Exhibit 99.3
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial statements have been
prepared to assist in the analysis of the financial effects of The Timken
Company's ("Timken") acquisition of Ingersoll-Rand Company Limited's
("Ingersoll-Rand") Engineered Solutions business ("IR Engineered Solutions"),
including certain operating assets and its subsidiaries, including The
Torrington Company, for cash and stock valued at approximately $840 million (the
"Transaction").
The following unaudited pro forma financial statements are based on
Timken's historical consolidated financial statements and the historical
combined financial statements of IR Engineered Solutions as of and for the year
ended December 31, 2001 and the nine months ended September 30, 2002. The
historical financial statements of Timken and IR Engineered Solutions have been
prepared in accordance with accounting principles generally accepted in the
United States. The unaudited pro forma financial statements should be read in
conjunction with Timken's audited consolidated financial statements and notes
included in Timken's Annual Report on Form 10-K for the year ended December 31,
2001, the consolidated condensed unaudited financial statements and notes
included in Timken's Quarterly Report on Form 10-Q for the nine months ended
September 30, 2002 and the combined financial statements of IR Engineered
Solutions included in this Current Report on Form 8-K.
The actual number of shares of common stock that Timken will issue to
Ingersoll-Rand will be based upon the public offering price per share in the
public offering of common stock, which may not be lower than $14.75 per share.
In addition, the cash portion of the purchase price is subject to a post-closing
adjustment based on IR Engineered Solutions' levels of working capital and net
debt assumed by Timken as of the closing date. Further, amounts borrowed under
the senior credit facility to refinance existing short term indebtedness will
depend on the amount of indebtedness outstanding on the closing date. Therefore,
actual amounts borrowed or shares issued may be more or less than those assumed
in the unaudited pro forma financial statements presented below. Timken's
existing senior credit facility will be terminated upon the acquisition.
Timken will account for the acquisition under the purchase method of
accounting. The unaudited pro forma financial statements give effect to the
acquisition of IR Engineered Solutions and the financing of the $700 million
cash component of the purchase price through (1) approximately $226 million of
borrowings under a new senior credit facility, including amounts borrowed to
refinance approximately $27 million of outstanding commercial paper, (2) a
public offering of $375 million of senior unsecured notes and (3) a public
offering of 11 million shares of Timken common stock at an assumed price per
share of $14.75. The unaudited pro forma financial statements also give effect
to the issuance of $140 million of Timken common stock to Ingersoll-Rand, which
is equivalent to an aggregate of 9,491,525 shares based on an assumed price per
share of $14.75. In addition, the unaudited pro forma financial statements give
effect to an approximately $3.5 million estimated purchase price adjustment as
of September 30, 2002, as provided for in the purchase agreement. The unaudited
pro forma statements of operations give effect to the above transactions as if
they had occurred at the beginning of the relevant period presented. The
unaudited pro forma balance sheet as of September 30, 2002 gives effect to the
above transactions as if they had occurred on September 30, 2002. The unaudited
pro forma financial statements presented below do not reflect any anticipated
operating efficiencies or cost savings from the integration of IR Engineered
Solutions into Timken's business.
The unaudited pro forma financial statements reflect pro forma
adjustments that are described in the accompanying notes and are based on
available information and certain assumptions Timken believes are reasonable,
but are subject to change. For example the unaudited pro forma financial
statements reflect Timken's preliminary estimates of, among other things, the
allocation of the purchase price for the acquisition of IR Engineered Solutions
and are subject to change. Timken has made, in its opinion, all adjustments that
are necessary to present fairly the pro forma information. The unaudited pro
forma financial statements do not purport to represent what Timken's actual
results of operations or financial position would have been if the acquisition
and related transactions described above had occurred on such dates or to
project Timken's results of operations or financial position for any future
period.
Unaudited Pro forma Balance Sheet
As of September 30, 2002
(In thousands of dollars)
The unaudited pro forma balance sheet presents the combined financial position
of Timken and the acquisition of IR Engineered Solutions assuming the
transaction had occurred as of September 30, 2002.
The Timken IR Engineered
Company Solutions Pro forma
Historical Historical Reclassifications* Adjustments Pro forma
---------- --------- ------------------ ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 36,812 $ 24,917 $ -- $ (21,445) a) $ 40,284
Accounts receivable, net 376,416 139,814 -- 60,000 b) 575,479
(751) c)
Amounts due from affiliates -- 94,960 -- (94,960) d) --
Deferred income taxes 42,790 24,211 -- (24,211) e) 42,790
Inventories 464,394 149,429 -- 55,465 f) 669,288
Prepaid expenses and other current assets -- 17,479 (17,479) -- --
----------- ----------- ----------- ----------- -----------
Total current assets 920,412 450,810 (17,479) (25,902) 1,327,841
Investments in and advances with partially
owned affiliates -- 106,808 (106,808) -- --
Property, plant and equipment, net 1,237,407 346,416 -- 69,009 g) 1,652,832
Costs in excess of net assets of acquired businesses 129,526 6,836 (2,222) 142,160 h) 276,300
Intangible pension asset 136,382 -- 1,181 (1,181) i) 136,382
Prepaid pension asset -- -- 57,365 (45,549) i) 11,816
Other assets -- 57,383 (57,383) -- --
Miscellaneous receivables and other assets 71,958 -- 106,826 -- 178,784
Deferred income taxes 23,207 92,155 -- (92,155) e) 23,207
Intangible assets 5,199 -- 1,041 25,901 j) 32,141
Deferred charges and prepaid expenses 17,952 -- 17,479 (7,871) k) 27,560
----------- ----------- ----------- ----------- -----------
Total assets $ 2,542,043 $ 1,060,408 $ -- $ 64,412 $ 3,666,863
=========== =========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and commercial paper $ 107,888 $ 10,660 $ -- $ (30,260) l) $ 88,288
Accounts payable and other liabilities 263,303 286,430 (143,186) (63,774) m) 342,022
(751) c)
Amounts due to affiliates -- 118,890 -- (118,890) d) --
Salaries, wages and benefits 257,517 -- 97,837 (26,609) n) 328,745
Income taxes 14,725 -- 45,349 (45,349) o) 14,725
Current portion of long-term debt 23,544 -- -- -- 23,544
----------- ----------- ----------- ----------- -----------
Total current liabilities 666,977 415,980 -- (285,633) 797,324
Long-term debt 350,515 3,573 -- 597,305 l) 951,393
Amounts due to affiliates -- 198,700 -- (198,700) d) --
Accrued pension cost 270,179 -- 17,377 1,723 i) 289,279
Accrued postretirement benefits cost 413,319 -- 156,084 (90,884) n) 478,519
Deferred income taxes -- 37,690 -- (36,217) e) 1,473
Other non-current liabilities 21,980 202,269 (173,461) (23,236) p) 27,552
----------- ----------- ----------- ----------- -----------
Total liabilities 1,722,970 858,212 -- (35,642) 2,545,540
Unaudited Pro forma Balance Sheet
As of September 30, 2002
(In thousands of dollars)
Shareholders' equity:
Preferred stock (par) -- -- -- -- --
Stated capital 53,064 -- -- -- 53,064
Other paid-in capital 256,664 -- -- 302,250 q) 558,914
Earnings invested in the business 736,212 216,493 -- (216,493) r) 736,212
Accumulated other comprehensive (loss) (226,867) (14,297) -- 14,297 r) (226,867)
----------- ----------- ----------- ----------- -----------
Total shareholders' equity 819,073 202,196 -- 100,054 1,121,323
----------- ----------- ----------- ----------- -----------
Total liabilities and shareholders' equity $ 2,542,043 $ 1,060,408 $ -- $ 64,412 $ 3,666,863
=========== =========== =========== =========== ===========
* Certain amounts related to IR Engineered Solutions have been reclassified to
conform with Timken's presentation.
NOTES TO THE PRO FORMA BALANCE SHEET
a) Pursuant to the Stock and Asset Purchase Agreement (the "Agreement"), cash
is to be excluded from the assets transferred, except for certain amounts
as defined in the Agreement.
b) Pursuant to the Agreement, Timken will also acquire the securitized
accounts receivable designated pool of accounts from Ingersoll-Rand. This
receivable balance is not included in IR Engineered Solutions' September
30, 2002 balance sheet.
c) Reflects the elimination of accounts receivable/payable between Timken and
IR Engineered Solutions.
d) Reflects the elimination of IR Engineered Solutions' amounts due from/to
affiliates not assumed in the acquisition.
e) Reflects the adjustments to IR Engineered Solutions' deferred income taxes
resulting from the acquisition.
f) Reflects the adjustment of IR Engineered Solutions' inventory to estimated
fair market value.
g) Reflects the write-up of property, plant and equipment to estimated fair
market value.
h) Reflects the amount of purchase price in excess of the fair value of
net assets acquired (goodwill).
i) Reflects the elimination of IR Engineered Solutions' prepaid and
intangible pension assets and projected benefit obligation related to
retired, deferred vested and inactive participants, which will not be
assumed by Timken in the acquisition. Pursuant to the Agreement, no U.S.
pension assets are to be transferred to Timken. This also reflects an
adjustment to estimated fair value for the projected benefit obligation
related to active employees for certain plans to be assumed by Timken in
the acquisition.
j) Reflects the identifiable intangible assets acquired, at estimated fair
market value.
k) Reflects the elimination of IR Engineered Solutions' prepaid assets not
assumed in the acquisition.
l) Reflects the elimination of IR Engineered Solutions' debt not assumed in
the acquisition, the issuance of new debt by Timken to finance a portion
of the acquisition and the refinancing of its commercial paper as follows:
Current Long-term
--------- ---------
IR Engineered Solutions' debt amounts not assumed by Timken $ (3,660) $ (3,573)
Timken's issuance of senior unsecured notes -- 375,000
Timken's refinancing of commercial paper (26,600) --
Timken's draw under revolving credit facility (including
$26.6 million to refinance commercial paper) -- 225,878
--------- ---------
$ (30,260) $ 597,305
========= =========
m) Reflects the elimination of certain IR Engineered Solutions' payables not
assumed in the acquisition in accordance with the Agreement.
n) Reflects the elimination of IR Engineered Solutions' accumulated
postretirement benefit obligation related to retired and inactive
participants, which will not be assumed by Timken in the acquisition. This
also reflects an adjustment to estimated fair value for the accumulated
postretirement benefit obligation related to active employees for certain
plans to be assumed by Timken in the acquisition.
o) Reflects the elimination of IR Engineered Solutions' accrued income taxes
not assumed by Timken in the acquisition.
p) Reflects the elimination of certain long-term liabilities not assumed by
Timken in the acquisition, including principally environmental liabilities
and certain postemployment benefits. Pursuant to the agreement, Timken
will be responsible for 30% of environmental liabilities that are unknown
at the time of the closing, up to a limit of $10 million. No known
environmental liabilities will be assumed by Timken in the acquisition.
q) Reflects the common stock issued by Timken to Ingersoll-Rand and in the
public offering to finance a portion of the acquisition, based on a per
share price of $14.75, the minimum offering price per share required under
the purchase agreement, without reduction for the fees and expenses of
issuance, including underwriting discounts and commissions. Assuming a per
share price of $19.35, the last reported sale price on the NYSE on
December 19, 2002, the pro forma adjustment for other paid-in capital
would be $352.9 million.
r) Reflects the elimination of historical equity of IR Engineered Solutions.
Unaudited Pro forma Statement of Operations
For the Year Ended December 31, 2001
(In thousands of dollars, except per share data)
The Timken IR Engineered
Company Solutions Pro forma
Historical Historical Reclassifications* Adjustments Pro forma
---------- --------- ------------------ ----------- ---------
Net sales $ 2,447,178 $ 1,088,712 $ -- $ (10,624) (a) $ 3,525,266
Cost of products sold 2,046,458 885,009 22,400 (14,766) (b) 2,939,101
----------- ----------- ----------- ----------- -----------
Gross profit 400,720 203,703 (22,400) 4,142 586,165
Selling, administrative and general expenses 363,683 106,912 ** -- 2,925 (c) 473,520
Impairment and restructuring charges 54,689 19,338 -- -- 74,027
----------- ----------- ----------- ----------- -----------
Operating (loss) income (17,652) 77,453 (22,400) 1,217 38,618
Interest expense (33,401) (18,306) -- (19,919) (d) (71,626)
Interest income 2,109 -- -- -- 2,109
Receipt of US Continuous Dumping and Subsidy
Offset Act payment 31,019 -- 47,700 (47,700) (e) 31,019
Other (expense) income (8,958) 25,209 (25,300) -- (9,049)
----------- ----------- ----------- ----------- -----------
(Loss) income before income taxes (26,883) 84,356 -- (66,402) (8,929)
Provision for income taxes 14,783 36,537 -- (26,561) (f) 24,759
----------- ----------- ----------- ----------- -----------
Net (loss) income $ (41,666) $ 47,819 $ -- $ (39,841) $ (33,688)
=========== =========== =========== =========== ===========
Earnings per share $ (0.69) $ (0.42)
Earnings per share -
assuming dilution $ (0.69) $ (0.42)
Average shares outstanding 59,947,568 (g) 80,439,093
Average shares outstanding -
assuming dilution 59,947,568 (g) 80,439,093
* Certain amounts related to IR Engineered Solutions have been reclassified to
conform with Timken's presentation for the receipt of US Continued Dumping and
Subsidy Offset Act payment.
** Amount includes $21.8 million for the year ended December 31, 2001, of
allocated Ingersoll-Rand costs for services provided to IR Engineered Solutions.
Timken estimates that it would have incurred $7.4 million for the year ended
December 31, 2001 to provide these services to IR Engineered Solutions.
Unaudited Pro forma Statement of Operations
For the Nine Months Ended September 30, 2002
(In thousands of dollars, except per share data)
The Timken IR Engineered
Company Solutions Pro forma
Historical Historical Reclassifications Adjustments Pro forma
---------- --------- ------------------ ----------- ---------
Net sales $ 1,905,177 $ 912,436 $ -- $ (7,438) (a) $ 2,810,175
Cost of products sold 1,550,972 766,099 -- (14,808) (b) 2,302,263
------------ ------------ ------------ ---------- ------------
Gross profit 354,205 146,337 -- 7,370 507,912
Selling, administrative and general expenses 266,379 88,363 * -- 1,605 (c) 356,347
Impairment and restructuring charges 24,986 3,229 -- -- 28,215
------------ ------------ ------------ ---------- ------------
Operating income 62,840 54,745 -- 5,765 123,350
Interest expense (23,996) (12,999) -- (16,059) (d) (53,054)
Interest income 991 -- -- -- 991
Receipt of US Continuous Dumping and Subsidy
Offset Act payment -- -- -- -- --
Other (expense) income (12,490) 4,373 -- -- (8,117)
------------ ------------ ------------ ---------- ------------
(35,495) (8,626) -- (16,059) (60,180)
------------ ------------ ------------ ---------- ------------
Income before income taxes 27,345 46,119 -- (10,294) 63,170
Provision for income taxes 12,360 18,118 -- (4,118) (f) 26,360
------------ ------------ ------------ ---------- ------------
Income before cumulative effect of
change in accounting principle $ 14,985 $ 28,001 $ -- $ (6,176) $ 36,810
============ ============ ============ ========== ============
Before cumulative effect of change in
accounting principle:
Earnings per share $ 0.25 $ 0.45
Earnings per share - assuming dilution $ 0.25 $ 0.45
Average shares outstanding 60,459,277 (g) 80,950,802
Average shares outstanding - assuming dilution 60,998,543 (g) 81,490,068
* Amount includes $16.3 million for the nine months ended September 30, 2002 of
allocated Ingersoll-Rand costs for services provided to IR Engineered Solutions.
Timken estimates that it would have incurred $5.5 million for the nine months
ended September 30, 2002 to provide these services to IR Engineered Solutions.
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
(a) Reflects the elimination of sales by Timken to IR Engineered Solutions.
(b) Reflects the following:
Dec. 31, Sep. 30,
2001 2002
-------- --------
i) Elimination of cost of products sold by Timken to the IR Engineered Solutions $ (8,626) $ (6,040)
ii) Adjustment to depreciation expense for property, plant and equipment purchased in the acquisition,
based on a composite useful life of 12 years (9,747) (10,096)
iii) Adjustment to recognize additional pension expense 9,425 4,786
iv) Elimination of periodic postretirement benefits costs related to retirees not assumed by Timken in the
acquisition and adjustment to increase postretirement benefits costs related to active employees
acquired based on Timken plan provisions (5,818) (3,458)
-------- --------
$(14,766) $(14,808)
======== ========
(c) Reflects the following:
Dec. 31, Sep. 30,
2001 2002
------- -------
i) Amortization of acquired identifiable intangible assets based on an estimated useful life of 10 years $ 2,741 $ 2,056
ii) Adjustment to recognize additional pension expense 947 702
iii) Elimination of periodic postretirement benefits costs related to retirees not assumed by Timken in the
acquisition and adjustment to increase postretirement benefits costs related to active employees
acquired based on Timken plan provisions (763) (1,153)
------- -------
$ 2,925 $ 1,605
======= =======
(d) Reflects interest expense on the pro forma acquisition debt instruments as
follows:
Dec. 31, Sep. 30,
2001 2002
-------- --------
i) $375.0 million aggregate principal amount of unsecured senior notes at 7.5% $ 28,125 $ 21,094
ii) $225.9 million in borrowings under the senior credit facility at 4.0% 9,035 6,776
iii) Commitment fee on $274.1 million of unused revolver at 0.375% 1,028 771
iv) Elimination of IR Engineered Solutions' interest expense (17,737) (12,183)
v) Elimination of commercial paper interest expense at 2.0% (532) (399)
-------- --------
$ 19,919 $ 16,059
======== ========
(e) Reflects the elimination of receipts under the US Continuous Dumping and
Subsidy Offset Act (the "Act"). Pursuant to the Agreement, all amounts
received by IR Engineered Solutions under the Act for 2002 will be
retained by Ingersoll-Rand. Eighty percent (80%) of any amounts received
by IR Engineered Solutions under the Act for 2003 and 2004 will be paid to
Ingersoll-Rand.
(f) Reflects the income tax effects of the pro forma adjustments, based on an
effective tax rate of 40%.
(g) Reflects Timken's average shares outstanding and average shares
outstanding - assuming dilution based on 9,491,525 shares issued to
Ingersoll-Rand and 11,000,000 shares issued to the public, based on a per
share price of $14.75. Assuming a per share price of $19.35, the last
reported sale price on the NYSE on December 19, 2002, the number of shares
issued to Ingersoll-Rand would be 7,235,142.