UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On June 30, 2014, The Timken Company and its subsidiaries ("Timken" or the "Company"), completed the spinoff of its steel business, creating a new independent publicly traded steel company, TimkenSteel Corporation ("TimkenSteel"). At the close of business on June 30, 2014, Timken shareholders of record as of the close of business on June 23, 2014 received one common share of TimkenSteel Corporation for every two common shares of Timken they held.
The following unaudited condensed pro forma consolidated financial information is based upon the historical financial statements of the Company, adjusted to reflect the spinoff of TimkenSteel. 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 spinoff of TimkenSteel as if it had occurred on March 31, 2014, while the unaudited condensed pro forma statements of consolidated income for the periods ended March 31, 2014, December 31, 2013, December 31, 2012 and December 31, 2011, respectively, give effect to the spinoff of TimkenSteel as if it had occurred on January 1, 2011. 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 operating results or financial position that would have occurred had the spinoff of TimkenSteel occurred on the dates indicated for the unaudited condensed pro forma consolidated balance sheet or for each period presented for the unaudited condensed pro forma statements of consolidated income.
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| | | | | | | | | | |
| Condensed Pro Forma Statement of Consolidated Income | | | |
| For the period ended March 31, 2014 | | | | |
| (unaudited) | | | | |
| | | | | |
| | | | | |
| (Dollars in millions, except per share data) | As reported | Distribution of TimkenSteel (a) | Pro Forma | |
| | | | | |
| Net Sales | $ | 1,104.5 |
| $ | (367.7 | ) | $ | 736.8 |
| |
| Cost of products sold | 813.5 |
| (294.8 | ) | 518.7 |
| |
| Gross Profit | 291.0 |
| (72.9 | ) | 218.1 |
| |
| Selling, general and administrative expenses | 162.0 |
| (20.2 | ) | 141.8 |
| |
| Impairment and restructuring charges | 3.9 |
| — |
| 3.9 |
| |
| Separation costs | 11.5 |
| (11.5 | ) | — |
| |
| Operating Income | 113.6 |
| (41.2 | ) | 72.4 |
| |
| Interest expense | (5.5 | ) | — |
| (5.5 | ) | |
| Interest income | 1.0 |
| — |
| 1.0 |
| |
| Gain on sale of real estate | 22.6 |
| — |
| 22.6 |
| |
| Other income (expense), net | (0.6 | ) | (1.6 | ) | (2.2 | ) | |
| Income Before Income Taxes | 131.1 |
| (42.8 | ) | 88.3 |
| |
| Provision for income taxes | 47.3 |
| (19.3 | ) | 28.0 |
| |
| Net Income | 83.8 |
| (23.5 | ) | 60.3 |
| |
| Less: Net income attributable to noncontrolling interest | 0.3 |
| — |
| 0.3 |
| |
| Net Income Attributable to the Timken Company | $ | 83.5 |
| $ | (23.5 | ) | $ | 60.0 |
| |
| | | | | |
| Net Income per Common Share Attributable to the Timken Company Common Shareholders | | | | |
| Basic earnings per share | $ | 0.90 |
| $ | (0.25 | ) | $ | 0.65 |
| |
| Diluted earnings per share | $ | 0.90 |
| $ | (0.25 | ) | $ | 0.65 |
| (b) |
| Dividends per share | $ | 0.25 |
| $ | — |
| $ | 0.25 |
| |
|
| | | | | | | | | | |
| Condensed Pro Forma Statement of Consolidated Income | | | |
| Year ended December 31, 2013 | | | | |
| (unaudited) | | | | |
| | | | | |
| | | | | |
| (Dollars in millions, except per share data) | As reported | Distribution of TimkenSteel (a) | Pro Forma | |
| | | | | |
| Net Sales | $ | 4,341.2 |
| $ | (1,305.8 | ) | $ | 3,035.4 |
| |
| Cost of products sold | 3,249.2 |
| (1,082.2 | ) | 2,167.0 |
| |
| Gross Profit | 1,092.0 |
| (223.6 | ) | 868.4 |
| |
| Selling, general and administrative expenses | 626.6 |
| (79.9 | ) | 546.7 |
| |
| Impairment and restructuring charges | 16.4 |
| (0.6 | ) | 15.8 |
| |
| Separation costs | 13.0 |
| (13.0 | ) | — |
| |
| Operating Income | 436.0 |
| (130.1 | ) | 305.9 |
| |
| Interest expense | (24.4 | ) | — |
| (24.4 | ) | |
| Interest income | 1.9 |
| — |
| 1.9 |
| |
| Continued Dumping and Subsidy Offset Act (expense) receipts, net | (2.8 | ) | — |
| (2.8 | ) | |
| Other income (expense), net | 6.4 |
| 3.0 |
| 9.4 |
| |
| Income Before Income Taxes | 417.1 |
| (127.1 | ) | 290.0 |
| |
| Provision for income taxes | 154.1 |
| (39.5 | ) | 114.6 |
| |
| Net Income | 263.0 |
| (87.6 | ) | 175.4 |
| |
| Less: Net income attributable to noncontrolling interest | 0.3 |
| — |
| 0.3 |
| |
| Net Income Attributable to the Timken Company | $ | 262.7 |
| $ | (87.6 | ) | $ | 175.1 |
| |
| | | | | |
| Net Income per Common Share Attributable to the Timken Company Common Shareholders | | | | |
| Basic earnings per share | $ | 2.76 |
| $ | (0.92 | ) | $ | 1.84 |
| |
| Diluted earnings per share | $ | 2.74 |
| $ | (0.91 | ) | $ | 1.83 |
| (b) |
| Dividends per share | $ | 0.92 |
| $ | — |
| $ | 0.92 |
| |
|
| | | | | | | | | |
| Condensed Pro Forma Statement of Consolidated Income | | | |
| Year ended December 31, 2012 | | | |
| (unaudited) | | | |
| | | | |
| | | | |
| (Dollars in millions, except per share data) | As reported | Distribution of TimkenSteel (a) | Pro Forma |
| | | | |
| Net Sales | $ | 4,987.0 |
| $ | (1,627.4 | ) | $ | 3,359.6 |
|
| Cost of products sold | 3,620.7 |
| (1,289.1 | ) | 2,331.6 |
|
| Gross Profit | 1,366.3 |
| (338.3 | ) | 1,028.0 |
|
| Selling, general and administrative expenses | 643.9 |
| (89.4 | ) | 554.5 |
|
| Impairment and restructuring charges | 29.5 |
| — |
| 29.5 |
|
| Operating Income | 692.9 |
| (248.9 | ) | 444.0 |
|
| Interest expense | (31.1 | ) | — |
| (31.1 | ) |
| Interest income | 2.9 |
| — |
| 2.9 |
|
| Continued Dumping and Subsidy Offset Act (expense) receipts, net | 108.0 |
| — |
| 108.0 |
|
| Other income (expense), net | (6.7 | ) | 0.7 |
| (6.0 | ) |
| Income Before Income Taxes | 766.0 |
| (248.2 | ) | 517.8 |
|
| Provision for income taxes | 270.1 |
| (83.8 | ) | 186.3 |
|
| Net Income | 495.9 |
| (164.4 | ) | 331.5 |
|
| Less: Net income attributable to noncontrolling interest | 0.4 |
| — |
| 0.4 |
|
| Net Income Attributable to the Timken Company | $ | 495.5 |
| $ | (164.4 | ) | $ | 331.1 |
|
| | | | |
| Net Income per Common Share Attributable to the Timken Company Common Shareholders | | | |
| Basic earnings per share | $ | 5.11 |
| $ | (1.70 | ) | $ | 3.41 |
|
| Diluted earnings per share | $ | 5.07 |
| $ | (1.68 | ) | $ | 3.39 |
|
| Dividends per share | $ | 0.92 |
| $ | — |
| $ | 0.92 |
|
|
| | | | | | | | | |
| Condensed Pro Forma Statement of Consolidated Income | | | |
| Year ended December 31, 2011 | | | |
| (unaudited) | | | |
| | | | |
| | | | |
| (Dollars in millions, except per share data) | As reported | Distribution of TimkenSteel (a) | Pro Forma |
| | | | |
| Net Sales | $ | 5,170.2 |
| $ | (1,836.6 | ) | $ | 3,333.6 |
|
| Cost of products sold | 3,800.5 |
| (1,485.0 | ) | 2,315.5 |
|
| Gross Profit | 1,369.7 |
| (351.6 | ) | 1,018.1 |
|
| Selling, general and administrative expenses | 626.2 |
| (85.6 | ) | 540.6 |
|
| Impairment and restructuring charges | 14.4 |
| — |
| 14.4 |
|
| Operating Income | 729.1 |
| (266.0 | ) | 463.1 |
|
| Interest expense | (36.8 | ) | — |
| (36.8 | ) |
| Interest income | 5.6 |
| — |
| 5.6 |
|
| Continued Dumping and Subsidy Offset Act (expense) receipts, net | (1.1 | ) | 0.7 |
| (0.4 | ) |
| Income Before Income Taxes | 696.8 |
| (265.3 | ) | 431.5 |
|
| Provision for income taxes | 240.2 |
| (89.6 | ) | 150.6 |
|
| Net Income | 456.6 |
| (175.7 | ) | 280.9 |
|
| Less: Net income attributable to noncontrolling interest | 2.3 |
| — |
| 2.3 |
|
| Net Income Attributable to the Timken Company | $ | 454.3 |
| $ | (175.7 | ) | $ | 278.6 |
|
| | | | |
| Net Income per Common Share Attributable to the Timken Company Common Shareholders | | | |
| Basic earnings per share | $ | 4.65 |
| $ | (1.80 | ) | $ | 2.85 |
|
| Diluted earnings per share | $ | 4.59 |
| $ | (1.78 | ) | $ | 2.81 |
|
| Dividends per share | $ | 0.78 |
| $ | — |
| $ | 0.78 |
|
|
| | | | | | | | | | | | | |
| Condensed Pro Forma Consolidated Balance Sheet | | | | | |
| March 31, 2014 | | | | | |
| (unaudited) | | | | | |
| | | Pro Forma Adjustments | |
| (Dollars in millions) | As Reported | Distribution of TimkenSteel (a) | Other | Note | Pro Forma |
| | | | | | |
| ASSETS | | | | | |
| Current Assets | | | | | |
| Cash and cash equivalents | $ | 248.3 |
| $ | — |
| $ | 50.0 |
| (c) | $ | 298.3 |
|
| Restricted cash | 15.1 |
| — |
| — |
| | 15.1 |
|
| Accounts receivable, net | 618.2 |
| (150.7 | ) | — |
| | 467.5 |
|
| Inventories, net | 829.7 |
| (228.0 | ) | — |
| | 601.7 |
|
| Deferred income taxes | 69.6 |
| (1.7 | ) | — |
| | 67.9 |
|
| Deferred charges and prepaid expenses | 29.5 |
| (0.7 | ) | — |
| | 28.8 |
|
| Other current assets | 59.2 |
| 1.3 |
| — |
| | 60.5 |
|
| Total Current Assets | 1,869.6 |
| (379.8 | ) | 50.0 |
| | 1,539.8 |
|
| Property, Plant and Equipment, Net | 1,559.9 |
| (701.0 | ) | (26.1 | ) | (d) | 832.8 |
|
| Other Assets | | |
| | |
| Goodwill | 358.4 |
| (12.6 | ) | — |
| | 345.8 |
|
| Non-current pension assets | 352.0 |
| (124.2 | ) | — |
| | 227.8 |
|
| Other intangible assets | 214.0 |
| (11.5 | ) | — |
| | 202.5 |
|
| Deferred income taxes | 10.1 |
| (1.7 | ) | — |
| | 8.4 |
|
| Other non-current assets | 54.0 |
| (1.3 | ) | — |
| | 52.7 |
|
| Total Other Assets | 988.5 |
| (151.3 | ) | — |
| | 837.2 |
|
| Total Assets | $ | 4,418.0 |
| $ | (1,232.1 | ) | $ | 23.9 |
| | $ | 3,209.8 |
|
| | | |
| | |
| LIABILITIES AND EQUITY | | |
| | |
| Current Liabilities | | |
| | |
| Short-term debt | $ | 22.2 |
| $ | — |
| $ | — |
| | $ | 22.2 |
|
| Accounts payable, trade | 266.4 |
| (108.9 | ) | — |
| | 157.5 |
|
| Salaries, wages and benefits | 163.2 |
| (52.6 | ) | — |
| | 110.6 |
|
| Income taxes payable | 123.4 |
| (0.5 | ) | — |
| | 122.9 |
|
| Deferred income taxes | 7.8 |
| — |
| — |
| | 7.8 |
|
| Other current liabilities | 148.5 |
| (16.5 | ) | — |
| | 132.0 |
|
| Current portion of long-term debt | 250.7 |
| — |
| — |
| | 250.7 |
|
| Total Current Liabilities | 982.2 |
| (178.5 | ) | — |
| | 803.7 |
|
| Non-Current Liabilities | | |
| | |
| Long-term debt | 206.4 |
| (30.2 | ) | — |
| | 176.2 |
|
| Accrued pension cost | 167.9 |
| (19.9 | ) | — |
| | 148.0 |
|
| Accrued postretirement benefits cost | 226.9 |
| (92.0 | ) | — |
| | 134.9 |
|
| Deferred income taxes | 166.6 |
| (86.1 | ) | (2.2 | ) | (e) | 78.3 |
|
| Other non-current liabilities | 53.6 |
| (6.5 | ) | — |
| | 47.1 |
|
| Total Non-Current Liabilities | 821.4 |
| (234.7 | ) | (2.2 | ) | | 584.5 |
|
| Shareholders' Equity | | |
| | |
| Common Stock | 952.1 |
| — |
| — |
| | 952.1 |
|
| Earnings invested in the business | 2,646.8 |
| (1,066.0 | ) | 26.1 |
| (f) | 1,606.9 |
|
| Accumulated other comprehensive loss | (614.0 | ) | 247.1 |
| — |
| | (366.9 | ) |
| Treasury shares at cost | (383.3 | ) | — |
| — |
| | (383.3 | ) |
| Total Shareholders' Equity | 2,601.6 |
| (818.9 | ) | 26.1 |
| | 1,808.8 |
|
| Noncontrolling interest | 12.8 |
| — |
|
| | 12.8 |
|
| Total Equity | 2,614.4 |
| (818.9 | ) | 26.1 |
| | 1,821.6 |
|
| Total Liabilities and Equity | $ | 4,418.0 |
| $ | (1,232.1 | ) | $ | 23.9 |
| | $ | 3,209.8 |
|
THE TIMKEN COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| |
| a. | Reflects the operations, assets, liabilities and equity of TimkenSteel. Selling, general and administrative expenses includes an estimate of historical costs of employees that transferred from corporate functions to the steel business as part of the spinoff of TimkenSteel. It excludes certain general corporate overhead expenses that were allocated to TimkenSteel in its historical financial statements that do not specifically relate to TimkenSteel. Such general corporate expenses do not meet requirements to be presented in discontinued operations and thus will be presented as part of the Company's continuing operations. Separation costs for the periods ended March 31, 2014 and December 31, 2013 include one-time transaction costs directly related to the spinoff of TimkenSteel. These costs primarily include accounting, legal, consulting and advisory fees. |
Pension assets, liabilities and related other comprehensive income, as well as accrued other postretirement benefit cost liabilities and related other comprehensive income, reflect the historical amounts that were included in the balance sheet at March 31, 2014 related to TimkenSteel.
| |
| b. | The following table compares net income attributable to Timken, as reported, and diluted earnings per share, as reported, to Pro Forma Net Income attributable to Timken and Pro Forma diluted earnings per share for the quarter ended March 31, 2014 and the year ended December 31, 2013. |
|
| | | | | | | | | | | | |
| | Three Months Ended March 31, 2014 | Diluted Earnings Per Share | Year Ended Dec. 31, 2013 | Diluted Earnings Per Share |
| | | | | |
| Net income attributable to The Timken Company | $ | 83.5 |
| $ | 0.90 |
| $ | 262.7 |
| $ | 2.74 |
|
| | | | | |
| Less: net income related to TimkenSteel | (35.0 | ) | (0.38 | ) | (97.9 | ) | (1.02 | ) |
| | | | | |
| | 48.5 |
| 0.52 |
| 164.8 |
| 1.72 |
|
| | | | | |
| Add: separation costs, net of taxes | 11.5 |
| 0.13 |
| 10.3 |
| 0.11 |
|
| | | | | |
| Pro forma net income attributable to The Timken Company | $ | 60.0 |
| $ | 0.65 |
| $ | 175.1 |
| $ | 1.83 |
|
| |
| c. | Reflects the net cash distribution immediately prior to the spinoff by TimkenSteel to the Company, pursuant to the terms of the Separation and Distribution Agreement, of $50 million, representing the dividend paid by TimkenSteel to the Company from the net proceeds of its borrowings. |
| |
| d. | Reflects approximately $26 million of property, plant and equipment, net, related to TimkenSteel's assumption of the Company's former headquarters in Canton, Ohio and computer software. |
| |
| e. | Reflects the deferred taxes on TimkenSteel's assumption of the Company's former headquarters in Canton, Ohio. |
| |
| f. | Total equity was adjusted as a result of adjustments (c), (d) and (e) above. |
