Note 10 - Financing Arrangements For a detailed discussion of the Company's long-term debt and credit arrangements, refer to “Note 14 - Financing Arrangements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The following table summarizes the current and non-current debt as of June 30, 2022 and December 31, 2021:
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June 30,
2022 |
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December 31,
2021 |
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Credit Agreement |
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$ |
— |
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$ |
— |
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Convertible Senior Notes due 2025 |
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20.4 |
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44.9 |
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Total debt |
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$ |
20.4 |
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$ |
44.9 |
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Less current portion of debt |
|
|
20.4 |
|
|
|
44.9 |
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Total non-current portion of debt |
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$ |
— |
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$ |
— |
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Amended Credit Agreement On October 15, 2019, the Company, as borrower, and certain domestic subsidiaries of the Company, as subsidiary guarantors, entered into a Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), with JP Morgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), Bank of America, N.A., as syndication agent, and the other lenders party thereto (collectively, the “Lenders”), which further amended and restated the Company’s Second Amended and Restated Credit Agreement dated as of January 26, 2018. As of June 30, 2022, the amount available under the Amended Credit Agreement was $320.2 million, reflective of the Company’s asset borrowing base with no outstanding borrowings. Additionally, the Company is in compliance with all covenants outlined in the Amended Credit Agreement. Convertible Senior Notes due 2021 The Convertible Senior Notes due 2021 were settled on June 1, 2021 with cash payment of $38.9 million and issuance of shares of 0.1 million, as most noteholders exercised the conversion option prior to the date of maturity. For details regarding method of settlement for noteholders who exercised their conversion option prior to maturity, refer to the Indenture for the Convertible Senior Notes due 2021 filed as an exhibit to a Form 8-K on May 31, 2016 and incorporated by reference in our most recent 10-K filing. The final cash payment for interest was also made to noteholders on June 1, 2021 in the amount of $1.2 million. Convertible Senior Notes due 2025 The principal amount of the Convertible Senior Notes due 2025 upon issuance was $46.0 million. Transaction costs related to the Convertible Senior Notes due 2025 incurred upon issuance were $1.5 million. These costs are amortized to interest expense over the term of the notes. The Convertible Senior Notes due 2025 mature on December 1, 2025. The Convertible Senior Notes due 2025 are convertible at the option of holders in certain circumstances and during certain periods into the Company’s common shares, cash, or a combination thereof, at the Company’s election. The Indenture for the Convertible Senior Notes due 2025 provides that notes will become convertible during a quarter when the share price for 20 trading days during the final 30 trading days of the immediately preceding quarter was greater than 130% of the conversion price. This criterion was met during the second quarter of 2022 and as such the notes can be converted at the option of the holders beginning July 1 through September 30, 2022. Whether the notes will be convertible following such period will depend on if this criterion, or another conversion condition, is met in the future. As such, the Convertible Senior Notes due 2025 are classified as a current liability in the Consolidated Balance Sheets as of June 30, 2022. This criterion was also met as of December 31, 2021. For details regarding all conversion mechanics and methods of settlement, refer to the Indenture for the Convertible Senior Notes due 2025 filed as an exhibit to a Form 8-K on December 15, 2020 and incorporated by reference in our most recent 10-K filing. In the first half of 2022, TimkenSteel repurchased a total of $25.2 million aggregate principal amount of its Convertible Senior Notes Due 2025. Total cash paid to noteholders was $67.6 million. In the three and six months ended June 30, 2022, a loss on extinguishment of debt was recognized of $26.0 million and $43.0 million, including a charge of $0.4 million and $0.6 million, respectively, for unamortized debt issuance costs related to the portion of debt extinguished, as well as the related transaction costs. Fair Value Measurement The fair value of the Convertible Senior Notes due 2025 was approximately $54.7 million and $107.0 million as of June 30, 2022 and December 31, 2021, respectively. The fair value of the Convertible Senior Notes due 2025, which falls within Level 2 of the fair value hierarchy as defined by applicable accounting guidance, is based on a valuation model primarily using observable market inputs and requires a recurring fair value measurement on a quarterly basis. TimkenSteel’s Credit Facility is variable-rate debt. As such, any outstanding carrying value is a reasonable estimate of fair value as interest rates on these borrowings approximate current market rates. This valuation falls within Level 2 of the fair value hierarchy and is based on quoted prices for similar assets and liabilities in active markets that are observable either directly or indirectly. There were no outstanding borrowings on the Credit Facility as of June 30, 2022 and December 31, 2021. Interest expense, net The following table provides the components of interest expense, net for the three and six months ended June 30, 2022 and 2021:
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2022 |
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2021 |
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2022 |
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|
2021 |
|
Interest expense |
|
$ |
0.9 |
|
|
$ |
1.7 |
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$ |
2.1 |
|
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$ |
3.5 |
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Interest income |
|
|
(0.3 |
) |
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|
— |
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|
|
(0.3 |
) |
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— |
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Interest expense, net |
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$ |
0.6 |
|
|
$ |
1.7 |
|
|
$ |
1.8 |
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$ |
3.5 |
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Interest income relates to interest earned on cash invested in a money market fund. As of June 30, 2022, the carrying value of the Company's money market investment was $200.1 million, which approximates the fair value. The Company had no cash invested in a money market fund as of December 31, 2021. The money market fund is a cash equivalent and is included in cash and cash equivalents on the Consolidated Balance Sheets. The fund consists of highly liquid investments with an average maturity of three months or less and falls within Level 1 of the fair value hierarchy as defined by applicable accounting guidance. The following table sets forth interest expense recognized specifically related to the Convertible Notes:
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2022 |
|
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2021 |
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2022 |
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2021 |
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Contractual interest expense |
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$ |
0.5 |
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$ |
1.1 |
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$ |
1.1 |
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$ |
2.3 |
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Amortization of debt issuance costs |
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— |
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0.1 |
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0.1 |
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0.2 |
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Total |
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$ |
0.5 |
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$ |
1.2 |
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$ |
1.2 |
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$ |
2.5 |
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The total cash interest paid for the six months ended June 30, 2022 and 2021 was $1.9 million and $3.1 million, respectively. Treasury Shares On December 20, 2021, TimkenSteel announced that its Board of Directors authorized a share repurchase program under which the Company may repurchase up to $50.0 million of its outstanding common shares. The share repurchase program is intended to return capital to shareholders while also offsetting dilution from annual equity compensation awards. The share repurchase program does not require the Company to acquire any dollar amount or number of shares and may be modified, suspended, extended or terminated by the Company at any time without prior notice. For the three months ended June 30, 2022, the Company repurchased approximately 0.4 million common shares in the open market at an aggregate cost of $9.3 million, which equates to an average repurchase price of $21.20 per share. For the six months ended June 30, 2022, the Company repurchased approximately 0.6 million common shares in the open market at an aggregate cost of $12.7 million, which equates to an average repurchase price of $20.94 per share. As of June 30, 2022, the Company had a balance of $37.3 million remaining on its previously approved $50.0 million share repurchase program. In July 2022, the Company repurchased approximately 0.2 million common shares in the open market at an aggregate cost of $3.3 million, which equates to an average repurchase price of $17.72 per share. As of July 31, 2022, the Company had $34.0 million remaining under its previously approved $50.0 million share repurchase program.
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