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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 5/04/22 TimkenSteel Corp. 10-Q 3/31/22 71:8M Donnelley … Solutions/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 648K
2: EX-10.1 Material Contract HTML 88K
3: EX-10.2 Material Contract HTML 37K
4: EX-31.1 Certification -- §302 - SOA'02 HTML 26K
5: EX-31.2 Certification -- §302 - SOA'02 HTML 26K
6: EX-32.1 Certification -- §906 - SOA'02 HTML 22K
12: R1 Document and Entity Information HTML 73K
13: R2 Consolidated Statements of Operations (Unaudited) HTML 88K
14: R3 Consolidated Statements of Comprehensive Income HTML 45K
(Loss) (Unaudited)
15: R4 Consolidated Statements of Comprehensive Income HTML 22K
(Loss) (Unaudited) (Parenthetical)
16: R5 Consolidated Balance Sheets (Unaudited) HTML 142K
17: R6 Consolidated Balance Sheets (Unaudited) HTML 34K
(Parenthetical)
18: R7 Consolidated Statements of Shareholder's Equity HTML 79K
(Unaudited)
19: R8 Consolidated Statements of Cash Flows (Unaudited) HTML 97K
20: R9 Consolidated Statements of Cash Flows (Unaudited) HTML 29K
(Parenthetical)
21: R10 Basis of Presentation HTML 26K
22: R11 Recent Accounting Pronouncements HTML 41K
23: R12 Revenue Recognition HTML 75K
24: R13 Restructuring Charges HTML 50K
25: R14 Disposition of Non-Core Assets HTML 32K
26: R15 Other (Income) Expense, Net HTML 46K
27: R16 Income Tax Provision HTML 42K
28: R17 Earnings (Loss) Per Share HTML 81K
29: R18 Inventories HTML 52K
30: R19 Financing Arrangements HTML 108K
31: R20 Retirement and Postretirement Plans HTML 218K
32: R21 Stock-Based Compensation HTML 29K
33: R22 Accumulated Other Comprehensive Income (Loss) HTML 105K
34: R23 Contingencies HTML 26K
35: R24 Recent Accounting Pronouncements (Policies) HTML 25K
36: R25 Revenue Recognition (Tables) HTML 71K
37: R26 Restructuring Charges (Tables) HTML 43K
38: R27 Other (Income) Expense, Net (Tables) HTML 39K
39: R28 Income Tax Provision (Tables) HTML 35K
40: R29 Earnings (Loss) Per Share (Tables) HTML 70K
41: R30 Inventories (Tables) HTML 52K
42: R31 Financing Arrangements (Tables) HTML 82K
43: R32 Retirement and Postretirement Plans (Tables) HTML 206K
44: R33 Accumulated Other Comprehensive Income (Loss) HTML 102K
(Tables)
45: R34 Basis of Presentation - Narrative (Details) HTML 22K
46: R35 Recent Accounting Pronouncements - Narrative HTML 44K
(Details)
47: R36 Revenue Recognition (Details) HTML 41K
48: R37 Restructuring Charges - Narrative (Details) HTML 27K
49: R38 Restructuring Charges - Summary of Restructuring HTML 28K
Reserve (Details)
50: R39 Disposition of Non-Core Assets (Details) HTML 53K
51: R40 Other (Income) Expense, Net (Details) HTML 25K
52: R41 Other (Income) Expense, Net - Narrative (Details) HTML 25K
53: R42 Income Tax Provision - Schedule of (Benefit) HTML 26K
Provision for Income Taxes (Details)
54: R43 Income Tax Provision - Narrative (Details) HTML 24K
55: R44 Earnings (Loss) Per Share - Additional Information HTML 37K
(Details)
56: R45 Earnings (Loss) Per Share - Schedule of Earnings HTML 57K
Per Share (Details)
57: R46 Inventories - Schedule of Inventory (Details) HTML 35K
58: R47 Financing Arrangements - Summary of Current and HTML 30K
Non-current Debt (Details)
59: R48 Financing Arrangements - Narrative (Details) HTML 103K
60: R49 Financing Arrangements - Schedule of Convertible HTML 31K
Debt (Details)
61: R50 Financing Arrangements - Schedule of Interest HTML 30K
Expense (Details)
62: R51 Retirement and Postretirement Plans - Narrative HTML 36K
(Details)
63: R52 Retirement and Postretirement Plans - Components HTML 60K
of Net Periodic Benefit Cost (Details)
64: R53 Stock-Based Compensation - Narrative (Details) HTML 34K
65: R54 Accumulated Other Comprehensive Income (Loss) - HTML 46K
Schedule of Accumulated Other Comprehensive Income
(Loss) (Details)
66: R55 Contingencies - Narrative (Details) HTML 21K
69: XML IDEA XML File -- Filing Summary XML 126K
67: XML XBRL Instance -- tmst-20220331_htm XML 1.66M
68: EXCEL IDEA Workbook of Financial Reports XLSX 68K
8: EX-101.CAL XBRL Calculations -- tmst-20220331_cal XML 150K
11: EX-101.DEF XBRL Definitions -- tmst-20220331_def XML 393K
7: EX-101.LAB XBRL Labels -- tmst-20220331_lab XML 1.00M
10: EX-101.PRE XBRL Presentations -- tmst-20220331_pre XML 700K
9: EX-101.SCH XBRL Schema -- tmst-20220331 XSD 132K
70: JSON XBRL Instance as JSON Data -- MetaLinks 366± 506K
71: ZIP XBRL Zipped Folder -- 0000950170-22-007410-xbrl Zip 307K
| 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 March 31, i 2022 /
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.
Large accelerated filer |
|
☐ |
|
|
i 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 April 30, 2022 |
Common Shares, without par value |
|
i 46,626,025 |
TimkenSteel Corporation
Table of Contents
|
|
Page |
3 |
||
3 |
||
|
3 |
|
|
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) |
4 |
|
5 |
|
|
6 |
|
|
7 |
|
|
8 |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 |
|
28 |
||
29 |
||
29 |
||
29 |
||
29 |
||
29 |
||
30 |
||
|
31 |
|
2
Part I. Financial Information
Item 1. Financial Statements
TimkenSteel Corporation
Consolidated Statements of Operations (Unaudited)
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
|
2021 |
|
|||
(Dollars in millions, except per share data) |
|
|
|
|
|
|
||
Net sales |
|
$ |
i 352.0 |
|
|
$ |
i 273.6 |
|
Cost of products sold |
|
|
i 292.0 |
|
|
|
i 242.9 |
|
Gross Profit |
|
|
i 60.0 |
|
|
|
i 30.7 |
|
|
|
|
|
|
|
|
||
Selling, general and administrative expenses |
|
|
i 18.5 |
|
|
|
i 19.5 |
|
Restructuring charges |
|
|
i 0.4 |
|
|
|
i 0.5 |
|
Loss (gain) on sale or disposal of assets, net |
|
|
i 0.1 |
|
|
|
— |
|
Impairment charges |
|
|
i — |
|
|
|
i 8.2 |
|
Interest expense |
|
|
i 1.2 |
|
|
|
i 1.9 |
|
Loss on extinguishment of debt |
|
|
i 17.0 |
|
|
|
— |
|
Other (income) expense, net |
|
|
( i 15.2 |
) |
|
|
( i 9.4 |
) |
Income (Loss) Before Income Taxes |
|
|
i 38.0 |
|
|
|
i 10.0 |
|
Provision (benefit) for income taxes |
|
|
i 0.9 |
|
|
|
i 0.2 |
|
Net Income (Loss) |
|
$ |
i 37.1 |
|
|
$ |
i 9.8 |
|
|
|
|
|
|
|
|
||
Per Share Data: |
|
|
|
|
|
|
||
Basic earnings (loss) per share |
|
$ |
i 0.80 |
|
|
$ |
i 0.22 |
|
Diluted earnings (loss) per share |
|
$ |
i 0.70 |
|
|
$ |
i 0.20 |
|
See accompanying Notes to the unaudited Consolidated Financial Statements.
3
TimkenSteel Corporation
Consolidated Statement of Comprehensive Income (Loss) (Unaudited)
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
|
2021 |
|
|||
(Dollars in millions) |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
i 37.1 |
|
|
$ |
i 9.8 |
|
Other comprehensive income (loss), net of tax of $ i 0.1 million for the three months ended March 31, 2022 |
|
|
|
|
|
|
||
Foreign currency translation adjustments |
|
|
( i 0.8 |
) |
|
|
i 0.1 |
|
Pension and postretirement liability adjustments |
|
|
( i 1.1 |
) |
|
|
( i 1.5 |
) |
Other comprehensive income (loss), net of tax |
|
|
( i 1.9 |
) |
|
|
( i 1.4 |
) |
Comprehensive Income (Loss), net of tax |
|
$ |
i 35.2 |
|
|
$ |
i 8.4 |
|
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 239.9 |
|
|
$ |
i 259.6 |
|
Accounts receivable, net of allowances (2022 - $ i 2.1 million; 2021 - $ i 1.9 million) |
|
|
i 135.1 |
|
|
|
i 100.5 |
|
Inventories, net |
|
|
i 230.1 |
|
|
|
i 210.9 |
|
Deferred charges and prepaid expenses |
|
|
i 3.6 |
|
|
|
i 3.9 |
|
Assets held for sale |
|
|
i 4.3 |
|
|
|
i 4.3 |
|
Other current assets |
|
|
i 2.2 |
|
|
|
i 3.1 |
|
Total Current Assets |
|
|
i 615.2 |
|
|
|
i 582.3 |
|
|
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
|
i 500.8 |
|
|
|
i 510.2 |
|
Operating lease right-of-use assets |
|
|
i 13.8 |
|
|
|
i 14.5 |
|
Pension assets |
|
|
i 48.2 |
|
|
|
i 43.1 |
|
Intangible assets, net |
|
|
i 6.1 |
|
|
|
i 6.7 |
|
Other non-current assets |
|
|
i 1.9 |
|
|
|
i 2.1 |
|
Total Assets |
|
$ |
i 1,186.0 |
|
|
$ |
i 1,158.9 |
|
|
|
|
|
|
|
|
||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
||
Current Liabilities |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
i 168.5 |
|
|
$ |
i 141.9 |
|
Salaries, wages and benefits |
|
|
i 21.2 |
|
|
|
i 37.9 |
|
Accrued pension and postretirement costs |
|
|
i 2.6 |
|
|
|
i 4.3 |
|
Current operating lease liabilities |
|
|
i 5.7 |
|
|
|
i 5.7 |
|
Current convertible notes, net |
|
|
i 35.2 |
|
|
|
i 44.9 |
|
Other current liabilities |
|
|
i 13.0 |
|
|
|
i 16.1 |
|
Total Current Liabilities |
|
|
i 246.2 |
|
|
|
i 250.8 |
|
|
|
|
|
|
|
|
||
Credit Agreement |
|
|
i — |
|
|
|
i — |
|
Non-current operating lease liabilities |
|
|
i 8.1 |
|
|
|
i 8.8 |
|
Accrued pension and postretirement costs |
|
|
i 217.3 |
|
|
|
i 223.0 |
|
Deferred income taxes |
|
|
i 2.1 |
|
|
|
i 2.2 |
|
Other non-current liabilities |
|
|
i 9.1 |
|
|
|
i 9.5 |
|
Total Liabilities |
|
|
i 482.8 |
|
|
|
i 494.3 |
|
|
|
|
|
|
|
|
||
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 840.3 |
|
|
|
i 832.1 |
|
Retained deficit |
|
|
( i 151.1 |
) |
|
|
( i 188.2 |
) |
Treasury shares - 2022 - i 0.2 million; 2021 - i None |
|
|
( i 4.8 |
) |
|
|
i — |
|
Accumulated other comprehensive income (loss) |
|
|
i 18.8 |
|
|
|
i 20.7 |
|
Total Shareholders’ Equity |
|
|
i 703.2 |
|
|
|
i 664.6 |
|
Total Liabilities and Shareholders’ Equity |
|
$ |
i 1,186.0 |
|
|
$ |
i 1,158.9 |
|
See accompanying Notes to the unaudited Consolidated Financial Statements.
5
TimkenSteel Corporation
(Dollars in millions) |
|
Common |
|
|
Additional |
|
|
Retained |
|
|
Treasury |
|
|
Accumulated |
|
|
Total |
|
||||||
Balance at December 31, 2021 |
|
|
i 46,268,855 |
|
|
$ |
i 832.1 |
|
|
$ |
( i 188.2 |
) |
|
$ |
i — |
|
|
$ |
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 at March 31, 2022 |
|
|
i 46,712,584 |
|
|
$ |
i 840.3 |
|
|
$ |
( i 151.1 |
) |
|
$ |
( i 4.8 |
) |
|
$ |
i 18.8 |
|
|
$ |
i 703.2 |
|
|
|
Common |
|
|
Additional |
|
|
Retained |
|
|
Treasury |
|
|
Accumulated |
|
|
Total |
|
||||||
Balance at December 31, 2020 |
|
|
i 45,164,308 |
|
|
$ |
i 843.4 |
|
|
$ |
( i 363.4 |
) |
|
$ |
( i 12.9 |
) |
|
$ |
i 40.4 |
|
|
$ |
i 507.5 |
|
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
i 9.8 |
|
|
|
— |
|
|
|
— |
|
|
|
i 9.8 |
|
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( i 1.4 |
) |
|
|
( i 1.4 |
) |
Adoption of new accounting standard |
|
|
— |
|
|
|
( i 10.6 |
) |
|
|
i 4.2 |
|
|
|
— |
|
|
|
— |
|
|
|
( i 6.4 |
) |
Stock-based compensation expense |
|
|
— |
|
|
|
i 1.8 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 1.8 |
|
Stock option activity |
|
|
— |
|
|
|
i 2.5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 2.5 |
|
Issuance of treasury shares |
|
|
i 580,248 |
|
|
|
( i 12.4 |
) |
|
|
— |
|
|
|
i 12.4 |
|
|
|
— |
|
|
|
— |
|
Shares surrendered for taxes |
|
|
( i 72,174 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 0.5 |
) |
|
|
— |
|
|
|
( i 0.5 |
) |
Balance at March 31, 2021 |
|
|
i 45,672,382 |
|
|
$ |
i 824.7 |
|
|
$ |
( i 349.4 |
) |
|
$ |
( i 1.0 |
) |
|
$ |
i 39.0 |
|
|
$ |
i 513.3 |
|
See accompanying Notes to the unaudited Consolidated Financial Statements.
6
TimkenSteel Corporation
Consolidated Statements of Cash Flows (Unaudited)
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
|
2021 |
|
|||
(Dollars in millions) |
|
|
|
|
|
|
||
CASH PROVIDED (USED) |
|
|
|
|
|
|
||
Operating Activities |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
i 37.1 |
|
|
$ |
i 9.8 |
|
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
i 14.6 |
|
|
|
i 17.6 |
|
Amortization of deferred financing fees |
|
|
i 0.2 |
|
|
|
i 0.3 |
|
Loss on extinguishment of debt |
|
|
i 17.0 |
|
|
|
— |
|
Loss (gain) on sale or disposal of assets, net |
|
|
i 0.1 |
|
|
|
— |
|
Impairment charges |
|
|
— |
|
|
|
i 8.2 |
|
Deferred income taxes |
|
|
( i 0.1 |
) |
|
|
— |
|
Stock-based compensation expense |
|
|
i 2.1 |
|
|
|
i 1.8 |
|
Pension and postretirement (benefit) expense, net |
|
|
( i 10.7 |
) |
|
|
( i 4.7 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
( i 34.4 |
) |
|
|
( i 33.0 |
) |
Inventories, net |
|
|
( i 19.0 |
) |
|
|
( i 28.2 |
) |
Accounts payable |
|
|
i 28.3 |
|
|
|
i 48.1 |
|
Other accrued expenses |
|
|
( i 20.1 |
) |
|
|
( i 2.4 |
) |
Pension and postretirement contributions and payments |
|
|
( i 3.7 |
) |
|
|
( i 1.6 |
) |
Deferred charges and prepaid expenses |
|
|
i 0.3 |
|
|
|
i 0.3 |
|
Other, net |
|
|
i 1.6 |
|
|
|
( i 3.0 |
) |
Net Cash Provided (Used) by Operating Activities |
|
|
i 13.3 |
|
|
|
i 13.2 |
|
|
|
|
|
|
|
|
||
Investing Activities |
|
|
|
|
|
|
||
Capital expenditures |
|
|
( i 6.5 |
) |
|
|
( i 2.3 |
) |
Net Cash Provided (Used) by Investing Activities |
|
|
( i 6.5 |
) |
|
|
( i 2.3 |
) |
|
|
|
|
|
|
|
||
Financing Activities |
|
|
|
|
|
|
||
Purchase of treasury shares |
|
|
( i 3.4 |
) |
|
|
— |
|
Proceeds from exercise of stock options |
|
|
i 6.3 |
|
|
|
i 2.5 |
|
Shares surrendered for employee taxes on stock compensation |
|
|
( i 1.6 |
) |
|
|
( i 0.5 |
) |
Repayments on convertible notes |
|
|
( i 26.8 |
) |
|
|
— |
|
Net Cash Provided (Used) by Financing Activities |
|
|
( i 25.5 |
) |
|
|
i 2.0 |
|
Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash |
|
|
( i 18.7 |
) |
|
|
i 12.9 |
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
i 259.6 |
|
|
|
i 102.8 |
|
Cash, Cash Equivalents, and Restricted Cash at End of Period |
|
$ |
i 240.9 |
|
|
$ |
i 115.7 |
|
|
|
|
|
|
|
|
||
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 239.9 |
|
|
$ |
i 115.7 |
|
Restricted cash reported in other current assets |
|
|
i 1.0 |
|
|
|
i — |
|
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows |
|
$ |
i 240.9 |
|
|
$ |
i 115.7 |
|
See accompanying Notes to the unaudited Consolidated Financial Statements.
7
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, 2021.
Certain items previously reported in specific financial statement captions have been reclassified to conform with current year presentation.
The Company's restricted cash balance represents an imprest cash account used for the funding of employee healthcare costs. Funding of this account began during the first quarter of 2022 when the Company changed its healthcare plan administrator. The balance of restricted cash as of March 31, 2022 was $ i 1.0 million, which is included in other current assets on the Consolidated Balance Sheets.
/
Note 2 - Recent Accounting Pronouncements
Adoption of i New Accounting Standards
The Company did not adopt any Accounting Standard Updates (“ASU”) in the first quarter of 2022. Additionally, there are no current ASUs issued, but not adopted, that are expected to have an impact on the Company.
As of January 1, 2021, the Company early adopted ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), using the modified retrospective method of transition. The standard simplifies the accounting for convertible instruments, as well as the diluted net income per share calculation. The standard also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception.
Upon adoption of ASU 2020-06 as of January 1, 2021, all outstanding Convertible Notes were fully classified as a liability, there was no longer a separate equity component and the Convertible Notes no longer have a debt discount that is amortized. This resulted in a decrease of $ i 10.6 million to additional paid-in capital and an increase of $ i 1.1 million and $ i 5.3 million to current convertible notes, net and non-current convertible notes, net, respectively, on the Consolidated Balance Sheets as of January 1, 2021. Additionally, retained deficit was reduced by $ i 4.2 million in the Consolidated Balance Sheets as of January 1, 2021 to remove amortization expense recognized in prior periods. The adoption of this standard did not have an effect on the Company’s cash flows, liquidity, or the methodology used for the earnings per share calculation. Refer to “Note 10 – Financing Arrangements” for additional information on the Convertible Notes.
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 is due on December 31, 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.
/8
Note 3 - Revenue Recognition
The following table provides the major sources of revenue by end-market sector for the three months ended March 31, 2022 and 2021:
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
|
2021 |
|
|||
Mobile |
|
$ |
i 144.1 |
|
|
$ |
i 133.6 |
|
Industrial |
|
|
i 175.0 |
|
|
|
i 124.7 |
|
Energy |
|
|
i 25.0 |
|
|
|
i 7.7 |
|
Other (1) |
|
|
i 7.9 |
|
|
|
i 7.6 |
|
Total Net Sales |
|
$ |
i 352.0 |
|
|
$ |
i 273.6 |
|
(1) “Other” sales by end-market sector relates to the Company’s scrap sales.
The following table provides the major sources of revenue by product type for the three months ended March 31, 2022 and 2021:
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
|
2021 |
|
|||
Bar |
|
$ |
i 236.4 |
|
|
$ |
i 173.2 |
|
Tube |
|
|
i 46.5 |
|
|
|
i 36.1 |
|
Manufactured components (3) |
|
|
i 61.2 |
|
|
|
i 56.7 |
|
Other (2) |
|
|
i 7.9 |
|
|
|
i 7.6 |
|
Total Net Sales |
|
$ |
i 352.0 |
|
|
$ |
i 273.6 |
|
(2) “Other” sales by product type relates to the Company’s scrap sales.
(3) Formerly known as the “Value-add” product type.
/
Note 4 - Restructuring Charges
Over the past several years, TimkenSteel has made numerous organizational changes to enhance profitable and sustainable growth. These company-wide actions included the restructuring of its business support functions, the reduction of management layers throughout the organization and other domestic and international actions to further improve the Company’s overall cost structure. Restructuring charges totaled $ i 0.4 million and $ i 0.5 million for the three months ended March 31, 2022 and March 31, 2021, respectively.
Restructuring charges for the three months ended March 31, 2022 were $ i 0.4 million related to severance and employee-related benefits as a result of organizational changes. Restructuring charges for the three months ended March 31, 2021 amounted to $ i 0.5 million, including $ i 0.3 million related to the transition of customers to other TimkenSteel manufacturing equipment due to the discontinuation of specific small-diameter seamless mechanical tube manufacturing and the indefinite idling of our Harrison melt and casting activities (refer to “Note 5 – Disposition of Non-Core Assets” for additional information). The remaining $ i 0.2 million related to severance and employee-related benefits as a result of organizational changes.
TimkenSteel recorded reserves for such restructuring charges as other current liabilities on the Consolidated Balance Sheets. The reserve balance at March 31, 2022 is expected to be substantially used in the next twelve months.
The following is a summary of the restructuring reserve for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
Balance at December 31, 2021 |
|
$ |
i 4.7 |
|
Expenses |
|
|
i 0.4 |
|
Payments |
|
|
( i 1.0 |
) |
Balance at March 31, 2022 |
|
$ |
i 4.1 |
|
Balance at December 31, 2020 |
|
$ |
i 1.5 |
|
Expenses |
|
|
i 0.5 |
|
Payments |
|
|
( i 1.4 |
) |
Balance at March 31, 2021 |
|
$ |
i 0.6 |
|
9
/
Not i e 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.
During the first quarter of 2021, the remaining associated machinery and equipment that was classified as held for sale was fully impaired as there was no longer an expected market value for these assets. This resulted in impairment charges of $ i 0.3 million.
The remaining $ i i 4.3 / million of land and buildings associated with TMS are classified as assets held for sale on the Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021, as it is probable that these assets will be sold within the next 12 months.
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. As a result, accelerated depreciation of $ i 1.5 million was recognized in the first quarter of 2021 in alignment with the ramp down of this machinery and equipment. Spare parts related to this machinery and equipment of $ i 0.5 million were also written down in the first quarter of 2021, as management determined there was no alternative use.
Harrison Melt and Casting Assets
On February 16, 2021, management announced a plan to indefinitely idle its Harrison melt and casting assets, which was completed in the first quarter of 2021. All of the Company’s melt and casting activities now take place at the Faircrest location. The Company worked collaboratively with employees, suppliers and a number of customers to ensure a well-organized and efficient transition. The Company’s rolling and finishing operations at Harrison were not impacted by this action.
The Company recognized non-cash charges of $ i 9.5 million related to the write-down of the associated Harrison melt and casting assets in the first quarter of 2021. These charges include $ i 7.9 million related to the impairment of the associated machinery and equipment, which is classified as impairment charges on the Consolidated Statements of Operations, as well as a write-down of spare parts of $ i 1.6 million, which is included in cost of products sold in the Consolidated Statements of Operations, as management determined there was no alternative use. The Company did not incur any cash expenditures related to these charges.
TimkenSteel (Shanghai) Corporation Limited
On March 31, 2021, the Company entered into an agreement pursuant to which Daido Steel (Shanghai) Co., Ltd. agreed to acquire all of the Company’s ownership interest in TimkenSteel (Shanghai) Corporation Limited in an all-cash transaction. The sale closed on July 30, 2021 and net cash proceeds of $ i 6.2 million were received in the third quarter of 2021. As a result of this transaction, a loss on sale of consolidated subsidiary of $ i 1.1 million was recognized on the Consolidated Statements of Operations during the third quarter of 2021. TimkenSteel’s consolidated financial statements include activity for TimkenSteel (Shanghai) Corporation Limited through July 30, 2021.
Note 6 – Other (Income) Expense, net
The following table provides the components of other (income) expense, net for the three months ended March 31, 2022 and 2021:
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
|
2021 |
|
|||
Pension and postretirement non-service benefit (income) loss |
|
$ |
( i 8.7 |
) |
|
$ |
( i 9.6 |
) |
Loss (gain) from remeasurement of benefit plans |
|
|
( i 6.5 |
) |
|
|
i 0.2 |
|
Total other (income) expense, net |
|
$ |
( i 15.2 |
) |
|
$ |
( i 9.4 |
) |
Non-service related pension and other postretirement benefit income, for all years, consists of the interest cost, expected return on plan assets and amortization components of net periodic cost.
The Supplemental Pension Plan of TimkenSteel Corporation ("Supplemental Plan") and the TimkenSteel Corporation Retirement Plan (“Salaried Plan”) have a provision that permits employees to elect to receive their pension benefits in a lump sum upon retirement. In the
10
first quarter of 2022, the cumulative cost of all lump sum payments exceeded the sum of the service cost and interest cost components of net periodic pension cost for the Supplemental Plan. Additionally, the cumulative costs of all lump sum payments were projected to exceed the sum of the service costs and interest cost components of net periodic pension cost in 2022 for the Salaried Plan. As a result, the Company completed a full remeasurement of its pension obligations and plan assets associated with the Supplemental Plan and Salaried Plan during the first quarter of 2022, and is required to complete a full remeasurement of both plans each quarter for the remainder of 2022.
A total gain of $ i 6.5 million from the remeasurement of these benefit plans was recognized in the first quarter of 2022. This gain was primarily driven by a $ i 25.6 million decrease in the liability due to the change in discount rate during the first quarter of 2022, partially offset by $ i 19.1 million of investment losses on plan assets.
A full remeasurement of the pension obligations and plan assets associated with the Salaried Plan was also required during each quarter of 2021. For more details on the remeasurement refer to “Note 11 - Retirement and Postretirement Plans.”
/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 March 31, |
|
|||||
|
|
|
|
2021 |
|
|||
Provision (benefit) for incomes taxes |
|
$ |
i 0.9 |
|
|
$ |
i 0.2 |
|
Effective tax rate |
|
|
i 2.4 |
% |
|
|
i 2.0 |
% |
/
Income tax expense for the three months ended March 31, 2022 was calculated using forecasted multi-jurisdictional annual effective tax rates to determine a blended annual effective tax rate. The effective tax rate is lower than the U.S. federal statutory rate of i 21% primarily due to the valuation allowance the Company has on deferred tax assets in the U.S. This is partially offset by state, local, and foreign taxes.
Due to TimkenSteel’s historical operating performance in the U.S., the Company assessed its U.S. deferred tax assets and concluded, based upon all available evidence, that it was more likely than not that it would not realize the assets. As a result, the Company maintains a full valuation allowance against its deferred tax assets in the U.S. and applicable foreign countries until sufficient positive evidence exists to conclude that a valuation allowance is not necessary. Going forward, the need to maintain valuation allowances against deferred tax assets in the U.S. and other affected countries may cause variability in the Company’s effective tax rate. The majority of TimkenSteel’s income taxes are derived from domestic state and local taxes.
The effective tax rate of i 2.4% for the three months ended March 31, 2022 was higher than the rate of i 2.0% for the three months ended March 31, 2021, primarily due to increased projected income in the U.S., causing higher state and local tax expenses.
/
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 4.3 million shares for the three months ended March 31, 2022. For the three months ended March 31, 2022, i 0.9 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 3.4 million shares and i 1.2 million
11
shares assumed purchased with potential proceeds for the three months ended March 31, 2022, 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 5.1 million shares for the three months ended March 31, 2021. For the three months ended March 31, 2021, i 2.3 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 2.8 million shares and i 1.6 million shares assumed purchased with potential proceeds for the three months ended March 31, 2021, were included in the denominator of the diluted earnings (loss) per share calculation.
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 months ended March 31, 2022 and 2021 as these shares would be dilutive.
In the first quarter of 2022, TimkenSteel repurchased $ i 10.0 million of outstanding principal related to the Convertible Notes. The Convertible Notes repurchase reduced weighted average diluted shares outstanding by approximately i 0.7 million shares in the first quarter of 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 months ended March 31, 2022 and 2021:
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
|
2021 |
|
|||
Numerator: |
|
|
|
|
|
|
||
Net income (loss), basic |
|
$ |
i 37.1 |
|
|
$ |
i 9.8 |
|
Add convertible notes interest |
|
|
i 0.7 |
|
|
|
i 1.3 |
|
Net income (loss), diluted |
|
$ |
i 37.8 |
|
|
$ |
i 11.1 |
|
|
|
|
|
|
|
|
||
Denominator: |
|
|
|
|
|
|
||
Weighted average shares outstanding, basic |
|
|
i 46.4 |
|
|
|
i 45.4 |
|
Dilutive effect of stock-based awards |
|
|
i 2.2 |
|
|
|
i 1.2 |
|
Dilutive effect of convertible notes |
|
|
i 5.2 |
|
|
|
i 9.1 |
|
Weighted average shares outstanding, diluted |
|
|
i 53.8 |
|
|
|
i 55.7 |
|
|
|
|
|
|
|
|
||
Basic earnings (loss) per share |
|
$ |
i 0.80 |
|
|
$ |
i 0.22 |
|
Diluted earnings (loss) per share |
|
$ |
i 0.70 |
|
|
$ |
i 0.20 |
|
Note 9 - Inventories
The components of inventories, net of reserves as of March 31, 2022 and December 31, 2021 were as follows:
|
|
|
|
|
||||
Manufacturing supplies |
|
$ |
i 29.4 |
|
|
$ |
i 29.3 |
|
Raw materials |
|
|
i 38.4 |
|
|
|
i 37.3 |
|
Work in process |
|
|
i 111.9 |
|
|
|
i 89.3 |
|
Finished products |
|
|
i 50.9 |
|
|
|
i 55.8 |
|
Gross inventory |
|
|
i 230.6 |
|
|
|
i 211.7 |
|
Allowance for inventory reserves |
|
|
( i 0.5 |
) |
|
|
( i 0.8 |
) |
Total inventories, net |
|
$ |
i 230.1 |
|
|
$ |
i 210.9 |
|
12
Note 10 - Financing Arrangements
For a detailed discussion of the Company's long-term debt and credit arrangements, refer to “Note 14 - Financing Arrangements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The following table summarizes the current and non-current debt as of March 31, 2022 and December 31, 2021.
|
|
|
|
|
||||
Credit Agreement |
|
$ |
— |
|
|
$ |
— |
|
Convertible Senior Notes due 2025 |
|
|
i 35.2 |
|
|
|
i 44.9 |
|
Total debt |
|
$ |
i 35.2 |
|
|
$ |
i 44.9 |
|
Less current portion of debt |
|
|
i 35.2 |
|
|
|
i 44.9 |
|
Total non-current portion of debt |
|
$ |
i — |
|
|
$ |
i — |
|
Amended Credit Agreement
On October 15, 2019, the Company, as borrower, and certain domestic subsidiaries of the Company, as subsidiary guarantors, entered into a Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”), with JP Morgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), Bank of America, N.A., as syndication agent, and the other lenders party thereto (collectively, the “Lenders”), which further amended and restated the Company’s Second Amended and Restated Credit Agreement dated as of January 26, 2018. As of March 31, 2022, the amount available under the Amended Credit Agreement was $ i 282.9 million, reflective of the Company’s asset borrowing base with i no outstanding borrowings. Additionally, the Company is in compliance with all covenants outlined in the Amended Credit Agreement.
Convertible Senior Notes due 2021
i The Convertible Senior Notes due 2021 were settled on June 1, 2021 with cash payment of $ i 38.9 million and issuance of shares of i 0.1 million, as most noteholders exercised the conversion option prior to the date of maturity. / For details regarding method of settlement for noteholders who exercised their conversion option prior to maturity, refer to the Indenture for the Convertible Senior Notes due 2021 filed as an exhibit to a Form 8-K on May 31, 2016 and incorporated by reference in our most recent 10-K filing. The final cash payment for interest was also made to noteholders on June 1, 2021 in the amount of $ i 1.2 million.
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 first quarter of 2022 and as such the notes can be converted at the option of the holders beginning April 1 through June 30, 2022. Whether the notes will be convertible following such period will depend on if this criterion, or another conversion condition, is met in the future. As such, the Convertible Senior Notes due 2025 are classified as a current liability in the Consolidated Balance Sheets as of March 31, 2022. This criterion was also met as of December 31, 2021.
For details regarding all conversion mechanics and methods of settlement, refer to the Indenture for the Convertible Senior Notes due 2025 filed as an exhibit to a Form 8-K on December 15, 2020 and incorporated by reference in our most recent 10-K filing.
13
The components of the Convertible Senior Notes due 2025 as of March 31, 2022 and December 31, 2021 were as follows:
|
|
|
|
|
||||
Principal |
|
$ |
i 36.0 |
|
|
$ |
i 46.0 |
|
Less: Debt issuance costs, net of amortization |
|
|
( i 0.8 |
) |
|
|
( i 1.1 |
) |
Convertible Senior Notes due 2025, net |
|
$ |
i 35.2 |
|
|
$ |
i 44.9 |
|
In the first quarter of 2022, TimkenSteel repurchased a total of $ i 10.0 million aggregate principal amount of its Convertible Senior Notes Due 2025. Total cash paid to noteholders was $ i 26.8 million. A loss on extinguishment of debt was recognized in the first quarter of 2022 in the amount of $ i 17.0 million, which includes 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.
Convertible Notes Interest Expense
The following table sets forth total interest expense recognized related to the Convertible Notes:
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
|
2021 |
|
|||
Contractual interest expense |
|
$ |
i 0.6 |
|
|
$ |
i 1.2 |
|
Amortization of debt issuance costs |
|
|
i 0.1 |
|
|
|
i 0.1 |
|
Total |
|
$ |
i 0.7 |
|
|
$ |
i 1.3 |
|
/
Fair Value Measurement
The fair value of the Convertible Senior Notes due 2025 was approximately $ i 107.9 million as of March 31, 2022. 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 no outstanding borrowings on the Credit Facility as of March 31, 2022.
Cash Interest Paid
The total cash interest paid for the three months ended March 31, 2022 and 2021 was $ i 0.4 million and $ i 0.3 million, respectively.
Treasury Shares
On December 20, 2021, TimkenSteel announced that its Board of Directors authorized a share repurchase program under which the Company may repurchase up to $ 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. For the three months ended March 31, 2022, the Company repurchased approximately i 0.2 million common shares at an aggregate cost of $ i 3.4 million in the open market, which equates to an average repurchase price of $ i 20.27 per share. As of March 31, 2022, the Company had a balance of $ i 46.6 million remaining on its previously approved $ i 50.0 million share repurchase program.
In April 2022, the Company repurchased approximately i 0.1 million common shares at an aggregate cost of $ i 3.0 million, which equates to an average repurchase price of $ i 21.88 per share. As of April 30, 2022, the Company had $ i 43.6 million remaining under its previously approved $ i 50.0 million share repurchase program.
/
14
Note 11 - Retirement and Postretirement Plans
Plan Amendments
TimkenSteel Corporation Bargaining Unit Pension Plan ("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 have begun 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.
TimkenSteel Corporation Retirement Plan ("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. The purchase of an annuity from an insurance company is expected to occur in i 2023, after which time the insurance company selected will be responsible for all participant benefit payments.
Pension Net Periodic Benefit Cost (Income)
The components of net periodic benefit cost (income) for the three months ended March 31, 2022 were as follows:
|
|
Pension |
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
United States of America |
|
|
United Kingdom |
|
|
Mexico |
|
|
|
|
|
|
|
|||||||||||||
|
|
Bargaining |
|
|
Salaried |
|
|
Supplemental |
|
|
Pension |
|
|
Pension |
|
|
Total |
|
|
Postretirement |
|
|||||||
Service cost |
|
$ |
i 4.1 |
|
|
$ |
i 0.1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
i 4.2 |
|
|
$ |
i 0.3 |
|
Interest cost |
|
|
i 7.5 |
|
|
|
i 1.4 |
|
|
|
i 0.1 |
|
|
|
i 0.4 |
|
|
|
— |
|
|
|
i 9.4 |
|
|
|
i 0.8 |
|
Expected return on plan assets |
|
|
( i 14.4 |
) |
|
|
( i 1.5 |
) |
|
|
— |
|
|
|
( i 0.9 |
) |
|
|
— |
|
|
|
( i 16.8 |
) |
|
|
( i 0.9 |
) |
Amortization of prior service cost |
|
|
i 0.3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 0.3 |
|
|
|
( i 1.5 |
) |
Net remeasurement losses (gains) |
|
|
— |
|
|
|
( i 4.0 |
) |
|
|
( i 2.5 |
) |
|
|
— |
|
|
|
— |
|
|
|
( i 6.5 |
) |
|
|
— |
|
Net Periodic Benefit Cost (Income) |
|
$ |
( i 2.5 |
) |
|
$ |
( i 4.0 |
) |
|
$ |
( i 2.4 |
) |
|
$ |
( i 0.5 |
) |
|
$ |
— |
|
|
$ |
( i 9.4 |
) |
|
$ |
( i 1.3 |
) |
The components of net periodic benefit cost (income) for the three months ended March 31, 2021 were as follows:
|
|
Pension |
|
|
|
|
|
|
|
|||||||||||||||||||
|
|
United States of America |
|
|
United Kingdom |
|
|
Mexico |
|
|
|
|
|
|
|
|||||||||||||
|
|
Bargaining |
|
|
Salaried |
|
|
Supplemental |
|
|
Pension |
|
|
Pension |
|
|
Total |
|
|
Postretirement |
|
|||||||
Service cost |
|
$ |
i 4.3 |
|
|
$ |
i 0.1 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
i 4.4 |
|
|
$ |
i 0.3 |
|
Interest cost |
|
|
i 7.1 |
|
|
|
i 1.5 |
|
|
|
i 0.2 |
|
|
|
i 0.3 |
|
|
|
— |
|
|
|
i 9.1 |
|
|
|
i 0.8 |
|
Expected return on plan assets |
|
|
( i 12.9 |
) |
|
|
( i 3.5 |
) |
|
|
— |
|
|
|
( i 0.8 |
) |
|
|
— |
|
|
|
( i 17.2 |
) |
|
|
( i 0.9 |
) |
Amortization of prior service cost |
|
|
i 0.1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 0.1 |
|
|
|
( i 1.5 |
) |
Net remeasurement losses (gains) |
|
|
— |
|
|
|
i 0.2 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
i 0.2 |
|
|
|
— |
|
Net Periodic Benefit Cost (Income) |
|
$ |
( i 1.4 |
) |
|
$ |
( i 1.7 |
) |
|
$ |
i 0.2 |
|
|
$ |
( i 0.5 |
) |
|
$ |
— |
|
|
$ |
( i 3.4 |
) |
|
$ |
( i 1.3 |
) |
The Supplemental Plan and Salaried Plan have a provision that permits employees to elect to receive their pension benefits in a lump sum upon retirement. In the first quarter of 2022, the cumulative cost of all lump sum payments exceeded the sum of the service cost and interest cost components of net periodic pension cost for the Supplemental Plan. Additionally, the cumulative costs of all lump sum payments were projected to exceed the sum of the service costs and interest cost components of net periodic pension cost in 2022 for the Salaried Plan. As a
15
result, the Company completed a full remeasurement of its pension obligations and plan assets associated with the Supplemental Plan and Salaried Plan during the first quarter of 2022, and is required to complete a full remeasurement of both plans each quarter for the remainder of 2022. A full remeasurement of the pension obligations and plan assets associated with the Salaried Plan was also required during each quarter of 2021.
/Note 12 – Stock-Based Compensation
During the three months ended March 31, 2022 the Board of Directors granted i 292,773 time-based restricted stock units and i 178,467 performance-based restricted stock units, which relates to the annual grant to our employees.
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 should occur during the vesting period. The fair value of the restricted stock units granted during the three months ended March 31, 2022 was $ i 17.74 per share.
Performance-based restricted stock units issued in 2022 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 three months ended March 31, 2022 was $ i 25.04 per share.
TimkenSteel recognized stock-based compensation expense of $ i 2.1 million for the three months ended March 31, 2022, compared to $ i 1.8 million for the three months ended March 31, 2021. Future stock-based compensation expense related to the unvested portion of all awards is approximately $ i 17.4 million. The future expense is expected to be recognized over the remaining vesting periods through 2025.
/Note 13 - Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2022 and 2021 by component were as follows:
16
|
|
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 0.8 |
) |
|
|
i — |
|
|
|
( i 0.8 |
) |
Amounts reclassified from accumulated other comprehensive income (loss), before income tax |
|
|
i — |
|
|
|
( i 1.2 |
) |
|
|
( i 1.2 |
) |
Tax effect |
|
|
i — |
|
|
|
i 0.1 |
|
|
|
i 0.1 |
|
Net current period other comprehensive income (loss), net of income taxes |
|
|
( i 0.8 |
) |
|
|
( i 1.1 |
) |
|
|
( i 1.9 |
) |
Balance as of March 31, 2022 |
|
$ |
( i 5.9 |
) |
|
$ |
i 24.7 |
|
|
$ |
i 18.8 |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Foreign Currency |
|
|
Pension and |
|
|
Total |
|
|||
Balance at December 31, 2020 |
|
$ |
( i 5.4 |
) |
|
$ |
i 45.8 |
|
|
$ |
i 40.4 |
|
Other comprehensive income (loss) before reclassifications, before income tax |
|
|
i 0.1 |
|
|
|
i — |
|
|
|
i 0.1 |
|
Amounts reclassified from accumulated other comprehensive income (loss), before income tax |
|
|
i — |
|
|
|
( i 1.5 |
) |
|
|
( i 1.5 |
) |
Tax effect |
|
|
i — |
|
|
|
i — |
|
|
|
i — |
|
Net current period other comprehensive income (loss), net of income taxes |
|
|
i 0.1 |
|
|
|
( i 1.5 |
) |
|
|
( i 1.4 |
) |
Balance as of March 31, 2021 |
|
$ |
( i 5.3 |
) |
|
$ |
i 44.3 |
|
|
$ |
i 39.0 |
|
The amount reclassified from accumulated other comprehensive income (loss) in the three months ended March 31, 2022 and 2021 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 March 31, 2022 and December 31, 2021, TimkenSteel had a $ i 0.4 million and a $ i 0.3 million contingency reserve, respectively, related to loss exposures incurred in the ordinary course of business.
/
17
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, with an annual melt capacity of approximately 1.2 million tons and shipment capacity of approximately 0.9 million tons. Our portfolio includes special bar quality (“SBQ”) bars, seamless mechanical tubing (“tubes”), manufactured components (formerly known as the "value-add" product type) such as precision steel components, and billets. In addition, we supply machining and thermal treatment services and manage raw material recycling programs, which are also used as a feeder system for our melt operations. Our products and services are used in a diverse range of demanding applications in the following market sectors: automotive; oil and gas; industrial equipment; mining; construction; rail; defense; heavy truck; agriculture; power generation; and oil country tubular goods (“OCTG”).
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 custom steel products. We focus on creating tailored products and services for our customers’ most demanding applications. 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.
The lead time for our products varies based on product type and specifications. As of the date of this filing, lead times for SBQ bars and tubes are through the end of the third quarter of 2022.
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 current Russia-Ukraine conflict 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 this conflict 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 utilize a raw material surcharge mechanism when pricing products to our customers, which is 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 surcharge generally protects gross profit, it has the effect of diluting gross margin as a percent of sales.
18
Results of Operations
Net Sales
The charts below present net sales and shipments for the three months ended March 31, 2022 and 2021.
Net sales for the three months ended March 31, 2022 were $352.0 million, an increase of $78.4 million, or 28.7% compared with the three months ended March 31, 2021. The increase in net sales was driven by an increase in surcharges, favorable price/mix, and higher volumes. The increase in surcharges of $41.0 million was due to higher market prices for scrap and alloys. Favorable price/mix of $32.2 million was primarily due to higher base prices across all end-market sectors, as well as an improvement of mix within all end-market sectors. Higher volumes of three thousand ship tons resulted in a net sales increase of $5.2 million, primarily due to increased customer demand in the industrial and energy end-market sectors. The overall increase in volume was partially offset by decreased ship tons in the mobile end-market sector, primarily driven by the semiconductor chip shortage, which caused an approximate six thousand ton decrease in expected ship tons for the three months ended March 31, 2022. Excluding surcharges, net sales increased $37.4 million or 18.2%.
19
Gross Profit
The chart below presents the drivers of the gross profit variance from the three months ended March 31, 2021 to March 31, 2022.
Gross profit for the three months ended March 31, 2022 increased $29.3 million, or 95.4% compared with the three months ended March 31, 2021. The increase was driven by favorable price/mix and increased volume, partially offset by unfavorable raw material spread. Favorable price/mix was due to higher base prices across all end-market sectors, as well as an improvement of mix within all end-market sectors. The increase in volume was due to higher customer demand in the industrial and energy end-market sectors, partially offset by lower mobile end-market shipments, primarily driven by the semiconductor chip shortage. These increases were partially offset by unfavorable raw material spread due to lower scrap and alloy spreads.
20
Selling, General and Administrative Expenses
The charts below present selling, general and administrative (“SG&A”) expense for the three months ended March 31, 2022 and 2021.
SG&A expense for the three months ended March 31, 2022 decreased by $1.0 million, or 5.1% compared with the March 31, 2021. This decrease was primarily due to lower employee expense as a result of prior restructuring actions.
Restructuring Charges
Over the past several years, TimkenSteel has made numerous organizational changes to enhance profitable and sustainable growth. These company-wide actions included the restructuring of its business support functions, the reduction of management layers throughout the organization and other domestic and international actions to further improve the Company’s overall cost structure. Restructuring charges totaled $0.4 million for the three months ended March 31, 2022 compared with restructuring charges of $0.5 million for the three months ended March 31, 2021. Refer to “Note 4 - Restructuring Charges” in the Notes to the unaudited Consolidated Financial Statements for additional information.
Impairment Charges
TimkenSteel recorded no impairment charges for the three months ended March 31, 2022. For the three months ended March 31, 2021, the Company recorded $8.2 million of impairment charges driven by $7.9 million related to the indefinite idling of our Harrison melt and casting assets. Other impairment charges in the prior year included $0.3 million related to the disposition of assets at our former TMS facility.
Refer to “Note 5 - Disposition of Non-Core Assets” in the Notes to the unaudited Consolidated Financial Statements for additional information.
Interest Expense
Interest expense for the three months ended March 31, 2022 was $1.2 million, a decrease of $0.7 million, compared with the three months ended March 31, 2021. The decrease was due to a reduction in average outstanding borrowings. 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 March 31, |
|
|||||||||
|
|
|
|
2021 |
|
|
$ Change |
|
||||
Pension and postretirement non-service benefit (income) loss |
|
$ |
(8.7 |
) |
|
$ |
(9.6 |
) |
|
$ |
0.9 |
|
Loss (gain) from remeasurement benefit plan |
|
|
(6.5 |
) |
|
|
0.2 |
|
|
|
(6.7 |
) |
Total other (income) expense, net |
|
$ |
(15.2 |
) |
|
$ |
(9.4 |
) |
|
$ |
(5.8 |
) |
21
Non-service related pension and other postretirement benefit income, for all years, consists of the interest cost, expected return on plan assets and amortization components of net periodic cost.
The Supplemental Pension Plan of TimkenSteel Corporation ("Supplemental Plan") and the TimkenSteel Corporation Retirement Plan (“Salaried Plan”) have a provision that permits employees to elect to receive their pension benefits in a lump sum upon retirement. In the first quarter of 2022, the cumulative cost of all lump sum payments exceeded the sum of the service cost and interest cost components of net periodic pension cost for the Supplemental Plan. Additionally, the cumulative costs of all lump sum payments were projected to exceed the sum of the service costs and interest cost components of net periodic pension cost in 2022 for the Salaried Plan. As a result, the Company completed a full remeasurement of its pension obligations and plan assets associated with the Supplemental Plan and Salaried Plan during the first quarter of 2022, and is required to complete a full remeasurement of both plans each quarter for the remainder of 2022. A full remeasurement of the pension obligations and plan assets associated with the Salaried Plan was also required during each quarter of 2021. For more details on the remeasurement refer to "Note 6 - Other (Income) Expense, net" and “Note 11 - Retirement and Postretirement Plans” in the Notes to the unaudited Consolidated Financial Statements.
Provision for Income Taxes
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
|
|
2021 |
|
|
$ Change |
|
||||
Provision (benefit) for income taxes |
|
$ |
0.9 |
|
|
$ |
0.2 |
|
|
$ |
0.7 |
|
Effective tax rate |
|
|
2.4 |
% |
|
|
2.0 |
% |
|
|
0.4 |
% |
The majority of the Company’s income tax expense is derived from domestic state and local taxes. The Company remains in a full valuation for the U.S. jurisdiction for the three months ended March 31, 2022 and March 31, 2021.
22
Non-GAAP Financial Measures
Net Sales, Excluding Surcharges
The table below presents 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 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.
(dollars in millions, tons in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Three Months Ended March 31, 2022 |
|
|||||||||||||||||
|
|
Mobile |
|
|
Industrial |
|
|
Energy |
|
|
Other |
|
|
Total |
|
|||||
Tons |
|
|
88.9 |
|
|
|
94.9 |
|
|
|
12.6 |
|
|
|
— |
|
|
|
196.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales |
|
$ |
144.1 |
|
|
$ |
175.0 |
|
|
$ |
25.0 |
|
|
$ |
7.9 |
|
|
$ |
352.0 |
|
Less: Surcharges |
|
|
45.7 |
|
|
|
54.9 |
|
|
|
8.0 |
|
|
|
— |
|
|
|
108.6 |
|
Base Sales |
|
$ |
98.4 |
|
|
$ |
120.1 |
|
|
$ |
17.0 |
|
|
$ |
7.9 |
|
|
$ |
243.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales / Ton |
|
$ |
1,621 |
|
|
$ |
1,844 |
|
|
$ |
1,984 |
|
|
$ |
— |
|
|
$ |
1,792 |
|
Surcharges / Ton |
|
$ |
514 |
|
|
$ |
578 |
|
|
$ |
635 |
|
|
$ |
— |
|
|
$ |
553 |
|
Base Sales / Ton |
|
$ |
1,107 |
|
|
$ |
1,266 |
|
|
$ |
1,349 |
|
|
$ |
— |
|
|
$ |
1,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Three Months Ended March 31, 2021 |
|
|||||||||||||||||
|
|
Mobile |
|
|
Industrial |
|
|
Energy |
|
|
Other |
|
|
Total |
|
|||||
Tons |
|
|
103.5 |
|
|
|
84.4 |
|
|
|
5.5 |
|
|
|
— |
|
|
|
193.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales |
|
$ |
133.6 |
|
|
$ |
124.7 |
|
|
$ |
7.7 |
|
|
$ |
7.6 |
|
|
$ |
273.6 |
|
Less: Surcharges |
|
|
32.8 |
|
|
|
32.7 |
|
|
|
2.1 |
|
|
|
— |
|
|
|
67.6 |
|
Base Sales |
|
$ |
100.8 |
|
|
$ |
92.0 |
|
|
$ |
5.6 |
|
|
$ |
7.6 |
|
|
$ |
206.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales / Ton |
|
$ |
1,291 |
|
|
$ |
1,477 |
|
|
$ |
1,400 |
|
|
$ |
— |
|
|
$ |
1,415 |
|
Surcharges / Ton |
|
$ |
317 |
|
|
$ |
387 |
|
|
$ |
382 |
|
|
$ |
— |
|
|
$ |
350 |
|
Base Sales / Ton |
|
$ |
974 |
|
|
$ |
1,090 |
|
|
$ |
1,018 |
|
|
$ |
— |
|
|
$ |
1,065 |
|
23
Liquidity and Capital Resources
Amended Credit Agreement
On October 15, 2019, the Company entered into a Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with JP Morgan Chase Bank, N.A., as administrative agent, Bank of America, N.A., as syndication agent, and the other lenders party thereto, which further amended and restated the Company’s Second Amended and Restated Credit Agreement dated as of January 26, 2018.
For additional details regarding the Amended Credit Agreement please refer to “Note 14 - Financing Arrangements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
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 first quarter of 2022 and as such the notes can be converted at the option of the holders beginning April 1 through June 30, 2022. Whether the notes will be convertible following such period will depend on if this criterion, or another conversion condition, is met in the future. To date, no holders have elected to convert their notes during any optional conversion periods.
In the first quarter of 2022, TimkenSteel repurchased a total of $10.0 million aggregate principal amount of its Convertible Senior Notes Due 2025. Total cash paid to noteholders was $26.8 million. A loss on extinguishment of debt was recognized in the first quarter of 2022 in the amount of $17.0 million, which includes 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.
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, 2021.
24
Additional Liquidity Considerations
The following represents a summary of key liquidity measures under the Amended Credit Agreement as of March 31, 2022 and December 31, 2021:
|
|
|
|
|
||||
Cash and cash equivalents |
|
$ |
239.9 |
|
|
$ |
259.6 |
|
|
|
|
|
|
|
|
||
Credit Agreement: |
|
|
|
|
|
|
||
Maximum availability |
|
$ |
400.0 |
|
|
$ |
400.0 |
|
Suppressed availability(1) |
|
|
(111.7 |
) |
|
|
(143.5 |
) |
Availability |
|
|
288.3 |
|
|
|
256.5 |
|
Amount borrowed |
|
|
— |
|
|
|
— |
|
Letter of credit obligations |
|
|
(5.4 |
) |
|
|
(5.4 |
) |
Availability not borrowed |
|
$ |
282.9 |
|
|
$ |
251.1 |
|
|
|
|
|
|
|
|
||
Total liquidity |
|
$ |
522.8 |
|
|
$ |
510.7 |
|
(1) As of March 31, 2022, 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 March 31, 2022, taking into account our view of mobile, industrial, and energy market demand for our products, and our 2022 operating and long-range plan, we believe that our cash balance as of March 31, 2022, 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 continue to anticipate capital expenditures to be approximately $40 million in 2022, with over half of this budget allocated to profitability improvement projects.
During the first quarter of 2022, we privately negotiated the early repurchase of $10.0 million aggregate principal amount of our Convertible Senior Notes Due 2025. In addition to reducing outstanding debt and generating $0.6 million of annual interest savings, the convertible notes repurchase will have the effect of reducing diluted shares outstanding by a total of approximately 1.3 million shares beginning in the second quarter of 2022.
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. Our share repurchase program is intended to return capital to shareholders while also offsetting dilution from annual equity compensation awards. 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. The share repurchase program does not require the Company to acquire any dollar amount or number of shares and may be modified, suspended, extended or terminated by the Company at any time without prior notice. For the three months ended March 31, 2022, the Company repurchased approximately 0.2 million common shares at an aggregate cost of $3.4 million in the open market, which equates to an average repurchase price of $20.27 per share. As of March 31, 2022, the Company had a balance of $46.6 million remaining on its previously approved $50.0 million share repurchase program.
25
In April 2022, the Company repurchased approximately 0.1 million common shares at an aggregate cost of $3.0 million, which equates to an average repurchase price of $21.88 per share. As of April 30, 2022, the Company had $43.6 million remaining under its previously approved $50.0 million 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. The second installment is due on December 31, 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 ("IRS") 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 three months ended March 31, 2022 and 2021. For additional details, please refer to the unaudited Consolidated Statements of Cash Flows included in this quarterly report.
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
|
2021 |
|
|||
Net cash provided (used) by operating activities |
|
$ |
13.3 |
|
|
$ |
13.2 |
|
Net cash provided (used) by investing activities |
|
|
(6.5 |
) |
|
|
(2.3 |
) |
Net cash provided (used) by financing activities |
|
|
(25.5 |
) |
|
|
2.0 |
|
Increase (Decrease) in Cash and Cash Equivalents |
|
$ |
(18.7 |
) |
|
$ |
12.9 |
|
Operating activities
Net cash provided by operating activities for the three months ended March 31, 2022 was $13.3 million compared to net cash provided of $13.2 million for the three months ended March 31, 2021. The increase in net cash provided by operating activities is due to an increase in profitability during the first quarter of 2022 compared to the first quarter of 2021. This is partially offset by an increased use of cash for working capital purposes and an increase in the cash payment related to variable compensation earned in 2021 compared to 2020, which is paid out in the first quarter of the subsequent year.
Investing activities
Net cash used by investing activities for the three months ended March 31, 2022 was $6.5 million compared to net cash used of $2.3 million for the three months ended March 31, 2021. The change was due to higher capital expenditures in the first quarter of 2022 compared to the first quarter of 2021.
Financing activities
Net cash used by financing activities for the three months ended March 31, 2022 was $25.5 million compared to net cash provided of $2.0 million for the three months ended March 31, 2021. The change was due to the early repurchase of a portion of the Convertible Senior Notes due 2025 and the repurchase of common shares in the first quarter of 2022 under the share repurchase program, which is discussed in more detail in “Note 10 - Financing Arrangements”. This is partially offset by increased proceeds from the exercise of stock options in the first quarter of 2022 compared to the first quarter of 2021.
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.
26
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:
27
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our borrowings include both fixed and variable-rate debt. The variable 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 March 31, 2022, we have $35.2 million of aggregate debt outstanding. None of our outstanding debt as of March 31, 2022 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 current Russia-Ukraine conflict 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 this conflict 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.
28
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.
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, 2021 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 March 31, 2022.
(Dollars in millions, except shares and 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 |
|
|
|
|
|
|
|
|
|
|
$ |
50.0 |
|
|||
January, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
50.0 |
|
February, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
50.0 |
|
March, 2022 |
|
|
169,816 |
|
|
$ |
20.27 |
|
|
|
169,816 |
|
|
$ |
46.6 |
|
Quarter-to-date |
|
|
169,816 |
|
|
$ |
20.27 |
|
|
|
169,816 |
|
|
$ |
46.6 |
|
(1) 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. All of the shares purchased during the three months ended March 31, 2022 were purchased as of part of this 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.
(2) 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.
(3) The average price paid per share excludes any broker commissions.
29
Item 6. Exhibits
Exhibit Number |
|
Exhibit Description |
|
|
|
10.1* |
|
|
|
|
|
10.2* |
|
TimkenSteel Corporation Amended and Restated Annual Performance Award Plan |
|
|
|
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.
30
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) |
31
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 12/1/25 | ||||
| 9/27/25 | ||||
| 12/31/22 | ||||
| 6/30/22 | 4 | |||
| Filed on: | 5/4/22 | 4, 8-K, DEF 14A | ||
| 4/30/22 | ||||
| For Period end: | 3/31/22 | 4 | ||
| 1/1/22 | ||||
| 12/31/21 | 10-K, 4 | |||
| 12/20/21 | 8-K | |||
| 10/29/21 | ||||
| 7/30/21 | ||||
| 6/1/21 | ||||
| 3/31/21 | 10-Q | |||
| 2/16/21 | 4, 8-K, SC 13G/A | |||
| 1/1/21 | 3 | |||
| 12/31/20 | 10-K, 4 | |||
| 12/15/20 | 8-K | |||
| 10/15/19 | ||||
| 1/26/18 | ||||
| 5/31/16 | 8-K | |||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 2/28/24 Metallus Inc. 10-K 12/31/23 117:24M Donnelley … Solutions/FA 2/24/23 TimkenSteel Corp. 10-K 12/31/22 113:25M Donnelley … Solutions/FA |