EXHIBIT 99.2
INGERSOLL-RAND ENGINEERED SOLUTIONS BUSINESS
(AN OPERATING BUSINESS UNIT OF INGERSOLL-RAND COMPANY LIMITED)
INDEX TO THE UNAUDITED COMBINED FINANCIAL STATEMENTS
Unaudited Combined Financial Statements:
Combined Statement of Income for the nine months ended
September 30, 2002 and 2001 1
Combined Balance Sheet at September 30, 2002 and
December 31, 2001 2
Combined Statement of Cash Flows for the nine months ended
September 30, 2002 and 2001 3
Notes to Combined Financial Statements 4-7
INGERSOLL-RAND ENGINEERED SOLUTIONS BUSINESS
(AN OPERATING BUSINESS UNIT OF INGERSOLL-RAND COMPANY LIMITED)
COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
UNAUDITED
(IN THOUSANDS)
2002 2001
--------- ---------
Net sales, third parties $ 904,718 $ 796,665
Sales to IR affiliates 7,718 8,233
--------- ---------
Total net sales 912,436 804,898
Cost of goods sold 766,099 672,628
Administrative, selling and service
engineering expense 72,077 60,324
Restructuring charges 3,229 13,150
Allocated IR costs 16,286 16,123
--------- ---------
Operating income 54,745 42,673
Interest expense 12,999 13,452
Other income(expense), net 4,373 (4,224)
--------- ---------
Earnings before income taxes 46,119 24,997
Provision for income taxes 18,118 10,824
--------- ---------
Net earnings $ 28,001 $ 14,173
========= =========
See accompanying notes to combined financial statements.
1
INGERSOLL-RAND ENGINEERED SOLUTIONS BUSINESS
(AN OPERATING BUSINESS UNIT OF INGERSOLL-RAND COMPANY LIMITED)
COMBINED BALANCE SHEET
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
UNAUDITED
(IN THOUSANDS)
2002 2001
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 24,917 $ 10,760
Accounts and notes receivable, less allowance
for doubtful accounts of $3,088 in 2002 and
$2,094 in 2001 139,814 123,017
Inventories 149,429 152,387
Prepaid expenses 17,479 10,880
Due from affiliates 94,960 94,863
Deferred income taxes 24,211 23,943
----------- -----------
450,810 415,850
Investments in and advances with partially
owned equity companies 106,808 104,466
Property, plant and equipment:
Land, buildings and improvements 145,597 135,203
Machinery and equipment 537,082 517,928
----------- -----------
682,679 653,131
Less-accumulated depreciation 336,263 308,086
----------- -----------
346,416 345,045
Goodwill and other intangible assets, net 6,836 6,381
Deferred income taxes 92,155 86,404
Other assets 57,383 55,216
----------- -----------
Total assets $ 1,060,408 $ 1,013,362
=========== ===========
LIABILITIES AND BUSINESS EQUITY
Current liabilities:
Accounts payable and accruals $ 286,430 $ 244,774
Due to affiliates 118,890 131,877
Loans 10,660 15,811
----------- -----------
415,980 392,462
Due to affiliates 198,700 198,700
Deferred income taxes 37,690 38,577
Long term debt 3,573 603
Other liabilities 202,269 212,432
----------- -----------
Total liabilities 858,212 842,774
----------- -----------
Business equity:
Ingersoll-Rand Company Limited investment 216,493 197,322
Accumulated other comprehensive income (14,297) (26,734)
----------- -----------
Business equity 202,196 170,588
----------- -----------
Total liabilities and Business equity $ 1,060,408 $ 1,013,362
=========== ===========
See accompanying notes to combined financial statements.
2
INGERSOLL-RAND ENGINEERED SOLUTIONS BUSINESS
(AN OPERATING BUSINESS UNIT OF INGERSOLL-RAND COMPANY LIMITED)
COMBINED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
UNAUDITED
(IN THOUSANDS)
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 28,001 $ 14,173
Adjustments to arrive at net cash
provided by operating activities:
Restructuring charges 3,229 13,150
Depreciation and amortization 36,948 32,316
Gain on sale of property, plant
and equipment (348) (363)
Equity earnings/losses, net (2,709) 670
Deferred income taxes (6,021) 6,317
Changes in assets and liabilities:
(Increase)/decrease in:
Accounts and notes receivable (9,361) (28,005)
Inventories 10,479 (3,022)
Other assets (6,661) (1,551)
(Decrease)/increase in:
Accounts payable and accruals 36,500 14,428
Other liabilities (17,286) 4,993
-------- --------
Net cash provided by operating activities 72,771 53,106
-------- --------
Cash flows from investing activities:
Capital expenditures (31,170) (32,515)
Proceeds from sales of property, plant
and equipment 1,428 3,733
Cash (invested in) or advances (to) from
equity companies 1,818 (620)
-------- --------
Net cash used in investing activities (27,924) (29,402)
-------- --------
Cash flows from financing activities:
(Decrease)/increase in borrowings (2,269) 4,356
Changes in due to (from) IR affiliates (19,543) (24,233)
Change in IR investment (8,829) (10,416)
-------- --------
Net cash used in financing activities (30,641) (30,293)
-------- --------
Effect of exchange rate changes on cash and
cash equivalents (49) (649)
-------- --------
Net increase/(decrease) in cash and cash
equivalents 14,157 (7,238)
Cash and cash equivalents - beginning of year 10,760 15,298
-------- --------
Cash and cash equivalents - end of period $ 24,917 $ 8,060
-------- --------
See accompanying notes to combined financial statements.
3
INGERSOLL-RAND ENGINEERED SOLUTIONS BUSINESS
(AN OPERATING BUSINESS UNIT OF INGERSOLL-RAND COMPANY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS)
NOTE 1 - BUSINESS ACTIVITIES AND BASIS OF PRESENTATION:
The Ingersoll-Rand Engineered Solutions Business (the Business) is engaged in
the design, manufacture, sale and service of precision bearing products and
motion control components and assemblies. The Business' principal products
include needle and roller bearings and other precision components. Throughout
the period, the Business was treated as an operating business unit of
Ingersoll-Rand Company Limited (IR). Historically, separate financial statements
had not been prepared for the Business. In the opinion of management, the
accompanying condensed combined financial statements contain all adjustments
(including normal recurring accruals) necessary to present fairly the combined
unaudited financial position as of September 30, 2002 and December 31, 2001 and
results of operations for nine months ended September 30, 2002 and 2001.
The Business is a wholly owned operating business unit of IR. The accompanying
combined financial statements were prepared to show the historical operating
results of the entities comprising the Business. The combined financial
statements of the Business include the results of bearing and precision
components operations of the following entities, but exclude investments held by
these entities in other IR affiliates that do not participate in engineered
solutions operations:
LEGAL ENTITIES COUNTRY OF INCORPORATION
- -------------- ------------------------
The Torrington Company United States
Torrington Holdings Inc. United States
Kilian Manufacturing Corporation United States
Torrington Inc. Canada
Torrington Wuxi Bearings Company, Limited China
Torrington France S.A.R.L. France
Torrington GmbH Germany
Torrington Nadellager GmbH Germany
Industrias del Rodamiento, S.A. Spain
Torrington Sales Limited Switzerland
The Torrington Company, Limited United Kingdom
Torrington Ceska Republika s.r.o. Czech Republic
Nadella S.A. France
Nadella Industries S.A. France
Nadella UK Limited United Kingdom
Nadella GmbH Germany
Nadella S.A. Switzerland
Nadella S.p.A. Italy
Societe Belge de Roulements a Aiguilles Nadella Belgium
OPERATING BUSINESS UNITS OF IR ENTITIES COUNTRY OF OPERATIONS
- --------------------------------------- ---------------------
Engineered Solutions Operating Business Unit of
Ingersoll-Rand Canada Inc. Canada
Engineered Solutions Operating Business Unit of
Ingersoll-Rand (Australia) Ltd. Australia
Engineered Solutions Operating Business Unit of
Ingersoll-Rand do Brasil Ltda. Brazil
Engineered Solutions Operating Business Unit of
Ingersoll-Rand Machinery (Shanghai) Company Limited. China
Engineered Solutions Operating Business Unit of
Ingersoll-Rand S.A. de C.V. Mexico
4
INGERSOLL-RAND ENGINEERED SOLUTIONS BUSINESS
(AN OPERATING BUSINESS UNIT OF INGERSOLL-RAND COMPANY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS)
The combined financial statements were prepared using IR's historical basis in
the assets and liabilities of the Business. Changes in indebtedness between the
Business and IR are reflected as part of the IR investment account in the
accompanying combined balance sheet.
The combined financial statements include all revenues, costs, assets and
liabilities directly attributable to the Business. Allocation of costs for
facilities, functions and certain services performed by IR organizations for the
Business, including environmental and other risk management, internal audit,
transportation services, administration of benefit and insurance programs and
certain tax, legal, accounting and treasury functions have been made. All of the
allocations and estimates in the combined financial statements are based on
assumptions that the management of the Business and IR believe are reasonable in
the circumstances. The Business' financial information included herein is not
necessarily indicative of the financial position, results of operations and cash
flows of the Business in the future or indicative of the results that would have
been reported if the Business had operated as an unaffiliated enterprise.
The accompanying condensed combined financial statements should be read in
conjunction with the combined financial statements for the Ingersoll-Rand
Engineered Solutions Business for the year ended December 31, 2001.
NOTE 2 - RESTRUCTURING:
For the nine months ended September 30, 2002 and 2001, the Business recorded
restructuring charges totaling $3,229 and $13,150 for employee termination
benefits in connection with a reduction in workforce. As of September 30, 2002,
the one manufacturing location was closed, and 1,172 employees were terminated,
with an additional 274 expected by December 31, 2002. The balance at December
31, 2001 was $19. During the nine months ended September 30, 2002, provision for
restructure was $3,229 and payments were $3,248. During the nine months ended
September 30, 2002, the reduction in the restructuring liability was $3,248,
which includes payments and amounts transferred to IR from which remaining
obligations will be satisfied.
NOTE 3 - ACQUISITION OF BUSINESS:
In the fourth quarter of 2001, the Business acquired the remaining 50% of
Nadella S.A. and its related entities (Nadella) from its joint venture partner.
Nadella, based in Europe, supplies precision needle bearings for automotive and
industrial applications. Nadella was previously 50% owned by the Business. The
purchase price allocation for this acquisition is preliminary and further
refinements are likely to be made based upon the completion of a final valuation
study.
The Business applied the provisions of SFAS No. 141 "Business Combinations" and
SFAS No. 142 "Goodwill and Other Intangible Assets" to the acquisition. Under
the provisions of these standards, goodwill and intangible assets deemed to have
indefinite lives are no longer subject to amortization, while all other
intangible assets are to be amortized over their estimated useful lives.
Amortization expense related to goodwill was $20 for the nine months ended
September 30, 2001.
5
INGERSOLL-RAND ENGINEERED SOLUTIONS BUSINESS
(AN OPERATING BUSINESS UNIT OF INGERSOLL-RAND COMPANY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS)
NOTE 4 - INVENTORIES:
Inventories are stated at cost, which is not in excess of market. Most U.S.
manufactured inventories are valued on the last-in, first-out (LIFO) method. All
other inventories are valued using the first-in, first-out (FIFO) method. The
composition of inventories were as follows:
September 30, 2002 December 31, 2001
------------------ -----------------
Raw materials and supplies $ 43,799 $ 35,631
Work-in-process 50,487 50,594
Finished goods 110,608 123,041
-------- --------
204,894 209,266
Less - LIFO reserve 55,465 56,879
-------- --------
Total $149,429 $152,387
-------- --------
There were no liquidations of LIFO layers for all periods presented.
NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS:
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standard (SFAS) No. 142, "Goodwill and Other Intangible Assets". Under the
provisions of this standard, goodwill and intangible assets deemed to have
indefinite lives are no longer subject to amortization, but rather are tested
for impairment at least annually. All other intangible assets are to be
amortized over their estimated useful lives. Step one of the impairment testing
required under SFAS No. 142 was completed by June 30, 2002. Under step one of
the impairment test, a reporting unit was identified in accordance with the
guidance of SFAS No. 142 and SFAS No. 131. The January 1, 2002 carrying value of
the reporting unit was then compared to the fair value of a reporting unit. Fair
value was computed by utilizing a discounted cash flow model. The fair value of
the Business exceeded the carrying value.
The change in the carrying amount of goodwill from $4,161 to $4,614 for the nine
months ended September 30, 2002 is due to translation adjustments.
The following table sets forth the gross amount and accumulated amortization of
the Business' intangible assets:
September 30, 2002 December 31, 2001
------------------ -----------------
Gross Accumulated Gross Accumulated
amount amortization amount amortization
------ ------------ ------ ------------
Land Use Right $ 803 $ 101 $ 803 $ 90
Other 649 310 605 279
Pension 1,181 -- 1,181 --
------ ------ ------ ------
Total $2,633 $ 411 $2,589 $ 369
------ ------ ------ ------
Intangible asset amortization expense for the nine months ended 2002 was $121.
Estimated intangible asset amortization expense for each of the next five fiscal
years is expected to be $126 in 2003, $65 in 2004, $14 in 2005, $14 in 2006, and
$14 in 2007.
6
INGERSOLL-RAND ENGINEERED SOLUTIONS BUSINESS
(AN OPERATING BUSINESS UNIT OF INGERSOLL-RAND COMPANY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS)
NOTE 6 - COMPREHENSIVE INCOME:
The components of comprehensive income for the nine months ended September 30,
are as follows:
2002 2001
-------- --------
Net earnings $ 28,001 $ 14,173
Other comprehensive income (loss):
Foreign currency translation adjustment 12,437 (10,207)
-------- --------
Comprehensive income (loss) $ 40,438 $ 3,966
-------- --------
NOTE 7 - SUBSEQUENT EVENT:
On October 16, 2002, IR announced that it had agreed to sell the Business to The
Timken Company (Timken). The consideration will consist of $700 million in cash
and $140 million of Timken common stock. The sale, which is subject to
government regulatory approvals and debt and equity financing, is targeted to
close by the end of the first quarter of 2003. The Business is comprised of IR's
worldwide operations relating to precision bearings and motion-control
components and assemblies, and includes the Torrington, Fafnir, Kilian, Nadella
and IRB brands. The Business, which had 2001 revenues of $1.1 billion, employs
approximately 10,500 people and operates 27 plants throughout the world. The
impact of this transaction is not reflected in these financial statements.
7