EX-99.2 2 l23684aexv99w2.htm EX-99.2 EX-99.2
 

Exhibit 99.2
THE TIMKEN COMPANY AND SUBSIDIARIES
CONDENSED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The following unaudited condensed pro forma consolidated financial statements are based upon the historical financial statements of The Timken Company (“the Company”) and subsidiaries, adjusted to reflect the disposition of Latrobe Steel Company (“Latrobe Steel”) effective November 30, 2006. The following unaudited condensed pro forma consolidated financial statements of the Company should be read in conjunction with the related notes and with the historical consolidated financial statements of the Company and the related notes included in previous filings with the Securities and Exchange Commission. The unaudited condensed pro forma consolidated balance sheet reflects the disposition of Latrobe Steel as if it had occurred on September 30, 2006, while the unaudited condensed pro forma statements of consolidated income for the nine months ended September 30, 2006 and the years ended December 31, 2005, December 31, 2004 and December 31, 2003, respectively, give effect to the disposition as if it had occurred at the beginning of each period presented. The pro forma adjustments, described in the related notes, are based on the best available information and certain assumptions that the Company’s management believes to be reasonable.
The unaudited condensed pro forma consolidated financial statements are provided for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have occurred had the disposition of Latrobe Steel closed on September 30, 2006 for the unaudited condensed pro forma consolidated balance sheet or at the beginning of each period presented for the unaudited condensed pro forma statements of consolidated income.

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THE TIMKEN COMPANY AND SUBSIDIARIES
Condensed Pro Forma Consolidated Balance Sheet
September 30, 2006
(unaudited)
                         
            Pro Forma    
(Dollars in thousands)   Historical   Adjustments   Pro Forma
 
ASSETS
                        
Current Assets
                        
Cash and cash equivalents
   $ 54,069     $ 215,000   (a)   $ 269,069  
Accounts receivable, net
     734,631       (53,297 ) (b)     681,334  
Inventories, net
     1,077,792       (86,139 ) (b)     991,653  
Deferred income taxes
     92,369       (8,066 ) (c)     84,303  
Deferred charges and prepaid expenses
     16,077       (487 ) (b)     15,590  
Other current assets
     88,569       (174 ) (b)     88,395  
 
Total Current Assets
     2,063,507       66,837       2,130,344  
 
                        
Property, Plant and Equipment
     3,809,742       (240,673 ) (d)     3,569,069  
Less allowances for depreciation
     (2,202,960 )     148,464   (b)     (2,054,496 )
 
Property, Plant and Equipment, net
     1,606,782       (92,209 )     1,514,573  
 
                        
Other Assets
                        
Goodwill
     216,961       —       216,961  
Other intangible assets
     180,114       (5,580 ) (e)     174,534  
Deferred income taxes
     16,705       (3,317 ) (c)     13,388  
Other noncurrent assets
     59,985       (449 ) (b)     59,536  
 
Total Other Assets
     473,765       (9,346 )     464,419  
 
Total Assets
   $ 4,144,054     $ (34,718 )   $ 4,109,336  
 
 
                        
LIABILITIES AND STOCKHOLDERS’ EQUITY
                        
Current Liabilities
                        
Accounts payable and other liabilities
   $ 506,866     $ (19,606 ) (f)   $ 487,260  
Short-term debt and current portion of long-term debt
     204,166       —       204,166  
Accrued expenses
     373,708       (2,005 ) (g)     371,703  
 
Total Current Liabilities
     1,084,740       (21,611 )     1,063,129  
 
                        
Non-Current Liabilities
                        
Long-term debt
     548,611       —       548,611  
Accrued pension cost
     209,052       (4,374 ) (h)     204,678  
Accrued postretirement benefits cost
     519,792       (22,527 ) (i)     497,265  
Other non-current liabilities
     84,556       (4,061 ) (c)     80,495  
 
Total Non-Current Liabilities
     1,362,011       (30,962 )     1,331,049  
 
                        
Shareholders’ Equity
                        
Common stock
     799,053       —       799,053  
Earnings invested in the business
     1,196,878       11,478   (j)     1,208,356  
Accumulated other comprehensive loss
     (298,628 )     6,377   (k)     (292,251 )
 
Total Shareholders’ Equity
     1,697,303       17,855       1,715,158  
 
Total Liabilities and Shareholders’ Equity
   $ 4,144,054     $ (34,718 )   $ 4,109,336  
 
See Notes to Unaudited Condensed Pro Forma Consolidated Financial Statements.

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THE TIMKEN COMPANY AND SUBSIDIARIES
Condensed Pro Forma Statement of Consolidated Income
Nine Months Ended September 30, 2006
(unaudited)
                         
            Pro Forma    
(Dollars in thousands, except per share data)   Historical   Adjustments (l)   Pro Forma
 
Net sales
   $ 4,008,027     $ (265,583 )   $ 3,742,444  
Cost of products sold
     3,159,132       (212,747 )     2,946,385  
 
Gross Profit
     848,895       (52,836 )     796,059  
 
                        
Selling, general and administrative expenses
     514,515       (10,575 )     503,940  
Impairment and restructuring charges
     21,162       —       21,162  
 
Operating Income
     313,218       (42,261 )     270,957  
 
                        
Interest expense
     (37,487 )     —       (37,487 )
Interest income
     3,338       —       3,338  
Other expense — net
     (8,937 )     (152 )     (9,089 )
 
Income from continuing operations before income taxes
     270,132       (42,413 )     227,719  
Provision for income taxes
     82,955       (15,906 )     67,049  
 
Income from continuing operations
   $ 187,177     $ (26,507 )   $ 160,670  
 
 
                        
Earnings per share from continuing operations
                        
Basic
   $ 2.01             $ 1.72  
Diluted
   $ 1.99             $ 1.70  
 
                        
Average common shares outstanding
                        
Basic
     93,239,292               93,239,292  
Diluted
     94,238,413               94,238,413  
See Notes to Unaudited Condensed Pro Forma Consolidated Financial Statements.

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THE TIMKEN COMPANY AND SUBSIDIARIES
Condensed Pro Forma Statement of Consolidated Income
Year ended December 31, 2005
(unaudited)
                         
            Pro Forma    
(Dollars in thousands, except per share data)   Historical   Adjustments (l)   Pro Forma
 
Net sales
   $ 5,168,434     $ (345,267 )   $ 4,823,167  
Cost of products sold
     4,109,713       (286,503 )     3,823,210  
 
Gross Profit
     1,058,721       (58,764 )     999,957  
 
                        
Selling, general and administrative expenses
     661,592       (14,688 )     646,904  
Impairment and restructuring charges
     26,093       —       26,093  
 
Operating Income
     371,036       (44,076 )     326,960  
 
                        
Interest expense
     (51,585 )     —       (51,585 )
Interest income
     3,437       —       3,437  
Receipt of Continued Dumping & Subsidy Offset Act (CDSOA) payment, net of expenses
     77,069       —       77,069  
Other expense — net
     (9,411 )     68       (9,343 )
 
Income from continuing operations before income taxes
     390,546       (44,008 )     346,538  
Provision for income taxes
     130,265       (17,383 )     112,882  
 
Income from continuing operations
   $ 260,281     $ (26,625 )   $ 233,656  
 
 
                        
Earnings per share from continuing operations
                        
Basic
   $ 2.84             $ 2.55  
Diluted
     2.81               2.52  
 
                        
Average common shares outstanding
                        
Basic
     91,533,242               91,533,242  
Diluted
     92,537,529               92,537,529  
See Notes to Unaudited Condensed Pro Forma Consolidated Financial Statements.

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THE TIMKEN COMPANY AND SUBSIDIARIES
Condensed Pro Forma Statement of Consolidated Income
Year ended December 31, 2004
(unaudited)
                         
            Pro Forma    
(Dollars in thousands, except per share data)   Historical   Adjustments (l)   Pro Forma
 
Net sales
   $ 4,513,671     $ (226,474 )   $ 4,287,197  
Cost of products sold
     3,675,086       (212,265 )     3,462,821  
 
Gross Profit
     838,585       (14,209 )     824,376  
 
                        
Selling, general and administrative expenses
     587,923       (12,013 )     575,910  
Impairment and restructuring charges
     13,434       104       13,538  
 
Operating Income
     237,228       (2,300 )     234,928  
 
                        
Interest expense
     (50,834 )     —       (50,834 )
Interest income
     1,397       —       1,397  
Receipt of Continued Dumping & Subsidy Offset Act (CDSOA) payment, net of expenses
     44,429       —       44,429  
Other expense — net
     (32,441 )     112       (32,329 )
 
Income from continuing operations before income taxes
     199,779       (2,188 )     197,591  
Provision for income taxes
     64,123       (578 )     63,545  
 
Income from continuing operations
   $ 135,656     $ (1,610 )   $ 134,046  
 
 
                        
Earnings per share from continuing operations
                        
Basic
   $ 1.51             $ 1.49  
Diluted
     1.49               1.48  
 
                        
Average common shares outstanding
                        
Basic
     89,875,650               89,875,650  
Diluted
     90,759,571               90,759,571  
See Notes to Unaudited Condensed Pro Forma Consolidated Financial Statements.

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THE TIMKEN COMPANY AND SUBSIDIARIES
Condensed Pro Forma Statement of Consolidated Income
Year ended December 31, 2003
(unaudited)
                         
            Pro Forma    
(Dollars in thousands, except per share data)   Historical   Adjustments (l)   Pro Forma
 
Net sales
   $ 3,788,097     $ (161,607 )   $ 3,626,490  
Cost of products sold
     3,148,979       (154,571 )     2,994,408  
 
Gross Profit
     639,118       (7,036 )     632,082  
 
                        
Selling, general and administrative expenses
     521,717       (10,664 )     511,053  
Impairment and restructuring charges
     19,154       —       19,154  
 
Operating Income
     98,247       3,628       101,875  
 
                        
Interest expense
     (48,401 )     —       (48,401 )
Interest income
     1,123       —       1,123  
Receipt of Continued Dumping & Subsidy Offset Act (CDSOA) payment, net of expenses
     65,559       —       65,559  
Other expense — net
     (55,726 )     70       (55,656 )
 
Income from continuing operations before income taxes
     60,802       3,698       64,500  
Provision for income taxes
     24,321       1,239       25,560  
 
Income from continuing operations
   $ 36,481     $ 2,459     $ 38,940  
 
 
                        
Earnings per share from continuing operations
                        
Basic
   $ 0.44             $ 0.47  
Diluted
     0.44               0.47  
 
                        
Average common shares outstanding
                        
Basic
     82,945,174               82,945,174  
Diluted
     83,159,321               83,159,321  
See Notes to Unaudited Condensed Pro Forma Consolidated Financial Statements.

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THE TIMKEN COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
  (a)   Reflects the gross proceeds from the sale of Latrobe Steel. In addition, pursuant to the Stock Purchase Agreement (the “Agreement”), cash is excluded from assets retained by Latrobe Steel.
 
  (b)   Reflects the elimination of assets retained by Latrobe Steel in accordance with the Agreement.
 
  (c)   Reflects adjustments to deferred taxes resulting from the sale of Latrobe Steel.
 
  (d)   Reflects the elimination of assets retained by Latrobe Steel in accordance with the Agreement and the buyout of a Latrobe Rolling Mill operating lease.
 
  (e)   Reflects the elimination of intangible pension asset related to the Latrobe Steel bargaining unit pension plan being retained by Latrobe Steel in accordance with the Agreement. Pension obligations associated with Latrobe Steel non-bargaining unit associates transfer to Timken.
 
  (f)   Reflects the elimination of liabilities retained by Latrobe Steel in accordance with the Agreement netted against certain accruals that transfer to Timken.
 
  (g)   Reflects the elimination of liabilities retained by Latrobe Steel and transaction costs, net of certain accruals, such as bonuses and vacation, to be paid to Latrobe associates by Timken.
 
  (h)   Reflects the elimination of pension liability related to the bargaining unit pension plan being retained by Latrobe Steel.
 
  (i)   Reflects the elimination of accumulated postretirement benefit obligations attributable to current Latrobe Steel bargaining unit associates and retirees being retained by Latrobe Steel.
 
  (j)   Reflects the after-tax pro forma impact of the gain on the sale of Latrobe Steel.
 
  (k)   Reflects the elimination of minimum pension liability, net of deferred taxes, associated with the Latrobe Steel bargaining unit pension plan being retained by Latrobe Steel.
 
  (l)   Reflects the elimination of the operating results of Latrobe Steel as if the transaction occurred at the beginning of the each period presented. These results have been adjusted to reflect federal and state income taxes of Latrobe Steel on a stand-alone basis. The pro forma gain on the sale of Latrobe Steel is not included in the income statement.

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