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## GROss PROFIT: 

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Gross profit margins increased in 2010 compared to 2009, due to the impact of higher sales volume of approximately $280 million, higher steel surcharges of approximately $250 million, improved manufacturing utilization of approximately $150 million and improved pricing of approximately $100 million. These increases were partially offset by higher raw material costs of approximately $275 million and related LIFO expense of approximately $90 million. 

In 2010, rationalization expenses of $5.5 million included in cost of products sold primarily related to the closure of the manufacturing facility in Sao Paulo, Brazil and the continued rationalization of Process Industries’ Canton, Ohio bearing facilities. In 2009, rationalization expenses of $8.2 million included in cost of products sold primarily related to certain Mobile Industries’ and Aerospace and Defense manufacturing facilities and the continued rationalization of Process Industries’ Canton, Ohio bearing facilities. Rationalization expenses in 2010 primarily consisted of relocation and closure costs. Rationalization expenses in 2009 primarily included the write-down of inventory, accelerated depreciation on assets and the relocation of equipment. 

## sEllING, GENERal aND aDMINIsTRaTIVE EXPENsEs: 

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The increase in selling, general and administrative expenses of $91.1 million in 2010 compared to 2009 was primarily due to higher expense related to incentive compensation plans of approximately $65 million, with the remainder of the increase relating to higher employee and professional costs. 

## IMPaIRMENT aND REsTRucTuRING chaRGEs: 

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The following discussion explains the major impairment and restructuring charges recorded for the periods presented; however, it is not intended to reflect a comprehensive discussion of all amounts in the tables above. Refer to Note 10 – Impairment and Restructuring in the Notes to the Consolidated Financial Statements for further details by segment. 

## Workforce Reductions 

In 2009, the Company began the realignment of its organization to improve efficiency and reduce costs as a result of the economic downturn that began during the latter part of 2008. The initiative was completed in 2010 and included both selling and administrative cost reductions, as well as manufacturing workforce reductions. During 2010, the Company recorded $5.6 million of severance and related benefit costs to eliminate approximately 200 employees. Of the $5.6 million charge for 2010, $2.0 million related to the Aerospace and Defense segment, $1.6 million related to the Process Industries segment, $1.4 million related to the Mobile Industries segment and $0.6 million related to Corporate positions. During 2009, the Company recorded $42.9 million of severance and related benefit costs, to eliminate approximately 3,280 employees. Of the $42.9 million charge, $26.0 million related to the Mobile Industries segment, $8.5 million related to the Process Industries segment, $3.3 million related to the Steel segment, $3.1 million related to the Aerospace and Defense segment and $2.0 million related to Corporate positions. 

## Torrington Campus 

On July 20, 2009, the Company sold the remaining portion of its Torrington, Connecticut office complex. In anticipation of the loss that the Company expected to record upon completion of the sale of this property, the Company recorded an impairment charge of $6.4 million during the second quarter of 2009. 

