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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/02/23 TimkenSteel Corp. 10-Q 9/30/23 72:12M Donnelley … Solutions/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 2.94M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 26K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 26K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 23K
10: R1 Document and Entity Information HTML 72K
11: R2 Consolidated Statements of Operations (Unaudited) HTML 85K
12: R3 Consolidated Statements of Comprehensive Income HTML 47K
(Loss) (Unaudited)
13: R4 Consolidated Statements of Comprehensive Income HTML 23K
(Loss) (Unaudited) (Parenthetical)
14: R5 Consolidated Balance Sheets (Unaudited) HTML 137K
15: R6 Consolidated Balance Sheets (Unaudited) HTML 35K
(Parenthetical)
16: R7 Consolidated Statements of Shareholder's Equity HTML 114K
(Unaudited)
17: R8 Consolidated Statements of Cash Flows (Unaudited) HTML 99K
18: R9 Consolidated Statements of Cash Flows (Unaudited) HTML 29K
(Parenthetical)
19: R10 Pay vs Performance Disclosure HTML 33K
20: R11 Insider Trading Arrangements HTML 63K
21: R12 Basis of Presentation HTML 24K
22: R13 Recent Accounting Pronouncements HTML 37K
23: R14 Revenue Recognition HTML 108K
24: R15 Restructuring Charges HTML 45K
25: R16 Disposition of Non-Core Assets HTML 29K
26: R17 Other (Income) Expense, Net HTML 83K
27: R18 Income Tax Provision HTML 52K
28: R19 Earnings (Loss) Per Share HTML 121K
29: R20 Inventories HTML 50K
30: R21 Financing Arrangements HTML 148K
31: R22 Retirement and Postretirement Plans HTML 388K
32: R23 Stock-Based Compensation HTML 33K
33: R24 Accumulated Other Comprehensive Income (Loss) HTML 102K
34: R25 Contingencies HTML 26K
35: R26 Recent Accounting Pronouncements (Policies) HTML 27K
36: R27 Revenue Recognition (Tables) HTML 102K
37: R28 Restructuring Charges (Tables) HTML 40K
38: R29 Other (Income) Expense, Net (Tables) HTML 70K
39: R30 Income Tax Provision (Tables) HTML 44K
40: R31 Earnings (Loss) Per Share (Tables) HTML 106K
41: R32 Inventories (Tables) HTML 50K
42: R33 Financing Arrangements (Tables) HTML 128K
43: R34 Retirement and Postretirement Plans (Tables) HTML 375K
44: R35 Accumulated Other Comprehensive Income (Loss) HTML 100K
(Tables)
45: R36 Recent Accounting Pronouncements - Narrative HTML 56K
(Details)
46: R37 Revenue Recognition (Details) HTML 49K
47: R38 Revenue Recognition - Narrative (Details) HTML 22K
48: R39 Restructuring Charges - Narrative (Details) HTML 23K
49: R40 Restructuring Charges - Summary of Restructuring HTML 29K
Reserve (Details)
50: R41 Disposition of Non-Core Assets (Details) HTML 39K
51: R42 Other (Income) Expense, Net - Schedule of Other HTML 34K
(Income) Expense, Net (Details)
52: R43 Other (Income) Expense, Net - Narrative (Details) HTML 36K
53: R44 Income Tax Provision - Schedule of (Benefit) HTML 26K
Provision for Income Taxes (Details)
54: R45 Income Tax Provision - Narrative (Details) HTML 33K
55: R46 Earnings (Loss) Per Share - Additional Information HTML 44K
(Details)
56: R47 Earnings (Loss) Per Share - Schedule of Earnings HTML 59K
Per Share (Details)
57: R48 Inventories - Schedule of Inventory (Details) HTML 35K
58: R49 Financing Arrangements - Summary of Current and HTML 37K
Non-current Debt (Details)
59: R50 Financing Arrangements - Narrative (Details) HTML 103K
60: R51 Financing Arrangements - Schedule of Convertible HTML 38K
Debt (Details)
61: R52 Financing Arrangements - Schedule of Interest HTML 37K
Expense (Details)
62: R53 Financing Arrangements - Schedule of Components of HTML 29K
Interest (Income) Expense (Details)
63: R54 Retirement and Postretirement Plans - Narrative HTML 37K
(Details)
64: R55 Retirement and Postretirement Plans - Components HTML 66K
of Net Periodic Benefit Cost (Details)
65: R56 Stock-Based Compensation - Narrative (Details) HTML 43K
66: R57 Accumulated Other Comprehensive Income (Loss) - HTML 57K
Schedule of Accumulated Other Comprehensive Income
(Loss) (Details)
67: R58 Contingencies - Narrative (Details) HTML 22K
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| 10-Q |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM i 10-Q
i ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended i September 30, i 2023 /
OR
i ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: i 1-36313
i TIMKENSTEEL CORPORATION
(Exact name of registrant as specified in its charter)
i Ohio |
|
i 46-4024951 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
|
i 44706 |
|
(Address of principal executive offices) |
|
(Zip Code) |
i 330. i 471.7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class |
|
Trading symbol |
|
Name of exchange in which registered |
i Common shares |
|
i TMST |
|
i New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
i Large accelerated filer |
|
☒ |
|
|
Accelerated filer |
☐ |
|
|
|
|
|
|
|
Non-accelerated filer |
|
☐ |
|
|
Smaller reporting company |
i ☐ |
|
|
|
|
|
|
|
|
|
|
|
|
Emerging growth company |
i ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial reporting accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
|
Outstanding at October 31, 2023 |
Common Shares, without par value |
|
i 43,154,816 |
TimkenSteel Corporation
Table of Contents
|
|
Page |
3 |
||
3 |
||
|
3 |
|
|
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) |
4 |
|
5 |
|
|
6 |
|
|
8 |
|
|
9 |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
|
34 |
||
34 |
||
35 |
||
35 |
||
35 |
||
35 |
||
35 |
||
37 |
||
|
38 |
|
2
Part I. Financial Information
Item 1. Financial Statements
TimkenSteel Corporation
Consolidated Statements of Operations (Unaudited)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
(Dollars in millions, except per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
i 354.2 |
|
|
$ |
i 316.8 |
|
|
$ |
i 1,034.3 |
|
|
$ |
i 1,084.5 |
|
Cost of products sold |
|
|
i 303.2 |
|
|
|
i 311.2 |
|
|
|
i 889.2 |
|
|
|
i 937.5 |
|
Gross Profit |
|
|
i 51.0 |
|
|
|
i 5.6 |
|
|
|
i 145.1 |
|
|
|
i 147.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative expenses |
|
|
i 20.5 |
|
|
|
i 16.2 |
|
|
|
i 61.9 |
|
|
|
i 56.4 |
|
Restructuring charges |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
|
|
i 0.8 |
|
Loss (gain) on sale or disposal of assets, net |
|
|
( i 0.3 |
) |
|
|
i 1.9 |
|
|
|
( i 2.8 |
) |
|
|
i 2.5 |
|
Interest (income) expense, net |
|
|
( i 1.8 |
) |
|
|
( i 0.2 |
) |
|
|
( i 5.0 |
) |
|
|
i 1.6 |
|
Loss on extinguishment of debt |
|
|
i — |
|
|
|
i 0.1 |
|
|
|
i 11.4 |
|
|
|
i 43.1 |
|
Other (income) expense, net |
|
|
( i 2.0 |
) |
|
|
i 0.2 |
|
|
|
( i 13.1 |
) |
|
|
( i 58.8 |
) |
Income (Loss) Before Income Taxes |
|
|
i 34.6 |
|
|
|
( i 12.6 |
) |
|
|
i 92.7 |
|
|
|
i 101.4 |
|
Provision (benefit) for income taxes |
|
|
i 9.8 |
|
|
|
i 0.7 |
|
|
|
i 24.6 |
|
|
|
i 3.1 |
|
Net Income (Loss) |
|
$ |
i 24.8 |
|
|
$ |
( i 13.3 |
) |
|
$ |
i 68.1 |
|
|
$ |
i 98.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Per Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings (loss) per share |
|
$ |
i 0.56 |
|
|
$ |
( i 0.29 |
) |
|
$ |
i 1.55 |
|
|
$ |
i 2.12 |
|
Diluted earnings (loss) per share |
|
$ |
i 0.51 |
|
|
$ |
( i 0.29 |
) |
|
$ |
i 1.43 |
|
|
$ |
i 1.91 |
|
See accompanying Notes to the unaudited Consolidated Financial Statements.
3
TimkenSteel Corporation
Consolidated Statement of Comprehensive Income (Loss) (Unaudited)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
(Dollars in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
i 24.8 |
|
|
$ |
( i 13.3 |
) |
|
$ |
i 68.1 |
|
|
$ |
i 98.3 |
|
Other comprehensive income (loss), net of benefit (provision) for income taxes of $ i 0.2 million and $ i 0.2 million for the three months ended September 30, 2023 and 2022, and $ i 0 million and $ i 0.6 million for the nine months ended September 30, 2023 and 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency translation adjustments |
|
|
( i 0.7 |
) |
|
|
( i 2.3 |
) |
|
|
( i 0.5 |
) |
|
|
( i 5.4 |
) |
Pension and postretirement liability adjustments |
|
|
( i 1.1 |
) |
|
|
( i 0.8 |
) |
|
|
( i 2.5 |
) |
|
|
( i 2.7 |
) |
Other comprehensive income (loss), net of tax |
|
|
( i 1.8 |
) |
|
|
( i 3.1 |
) |
|
|
( i 3.0 |
) |
|
|
( i 8.1 |
) |
Comprehensive Income (Loss), net of tax |
|
$ |
i 23.0 |
|
|
$ |
( i 16.4 |
) |
|
$ |
i 65.1 |
|
|
$ |
i 90.2 |
|
See accompanying Notes to the unaudited Consolidated Financial Statements.
4
TimkenSteel Corporation
Consolidated Balance Sheets (Unaudited)
|
|
|
|
|
||||
(Dollars in millions) |
|
|
|
|
|
|
||
ASSETS |
|
|
|
|
|
|
||
Current Assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
i 225.4 |
|
|
$ |
i 257.2 |
|
Accounts receivable, net of allowances (2023 - $ i 1.9 million; 2022 - $ i 1.0 million) |
|
|
i 135.8 |
|
|
|
i 79.4 |
|
Inventories, net |
|
|
i 255.4 |
|
|
|
i 192.4 |
|
Deferred charges and prepaid expenses |
|
|
i 11.5 |
|
|
|
i 6.4 |
|
Other current assets |
|
|
i 2.4 |
|
|
|
i 21.2 |
|
Total Current Assets |
|
|
i 630.5 |
|
|
|
i 556.6 |
|
|
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
|
i 487.6 |
|
|
|
i 486.1 |
|
Operating lease right-of-use assets |
|
|
i 11.2 |
|
|
|
i 12.5 |
|
Pension assets |
|
|
i 19.3 |
|
|
|
i 19.4 |
|
Intangible assets, net |
|
|
i 3.0 |
|
|
|
i 5.0 |
|
Other non-current assets |
|
|
i 2.2 |
|
|
|
i 2.4 |
|
Total Assets |
|
$ |
i 1,153.8 |
|
|
$ |
i 1,082.0 |
|
|
|
|
|
|
|
|
||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
||
Current Liabilities |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
i 148.5 |
|
|
$ |
i 113.2 |
|
Salaries, wages and benefits |
|
|
i 20.6 |
|
|
|
i 21.2 |
|
Accrued pension and postretirement costs |
|
|
i 2.0 |
|
|
|
i 2.0 |
|
Current operating lease liabilities |
|
|
i 5.4 |
|
|
|
i 6.0 |
|
Current convertible notes, net |
|
|
i 13.1 |
|
|
|
i 20.4 |
|
Other current liabilities |
|
|
i 17.4 |
|
|
|
i 23.9 |
|
Total Current Liabilities |
|
|
i 207.0 |
|
|
|
i 186.7 |
|
|
|
|
|
|
|
|
||
Credit Agreement |
|
|
i — |
|
|
|
i — |
|
Non-current operating lease liabilities |
|
|
i 5.9 |
|
|
|
i 6.5 |
|
Accrued pension and postretirement costs |
|
|
i 170.4 |
|
|
|
i 162.9 |
|
Deferred income taxes |
|
|
i 26.6 |
|
|
|
i 25.9 |
|
Other non-current liabilities |
|
|
i 13.6 |
|
|
|
i 13.5 |
|
Total Liabilities |
|
|
i 423.5 |
|
|
|
i 395.5 |
|
|
|
|
|
|
|
|
||
Shareholders’ Equity |
|
|
|
|
|
|
||
Preferred shares, without par value; authorized i i 10.0 / million shares, i i no / ne issued |
|
|
i — |
|
|
|
i — |
|
Common shares, without par value; authorized i i 200.0 / million
shares; |
|
|
i — |
|
|
|
i — |
|
Additional paid-in capital |
|
|
i 842.2 |
|
|
|
i 847.0 |
|
Retained deficit |
|
|
( i 55.0 |
) |
|
|
( i 123.1 |
) |
Treasury shares - 2023 - i 3.8 million; 2022 - i 3.0 million |
|
|
( i 68.6 |
) |
|
|
( i 52.1 |
) |
Accumulated other comprehensive income (loss) |
|
|
i 11.7 |
|
|
|
i 14.7 |
|
Total Shareholders’ Equity |
|
|
i 730.3 |
|
|
|
i 686.5 |
|
Total Liabilities and Shareholders’ Equity |
|
$ |
i 1,153.8 |
|
|
$ |
i 1,082.0 |
|
See accompanying Notes to the unaudited Consolidated Financial Statements.
5
TimkenSteel Corporation
(Dollars in millions) |
|
Common |
|
|
Additional |
|
|
Retained |
|
|
Treasury |
|
|
Accumulated |
|
|
Total |
|
||||||
Balance As of December 31, 2022 |
|
|
i 44,064,891 |
|
|
$ |
i 847.0 |
|
|
$ |
( i 123.1 |
) |
|
$ |
( i 52.1 |
) |
|
$ |
i 14.7 |
|
|
$ |
i 686.5 |
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
i 14.4 |
|
|
|
— |
|
|
|
— |
|
|
|
i 14.4 |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 0.6 |
) |
|
|
( i 0.6 |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
i 2.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2.6 |
|
Stock option activity |
|
|
i 101,130 |
|
|
|
i 1.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1.3 |
|
Purchase of treasury shares, including excise tax |
|
|
( i 514,086 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 9.4 |
) |
|
|
— |
|
|
|
( i 9.4 |
) |
Issuance of treasury shares |
|
|
i 555,062 |
|
|
|
( i 11.4 |
) |
|
|
— |
|
|
|
i 11.4 |
|
|
|
— |
|
|
|
— |
|
Shares surrendered for taxes |
|
|
( i 176,720 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 3.4 |
) |
|
|
— |
|
|
|
( i 3.4 |
) |
Balance As of March 31, 2023 |
|
|
i 44,030,277 |
|
|
$ |
i 839.5 |
|
|
$ |
( i 108.7 |
) |
|
$ |
( i 53.5 |
) |
|
$ |
i 14.1 |
|
|
$ |
i 691.4 |
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
i 28.9 |
|
|
|
— |
|
|
|
— |
|
|
|
i 28.9 |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 0.6 |
) |
|
|
( i 0.6 |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
i 2.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2.9 |
|
Stock option activity |
|
|
i 76,030 |
|
|
|
i 0.6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 0.6 |
|
Purchase of treasury shares, including excise tax |
|
|
( i 650,271 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 11.4 |
) |
|
|
— |
|
|
|
( i 11.4 |
) |
Issuance of treasury shares |
|
|
i 29,356 |
|
|
|
( i 1.8 |
) |
|
|
— |
|
|
|
i 1.8 |
|
|
|
— |
|
|
|
— |
|
Balance As of June 30, 2023 |
|
|
i 43,485,392 |
|
|
$ |
i 841.2 |
|
|
$ |
( i 79.8 |
) |
|
$ |
( i 63.1 |
) |
|
$ |
i 13.5 |
|
|
$ |
i 711.8 |
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
i 24.8 |
|
|
|
— |
|
|
|
— |
|
|
|
i 24.8 |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 1.8 |
) |
|
|
( i 1.8 |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
i 3.0 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 3.0 |
|
Stock option activity |
|
|
i 61,075 |
|
|
|
i 0.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 0.5 |
|
Purchase of treasury shares, including excise tax |
|
|
( i 352,860 |
) |
|
|
( i 0.3 |
) |
|
|
— |
|
|
|
( i 7.7 |
) |
|
|
— |
|
|
|
( i 8.0 |
) |
Issuance of treasury shares |
|
|
i 56,131 |
|
|
|
( i 2.2 |
) |
|
|
— |
|
|
|
i 2.2 |
|
|
|
— |
|
|
|
— |
|
Shares surrendered for taxes |
|
|
( i 740 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance As of September 30, 2023 |
|
|
i 43,248,998 |
|
|
$ |
i 842.2 |
|
|
$ |
( i 55.0 |
) |
|
$ |
( i 68.6 |
) |
|
$ |
i 11.7 |
|
|
$ |
i 730.3 |
|
6
(Dollars in millions) |
|
Common |
|
|
Additional |
|
|
Retained |
|
|
Treasury |
|
|
Accumulated |
|
|
Total |
|
||||||
Balance As of December 31, 2021 |
|
|
i 46,268,855 |
|
|
$ |
i 832.1 |
|
|
$ |
( i 188.2 |
) |
|
$ |
— |
|
|
$ |
i 20.7 |
|
|
$ |
i 664.6 |
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
i 37.1 |
|
|
|
— |
|
|
|
— |
|
|
|
i 37.1 |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 1.9 |
) |
|
|
( i 1.9 |
) |
Stock-based compensation expense |
|
|
i 298,648 |
|
|
|
i 2.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2.1 |
|
Stock option activity |
|
|
i 406,750 |
|
|
|
i 6.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 6.3 |
|
Purchase of treasury shares |
|
|
( i 169,816 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 3.4 |
) |
|
|
— |
|
|
|
( i 3.4 |
) |
Shares surrendered for taxes |
|
|
( i 91,853 |
) |
|
|
( i 0.2 |
) |
|
|
— |
|
|
|
( i 1.4 |
) |
|
|
— |
|
|
|
( i 1.6 |
) |
Balance As of March 31, 2022 |
|
|
i 46,712,584 |
|
|
$ |
i 840.3 |
|
|
$ |
( i 151.1 |
) |
|
$ |
( i 4.8 |
) |
|
$ |
i 18.8 |
|
|
$ |
i 703.2 |
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
i 74.5 |
|
|
|
— |
|
|
|
— |
|
|
|
i 74.5 |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 3.1 |
) |
|
|
( i 3.1 |
) |
Stock-based compensation expense |
|
|
i 44,157 |
|
|
|
i 2.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2.2 |
|
Stock option activity |
|
|
i 92,290 |
|
|
|
i 1.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1.5 |
|
Purchase of treasury shares |
|
|
( i 437,638 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 9.3 |
) |
|
|
— |
|
|
|
( i 9.3 |
) |
Issuance of treasury shares |
|
|
i 2,285 |
|
|
|
( i 0.1 |
) |
|
|
— |
|
|
|
i 0.1 |
|
|
|
— |
|
|
|
— |
|
Shares surrendered for taxes |
|
|
( i 2,285 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 0.1 |
) |
|
|
— |
|
|
|
( i 0.1 |
) |
Balance As of June 30, 2022 |
|
|
i 46,411,393 |
|
|
$ |
i 843.9 |
|
|
$ |
( i 76.6 |
) |
|
$ |
( i 14.1 |
) |
|
$ |
i 15.7 |
|
|
$ |
i 768.9 |
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
( i 13.3 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 13.3 |
) |
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 3.1 |
) |
|
|
( i 3.1 |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
i 2.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2.2 |
|
Stock option activity |
|
|
— |
|
|
|
i 0.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 0.1 |
|
Purchase of treasury shares |
|
|
( i 1,252,112 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 19.7 |
) |
|
|
— |
|
|
|
( i 19.7 |
) |
Issuance of treasury shares |
|
|
i 10,724 |
|
|
|
( i 0.2 |
) |
|
|
— |
|
|
|
i 0.2 |
|
|
|
— |
|
|
|
— |
|
Shares surrendered for taxes |
|
|
( i 348 |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Balance As of September 30, 2022 |
|
|
i 45,169,657 |
|
|
$ |
i 846.0 |
|
|
$ |
( i 89.9 |
) |
|
$ |
( i 33.6 |
) |
|
$ |
i 12.6 |
|
|
$ |
i 735.1 |
|
See accompanying Notes to the unaudited Consolidated Financial Statements.
7
TimkenSteel Corporation
Consolidated Statements of Cash Flows (Unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
|
2022 |
|
|||
(Dollars in millions) |
|
|
|
|
|
|
||
CASH PROVIDED (USED) |
|
|
|
|
|
|
||
Operating Activities |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
i 68.1 |
|
|
$ |
i 98.3 |
|
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
i 42.8 |
|
|
|
i 43.7 |
|
Amortization of deferred financing fees |
|
|
i 0.4 |
|
|
|
i 0.6 |
|
Loss on extinguishment of debt |
|
|
i 11.4 |
|
|
|
i 43.1 |
|
Loss (gain) on sale or disposal of assets, net |
|
|
( i 2.8 |
) |
|
|
i 2.5 |
|
Deferred income taxes |
|
|
i 0.7 |
|
|
|
( i 0.5 |
) |
Stock-based compensation expense |
|
|
i 8.5 |
|
|
|
i 6.5 |
|
Pension and postretirement (benefit) expense, net |
|
|
i 6.4 |
|
|
|
( i 44.7 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
( i 56.1 |
) |
|
|
i 0.5 |
|
Inventories, net |
|
|
( i 62.7 |
) |
|
|
i 5.4 |
|
Accounts payable |
|
|
i 34.1 |
|
|
|
( i 19.9 |
) |
Other accrued expenses |
|
|
( i 9.7 |
) |
|
|
( i 12.5 |
) |
Pension and postretirement contributions and payments |
|
|
( i 2.4 |
) |
|
|
( i 4.9 |
) |
Deferred charges and prepaid expenses |
|
|
( i 5.0 |
) |
|
|
( i 3.1 |
) |
Other, net |
|
|
i 17.5 |
|
|
|
( i 4.2 |
) |
Net Cash Provided (Used) by Operating Activities |
|
|
i 51.2 |
|
|
|
i 110.8 |
|
|
|
|
|
|
|
|
||
Investing Activities |
|
|
|
|
|
|
||
Capital expenditures |
|
|
( i 36.2 |
) |
|
|
( i 15.7 |
) |
Proceeds from disposals of property, plant and equipment |
|
|
i 1.7 |
|
|
|
i 3.0 |
|
Net Cash Provided (Used) by Investing Activities |
|
|
( i 34.5 |
) |
|
|
( i 12.7 |
) |
|
|
|
|
|
|
|
||
Financing Activities |
|
|
|
|
|
|
||
Purchase of treasury shares |
|
|
( i 28.5 |
) |
|
|
( i 32.4 |
) |
Proceeds from exercise of stock options |
|
|
i 2.4 |
|
|
|
i 7.9 |
|
Shares surrendered for employee taxes on stock compensation |
|
|
( i 3.4 |
) |
|
|
( i 1.7 |
) |
Repayments on convertible notes |
|
|
( i 18.7 |
) |
|
|
( i 67.6 |
) |
Debt issuance costs |
|
|
i — |
|
|
|
( i 0.7 |
) |
Net Cash Provided (Used) by Financing Activities |
|
|
( i 48.2 |
) |
|
|
( i 94.5 |
) |
Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash |
|
|
( i 31.5 |
) |
|
|
i 3.6 |
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
i 257.8 |
|
|
|
i 259.6 |
|
Cash, Cash Equivalents, and Restricted Cash at End of Period |
|
$ |
i 226.3 |
|
|
$ |
i 263.2 |
|
|
|
|
|
|
|
|
||
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows: |
|
|||||||
|
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
i 225.4 |
|
|
$ |
i 262.5 |
|
Restricted cash reported in other current assets |
|
|
i 0.9 |
|
|
|
i 0.7 |
|
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows |
|
$ |
i 226.3 |
|
|
$ |
i 263.2 |
|
See accompanying Notes to the unaudited Consolidated Financial Statements.
8
TimkenSteel Corporation
Notes to Unaudited Consolidated Financial Statements
(dollars in millions, except per share data)
Note 1 - Basis of Presentation
The accompanying unaudited Consolidated Financial Statements have been prepared by TimkenSteel Corporation (the “Company” or “TimkenSteel”) in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to TimkenSteel’s audited Consolidated Financial Statements and Notes included in its Annual Report on Form 10-K for the year ended December 31, 2022.
Note 2 - Recent Accounting Pronouncements
Adoption of New Accounting Standards
The Company did not adopt any Accounting Standard Updates (“ASU”) in the third quarter of 2023. Additionally, there are no current ASUs issued, but not adopted, that are expected to have an impact on the Company.
Legislation related to the COVID-19 Pandemic
Due to a provision in the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the Company was able to defer the employer share of Social Security payroll taxes for a specified time during 2020. During the year ended December 31, 2020, the Company deferred $ i 6.4 million in cash payments and recorded reserves for such deferred payroll taxes in salaries, wages and benefits on the Consolidated Balance Sheets, to be paid in two equal installments. The first installment in the amount of $ i 3.2 million was paid during the fourth quarter of 2021. The second installment was paid in the fourth quarter of 2022.
The CARES Act also provided for an employee retention credit (“Employee Retention Credit”), which is a refundable tax credit against certain employment taxes. The Company qualified for the tax credit in the second and third quarters of 2020 and accrued a benefit of $ i 2.3 million in the fourth quarter of 2020 related to the Employee Retention Credit in other (income) expense, net on the Consolidated Statements of Operations. The Company filed for this credit in the second quarter of 2021 and received a portion of the proceeds from the Internal Revenue Service ("IRS") in the amount of $ i 0.5 million during the fourth quarter of 2021. The Company received the remaining $ i 1.8 million of cash proceeds in the first quarter of 2022.
/
Note 3 - Revenue Recognition
The following table provides the major sources of revenue by end-market sector for the three and nine months ended September 30, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Industrial |
|
$ |
i 173.7 |
|
|
$ |
i 146.0 |
|
|
$ |
i 486.2 |
|
|
$ |
i 529.2 |
|
Mobile |
|
|
i 140.1 |
|
|
|
i 130.0 |
|
|
|
i 404.8 |
|
|
|
i 427.0 |
|
Energy |
|
|
i 35.6 |
|
|
|
i 36.0 |
|
|
|
i 127.7 |
|
|
|
i 107.3 |
|
Other (1) |
|
|
i 4.8 |
|
|
|
i 4.8 |
|
|
|
i 15.6 |
|
|
|
i 21.0 |
|
Total Net Sales |
|
$ |
i 354.2 |
|
|
$ |
i 316.8 |
|
|
$ |
i 1,034.3 |
|
|
$ |
i 1,084.5 |
|
(1) “Other” sales by end-market sector relates to the Company’s scrap sales.
9
The following table provides the major sources of revenue by product type for the three and nine months ended September 30, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Bar |
|
$ |
i 240.9 |
|
|
$ |
i 206.5 |
|
|
$ |
i 712.8 |
|
|
$ |
i 738.1 |
|
Manufactured components |
|
|
i 65.2 |
|
|
|
i 60.7 |
|
|
|
i 178.4 |
|
|
|
i 181.3 |
|
Tube |
|
|
i 43.3 |
|
|
|
i 44.8 |
|
|
|
i 127.5 |
|
|
|
i 144.1 |
|
Other (2) |
|
|
i 4.8 |
|
|
|
i 4.8 |
|
|
|
i 15.6 |
|
|
|
i 21.0 |
|
Total Net Sales |
|
$ |
i 354.2 |
|
|
$ |
i 316.8 |
|
|
$ |
i 1,034.3 |
|
|
$ |
i 1,084.5 |
|
(2) “Other” sales by product type relates to the Company’s scrap sales.
/
Contract liabilities are recognized when the Company has received consideration from a customer to transfer goods at a future point in time. Contract liabilities are primarily related to deferred revenue resulting from any cash payments received in advance from customers and are included in other current liabilities on the Consolidated Balance Sheets. Contract liabilities totaled $ i 0.7 million and $ i 5.1 million as of September 30, 2023 and 2022, respectively.
/
Note 4 - Restructuring Charges
The Company did i i no / t have any restructuring charges for the three and nine months ended September 30, 2023. Additionally, there were i no restructuring charges incurred during the third quarter of 2022. Restructuring charges totaled $ i 0.8 million for the nine months ended September 30, 2022. The charges incurred in 2022, which were related to severance and employee-related benefits, were the result of organizational changes.
TimkenSteel recorded reserves for such restructuring charges as other current liabilities on the Consolidated Balance Sheets. The reserve balance at September 30, 2023 is expected to be substantially used in the next twelve months.
The following is a summary of the restructuring reserve for the nine months ended September 30, 2023 and 2022:
Balance at December 31, 2022 |
|
$ |
i 0.5 |
|
Expenses |
|
|
i — |
|
Payments |
|
|
( i 0.4 |
) |
Balance at September 30, 2023 |
|
$ |
i 0.1 |
|
Balance at December 31, 2021 |
|
$ |
i 4.7 |
|
Expenses |
|
|
i 0.8 |
|
Payments |
|
|
( i 4.7 |
) |
Balance at September 30, 2022 |
|
$ |
i 0.8 |
|
Note 5 - Disposition of Non-Core Assets
TimkenSteel Material Services Facility
During the first quarter of 2020, management completed its previously announced plan to close the Company’s TimkenSteel Material Services (“TMS”) facility in Houston and began selling the assets at the facility.
Land and buildings of $ i 4.3 million associated with TMS were classified as assets held for sale on the Consolidated Balance Sheets as of December 31, 2021. All of these assets were sold during the third quarter of 2022. Net cash proceeds of $ i 2.8 million were received and a loss on sale of assets of $ i 1.5 million was recognized on the Consolidated Statements of Operations during 2022.
10
Small-Diameter Seamless Mechanical Tubing Machinery and Equipment
In the third quarter of 2020, TimkenSteel informed customers that as of December 31, 2020 the Company would discontinue the commercial offering of specific small-diameter seamless mechanical tubing products.
In the fourth quarter of 2022, TimkenSteel entered into an agreement to sell the machinery and equipment used in the manufacturing of these specific products. TimkenSteel received down payments totaling $ i 3.4 million, with $ i 1.7 million received in 2022 and the remaining $ i 1.7 million received in 2023. i The final payment resulted in a gain on disposal of assets of $ i 3.4 million in the second quarter of 2023. The gain, which has been recognized in the Consolidated Statement of Operations, was partially offset by asset write downs throughout 2023. /
/
Note 6 – Other (Income) Expense, net
The following table provides the components of other (income) expense, net for the three and nine months ended September 30, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Pension and postretirement non-service benefit (income) loss |
|
$ |
( i 1.2 |
) |
|
$ |
( i 3.0 |
) |
|
$ |
( i 3.7 |
) |
|
$ |
( i 19.8 |
) |
Loss (gain) from remeasurement of benefit plans |
|
|
( i 1.0 |
) |
|
|
i 4.8 |
|
|
|
i 1.7 |
|
|
|
( i 37.2 |
) |
Foreign currency exchange (gain) loss |
|
|
i — |
|
|
|
i — |
|
|
|
( i 0.1 |
) |
|
|
( i 0.1 |
) |
Insurance recoveries |
|
|
i — |
|
|
|
( i 1.5 |
) |
|
|
( i 11.3 |
) |
|
|
( i 1.5 |
) |
Miscellaneous (income) expense |
|
|
i 0.2 |
|
|
|
( i 0.1 |
) |
|
|
i 0.3 |
|
|
|
( i 0.2 |
) |
Total other (income) expense, net |
|
$ |
( i 2.0 |
) |
|
$ |
i 0.2 |
|
|
$ |
( i 13.1 |
) |
|
$ |
( i 58.8 |
) |
Non-service related pension and other postretirement benefit income, for all years, consists primarily of the interest cost, expected return on plan assets and amortization components of net periodic cost.
The TimkenSteel Corporation Bargaining Unit Pension Plan ("Bargaining Plan"), the TimkenSteel Corporation Retirement Plan (“Salaried Plan”), and the Supplemental Pension Plan of TimkenSteel Corporation ("Supplemental Plan") each have a provision that permits employees to elect to receive their pension benefits in a lump sum upon retirement. In the first quarter of 2023, the cumulative cost of all lump sum payments was projected to exceed the sum of the service costs and interest cost components of net periodic pension cost for the Salaried Plan. As a result, the Company completed a full remeasurement of its pension obligations and plan assets associated with the Salaried Plan during each quarter of 2023.
A gain of $ i 1.0 million from the remeasurement of the Salaried Plan was recognized for the three months ended September 30, 2023. The gain for the three months ended September 30, 2023 was due to a $ i 6.5 million decrease in the liability mainly driven by an increase in the discount rate, partially offset by $ i 5.5 million of investment losses on plan assets. For the nine months ended September 30, 2023, the loss of $ i 1.7 million was primarily related to investment losses on plan assets of $ i 5.6 million and lump sum basis losses of $ i 1.3 million, partially offset by a decrease in the pension liability of $ i 5.2 million due to an increase in the discount rate.
A net loss of $ i 4.8 million from the remeasurement of these benefit plans was recognized for the three months ended September 30, 2022. This loss was due to $ i 73.6 million of investment losses on plan assets and lump sum basis losses, partially offset by a gain of $ i 68.8 million primarily driven by a decrease in the pension liability due to an increase in discount rate.
A net gain of $ i 37.2 million from the remeasurement of these benefit plans was recognized for the nine months ended September 30, 2022. This gain was driven by a $ i 299.9 million decrease in the pension liability primarily due to an increase in discount rate, partially offset by a loss of $ i 262.7 million driven by investment losses on plan assets and lump sum basis losses.
For more details on the aforementioned remeasurements, refer to “Note 11 - Retirement and Postretirement Plans.”
During the second half of 2022, the Faircrest melt shop experienced unplanned operational downtime. TimkenSteel recognized insurance recoveries of $ i 11.3 million related to the unplanned downtime in the first half of 2023, of which $ i 9.8 million was recorded during the first quarter and $ i 1.5 million was recorded in the second quarter. Additional amounts, if any, and timing of potential recoveries are uncertain at
11
this time. For further information related to previous insurance recoveries, refer to "Note 7 - Other (Income) Expense, net" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
/
Note 7 - Income Tax Provision
TimkenSteel’s provision for income taxes in interim periods is computed by applying the appropriate estimated annual effective tax rates to income or loss before income taxes for the period. In addition, non-recurring or discrete items, including interest on prior-year tax liabilities, are recorded during the periods in which they occur.
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Provision (benefit) for incomes taxes |
|
$ |
i 9.8 |
|
|
$ |
i 0.7 |
|
|
$ |
i 24.6 |
|
|
$ |
i 3.1 |
|
Effective tax rate |
|
|
i 28.3 |
% |
|
|
( i 5.6 |
)% |
|
|
i 26.5 |
% |
|
|
i 3.1 |
% |
Income tax expense for the three months ended September 30, 2023 was calculated using forecasted multi-jurisdictional annual effective tax rates to determine a blended annual effective tax rate. The effective tax rate for the three and nine months ended September 30, 2023 was i 28.3% and i 26.5%, respectively, compared to a rate of ( i 5.6)% and i 3.1% for the prior year. The change was primarily related to higher federal and state taxes due to the reversal of the Company's full valuation allowance as of December 31, 2022, which offset the prior year utilization of loss carryforwards. Additionally, there are limitations on the tax deductibility of the first quarter of 2023 loss on extinguishment of debt on the Convertible Senior Notes due 2025.
For the nine months ended September 30, 2023, TimkenSteel made $ i 17.0 million in U.S. federal payments, $ i 3.4 million in state and local tax payments, and $ i 1.2 million in foreign tax payments. For the nine months ended September 30, 2022, TimkenSteel made $ i 2.0 million in U.S. federal payments, $ i 2.2 million in state and local tax payments, and $ i 0.2 million in foreign tax payments.
/
Note 8 - Earnings (Loss) Per Share
Basic earnings (loss) per share is computed based upon the weighted average number of common shares outstanding. Diluted earnings (loss) per share is computed based upon the weighted average number of common shares outstanding plus the dilutive effect of common share equivalents calculated using the treasury stock method or if-converted method. For the Convertible Notes, the Company utilizes the if-converted method to calculate diluted earnings (loss) per share. Under the if-converted method, the Company adjusts net earnings to add back interest expense (including amortization of debt issuance costs) recognized on the Convertible Notes and includes the number of shares potentially issuable related to the Convertible Notes in the weighted average shares outstanding. Treasury shares are excluded from the denominator in calculating both basic and diluted earnings (loss) per share.
Equity-based Awards
Common share equivalents for shares issuable for equity-based awards amounted to i i 3.4 / million shares for the three and nine months ended September 30, 2023. For the three and nine months ended September 30, 2023, i 0.3 million shares and i 0.7 million shares, respectively, were excluded from the computation of diluted earnings (loss) per share, primarily related to options with exercise prices above the average market price of our common shares (i.e., “underwater” options), because the effect of their inclusion would have been anti-dilutive. The difference between the remaining i 3.1 million shares and i 2.7 million shares assumed issued and the i 1.0 million shares and i 0.7 million shares assumed purchased with potential proceeds for the three and nine months ended September 30, 2023, respectively, were included in the denominator of the diluted earnings (loss) per share calculation.
Common share equivalents for shares issuable for equity-based awards amounted to i 3.9 million shares and i 4.1 million shares for the three and nine months ended September 30, 2022, respectively. For the three months ended September 30, 2022, common share equivalents for shares issuable for equity-based awards were excluded from the computation of diluted earnings (loss) per share, because the effect of their inclusion would have been anti-dilutive.
For the nine months ended September 30, 2022, i 1.1 million shares were excluded from the computation of diluted earnings (loss) per share, primarily related to options with exercise prices above the average market price of our common shares (i.e., “underwater” options), because the effect of their inclusion would have been anti-dilutive. The difference between the remaining i 3.0 million shares assumed issued and the i 0.9 million shares assumed purchased with potential proceeds were included in the denominator of the diluted earnings (loss) per share calculation.
12
Convertible Notes
Common share equivalents for shares issuable upon the conversion of outstanding Convertible Notes were included in the computation of diluted earnings (loss) per share for the three and nine months ended September 30, 2023 as these shares would be dilutive.
Common share equivalents for shares issuable upon the conversion of outstanding Convertible Notes were excluded from the computation of diluted earnings (loss) per share for the three months ended September 30, 2022 as these shares would be anti-dilutive. Additionally, common share equivalents for shares issuable upon the conversion of outstanding Convertible Notes were included in the computation of diluted earnings (loss) per share for the nine months ended September 30, 2022 as these shares would be dilutive.
In the first quarter of 2023, TimkenSteel repurchased $ i 7.5 million of outstanding principal related to the Convertible Notes. There were i i no / repurchases related to the Convertible Notes during the second or third quarters of 2023. These repurchases of Convertible Notes reduced weighted average diluted shares outstanding by approximately i 1.0 million shares and i 0.7 million shares for the three and nine months ended September 30, 2023. Refer to “Note 10 – Financing Arrangements” for additional information on the Convertible Notes.
During the first half of 2022, TimkenSteel repurchased $ i 25.2 million of outstanding principal related to the Convertible Notes. There were i no repurchases related to the Convertible Notes during the third quarter of 2022. These repurchases of Convertible Notes reduced weighted average diluted shares outstanding by i 2.0 million shares for the nine months ended September 30, 2022. Refer to “Note 10 – Financing Arrangements” for additional information on the Convertible Notes.
The following table sets forth the reconciliation of the numerator and the denominator of basic and diluted earnings (loss) per share for the three and nine months ended September 30, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss), basic |
|
$ |
i 24.8 |
|
|
$ |
( i 13.3 |
) |
|
$ |
i 68.1 |
|
|
$ |
i 98.3 |
|
Add convertible notes interest |
|
|
i 0.2 |
|
|
|
i — |
|
|
|
i 0.8 |
|
|
|
i 1.5 |
|
Net income (loss), diluted |
|
$ |
i 25.0 |
|
|
$ |
( i 13.3 |
) |
|
$ |
i 68.9 |
|
|
$ |
i 99.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding, basic |
|
|
i 44.1 |
|
|
|
i 46.0 |
|
|
|
i 44.0 |
|
|
|
i 46.3 |
|
Dilutive effect of stock-based awards |
|
|
i 2.1 |
|
|
|
i — |
|
|
|
i 2.0 |
|
|
|
i 2.1 |
|
Dilutive effect of convertible notes |
|
|
i 1.7 |
|
|
|
i — |
|
|
|
i 2.0 |
|
|
|
i 3.9 |
|
Weighted average shares outstanding, diluted |
|
|
i 47.9 |
|
|
|
i 46.0 |
|
|
|
i 48.0 |
|
|
|
i 52.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings (loss) per share |
|
$ |
i 0.56 |
|
|
$ |
( i 0.29 |
) |
|
$ |
i 1.55 |
|
|
$ |
i 2.12 |
|
Diluted earnings (loss) per share |
|
$ |
i 0.51 |
|
|
$ |
( i 0.29 |
) |
|
$ |
i 1.43 |
|
|
$ |
i 1.91 |
|
Note 9 - Inventories
The components of inventories, net of reserves as of September 30, 2023 and December 31, 2022 were as follows:
|
|
|
|
|
||||
Manufacturing supplies |
|
$ |
i 49.0 |
|
|
$ |
i 36.9 |
|
Raw materials |
|
|
i 20.4 |
|
|
|
i 23.9 |
|
Work in process |
|
|
i 137.5 |
|
|
|
i 94.7 |
|
Finished products |
|
|
i 49.0 |
|
|
|
i 37.4 |
|
Gross inventory |
|
|
i 255.9 |
|
|
|
i 192.9 |
|
Allowance for inventory reserves |
|
|
( i 0.5 |
) |
|
|
( i 0.5 |
) |
Total inventories, net |
|
$ |
i 255.4 |
|
|
$ |
i 192.4 |
|
13
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, 2022.
The following table summarizes the current and non-current debt as of September 30, 2023 and December 31, 2022:
|
|
|
|
|
||||
Credit Agreement |
|
$ |
— |
|
|
$ |
— |
|
Convertible Senior Notes due 2025 |
|
|
i 13.1 |
|
|
|
i 20.4 |
|
Total debt |
|
$ |
i 13.1 |
|
|
$ |
i 20.4 |
|
Less current portion of debt |
|
|
i 13.1 |
|
|
|
i 20.4 |
|
Total non-current portion of debt |
|
$ |
i — |
|
|
$ |
i — |
|
Amended Credit Agreement
On September 30, 2022, TimkenSteel Corporation (the “Company”), as borrower, and certain domestic subsidiaries of the Company, as subsidiary guarantors (the “Subsidiary Guarantors”), entered into a Fourth Amended and Restated Credit Agreement (the “Amended Credit Agreement”), with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), and the lenders party thereto (collectively, the “Lenders”), which further amends and restates the Company’s existing secured Third Amended and Restated Credit Agreement, dated as of October 15, 2019.
As of September 30, 2023, the amount available under the Amended Credit Agreement was $ i 293.7 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 2025
The principal amount of the Convertible Senior Notes due 2025 upon issuance was $ i 46.0 million. Transaction costs related to the Convertible Senior Notes due 2025 incurred upon issuance were $ i 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. i 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 i 20 trading days during the final i 30 trading days of the immediately preceding quarter was greater than i 130% of the conversion price. This criterion was met during the third quarter of 2023 and as such the notes can be converted at the option of the holders beginning October 1 through December 31, 2023. 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 September 30, 2023. This criterion was also met as of December 31, 2022. To date, no holders have elected to convert their notes during any optional conversion periods.
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 quarter of 2023, TimkenSteel repurchased a total of $ i 7.5 million aggregate principal amount of its Convertible Senior Notes due 2025. Total cash paid to noteholders was $ i 18.7 million. A loss on extinguishment of debt of $ i 11.4 million was recognized, including a charge of $ i 0.2 million for unamortized debt issuance costs related to the portion of debt extinguished, as well as the related transaction costs. There were i i no / repurchases related to the Convertible Notes in the second or third quarters of 2023.
14
For additional details regarding the Convertible Notes please refer to “Note 14 - Financing Arrangements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
The components of the Convertible Senior Notes due 2025 as of September 30, 2023 and December 31, 2022 were as follows:
|
|
|
|
|
||||
Principal |
|
$ |
i 13.3 |
|
|
$ |
i 20.8 |
|
Less: Debt issuance costs, net of amortization |
|
|
( i 0.2 |
) |
|
|
( i 0.4 |
) |
Convertible Senior Notes due 2025, net |
|
$ |
i 13.1 |
|
|
$ |
i 20.4 |
|
The following table sets forth interest expense recognized specifically related to the Convertible Notes:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Contractual interest expense |
|
$ |
i 0.2 |
|
|
$ |
i 0.3 |
|
|
$ |
i 0.7 |
|
|
$ |
i 1.4 |
|
Amortization of debt issuance costs |
|
|
— |
|
|
|
— |
|
|
|
i 0.1 |
|
|
|
i 0.1 |
|
Total |
|
$ |
i 0.2 |
|
|
$ |
i 0.3 |
|
|
$ |
i 0.8 |
|
|
$ |
i 1.5 |
|
The total cash interest paid for the nine months ended September 30, 2023 and 2022 was $ i 1.3 million and $ i 2.3 million, respectively.
Fair Value Measurement
The fair value of the Convertible Senior Notes due 2025 was approximately $ i 37.0 million and $ i 53.4 million as of September 30, 2023 and December 31, 2022, 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 i i no / outstanding borrowings on the Credit Facility as of September 30, 2023 and December 31, 2022.
Interest (Income) Expense, net
The following table provides the components of interest (income) expense, net for the three and nine months ended September 30, 2023 and 2022:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|||||
Interest expense |
|
$ |
i 0.6 |
|
|
$ |
i 0.9 |
|
|
$ |
i 1.9 |
|
|
$ |
i 3.0 |
|
Interest income |
|
|
( i 2.4 |
) |
|
|
( i 1.1 |
) |
|
|
( i 6.9 |
) |
|
|
( i 1.4 |
) |
Interest (income) expense, net |
|
$ |
( i 1.8 |
) |
|
$ |
( i 0.2 |
) |
|
$ |
( i 5.0 |
) |
|
$ |
i 1.6 |
|
Interest income primarily relates to interest earned on cash invested in a money market fund and deposits with financial institutions. The carrying value, which approximates the fair value, of the Company’s money market investment was $ i 96.2 million as of September 30, 2023. 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. Additionally as of September 30, 2023, the Company had $ i 118.5 million of cash held in other accounts which generate interest income at a rate similar to the money market fund.
15
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 $ i 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. On November 2, 2022, the Board of Directors authorized an additional $ i 75.0 million share repurchase program. This authorization reflects the continued confidence of the Board and senior leadership in the Company’s ability to generate sustainable through-cycle profitability while maintaining a strong balance sheet and cash flow.
For the three months ended September 30, 2023, the Company repurchased approximately i 0.4 million common shares in the open market at an aggregate cost of $ i 7.7 million, which equates to an average repurchase price of $ i 21.82 per share. For the nine months ended September 30, 2023, the Company repurchased approximately i 1.5 million common shares in the open market at an aggregate cost of $ i 28.5 million, which equates to an average repurchase price of $ i 18.81 per share. As of September 30, 2023, the Company had a balance of $ i 44.5 million remaining on its authorized share repurchase program.
For the three months ended September 30, 2022, the Company repurchased approximately i 1.3 million common shares in the open market at an aggregate cost of $ i 19.7 million, which equates to an average repurchase price of $ i 15.72 per share. For the nine months ended September 30, 2022, the Company repurchased approximately i 1.9 million common shares in the open market at an aggregate cost of $ i 32.4 million, which equates to an average repurchase price of $ i 17.42 per share.
In October 2023, the Company repurchased approximately i 0.1 million common shares in the open market at an aggregate cost of $ i 1.9 million, which equates to an average repurchase price of $ i 20.53 per share. As of October 31, 2023, the Company had $ i 42.6 million remaining under its authorized share repurchase program.
/Note 11 - Retirement and Postretirement Plans
Plan Amendments and Updates
Bargaining Plan
On October 29, 2021, the United Steelworkers ("USW") Local 1123 voted to ratify a new i four-year contract (the “Contract”). The Contract is in effect until i September 27, 2025 and resulted in several changes to the Bargaining Plan which increased the pension liability by $ i 14.2 million in 2021. These plan amendments were recognized in other comprehensive income (loss) in 2021 and began to be amortized as part of the pension net periodic benefit cost in the first quarter of 2022. The primary change that drove the increase in the pension liability was the addition of a full lump sum form of payment for participants commencing benefits on or after January 1, 2022. In addition, the plan is now closed to new entrants effective January 1, 2022.
The timing and amount of future required pension contributions is significantly affected by asset returns and actuarial assumptions. Based on the results of the January 1, 2023 actuarial funding valuation, the company estimates required Bargaining Plan contributions of approximately $ i 40 million in 2024. Required future pension contribution timing and amounts are subject to significant change based on future investment performance, Company estimates and actuarial assumptions, as well as current funding laws.
Salaried Plan
During the fourth quarter of 2021, termination of the Salaried Plan was approved by the TimkenSteel Board of Directors. Participants were notified in January 2022 and the plan was terminated effective i March 31, 2022, subject to regulatory approval, which remains outstanding. The purchase of an irrevocable annuity contract from an insurance company is expected to occur in i 2024, after which time the insurance company selected will be responsible for all participant benefit payments.
16
Pension Net Periodic Benefit Cost (Income)
The components of net periodic benefit cost (income) for the three months ended September 30, 2023 were as follows:
|
|
Pension |
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
United States of America |
|
|
United Kingdom |
|
|
Mexico |
|
|
|
|
|
|
|
|||||||||||||
|
|
Bargaining |
|
|
Salaried |
|
|
Supplemental |
|
|
Pension |
|
|
Pension |
|
|
Total |
|
|
Postretirement |
|
|||||||
Service cost |
|
$ |
i 2.4 |
|
|
$ |
i 0.2 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
i 2.6 |
|
|
$ |
i 0.2 |
|
Interest cost |
|
|
i 6.5 |
|
|
|
i 1.6 |
|
|
|
i 0.2 |
|
|
|
i 0.5 |
|
|
|
— |
|
|
|
i 8.8 |
|
|
|
i 1.2 |
|
Expected return on plan assets |
|
|
( i 6.7 |
) |
|
|
( i 1.8 |
) |
|
|
— |
|
|
|
( i 0.6 |
) |
|
|
— |
|
|
|
( i 9.1 |
) |
|
|
( i 0.9 |
) |
Amortization of prior service cost |
|
|
i 0.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 0.3 |
|
|
|
( i 1.5 |
) |
Net remeasurement losses (gains) |
|
|
i — |
|
|
|
( i 1.0 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 1.0 |
) |
|
|
— |
|
Net Periodic Benefit Cost (Income) |
|
$ |
i 2.5 |
|
|
$ |
( i 1.0 |
) |
|
$ |
i 0.2 |
|
|
$ |
( i 0.1 |
) |
|
$ |
— |
|
|
$ |
i 1.6 |
|
|
$ |
( i 1.0 |
) |
The components of net periodic benefit cost (income) for the three months ended September 30, 2022 were as follows:
|
|
Pension |
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
United States of America |
|
|
United Kingdom |
|
|
Mexico |
|
|
|
|
|
|
|
|||||||||||||
|
|
Bargaining |
|
|
Salaried |
|
|
Supplemental |
|
|
Pension |
|
|
Pension |
|
|
Total |
|
|
Postretirement |
|
|||||||
Service cost |
|
$ |
i 2.9 |
|
|
$ |
i 0.1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
i 3.0 |
|
|
$ |
i 0.3 |
|
Interest cost |
|
|
i 9.4 |
|
|
|
i 1.8 |
|
|
|
i 0.2 |
|
|
|
i 0.4 |
|
|
|
— |
|
|
|
i 11.8 |
|
|
|
i 0.8 |
|
Expected return on plan assets |
|
|
( i 11.4 |
) |
|
|
( i 1.2 |
) |
|
|
— |
|
|
|
( i 0.9 |
) |
|
|
— |
|
|
|
( i 13.5 |
) |
|
|
( i 0.9 |
) |
Amortization of prior service cost |
|
|
i 0.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 0.3 |
|
|
|
( i 1.5 |
) |
Settlements |
|
|
( i 2.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 2.7 |
) |
|
|
— |
|
Net remeasurement losses (gains) |
|
|
i 5.4 |
|
|
|
i 2.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 7.5 |
|
|
|
— |
|
Net Periodic Benefit Cost (Income) |
|
$ |
i 3.9 |
|
|
$ |
i 2.8 |
|
|
$ |
i 0.2 |
|
|
$ |
( i 0.5 |
) |
|
$ |
— |
|
|
$ |
i 6.4 |
|
|
$ |
( i 1.3 |
) |
The components of net periodic benefit cost (income) for the nine months ended September 30, 2023 were as follows:
|
|
Pension |
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
United States of America |
|
|
United Kingdom |
|
|
Mexico |
|
|
|
|
|
|
|
|||||||||||||
|
|
Bargaining |
|
|
Salaried |
|
|
Supplemental |
|
|
Pension |
|
|
Pension |
|
|
Total |
|
|
Postretirement |
|
|||||||
Service cost |
|
$ |
i 7.2 |
|
|
$ |
i 0.6 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
i 7.8 |
|
|
$ |
i 0.6 |
|
Interest cost |
|
|
i 19.5 |
|
|
|
i 4.9 |
|
|
|
i 0.6 |
|
|
|
i 1.5 |
|
|
|
— |
|
|
|
i 26.5 |
|
|
|
i 3.6 |
|
Expected return on plan assets |
|
|
( i 20.1 |
) |
|
|
( i 5.6 |
) |
|
|
— |
|
|
|
( i 1.8 |
) |
|
|
— |
|
|
|
( i 27.5 |
) |
|
|
( i 2.7 |
) |
Amortization of prior service cost |
|
|
i 0.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 0.9 |
|
|
|
( i 4.5 |
) |
Net remeasurement losses (gains) |
|
|
i — |
|
|
|
i 1.7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1.7 |
|
|
|
— |
|
Net Periodic Benefit Cost (Income) |
|
$ |
i 7.5 |
|
|
$ |
i 1.6 |
|
|
$ |
i 0.6 |
|
|
$ |
( i 0.3 |
) |
|
$ |
— |
|
|
$ |
i 9.4 |
|
|
$ |
( i 3.0 |
) |
17
The components of net periodic benefit cost (income) for the nine months ended September 30, 2022 were as follows:
|
|
Pension |
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
United States of America |
|
|
United Kingdom |
|
|
Mexico |
|
|
|
|
|
|
|
|||||||||||||
|
|
Bargaining |
|
|
Salaried |
|
|
Supplemental |
|
|
Pension |
|
|
Pension |
|
|
Total |
|
|
Postretirement |
|
|||||||
Service cost |
|
$ |
i 11.1 |
|
|
$ |
i 0.3 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
i 11.4 |
|
|
$ |
i 0.9 |
|
Interest cost |
|
|
i 24.4 |
|
|
|
i 4.8 |
|
|
|
i 0.5 |
|
|
|
i 1.2 |
|
|
|
— |
|
|
|
i 30.9 |
|
|
|
i 2.5 |
|
Expected return on plan assets |
|
|
( i 40.2 |
) |
|
|
( i 4.0 |
) |
|
|
— |
|
|
|
( i 2.7 |
) |
|
|
— |
|
|
|
( i 46.9 |
) |
|
|
( i 2.7 |
) |
Amortization of prior service cost |
|
|
i 0.9 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 0.9 |
|
|
|
( i 4.5 |
) |
Settlements |
|
|
( i 2.7 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 2.7 |
) |
|
|
— |
|
Net remeasurement losses (gains) |
|
|
( i 39.4 |
) |
|
|
i 7.4 |
|
|
|
( i 2.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 34.5 |
) |
|
|
— |
|
Net Periodic Benefit Cost (Income) |
|
$ |
( i 45.9 |
) |
|
$ |
i 8.5 |
|
|
$ |
( i 2.0 |
) |
|
$ |
( i 1.5 |
) |
|
$ |
— |
|
|
$ |
( i 40.9 |
) |
|
$ |
( i 3.8 |
) |
The Bargaining Plan, Salaried Plan, and Supplemental Plan have a provision that permits employees to elect to receive their pension benefits in a lump sum upon retirement. The Company's accounting policy is to recognize settlements during the quarter in which it is projected that the costs of all settlements during the year will be greater than the sum of the service cost and interest cost components.
In the first quarter of 2023, the cumulative cost of all lump sum payments was projected to exceed the sum of the service and interest cost components of net periodic pension cost for the Salaried Plan. As a result, the Company completed a full remeasurement of its pension obligations and plan assets associated with the Salaried Plan during each quarter of 2023.
During the first quarter of 2022, the Company completed a full remeasurement of its pension obligations and plan assets associated with the Supplemental Plan. No remeasurement was made in the second and third quarters of 2022 related to the Supplemental Plan, as no further lump sum payments were made. The Salaried Plan's pension obligations and plan assets were remeasured during each quarter of 2022. We also completed a full remeasurement of the Bargaining Plan's pension obligations and plan assets during the second and third quarters of 2022.
/Note 12 – Stock-Based Compensation
During the nine months ended September 30, 2023 the Board of Directors granted i 383,519 time-based restricted stock units and i 211,639 performance-based restricted stock units, which relates to the annual grant to our employees and grants to the Board of Directors. During the nine months ended September 30, 2022 the Board of Directors granted i 339,453 time-based restricted stock units and i 178,467 performance-based restricted stock units, which relates to the annual grant to our employees and Board of Directors.
Time-based restricted stock units are issued with the fair value equal to the closing market price of TimkenSteel common shares on the date of grant. These restricted stock units do not have any performance conditions for vesting. Expense is recognized over the service period, adjusted for any forfeitures that occur during the vesting period. The weighted average fair value of the restricted stock units granted during the nine months ended September 30, 2023 was $ i 18.51 per share.
Performance-based restricted stock units issued in 2023 vest based on achievement of a total shareholder return (“TSR”) metric. The TSR metric is considered a market condition, which requires TimkenSteel to reflect it in the fair value on grant date using an advanced option-pricing model. The fair value of each performance share was therefore determined using a Monte Carlo valuation model, a generally accepted lattice pricing model under ASC 718 – Stock-based Compensation. The Monte Carlo valuation model, among other factors, uses commonly-accepted economic theory underlying all valuation models, estimates fair value using simulations of future share prices based on stock price behavior and considers the correlation of peer company returns in determining fair value. The fair value of the performance-based restricted stock units granted during the nine months ended September 30, 2023 was $ i 23.13 per share.
TimkenSteel recognized stock-based compensation expense of $ i 3.0 million and $ i 8.5 million for the three and nine months ended September 30, 2023, compared to $ i 2.2 million and $ i 6.5 million for the three and nine months ended September 30, 2022. Future stock-based compensation expense related to the unvested portion of all awards is approximately $ i 15.1 million. The future expense is expected to be recognized over the remaining vesting periods through 2026.
/
18
Note 13 - Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) for the nine months ended September 30, 2023 and 2022 by component were as follows:
|
|
Foreign Currency |
|
|
Pension and |
|
|
Total |
|
|||
Balance as of December 31, 2022 |
|
$ |
( i 6.8 |
) |
|
$ |
i 21.5 |
|
|
$ |
i 14.7 |
|
Other comprehensive income (loss) before reclassifications, before income tax |
|
|
( i 0.5 |
) |
|
|
i — |
|
|
|
( i 0.5 |
) |
Amounts reclassified from accumulated other comprehensive income (loss), before income tax |
|
|
i — |
|
|
|
( i 3.7 |
) |
|
|
( i 3.7 |
) |
Amounts deferred to accumulated other comprehensive income (loss), before income tax |
|
|
i — |
|
|
|
i 1.2 |
|
|
|
i 1.2 |
|
Tax effect |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
Net current period other comprehensive income (loss), net of income taxes |
|
|
( i 0.5 |
) |
|
|
( i 2.5 |
) |
|
|
( i 3.0 |
) |
Balance as of September 30, 2023 |
|
$ |
( i 7.3 |
) |
|
$ |
i 19.0 |
|
|
$ |
i 11.7 |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Foreign Currency |
|
|
Pension and |
|
|
Total |
|
|||
Balance as of December 31, 2021 |
|
$ |
( i 5.1 |
) |
|
$ |
i 25.8 |
|
|
$ |
i 20.7 |
|
Other comprehensive income (loss) before reclassifications, before income tax |
|
|
( i 5.4 |
) |
|
|
i — |
|
|
|
( i 5.4 |
) |
Amounts reclassified from accumulated other comprehensive income (loss), before income tax |
|
|
i — |
|
|
|
( i 3.3 |
) |
|
|
( i 3.3 |
) |
Tax effect |
|
|
i — |
|
|
|
i 0.6 |
|
|
|
i 0.6 |
|
Net current period other comprehensive income (loss), net of income taxes |
|
|
( i 5.4 |
) |
|
|
( i 2.7 |
) |
|
|
( i 8.1 |
) |
Balance as of September 30, 2022 |
|
$ |
( i 10.5 |
) |
|
$ |
i 23.1 |
|
|
$ |
i 12.6 |
|
The amount reclassified from accumulated other comprehensive income (loss) in the nine months ended September 30, 2023 and 2022 for the pension and postretirement liability adjustment was included in other (income) expense, net in the unaudited Consolidated Statements of Operations.
/Note 14 – Contingencies
TimkenSteel has a number of loss exposures incurred in the ordinary course of business, such as environmental claims, product warranty claims, employee-related matters, and other litigation. Establishing loss reserves for these matters requires management’s estimate and judgment regarding risk exposure and ultimate liability or realization. These loss reserves are reviewed periodically and adjustments are made to reflect the most recent facts and circumstances. Accruals related to environmental claims represent management’s best estimate of the fees and costs associated with these claims. Although it is not possible to predict with certainty the outcome of such claims, management believes that their ultimate dispositions should not have a material adverse effect on our financial position, cash flows or results of operations. As of September 30, 2023 and December 31, 2022, TimkenSteel had a $ i 0.9 million and a $ i 1.1 million contingency reserve, respectively, related to loss exposures incurred in the ordinary course of business.
/19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(dollars in millions, except per share data)
Business Overview
We manufacture alloy steel, as well as carbon and micro-alloy steel, using electric arc furnace ("EAF") technology. Our portfolio includes special bar quality (“SBQ”) bars, seamless mechanical tubing (“tubes”), manufactured components such as precision steel components, and billets. Additionally, we manage raw material recycling programs, which are used internally as a feeder system for our melt operations and allow us to sell scrap not used in our operations to third parties. Our products and solutions are used in a diverse range of demanding applications in the following market sectors: industrial equipment; mining; construction; rail; defense; heavy truck; agriculture; power generation; automotive; and oil and gas.
SBQ steel is made to restrictive chemical compositions and high internal purity levels and is used in critical mechanical applications. We make these products from nearly 100% recycled steel, using our expertise in raw materials to create high-quality steel products. We focus on creating tailored products for our respective end-market sectors. Our engineers are experts in both materials and applications, so we can work closely with each customer to deliver flexible solutions related to our products as well as to their applications and supply chains.
The SBQ bar, tube, and billet production processes take place at our Canton, Ohio manufacturing location. This location accounts for all of the SBQ bars, seamless mechanical tubes and billets we produce and includes three manufacturing facilities: the Faircrest, Harrison, and Gambrinus facilities. Our production of manufactured components takes place at two downstream manufacturing facilities: Tryon Peak (Columbus, North Carolina) and St. Clair (Eaton, Ohio). Many of the production processes are integrated, and the manufacturing facilities produce products that are sold in all of our market sectors. As a result, investments in our facilities and resource allocation decisions affecting our operations are designed to benefit the overall business, not any specific aspect of the business.
During the second half of 2022, the Faircrest melt shop experienced unplanned operational downtime. TimkenSteel recognized insurance recoveries of $11.3 million related to the unplanned downtime in the first half of 2023, of which $9.8 million was recorded during the first quarter and $1.5 million was recorded in the second quarter. Additional amounts, if any, and timing of potential recoveries are uncertain at this time. Refer to “Note 6 - Other (Income) Expense, net” in the Notes to the Consolidated Financial Statements for additional information. For further information related to previous insurance recoveries, refer to "Note 7 - Other (Income) Expense, net" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
The lead time for our products varies based on product type and specifications. As of the date of this filing, our lead times for bar products currently extend to mid-December 2023 and tube product lead times extend into February 2024.
We conduct our business activities and report financial results as one business segment. The presentation of financial results as one reportable segment is consistent with the way we operate our business and is consistent with the manner in which the CODM evaluates performance and makes resource and operating decisions for the business as described above. Furthermore, the Company notes that monitoring financial results as one reportable segment helps the CODM manage costs on a consolidated basis, consistent with the integrated nature of our operations.
Impact of Raw Material Prices
In the ordinary course of business, we are exposed to the volatility of the costs of our raw materials. For example, the impact of global conflicts could exacerbate inflationary pressures throughout the global economy and lead to potential market disruptions, such as significant volatility in commodity prices and supply chain disruptions. Although our business has not been materially impacted by current conflicts to date, it is difficult to predict the extent to which our operations, or those of our suppliers, will be impacted in the future.
Whenever possible, we manage our exposure to commodity risks primarily through the use of supplier pricing agreements that enable us to establish the purchase prices for certain inputs that are used in our manufacturing process. We also utilize a raw material and natural gas surcharge mechanism when pricing products to our customers.
There are two components of our raw material surcharge. One component is related to the scrap metal content in our finished product and is based on the published No. 1 busheling scrap index. The other component is related to alloy material content in our finished product and is based on published prices for nickel, molybdenum, vanadium, chromium, and manganese. The natural gas surcharge is only applicable when the price of natural gas exceeds a certain dollar amount per MMBtu.
Our surcharge mechanisms are designed to mitigate the impact of increases or decreases in raw material costs, although generally with a lag effect. This timing effect can result in raw material spread whereby costs can be over- or under-recovered in certain periods. While the
20
surcharge generally protects gross profit, it has the effect of diluting gross margin as a percent of sales. We present the raw material spread impact on gross profit for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022 in the gross profit charts included within the results of operations section below.
Results of Operations
Net Sales
The charts below present net sales and shipments for the three months ended September 30, 2023 and 2022.
Net sales for the three months ended September 30, 2023 were $354.2 million, an increase of $37.4 million, or 11.8% compared with the three months ended September 30, 2022. The increase in net sales was primarily driven by favorable price/mix and higher volumes, partially offset by unfavorable surcharges. Favorable price/mix of $28.1 million was due to higher base prices across all end-market sectors. Higher volumes of 17.3 thousand ship tons resulted in a net sales increase of $22.7 million. The decrease in surcharges of $13.4 million was primarily due to a decrease in surcharge revenue per ton. Excluding surcharges, net sales increased $50.8 million or 23.4%. Shipments and net sales in the prior year were also negatively impacted by the availability of inventory as a result of unplanned melt shop downtime in the third quarter of 2022.
The charts below present net sales and shipments for the nine months ended September 30, 2023 and 2022.
Net sales for the nine months ended September 30, 2023 were $1,034.3 million, a decrease of $50.2 million, or 4.6% compared with the nine months ended September 30, 2022. The decrease in net sales was driven by lower surcharges and volumes, partially offset by favorable price/mix. Lower market prices for scrap drove the unfavorable surcharges of $87.3 million, partially offset by higher alloy prices per ton. Lower volumes of 37.6 thousand ship tons resulted in a net sales decrease of $52.1 million, partially driven by the availability of finished
21
goods inventory for shipment. Favorable price/mix of $89.2 million was primarily due to higher base prices across all end-market sectors. Excluding surcharges, net sales increased $37.1 million or 5.1%.
Gross Profit
The chart below presents the drivers of the gross profit variance from the three months ended September 30, 2022 to the three months ended September 30, 2023.
Gross profit for the three months ended September 30, 2023 increased $45.4 million, or 810.7% compared with the three months ended September 30, 2022. The increase was primarily driven by favorable price/mix, lower manufacturing costs, higher volumes and favorable raw material spread. Favorable price/mix was due to higher base prices across all end-market sectors. Lower manufacturing costs were primarily driven by increased fixed cost leverage on higher production given the unplanned melt shop downtime in the third quarter of 2022. Raw material spread was favorable due to higher scrap and alloy prices.
22
The chart below presents the drivers of the gross profit variance from the nine months ended September 30, 2022 to the nine months ended September 30, 2023.
Gross profit for the nine months ended September 30, 2023 decreased $1.9 million, or 1.3% compared with the nine months ended September 30, 2022. The decrease was driven by higher manufacturing costs, lower volume and unfavorable raw material spread, partially offset by favorable price/mix. Higher plant spend resulted in unfavorable manufacturing costs. The industrial and mobile end-market sectors were unfavorably impacted by lower volume, partially offset by favorable price/mix. Raw material spread was unfavorable due to lower scrap prices, partially offset by higher alloy prices.
23
Selling, General and Administrative Expenses
The charts below present selling, general and administrative (“SG&A”) expense for the three and nine months ended September 30, 2023 and 2022.
SG&A expense for the three months ended September 30, 2023 increased by $4.3 million, or 26.5%, compared with the same period in 2022. This increase was primarily due to higher variable compensation expense and professional services, primarily driven by the ongoing information technology transformation project.
SG&A expense for the nine months ended September 30, 2023 increased by $5.5 million, or 9.8% compared with the nine months ended September 30, 2022. This increase was primarily due to higher stock-based compensation and professional services, primarily driven by the ongoing information technology transformation project.
24
Interest (Income) Expense, net
Net interest income for the three and nine months ended September 30, 2023 was $1.8 million and $5.0 million, respectively, compared with net interest income of $0.2 million and net interest expense of $1.6 million for the three and nine months ended September 30, 2022, respectively. The change was due to interest earned on cash invested in a money market fund and in other accounts which generate interest income at a rate similar to the money market fund during 2023, as well as a reduction in average outstanding borrowings compared to the same period in 2022. Refer to “Note 10 - Financing Arrangements” in the Notes to the unaudited Consolidated Financial Statements for additional information.
Other (Income) Expense, net
|
|
Three Months Ended September 30, |
|
|||||||||
|
|
|
|
2022 |
|
|
$ Change |
|
||||
Pension and postretirement non-service benefit (income) loss |
|
$ |
(1.2 |
) |
|
$ |
(3.0 |
) |
|
$ |
1.8 |
|
Loss (gain) from remeasurement benefit plans |
|
|
(1.0 |
) |
|
|
4.8 |
|
|
|
(5.8 |
) |
Foreign currency exchange (gain) loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Insurance recoveries |
|
|
— |
|
|
|
(1.5 |
) |
|
|
1.5 |
|
Miscellaneous (income) expense |
|
|
0.2 |
|
|
|
(0.1 |
) |
|
|
0.3 |
|
Total other (income) expense, net |
|
$ |
(2.0 |
) |
|
$ |
0.2 |
|
|
$ |
(2.2 |
) |
|
|
Nine Months Ended September 30, |
|
|||||||||
|
|
|
|
2022 |
|
|
$ Change |
|
||||
Pension and postretirement non-service benefit (income) loss |
|
$ |
(3.7 |
) |
|
$ |
(19.8 |
) |
|
$ |
16.1 |
|
Loss (gain) from remeasurement of benefit plans |
|
|
1.7 |
|
|
|
(37.2 |
) |
|
|
38.9 |
|
Foreign currency exchange (gain) loss |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
— |
|
Insurance recoveries |
|
|
(11.3 |
) |
|
|
(1.5 |
) |
|
|
(9.8 |
) |
Miscellaneous (income) expense |
|
|
0.3 |
|
|
|
(0.2 |
) |
|
|
0.5 |
|
Total other (income) expense, net |
|
$ |
(13.1 |
) |
|
$ |
(58.8 |
) |
|
$ |
45.7 |
|
Non-service related pension and other postretirement benefit income, for all years, consists primarily of the interest cost, expected return on plan assets and amortization components of net periodic cost.
The TimkenSteel Corporation Bargaining Unit Pension Plan ("Bargaining Plan"), the TimkenSteel Corporation Retirement Plan (“Salaried Plan”), and the Supplemental Pension Plan of TimkenSteel Corporation ("Supplemental Plan") each have a provision that permits employees to elect to receive their pension benefits in a lump sum upon retirement. In the first quarter of 2023, the cumulative cost of all lump sum payments was projected to exceed the sum of the service costs and interest cost components of net periodic pension cost for the Salaried Plan. As a result, the Company completed a full remeasurement of its pension obligations and plan assets associated with the Salaried Plan during each quarter of 2023.
A gain of $1.0 million from the remeasurement of the Salaried Plan was recognized for the three months ended September 30, 2023. The gain for the three months ended September 30, 2023 was due to a $6.5 million decrease in the liability mainly driven by an increase in the discount rate, partially offset by $5.5 million of investment losses on plan assets. For the nine months ended September 30, 2023, the loss of $1.7 million was primarily related to investment losses on plan assets of $5.6 million and lump sum basis losses of $1.3 million, partially offset by a decrease in the pension liability of $5.2 million due to an increase in the discount rate.
A net loss of $4.8 million from the remeasurement of these benefit plans was recognized for the three months ended September 30, 2022. This loss was due to $73.6 million of investment losses on plan assets and lump sum basis losses, partially offset by a gain of $68.8 million primarily driven by a decrease in the pension liability due to an increase in discount rate.
A net gain of $37.2 million from the remeasurement of these benefit plans was recognized for the nine months ended September 30, 2022. This gain was driven by a $299.9 million decrease in the pension liability primarily due to an increase in discount rate, partially offset by a loss of $262.7 million driven by investment losses on plan assets and lump sum basis losses.
25
For more details on the aforementioned remeasurements, refer to “Note 11 - Retirement and Postretirement Plans.”
During the second half of 2022, the Faircrest melt shop experienced unplanned operational downtime. TimkenSteel recognized insurance recoveries of $11.3 million related to the unplanned downtime in the first half of 2023, of which $9.8 million was recorded during the first quarter and $1.5 million was recorded in the second quarter. Additional amounts, if any, and timing of potential recoveries are uncertain at this time. For further information related to previous insurance recoveries, refer to "Note 7 - Other (Income) Expense, net" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Provision for Income Taxes
|
|
Three Months Ended September 30, |
|
|||||||||
|
|
|
|
2022 |
|
|
$ Change |
|
||||
Provision (benefit) for income taxes |
|
$ |
9.8 |
|
|
$ |
0.7 |
|
|
$ |
9.1 |
|
Effective tax rate |
|
|
28.3 |
% |
|
|
(5.6 |
)% |
|
|
33.9 |
% |
|
|
Nine Months Ended September 30, |
|
|||||||||
|
|
|
|
2022 |
|
|
$ Change |
|
||||
Provision (benefit) for income taxes |
|
$ |
24.6 |
|
|
$ |
3.1 |
|
|
$ |
21.5 |
|
Effective tax rate |
|
|
26.5 |
% |
|
|
3.1 |
% |
|
|
23.4 |
% |
The provision for income taxes for the quarter ended September 30, 2023 was $9.8 million compared to a provision for income taxes of $0.7 million in 2022. The change from the prior year is primarily related to higher federal and state taxes due to the reversal of the Company's full valuation allowance as of December 31, 2022, which offset the prior year utilization of loss carryforwards. Additionally, there are limitations on the tax deductibility of the first quarter 2023 loss on extinguishment of debt on the Convertible Senior Notes due 2025.
26
Non-GAAP Financial Measures
Net Sales, Excluding Surcharges
The tables below present net sales by end-market sector, adjusted to exclude surcharges, which represents a financial measure that has not been determined in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). We believe presenting net sales by end-market sector, both on a gross basis and on a per ton basis, adjusted to exclude raw material and natural gas surcharges, provides additional insight into key drivers of net sales such as base price and product mix. Due to the fact that the surcharge mechanism can introduce volatility to our net sales, net sales adjusted to exclude surcharges provides management and investors clarity of our core pricing and results. Presenting net sales by end-market sector, adjusted to exclude surcharges including on a per ton basis, allows management and investors to better analyze key market indicators and trends and allows for enhanced comparison between our end-market sectors.
When surcharges are included in a customer agreement and are applicable (i.e., reach the threshold amount), based on the terms outlined in the respective agreement, surcharges are then included as separate line items on a customer’s invoice. These additional surcharge line items adjust base prices to match cost fluctuations due to market conditions. Each month, the company will post on the surcharges page of its external website, as well as our customer portal, the scrap, alloy, and natural gas surcharges that will be applied (as a separate line item) to invoices dated in the following month (based upon shipment volumes in the following month). All surcharges invoiced are included in GAAP net sales.
(dollars in millions, tons in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Three Months Ended September 30, 2023 |
|
|||||||||||||||||
|
|
Industrial |
|
|
Mobile |
|
|
Energy |
|
|
Other |
|
|
Total |
|
|||||
Tons |
|
|
82.4 |
|
|
|
79.1 |
|
|
|
14.3 |
|
|
|
— |
|
|
|
175.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales |
|
$ |
173.7 |
|
|
$ |
140.1 |
|
|
$ |
35.6 |
|
|
$ |
4.8 |
|
|
$ |
354.2 |
|
Less: Surcharges |
|
|
43.4 |
|
|
|
34.1 |
|
|
|
9.1 |
|
|
|
— |
|
|
|
86.6 |
|
Base Sales |
|
$ |
130.3 |
|
|
$ |
106.0 |
|
|
$ |
26.5 |
|
|
$ |
4.8 |
|
|
$ |
267.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales / Ton |
|
$ |
2,108 |
|
|
$ |
1,771 |
|
|
$ |
2,490 |
|
|
$ |
— |
|
|
$ |
2,015 |
|
Surcharges / Ton |
|
$ |
527 |
|
|
$ |
431 |
|
|
$ |
636 |
|
|
$ |
— |
|
|
$ |
493 |
|
Base Sales / Ton |
|
$ |
1,581 |
|
|
$ |
1,340 |
|
|
$ |
1,854 |
|
|
$ |
— |
|
|
$ |
1,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Three Months Ended September 30, 2022 |
|
|||||||||||||||||
|
|
Industrial |
|
|
Mobile |
|
|
Energy |
|
|
Other |
|
|
Total |
|
|||||
Tons |
|
|
71.3 |
|
|
|
71.2 |
|
|
|
16.0 |
|
|
|
— |
|
|
|
158.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales |
|
$ |
146.0 |
|
|
$ |
130.0 |
|
|
$ |
36.0 |
|
|
$ |
4.8 |
|
|
$ |
316.8 |
|
Less: Surcharges |
|
|
45.8 |
|
|
|
42.9 |
|
|
|
11.3 |
|
|
|
— |
|
|
|
100.0 |
|
Base Sales |
|
$ |
100.2 |
|
|
$ |
87.1 |
|
|
$ |
24.7 |
|
|
$ |
4.8 |
|
|
$ |
216.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales / Ton |
|
$ |
2,048 |
|
|
$ |
1,826 |
|
|
$ |
2,250 |
|
|
$ |
— |
|
|
$ |
1,999 |
|
Surcharges / Ton |
|
$ |
643 |
|
|
$ |
603 |
|
|
$ |
706 |
|
|
$ |
— |
|
|
$ |
631 |
|
Base Sales / Ton |
|
$ |
1,405 |
|
|
$ |
1,223 |
|
|
$ |
1,544 |
|
|
$ |
— |
|
|
$ |
1,368 |
|
27
(dollars in millions, tons in thousands)
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||||||||||
|
|
Industrial |
|
|
Mobile |
|
|
Energy |
|
|
Other |
|
|
Total |
|
|||||
Tons |
|
|
233.0 |
|
|
|
239.0 |
|
|
|
54.2 |
|
|
|
— |
|
|
|
526.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales |
|
$ |
486.2 |
|
|
$ |
404.9 |
|
|
$ |
127.7 |
|
|
$ |
15.6 |
|
|
$ |
1,034.4 |
|
Less: Surcharges |
|
|
132.4 |
|
|
|
103.4 |
|
|
|
37.7 |
|
|
|
— |
|
|
|
273.5 |
|
Base Sales |
|
$ |
353.8 |
|
|
$ |
301.5 |
|
|
$ |
90.0 |
|
|
$ |
15.6 |
|
|
$ |
760.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales / Ton |
|
$ |
2,087 |
|
|
$ |
1,694 |
|
|
$ |
2,356 |
|
|
$ |
— |
|
|
$ |
1,966 |
|
Surcharges / Ton |
|
$ |
568 |
|
|
$ |
433 |
|
|
$ |
696 |
|
|
$ |
— |
|
|
$ |
520 |
|
Base Sales / Ton |
|
$ |
1,519 |
|
|
$ |
1,261 |
|
|
$ |
1,660 |
|
|
$ |
— |
|
|
$ |
1,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Nine Months Ended September 30, 2022 |
|
|||||||||||||||||
|
|
Industrial |
|
|
Mobile |
|
|
Energy |
|
|
Other |
|
|
Total |
|
|||||
Tons |
|
|
268.3 |
|
|
|
245.5 |
|
|
|
50.0 |
|
|
|
— |
|
|
|
563.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales |
|
$ |
529.2 |
|
|
$ |
427.0 |
|
|
$ |
107.3 |
|
|
$ |
21.0 |
|
|
$ |
1,084.5 |
|
Less: Surcharges |
|
|
180.7 |
|
|
|
143.8 |
|
|
|
36.3 |
|
|
|
— |
|
|
|
360.8 |
|
Base Sales |
|
$ |
348.5 |
|
|
$ |
283.2 |
|
|
$ |
71.0 |
|
|
$ |
21.0 |
|
|
$ |
723.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales / Ton |
|
$ |
1,972 |
|
|
$ |
1,739 |
|
|
$ |
2,146 |
|
|
$ |
— |
|
|
$ |
1,924 |
|
Surcharges / Ton |
|
$ |
673 |
|
|
$ |
585 |
|
|
$ |
726 |
|
|
$ |
— |
|
|
$ |
640 |
|
Base Sales / Ton |
|
$ |
1,299 |
|
|
$ |
1,154 |
|
|
$ |
1,420 |
|
|
$ |
— |
|
|
$ |
1,284 |
|
28
Liquidity and Capital Resources
Amended Credit Agreement
On September 30, 2022, TimkenSteel Corporation (the “Company”), as borrower, and certain domestic subsidiaries of the Company, as subsidiary guarantors (the “Subsidiary Guarantors”), entered into a Fourth Amended and Restated Credit Agreement (the “Amended Credit Agreement”), with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), and the lenders party thereto (collectively, the “Lenders”), which further amends and restates the Company’s existing secured Third Amended and Restated Credit Agreement, dated as of October 15, 2019.
The Amended Credit Agreement extended the maturity date of the asset-based revolving credit facility (the “Credit Facility”) from October 2024 to September 2027. Following the amendment, Credit Facility capacity remained at $400.0 million. Pursuant to the terms of the Amended Credit Agreement, the interest rate to be paid on any borrowings under the Credit Facility is now based on a two-tiered schedule rather than a three-tiered schedule with applicable rates decreasing by 25 basis points, references to LIBOR rates have been updated with references to SOFR rates, the advance rate on investment-grade eligible accounts receivable has been increased from 85% to 90%, and there has been an improvement in the springing fixed charge coverage ratio from 1.1x to 1.0x. The Credit Facility remains undrawn at this time.
Refer to “Note 10- Financing Arrangements” in the Notes to the unaudited Consolidated Financial Statements for additional information.
Convertible Notes
In May 2016, the Company issued $75.0 million aggregate principal amount of Convertible Senior Notes due 2021, plus an additional $11.3 million principal amount to cover over-allotments.
In December 2020, the Company entered into separate, privately negotiated exchange agreements with a limited number of holders of the Company’s then outstanding Convertible Senior Notes due 2021. Pursuant to the exchange agreements, the Company exchanged $46.0 million aggregate principal amount of Convertible Senior Notes due 2021 for $46.0 million aggregate principal amount of its new Convertible Senior Notes due 2025. The Company did not receive any cash proceeds from the issuance of the Convertible Senior Notes due 2025.
The remaining Convertible Senior Notes due 2021 matured on June 1, 2021 and were settled with a combination of cash of $38.9 million and 0.1 million shares, as most noteholders exercised their conversion option prior to maturity. The final cash payment for interest was also made to noteholders on June 1, 2021 in the amount of $1.2 million.
The Convertible Senior Notes due 2025 bear cash interest at a rate of 6.0% per year, payable semiannually on June 1 and December 1, beginning on June 1, 2021. The Convertible Senior Notes due 2025 will mature on December 1, 2025, unless earlier repurchased or converted. The net amount of this exchange was $44.5 million, after deducting the initial underwriters’ fees and paying other transaction costs.
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 third quarter of 2023 and as such the notes can be converted at the option of the holders beginning October 1 through December 31, 2023. Whether the notes will be convertible following such period will depend on if this criterion, or another conversion condition, is met in the future. To date, no holders have elected to convert their notes during any optional conversion periods.
In the first quarter of 2023, TimkenSteel repurchased a total of $7.5 million aggregate principal amount of its Convertible Senior Notes Due 2025. Total cash paid to noteholders was $18.7 million. A loss on extinguishment of debt was recognized of $11.4 million, including a charge of $0.2 million for unamortized debt issuance costs related to the portion of debt extinguished, as well as the related transaction costs. There were no repurchases related to the Convertible Notes during the second or third quarters of 2023. As of September 30, 2023, the principal balance on the Convertible Senior Notes due 2025 is $13.3 million.
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. A loss on extinguishment of debt was recognized of $43.0 million, including a charge of $0.6 million, for unamortized debt issuance costs related to the portion of debt extinguished, as well as the related transaction costs. There were no repurchases related to the Convertible Notes during the third quarter of 2022.
For additional details regarding the Convertible Notes please refer to “Note 14 - Financing Arrangements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
29
Additional Liquidity Considerations
The following represents a summary of key liquidity measures under the Amended Credit Agreement as of September 30, 2023 and December 31, 2022:
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
225.4 |
|
|
$ |
257.2 |
|
|
|
|
|
|
|
|
||
Credit Agreement: |
|
|
|
|
|
|
||
Maximum availability |
|
$ |
400.0 |
|
|
$ |
400.0 |
|
Suppressed availability(1) |
|
|
(100.9 |
) |
|
|
(161.2 |
) |
Availability |
|
|
299.1 |
|
|
|
238.8 |
|
Amount borrowed |
|
|
— |
|
|
|
— |
|
Letter of credit obligations |
|
|
(5.4 |
) |
|
|
(5.3 |
) |
Availability not borrowed |
|
$ |
293.7 |
|
|
$ |
233.5 |
|
|
|
|
|
|
|
|
||
Total liquidity |
|
$ |
519.1 |
|
|
$ |
490.7 |
|
(1) As of September 30, 2023, and December 31, 2021, TimkenSteel had less than $400 million in collateral assets to borrow against.
Our principal sources of liquidity are cash and cash equivalents, cash flows from operations and available borrowing capacity under our Amended Credit Agreement. As of September 30, 2023, taking into account our view of mobile, industrial, and energy market demand for our products, and our 2023 operating and long-range plan, we believe that our cash balance as of September 30, 2023, projected cash generated from operations, and borrowings available under the Amended Credit Agreement, will be sufficient to satisfy our working capital needs, capital expenditures and other liquidity requirements associated with our operations, including servicing our debt and pension and postretirement benefit obligations, for at least the next twelve months.
To the extent our liquidity needs prove to be greater than expected or cash generated from operations is less than anticipated, and cash on hand or credit availability is insufficient, we would seek additional financing to provide additional liquidity. We regularly evaluate our potential access to the equity and debt capital markets as sources of liquidity and we believe additional financing would likely be available if necessary, although we can make no assurance as to the form or terms of any such financing.
We continue to evaluate the best use of our liquidity which would allow us to invest in profitable growth, maintain a strong balance sheet, and return capital to shareholders. We are currently anticipating capital expenditures to be approximately $50 million in 2023.
Based on the results of the January 1, 2023 actuarial funding valuation, the company estimates required Bargaining Plan contributions of approximately $40 million in 2024.
In the first quarter of 2023, we repurchased a total of $7.5 million aggregate principal amount of our Convertible Senior Notes Due 2025. In addition to reducing outstanding debt and generating annual interest savings of $0.5 million, the repurchases of convertible notes reduced weighted average diluted shares outstanding for the year ended December 31, 2023 by 0.7 million shares and, on a go-forward basis, reduced diluted shares outstanding by 1.0 million shares.
In the first half of 2022, we repurchased a total of $25.2 million aggregate principal amount of our Convertible Senior Notes Due 2025. In addition to reducing outstanding debt and generating annual interest savings of $1.5 million, the repurchases of convertible notes reduced weighted average diluted shares outstanding for the year ended December 31, 2022 by 2.3 million shares and, on a go-forward basis, reduced diluted shares outstanding by 3.2 million shares.
For the three months ended September 30, 2023, the Company repurchased approximately 0.4 million common shares in the open market at an aggregate cost of $7.7 million, which equates to an average repurchase price of $21.82 per share. For the nine months ended September 30, 2023, the Company repurchased approximately 1.5 million common shares in the open market at an aggregate cost of $28.5 million, which equates to an average repurchase price of $18.81 per share. As of September 30, 2023, the Company had a balance of $44.5 million remaining on its authorized share repurchase program.
30
In October 2023, the Company repurchased approximately 0.1 million common shares in the open market at an aggregate cost of $1.9 million, which equates to an average repurchase price of $20.53 per share. As of October 31, 2023, the Company had $42.6 million remaining under its authorized share repurchase program.
Coronavirus Aid, Relief, and Economic Security Act
Due to a provision in the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the Company was able to defer the employer share of Social Security payroll taxes for a specified time during 2020. During the year ended December 31, 2020, the Company deferred $6.4 million in cash payments and recorded reserves for such deferred payroll taxes in salaries, wages and benefits on the Consolidated Balance Sheets, to be paid in two equal installments. The first installment in the amount of $3.2 million was paid during the fourth quarter of 2021 and the second installment of $3.2 million was paid during the fourth quarter of 2022.
The CARES Act also provided for an employee retention credit (“Employee Retention Credit”), which is a refundable tax credit against certain employment taxes. The Company qualified for the tax credit in the second and third quarters of 2020 and accrued a benefit of $2.3 million in the fourth quarter of 2020 related to the Employee Retention Credit in other (income) expense, net on the Consolidated Statements of Operations. The Company filed for this credit in the second quarter of 2021 and received a portion of the proceeds from the Internal Revenue Service in the amount of $0.5 million during the fourth quarter of 2021. The Company received the remaining $1.8 million of cash proceeds in the first quarter of 2022.
Cash Flows
The following table reflects the major categories of cash flows for the nine months ended September 30, 2023 and 2022. For additional details, please refer to the unaudited Consolidated Statements of Cash Flows included in this quarterly report.
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
|
2022 |
|
|||
Net cash provided (used) by operating activities |
|
$ |
51.2 |
|
|
$ |
110.8 |
|
Net cash provided (used) by investing activities |
|
|
(34.5 |
) |
|
|
(12.7 |
) |
Net cash provided (used) by financing activities |
|
|
(48.2 |
) |
|
|
(94.5 |
) |
Increase (Decrease) in Cash and Cash Equivalents |
|
$ |
(31.5 |
) |
|
$ |
3.6 |
|
Operating activities
Net cash provided by operating activities for the nine months ended September 30, 2023 was $51.2 million compared to net cash provided of $110.8 million for the nine months ended September 30, 2022. The change was primarily driven by lower profitability, and an increased use of cash for working capital, partially offset by insurance recoveries, during the nine months ended September 30, 2023 compared to the same time period in 2022.
Investing activities
Net cash used by investing activities for the nine months ended September 30, 2023 was $34.5 million compared to net cash used of $12.7 million for the nine months ended September 30, 2022. The change was due to higher capital expenditures for the nine months ended September 30, 2023 compared to the same period in 2022.
Financing activities
Net cash used by financing activities for the nine months ended September 30, 2023 was $48.2 million compared to net cash used of $94.5 million for the nine months ended September 30, 2022. The change was due to lower repurchases of Convertible Senior Notes and a lower level of common share repurchase activity under the share repurchase program, compared to the same time period in 2022. Refer to “Note 10 - Financing Arrangements” for more detail related to the Convertible Senior Notes due in 2025 and the share repurchase program.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We review our critical accounting policies throughout the year.
31
New Accounting Guidance
See “Note 2 - Recent Accounting Pronouncements” in the Notes to the unaudited Consolidated Financial Statements.
Forward-Looking Statements
Certain statements set forth in this Quarterly Report on Form 10-Q (including our forecasts, beliefs and expectations) that are not historical in nature are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, Management’s Discussion and Analysis of Financial Condition and Results of Operations contains numerous forward-looking statements. Forward-looking statements generally will be accompanied by words such as “anticipate,” ,“aspire,” “believe,” “could,” “estimate,” “expect,” “forecast,” “outlook,” “intend,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “strategic direction,” “strategy,” “target,” “will,” “would,” or other similar words, phrases or expressions that convey the uncertainty of future events or outcomes. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Form 10-Q. We caution readers that actual results may differ materially from those expressed or implied in forward-looking statements made by or on behalf of us due to a variety of factors, such as:
32
You are cautioned that it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results, and that the above list should not be considered to be a complete list. Except as required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Further, this report includes our current policy and intent and is not intended to create legal rights or obligations. Certain standards of measurement and performance contained in this report are developing and based on assumptions, and no assurance can be given that any plan, objective, initiative, projection, goal, mission, commitment, expectation, or prospect set forth in this report can or will be achieved. Inclusion of information in this report is not an indication that the subject or information is material to our business or operating results.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our borrowings include both fixed and variable-rate debt. The variable-rate debt consists principally of borrowings under our Credit Agreement. We are exposed to the risk of rising interest rates to the extent we fund our operations with these variable-rate borrowings. As of September 30, 2023, we have $13.1 million of aggregate debt outstanding. None of our outstanding debt as of September 30, 2023 has variable interest rates, thus a rise in interest rates would not impact our interest expense at this point in time.
Foreign Currency Exchange Rate Risk
Fluctuations in the value of the U.S. dollar compared to foreign currencies may impact our earnings. Geographically, our sales are primarily made to customers in the United States. Currency fluctuations could impact us to the extent they impact the currency or the price of raw materials in foreign countries in which our competitors operate or have significant sales.
Commodity Price Risk
In the ordinary course of business, we are exposed to market risk with respect to commodity price fluctuations, primarily related to our purchases of raw materials and energy, principally scrap steel, other ferrous and non-ferrous metals, alloys, natural gas and electricity. Additionally, the global conflicts could also exacerbate inflationary pressures throughout the global economy and lead to potential market disruptions, such as significant volatility in commodity prices and supply chain disruptions. Although our business has not been materially impacted by current conflicts to date, it is difficult to predict the extent to which our operations, or those of our suppliers, will be impacted in the future.
Whenever possible, we manage our exposure to commodity risks primarily through the use of supplier pricing agreements that enable us to establish the purchase prices for certain inputs that are used in our manufacturing business. We utilize a raw material surcharge as a component of pricing steel to pass through the cost increases of scrap, alloys and other raw materials, as well as natural gas. From time to time, we may use financial instruments to hedge a portion of our exposure to commodity price risk. In periods of stable demand for our products, the surcharge mechanism has worked effectively to reduce the normal time lag in passing through higher raw material costs so that we can maintain our gross margins. When demand and cost of raw materials are lower, however, the surcharge impacts sales prices to a lesser extent.
Item 4. Controls and Procedures
(a) Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based upon that evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
(b) Changes in Internal Control Over Financial Reporting
During the Company’s most recent fiscal quarter, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Part II. Other Information
Item 1. Legal Proceedings
We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of our management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
Item 1A. Risk Factors
We are subject to various risks and uncertainties in the course of our business. The discussion of such risks and uncertainties may be found under Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The table below provides information concerning our repurchase of common shares for the three months ended September 30, 2023.
(Dollars in millions, except per share data) |
|
Total number of shares purchased (1) |
|
|
Average price paid per share (3) |
|
|
Total number of shares purchased as part of publicly announced plans or programs (1) |
|
|
Maximum dollar value of shares that may yet be purchased under the plans or programs (2) |
|
||||
Beginning shares available |
|
|
|
|
|
|
|
|
|
|
$ |
52.2 |
|
|||
July, 2023 |
|
|
134,586 |
|
|
$ |
22.22 |
|
|
|
134,586 |
|
|
$ |
49.2 |
|
August, 2023 |
|
|
115,550 |
|
|
$ |
21.64 |
|
|
|
115,550 |
|
|
$ |
46.7 |
|
September, 2023 |
|
|
102,724 |
|
|
$ |
21.08 |
|
|
|
102,724 |
|
|
$ |
44.5 |
|
Quarter-to-date |
|
|
352,860 |
|
|
$ |
21.82 |
|
|
|
352,860 |
|
|
$ |
44.5 |
|
(1) The Company may utilize various methods to repurchase shares, which could include open market repurchases, including repurchases through Rule 10b5-1 plans, privately-negotiated transactions or by other means. The actual timing, number and value of shares repurchased under the program will depend on a number of factors, including the price of the Company's shares, general market and economic conditions, capital needs and other factors.
(2) 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. On November 2, 2022, the Board of Directors authorized an additional $75.0 million share repurchase program. The share repurchase program does not require the Company to acquire any dollar amount or number of shares and does not have an expiration date.
(3) The average price paid per share excludes any broker commissions.
Item 5. Other Information
During the quarter ended September 30, 2023, officers (as defined in Exchange Act Rule 16a-1(f)) of the Company adopted written plans for the sale of the Company’s common shares intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) (“Rule 10b5-1 trading arrangements”) as follows:
On i August 21, 2023, i Kevin A. Raketich, i Executive Vice President and Chief Commercial Officer, adopted a i 10b5-1 trading arrangement that provides for the potential sale of up to i 36,918 common shares as well as up to i 19,350 common shares that may be earned (net of shares withheld for taxes) upon the vesting of performance-based restricted stock units awarded for the 2021-2023 performance period, which trading arrangement is scheduled to terminate no later than August 30, 2024.
On i August 24, 2023, i Kristine C. Syrvalin, i Executive Vice President, General Counsel and Chief Human Resources Officer, adopted a i 10b5-1 trading arrangement that provides for the potential sale of up to i 9,820 common shares acquired upon exercise of stock options as well as up to i 33,600 common shares that may be earned (net of shares withheld for taxes) upon the vesting of performance-based restricted stock units awarded for the 2021-2023 performance period, which trading arrangement is scheduled to terminate no later than May 31, 2024.
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On i August 29, 2023, i Kristopher R. Westbrooks, i Executive Vice President and Chief Financial Officer, adopted a i 10b5-1 trading arrangement that provides for the potential sale of up to i 87,388 common shares acquired upon exercise of stock options as well as up to i 60,600 common shares that may be earned (net of shares withheld for taxes) upon the vesting of performance-based restricted stock units awarded for the 2021-2023 performance period, which trading arrangement is scheduled to terminate no later than May 31, 2024.
On i August 29, 2023, i Michael S. Williams, i President and Chief Executive Officer, adopted a i 10b5-1 trading arrangement that provides for the potential sale of up to 25 percent of the i 635,100 common shares that may be earned (net of shares withheld for taxes) upon the vesting of performance-based restricted stock units awarded for the 2021-2023 performance period, as well as up to 25 percent of the i 423,400 common shares expected to be received (net of shares withheld for taxes) upon vesting of restricted stock units on January 5, 2024 , which trading arrangement is scheduled to terminate no later than July 8, 2024.
Each of the above-named officers is currently and is expected to remain in compliance with his or her share ownership guidelines following the sale of any common shares pursuant to his or her 10b5-1 trading arrangement.
/
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Item 6. Exhibits
Exhibit Number |
|
Exhibit Description |
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1** |
|
|
|
|
|
101.INS* |
|
Inline XBRL Instance Document. |
|
|
|
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document. |
|
|
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
** Furnished herewith.
37
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
TIMKENSTEEL CORPORATION |
|
|
|
|
|
|
Date: |
||
|
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
38
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 12/1/25 | ||||
| 9/27/25 | ||||
| 8/30/24 | ||||
| 7/8/24 | ||||
| 5/31/24 | ||||
| 1/5/24 | ||||
| 12/31/23 | ||||
| Filed on: | 11/2/23 | 8-K | ||
| 10/31/23 | ||||
| For Period end: | 9/30/23 | |||
| 8/29/23 | ||||
| 8/24/23 | ||||
| 8/21/23 | ||||
| 6/30/23 | 10-Q, 4 | |||
| 3/31/23 | 10-Q, 4 | |||
| 1/1/23 | ||||
| 12/31/22 | 10-K, ARS | |||
| 11/2/22 | 3, 4, 8-K | |||
| 9/30/22 | 10-Q, 4, 8-K | |||
| 6/30/22 | 10-Q, 4 | |||
| 3/31/22 | 10-Q, 4 | |||
| 1/1/22 | ||||
| 12/31/21 | 10-K, 4 | |||
| 12/20/21 | 8-K | |||
| 10/29/21 | ||||
| 6/1/21 | ||||
| 12/31/20 | 10-K, 4 | |||
| 12/15/20 | 8-K | |||
| 10/15/19 | ||||
| List all Filings | ||||