ended June 30, 2009 and 2008, respectively.

Note 11 – Segment Information

The primary measurement used by management to measure the financial performance of each segment is adjusted EBIT (earnings before interest and taxes, excluding the effect of amounts related to certain items that management considers not representative of ongoing operations such as impairment and restructuring, manufacturing rationalization and integration costs, one-time gains and losses on disposal of non-strategic assets, allocated receipts received or payments made under the U.S. Continued Dumping and Subsidy Offset Act (CDSOA) and gains and losses on the dissolution of subsidiaries).

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Net sales to external customers:
Mobile Industries		$	365,740			$	628,238			$	738,604			$	1,263,490
Process Industries			221,010				327,504				463,294				639,716
Aerospace and Defense			113,165				105,676				225,830				207,808
Steel			129,012				474,131				361,577				859,205
		$	828,927			$	1,535,549			$	1,789,305			$	2,970,219
Intersegment sales:
Process Industries		$	700			$	869			$	1,622			$	1,279
Steel			5,823				44,797				21,826				84,711
		$	6,523			$	45,666			$	23,448			$	85,990
Segment EBIT, as adjusted:
Mobile Industries		$	(36,396	)		$	13,968			$	(61,275	)		$	44,535
Process Industries			37,586				62,803				84,603				121,840
Aerospace and Defense			19,504				12,111				38,057				19,273
Steel			(32,907	)			80,318				(40,169	)			133,697
Total EBIT, as adjusted, for reportable segments			(12,213	)			169,200				21,216				319,345
Unallocated corporate expense			(13,187	)			(19,303	)			(25,517	)			(35,728	)
Impairment and restructuring			(54,915	)			(1,807	)			(69,659	)			(4,683	)
Gain on divestitures			-				-				-				8
Rationalization and integration charges			(2,418	)			(2,119	)			(3,883	)			(4,301	)
Gain on sale of non-strategic assets, net of dissolution of subsidiary			757				191				1,979				20,545
Interest expense			(8,491	)			(11,643	)			(16,965	)			(22,640	)
Interest income			549				1,515				939				2,912
Intersegment eliminations			3,008				(1,529	)			2,750				(4,363	)
(Loss) Income before Income Taxes		$	(86,910	)		$	134,505			$	(89,140	)		$	271,095

Intersegment sales represent sales between the segments. These sales are eliminated upon consolidation.

Note 12 – Impairment and Restructuring Charges

Impairment and restructuring charges by segment are comprised of the following:

For the three months ended June 30, 2009:

		Mobile				Process				Aerospace and
		Industries				Industries				Defense				Steel				Corporate				Total
Impairment charges		$	2,833			$	26,890			$	1,984			$	-			$	-			$	31,707
Severance expense and related benefit costs			12,935				3,883				1,448				2,758				660				21,684
Exit costs			790				734				-				-				-				1,524
Total		$	16,558			$	31,507			$	3,432			$	2,758			$	660			$	54,915
For the six months ended June 30, 2009:
		Mobile				Process				Aerospace and
		Industries				Industries				Defense				Steel				Corporate				Total
Impairment charges		$	3,730			$	29,916			$	1,984			$	-			$	-			$	35,630
Severance expense and related benefit costs			20,529				4,842				1,502				3,204				1,860				31,937
Exit costs			794				1,297				-				1				-				2,092
Total		$	25,053			$	36,055			$	3,486			$	3,205			$	1,860			$	69,659
For the three months ended June 30, 2008:
		Mobile				Process				Aerospace and
		Industries				Industries				Defense				Steel				Corporate				Total
Impairment charges		$	-			$	-			$	-			$	-			$	-			$	-
Severance expense and related benefit costs			470				-				-				-				-				470
Exit costs			(45	)			1,343				-				39				-				1,337
Total		$	425			$	1,343			$	-			$	39			$	-			$	1,807
For the six months ended June 30, 2008:
		Mobile				Process				Aerospace and
		Industries				Industries				Defense				Steel				Corporate				Total
Impairment charges		$	310			$	52			$	-			$	-			$	-			$	362
Severance expense and related benefit costs			2,564				-				-				-				-				2,564
Exit costs			(38	)			1,431				-				364				-				1,757
Total		$	2,836			$	1,483			$	-			$	364			$	-			$	4,683

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.

Note 12 – Impairment and Restructuring Charges (continued)

Selling and Administrative Reductions

In March 2009, the Company announced the realignment of its organization to improve efficiency and reduce costs as a result of the economic downturn. The Company initially targeted pretax savings of approximately $30,000 to $40,000 in annual selling and administrative costs. In April 2009, in light of the Company’s revised forecast indicating significantly reduced sales and earnings for the year, the Company expanded the target to approximately $80,000. The implementation of these savings began in the first quarter of 2009 and is expected to be significantly completed by the end of the fourth quarter of 2009, with full-year savings expected to be achieved in 2010. As the Company streamlines its operating structure, it expects to cut its sales and administrative associate workforce by up to 400 positions in 2009, incurring severance costs of approximately $15,000 to $20,000. During the second quarter and first six months of 2009, the Company recognized $8,994 and $11,301, respectively, of severance and related benefit costs related to this initiative eliminating approximately 270 associates. Of the $8,994 charge for the second quarter of 2009, $4,631 related to the Mobile Industries segment, $1,848 related to the Process Industries segment, $781 related to the Aerospace and Defense segment, $1,074 related to the Steel segment and $660 related to Corporate. Of the $11,301 charge for the first six months of 2009, $5,103 related to the Mobile Industries segment, $2,028 related to the Process Industries segment, $790 related to the Aerospace and Defense segment, $1,520 related to the Steel segment and $1,860 related to Corporate.

Manufacturing Workforce Reductions

During the second quarter and first six months of 2009, the Company recorded $11,785 and $19,156, respectively, in severance and related benefit costs, including a curtailment of pension benefits of $1,611 for the first six months of 2009, to eliminate approximately 1,900 associates to properly align its business as a result of the current downturn in the economy and expected market demand. Of the $11,785 charge, $7,663 related to the Mobile Industries segment, $1,771 related to the Process Industries segment, $667 related to the Aerospace and Defense segment and $1,684 related to the Steel segment. Of the $19,156 charge, $14,228 related to the Mobile Industries segment, $2,532 related to the Process Industries segment, $712 related to the Aerospace and Defense segment and $1,684 related to the Steel segment.

Bearings and Power Transmission Reorganization

In August 2007, the Company announced the realignment of its management structure. During the first quarter of 2008, the Company began to operate under two major business groups: the Steel Group and the Bearings and Power Transmission Group. The Bearings and Power Transmission Group includes three reportable segments: Mobile Industries, Process Industries and Aerospace and Defense. The Company realized pretax savings of approximately $18,000 in 2008 as a result of these changes. During the second quarter and first six months of 2008, the Company recorded $1,030 and $2,122, respectively, of severance and related benefit costs related to this initiative.

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 the office complex, the Company recorded an impairment of $6,376 during the second quarter of 2009. The Company had previously classified $4,392 of the assets as assets held for sale.

Mobile Industries

In March 2007, the Company announced the planned closure of its manufacturing facility in Sao Paulo, Brazil. The closure of this manufacturing facility was subsequently delayed to serve higher customer demand. However, with the current downturn in the economy, the Company believes it will close this facility before the end of 2010. This closure is targeted to deliver annual pretax savings of approximately $5,000, with expected pretax costs of approximately $25,000 to $30,000, which includes restructuring costs and rationalization costs recorded in cost of products sold and selling, administrative and general expenses. Due to the delay in the closure of this manufacturing facility, the Company expects to realize the $5,000 of annual pretax savings before the end of 2010, once this facility closes. Mobile Industries has incurred cumulative pretax costs of approximately $19,957 as of June 30, 2009 related to this closure. During the second quarter and first six months of 2009, the Company recorded $641 and $1,197, respectively, of severance and related benefit costs and exit costs of $769 associated with the planned closure of the Company’s Sao Paulo, Brazil manufacturing facility. During the first six months of 2008, the Company recorded $1,001 of severance and related benefit costs associated with this facility.

In addition to the above charges, the Company recorded impairment charges of $637 during the second quarter of 2009 related to an impairment of fixed assets at its facility in Canada as a result of the carrying value of these assets exceeding expected future cash flows. The Company also recorded impairment charges of $897 during the first quarter of 2009 related to an impairment of fixed assets at two of its facilities in France as a result of the carrying value of these assets exceeding expected future cash flows. During the first quarter of 2008, the Company recorded an impairment charge of $309 related to an impairment of fixed assets at its facility in Spain as a result of the carrying value of these assets exceeding expected future cash flows due to the then-anticipated sale of this facility.

Note 12 – Impairment and Restructuring Charges (continued)

Process Industries

In May 2004, the Company announced plans to rationalize its three bearing plants in Canton, Ohio within the Process Industries segment. This rationalization initiative is expected to deliver annual pretax savings of approximately $20,000 through streamlining operations and workforce reductions, with pretax costs of approximately $100,000 to $110,000 (including pretax cash costs of approximately $45,000 to $50,000), by the end of 2009.

The Company recorded impairment charges of $24,694 and exit costs of $734 during the second quarter of 2009 related to Process Industries’ rationalization plans. During the first six months of 2009, the Company recorded impairment charges of $27,720 and exit costs of $1,297. During the second quarter and first six months of 2008, the Company recorded exit costs of $1,343 and $1,431, respectively, as a result of Process Industries’ rationalization plans. The significant impairment charge recorded during the second quarter of 2009 is a result of the rapid deterioration of the market sectors served by one of the rationalized plants, resulting in the carrying value of the fixed assets for this plant exceeding its estimated future cash flows. The Company now expects to close this facility by the end of 2009. The Process Industries segment has incurred cumulative pretax costs of approximately $67,771 (including approximately $25,300 of pretax cash costs) as of June 30, 2009 for these rationalization plans including rationalization costs recorded in cost of products sold and selling, administrative and general expenses. As of June 30, 2009, the Process Industries segment has realized approximately $15,000 in annual pretax savings.

Steel

In April 2007, the Company completed the closure of its seamless steel tube manufacturing facility located in Desford, England. The Company recorded $325 of exit costs during the first six months of 2008 related to this action.

The following is a rollforward of the consolidated restructuring accrual for the six months ended June 30, 2009 and the twelve months ended December 31, 2008:

		June 30,				December 31,
		2009				2008
Beginning balance, January 1		$	18,946			$	24,455
Expense			32,418				12,597
Payments			(21,173	)			(18,106	)
Ending balance		$	30,191			$	18,946

The restructuring accrual at June 30, 2009 and December 31, 2008 is included in Accounts payable and other liabilities on the Consolidated Balance Sheet. The restructuring accrual at June 30, 2009 excludes costs related to the curtailment of pension benefit plans of $1,611. The accrual at June 30, 2009 includes $22,949 of severance and related benefits, with the remainder of the balance primarily representing environmental exit costs. The majority of the $22,949 accrual relating to severance and related benefits is expected to be paid by the end of 2009, with the remainder paid before the end of 2010 once the closure of the manufacturing facility in Sao Paulo, Brazil is completed.

Note 13 – Retirement and Postretirement Benefit Plans

The following table sets forth the net periodic benefit cost for the Company’s retirement and postretirement benefit plans. The amounts for the three and six months ended June 30, 2009 are based on actuarial calculations prepared during 2008. Consistent with prior years, these calculations will be updated later in the year. These updated calculations may result in different net periodic benefit cost for 2009. The net periodic benefit cost recorded for the three and six months ended June 30, 2009 is the Company’s best estimate of each period’s proportionate share of the amounts to be recorded for the year ended December 31, 2009.

		Pension								Postretirement
		Three Months Ended								Three Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Components of net periodic benefit cost
Service cost		$	10,726			$	8,265			$	524			$	409
Interest cost			39,265				39,522				8,843				9,630
Expected return on plan assets			(48,917	)			(50,689	)			-				-
Amortization of prior service cost			2,874				3,165				(578	)			(619	)
Recognized net actuarial loss			8,377				7,317				612				1,153
Curtailment gain			(239	)			-				-				-
Amortization of transition asset			(21	)			(24	)			-				-
Net periodic benefit cost		$	12,065			$	7,556			$	9,401			$	10,573

		Pension								Postretirement
		Six Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Components of net periodic benefit cost
Service cost		$	19,502			$	18,453			$	1,313			$	1,562
Interest cost			79,167				81,345				19,442				20,717
Expected return on plan assets			(96,245	)			(101,234	)			-				-
Amortization of prior service cost			5,735				6,300				(1,122	)			(1,089	)
Recognized net actuarial loss			17,820				14,552				1,868				3,383
Curtailment loss			1,611				-				-				-
Amortization of transition asset			(41	)			(49	)			-				-
Net periodic benefit cost		$	27,549			$	19,367			$	21,501			$	24,573

Note 14 – Income Taxes

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Provision (benefit) for income taxes		$	(23,040	)		$	44,584			$	(20,192	)		$	95,824
Effective tax rate			26.5%				33.1%				22.7%				35.3%

The Company’s provision for income taxes in interim periods is computed in accordance with FIN 18, “Accounting for Income Taxes in Interim Periods – an interpretation of APB Opinion No. 28” by applying the appropriate annual effective tax rates to income or loss before income taxes for the period. In addition, non-recurring or discrete items, including interest on prior year tax liabilities, are recorded during the period in which they occur.

The effective tax rates on the pretax losses for the second quarter and first six months of 2009 were lower than the U.S. federal statutory tax rate primarily due to losses at certain foreign subsidiaries where no tax benefit could be recorded and an unfavorable discrete tax adjustment related to the reversal of a benefit claimed on a prior year income tax return. These decreases were partially offset by the earnings in certain foreign jurisdictions where the effective tax rate is less than 35% and the net effect of other U.S. tax items.

For the full year of 2009, the Company expects its effective tax rate to be in the range of 25% to 30%.

Note 15 – Fair Value

SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). SFAS No. 157 classifies the inputs used to measure fair value into the following hierarchy:

	Level 1 –		Unadjusted quoted prices in active markets for identical assets or liabilities.
	Level 2 –		Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
	Level 3 –		Unobservable inputs for the asset or liability.

The following table presents the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of June 30, 2009:

		Fair Value at June 30, 2009
		Total				Level 1				Level 2				Level 3
Assets:
Available-for-sale securities		$	9,981			$	9,981			$	-			$	-
Foreign currency hedges			3,024				-				3,024				-
Interest rate swaps			1,769				-				1,769				-
Total Assets		$	14,774			$	9,981			$	4,793			$	-
Liabilities:
Foreign currency hedges		$	5,569			$	-			$	5,569			$	-
Total Liabilities		$	5,569			$	-			$	5,569			$	-

The Company uses publicly available foreign currency forward and spot rates to measure the fair value of its foreign currency forward contracts. The Company’s interest rate swaps are remeasured each period using observable market interest rates.

The Company does not believe it has significant concentrations of risk associated with the counterparts to its financial instruments.

The following table presents the fair value hierarchy for those assets measured at fair value on a nonrecurring basis as of June 30, 2009:

		Fair Value at June 30, 2009
																		Total Gains
		Total				Level 1				Level 2				Level 3				(Losses)
Assets:
Long-lived assets held for sale		$	-			$	-			$	-			$	-			$	(4,392	)
Long-lived assets held and used			2,468				-				-				2,468				(31,238	)
Total Assets		$	2,468			$	-			$	-			$	2,468			$	(35,630	)

In the first six months of 2009, in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” assets held for sale of $4,392 and assets held and used of $33,705 were written down to their fair value of $2,468 and impairment charges of $35,630 were included in earnings. Assets held for sale of $4,392 and assets held and used of $1,984, associated with the Company’s former Torrington campus office complex, were written down to zero and an impairment charge was recognized for the full amount. The Company recognized an impairment charge during the second quarter in anticipation of recognizing a loss on the sale of these assets sold on July 20, 2009.

Note 15 – Fair Value (continued)

Assets held and used associated with the rationalization of the Process Industries’ three Canton, Ohio bearing manufacturing facilities, with a carrying value of $29,815, were written down to their fair value of $2,095, resulting in an impairment charge of $27,720, which was included in earnings for the first six months of 2009. In addition to the Torrington campus office complex and the rationalization of Process Industries’ facilities, a portion of assets held and used that were part of a larger group of assets and had a total carrying value of $1,906 were found to be impaired during the first six months of 2009, resulting in an impairment charge of $1,534. A portion of these assets, with a carrying value of $128, were scrapped and written down to zero, while the remaining assets of $1,778 were written down to their fair value of $373.

With the exception of the assets held and used associated with the Torrington campus office complex, the estimated fair value was based on what the Company would receive for used machinery and equipment, if sold. Of the total impairment charge of $35,630 recognized in earnings during the first six months of 2009, $3,923 was recognized in the first quarter of 2009 and $31,707 was recognized in the second quarter of 2009.

Note 16 – Derivative Instruments and Hedging Activities

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are commodity price risk, foreign currency exchange rate risk, and interest rate risk. Forward contracts on various commodities are entered into to manage the price risk associated with forecasted purchases of natural gas used in the Company’s manufacturing process. Forward contracts on various foreign currencies are entered into to manage the foreign currency exchange rate risk on forecasted revenue denominated in foreign currencies. Other forward exchange contracts on various foreign currencies are entered into to manage the foreign currency exchange rate risk associated with certain of the Company’s commitments denominated in foreign currencies. Interest rate swaps are entered into to manage interest rate risk associated with the Company’s fixed and floating-rate borrowings.

In accordance with SFAS No. 133, the Company designates certain foreign currency forward contracts as cash flow hedges of forecasted revenues, and certain interest rate hedges as fair value hedges of fixed-rate borrowings. The majority of the Company’s natural gas forward contracts are not subject to any hedge designation as they are considered within the normal purchases exemption.

The Company does not purchase or hold any derivative financial instruments for trading purposes.

As of June 30, 2009, the Company had $244,209 of outstanding foreign currency forward contracts at notional value. The total notional value of foreign currency hedges as of December 31, 2008 was $239,415.

Cash Flow Hedging Strategy
For certain derivative instruments that are designated as and qualify as cash flow hedges (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any (i.e., the ineffective portion), or hedge components excluded from the assessment of effectiveness, are recognized in the Consolidated Statement of Income during the current period.

To protect against a reduction in the value of forecasted foreign currency cash flows resulting from export sales over the next year, the Company has instituted a foreign currency cash flow hedging program. The Company hedges portions of its forecasted intra-group revenue or expense denominated in foreign currencies with forward contracts. When the dollar strengthens significantly against the foreign currencies, the decline in the present value of future foreign currency revenue is offset by gains in the fair value of the forward contracts designated as hedges. Conversely, when the dollar weakens, the increase in the present value of future foreign currency cash flows is offset by losses in the fair value of the forward contracts.

Fair Value Hedging Strategy
For derivative instruments that are designated and qualify as fair value hedges (i.e., hedging the exposure to changes in the fair value of an asset or a liability or an identified portion thereof that is attributable to a particular risk), the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in the same line item associated with the hedged item (i.e., in “interest expense” when the hedged item is fixed-rate debt).

Note 16 – Derivative Instruments and Hedging Activities (continued)

The following table presents the fair value and location of all assets and liabilities associated with the Company’s hedging instruments within the unaudited Consolidated Balance Sheet:

				Asset Derivatives								Liability Derivatives
																Fair Value
		Balance Sheet		Fair Value				Fair Value				Fair Value				at
		Location		at 6/30/09				at 12/31/08				at 6/30/09				12/31/08
Derivatives designated as hedging
instruments under SFAS No. 133
Foreign currency forward contracts		Other non-current liabilities		$	1,112			$	4,398			$	4,827			$	7,635
Interest rate swaps		Other non-current assets			1,769				2,357				-				-
Natural gas forward contracts		Other current assets			-				1,559				-				-
Total derivatives designated as hedging instruments under SFAS No. 133				$	2,881			$	8,314			$	4,827			$	7,635
Derivatives not designated as hedging instruments under SFAS No. 133 (a)
Foreign currency forward contracts		Other non-current assets / liabilities		$	1,912			$	1,786			$	742			$	3,218
Total derivatives				$	4,793			$	10,100			$	5,569			$	10,853