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This spreadsheet supports STUDENT analysis of the case, "Timken Company" (Case 47) Copyright (C) 2008, by the University of Virginia Darden School Foundation. QUESTIONS 1. How does Torrington fit with the Timken Company? What are the 2. What is your stand-alone valuation of Torrington? Be prepared to major assumptions used in your estimate. 3. What is your with-synergies valuation of Torrington? Be prepare the major assumptions used in your estimate. Timken Corporate Income Statements, 2001-02 ($ millions, except percentages) 2001 Total Operating Revenue $2,447.2 Cost of Goods Sold (2,046.5) Gross Profit 400.7 Sales, General & Administrative (363.7) Impairment and Restructuring Expenses (54.7) Operating Profit (17.7) Interest Expense (net of interest income) (31.3) Receipt of Continued Dumping & Subsidy Offs 29.5 Other non-operating expenses (7.5) Income Before Tax (27.0) Income Taxes (14.8) Net Income before Cumulative Effect of Accou ($41.7) Cumulative Effect of Accounting Change 0.0 Net Income ($41.7) EBIT (before non-recurring) Depreciation Capital Expenditures 37.0 152.5 102.3 2002 $2,550.1 (2,080.5) 469.6 (358.9) (32.1) 78.6 (29.9) 50.2 (13.4) 85.5 (34.1) $51.4 (12.7) $38.7 110.7 146.5 90.7 2001 100.0% 2002 100.0% 16.4% 18.4% -0.7% 3.1% -1.7% 2.0% `1 Timken Balance Sheet ($ millions) Assets Cash Receivables Inventory Other Current Assets Total Current Assets Net Property Plant & Equipment Other Assets Total Assets 2001 33.4 307.8 429.2 58.0 828.4 1,305.3 399.4 2,533.1 2002 82.1 361.3 488.9 36.0 968.3 1,226.2 553.9 2,748.4 Liabilities Accounts Payable Current Portion of Long Term Debt Notes Payable Other Current Liabilities Total Current Liabilities Long Term Debt Deferred Tax Liability Total Liabilities Shareholders' Equity Total Liabilities & Owners Equity. 258.0 42.4 2.0 338.8 641.2 368.2 742.0 1,751.3 781.7 2,533.1 296.5 111.1 0.0 226.5 634.1 350.1 1,155.1 2,139.3 609.1 2,748.4 Ingersoll-Rand and Torrington Comparative Income Statements, 2001-02 ($ millions, except percentages) Ingersoll-Rand Net sales Cost of goods sold Gross profit Selling and administrative expenses Restructuring charges Operating income Net interest expense Minority interests Earnings before income taxes (Benefit)/provision for income taxes Earnings from continuing operations Discontinued operations (net of tax) Cumulative effect of accounting changes Net earnings 2001 2002 $8,604.2 $8,951.3 6,736.5 6,826.5 1,867.7 2,124.8 1,370.5 1,439.8 73.7 41.9 423.5 643.1 (268.8) (241.0) (20.7) (14.4) 134.0 387.7 (48.1) 20.3 182.1 367.4 64.1 0.0 $246.2 93.6 (634.5) ($173.5) 2001 100.0% 2002 100.0% 21.7% 23.7% 4.9% 7.2% 2.9% -1.9% Torrington Sales Operating Income 2001 $1,004.3 $78.0 2002 $1,204 $85.2 2001 100.0% 7.8% 2002 100.0% 7.1% Ingersoll-Rand Balance Sheet ($ millions) Assets Cash Receivables Inventory Deferred Tax Asset Other Current Assets Total Current Assets Net Property Plant & Equipment Goodwill Intangible Assets Other Assets Total Assets 2001 $114.0 1,359.8 1,143.9 321.2 760.2 3,699.1 1,289.5 4,807.5 848.1 489.6 $11,133.8 2002 $342.2 1,405.3 1,983.8 0.0 381.1 4,112.4 1,279.9 4,005.5 890.9 520.9 $10,809.6 Liabilities Accounts Payable Accrued Expenses Short Term Debt Other Current Liabilities Total Current Assets Long Term Debt Minority Interests Other Noncurrent Liabilities Total Liabilities Shareholders' Equity Total Liabilities & Owners Equity $701.6 1,470.7 561.9 249.3 2,983.5 2,900.7 107.6 1,225.4 7,217.2 3,916.6 $11,133.8 $2,347.4 1,155.5 0.0 295.2 3,798.1 2,092.1 115.1 1,326.1 7,331.4 3,478.2 $10,809.6 This data was extracted by EdgarScan from the PricewaterhouseCoopers Global Technology Centre. obal Technology Centre. Torrington Financial Summary and Projections, 1999-2007 ($ millions) 1999 Net sales Operating income 2000 $1,239.5 $1,161.0 $1,004.3 $145.7 $172.6 $78.0 Operating Margin 11.8% -6.3% 14.9% Capital Expenditures $84.0 $75.0 $85.0 $77.0 Sales Growth Depreciation Expense 2001 2002 2003E 2004E 2005E 2006E 2007E $1,204 $1,282.0 $1,365.3 $1,454.1 $1,548.6 $1,649.2 $85.2 $90.7 $96.6 $102.9 $109.5 $116.7 -13.5% 7.8% 19.9% 7.1% 6.5% 7.1% 6.5% 7.1% 6.5% 7.1% 6.5% 7.1% 6.5% 7.1% $45.0 $79.0 $41.0 $80.0 $175.0 $84.2 $130.0 $90.0 $140.0 $96.0 $150.0 $102.0 $160.0 $108.5 ` Select Financial Ratios by S&P Credit-Rating Categories (Median value for industrial companies, 2000-2002) EBIT interest coverage (x) EBITDA interest coverage (x) EBITDA/sales (%) Total debt/capital (%) AAA 23.4 25.3 23.4% 5.0% AA 13.3 16.9 24.0% 35.9% A 6.3 8.5 18.1% 42.6% BBB 3.9 5.4 15.5% 47.0% BB 2.2 3.2 15.4% 57.7% B 1.0 1.7 14.7% 75.1% CCC 0.1 0.7 8.8% 91.7% Ratio Definitions: EBIT interest coverage = EBIT/interest expense EBITDA interest coverage = EBITDA/interest expense EBITDA/sales = EBITDA/sales Total debt/capital = (Long-term debt plus current maturities and other short-term borrowings)/(Long-term debt plus current maturities and other short-term maturities and other short-term borrowings + Shareholders' equity) Financial Data on Companies in Bearing Industry Bearing Companies Kaydon Corp. NN Inc. Timken Commercial Metals Metals Usa Inc. Mueller Industries Precision Castparts Corp Quanex Corp. Worthington Industries * Millions Beta 1.25 0.85 1.10 0.63 0.38 1.08 1.10 0.75 0.49 Debt* 72.4 53.1 461.2 255.6 128.7 18.2 612.4 75.6 290.9 Sales* 279.4 180.2 2,550.1 2,441.5 943.7 955.3 2,117.2 994.4 2,219.9 EBITDA 60.1 26.2 257.2 138.2 4.0 123.9 389.6 127.0 188.0 Net Income* 25.4 4.7 51.5 40.5 48.8 71.2 159.4 55.5 75.2 EBITDA Interest # of Coverage Shares* 3.6 30.3 6.5 15.4 7.5 63.4 5.2 28.0 0.2 20.2 84.9 34.3 6.2 52.8 5.2 16.4 2.4 85.9 Price Per Share 20.0 9.3 16.8 17.9 25.9 21.7 34.7 18.7 Enterprise EBITDA Value/ % of Sales EBITDA 21.5% 11.3 14.5% 7.5 10.1% 5.9 5.7% 5.5 0.4% 13.0% 7.3 18.4% 4.5 12.8% 5.1 8.5% 10.1 Debt Rating BBB BBB BBBBBB Capital-Market Information (December 2002) Government Short Term Intermediat Long Term Yield 1.86% 3.55% 4.97% Industrials AAA AA A BBB BB B 5.22% 5.38% 5.84% 7.23% 9.69% 10.84%