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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

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: 1-36313

img190636535_0.jpg 

 

TIMKENSTEEL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Ohio

 

46-4024951

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1835 Dueber Avenue SW, Canton, OH

 

44706

(Address of principal executive offices)

 

(Zip Code)

 

330.471.7000

(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

Common shares

 

TMST

 

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. 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). 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

 

 

 

Accelerated filer

 

 

 

 

 

 

 

Non-accelerated filer

 

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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 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, 2022

Common Shares, without par value

 

44,469,394

 

 

 


Table of Contents

 

TimkenSteel Corporation

Table of Contents

 

 

 

Page

Part I. Financial Information

3

Item 1.

Financial Statements

3

 

Consolidated Statements of Operations (Unaudited)

3

 

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

4

 

Consolidated Balance Sheets (Unaudited)

5

 

Consolidated Statements of Shareholders’ Equity (Unaudited)

6

 

Consolidated Statements of Cash Flows (Unaudited)

8

 

Notes to Unaudited Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

37

Item 4.

Controls and Procedures

37

Part II. Other Information

38

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 6.

Exhibits

39

 

Signatures

40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 


Table of Contents

 

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

 

 

2021

 

 

2022

 

 

2021

 

(Dollars in millions, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

316.8

 

 

$

343.7

 

 

$

1,084.5

 

 

$

944.6

 

Cost of products sold

 

 

311.2

 

 

 

277.0

 

 

 

937.5

 

 

 

780.0

 

Gross Profit

 

 

5.6

 

 

 

66.7

 

 

 

147.0

 

 

 

164.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

16.2

 

 

 

19.9

 

 

 

56.4

 

 

 

60.4

 

Restructuring charges

 

 

 

 

 

0.4

 

 

 

0.8

 

 

 

2.0

 

Loss on sale of consolidated subsidiary

 

 

 

 

 

1.1

 

 

 

 

 

 

1.1

 

Loss (gain) on sale or disposal of assets, net

 

 

1.9

 

 

 

0.1

 

 

 

2.5

 

 

 

0.5

 

Impairment charges

 

 

 

 

 

 

 

 

 

 

 

8.2

 

Interest (income) expense, net

 

 

(0.2

)

 

 

1.2

 

 

 

1.6

 

 

 

4.7

 

Loss on extinguishment of debt

 

 

0.1

 

 

 

 

 

 

43.1

 

 

 

 

Other (income) expense, net

 

 

0.2

 

 

 

(6.6

)

 

 

(58.8

)

 

 

(28.3

)

Income (Loss) Before Income Taxes

 

 

(12.6

)

 

 

50.6

 

 

 

101.4

 

 

 

116.0

 

Provision (benefit) for income taxes

 

 

0.7

 

 

 

0.5

 

 

 

3.1

 

 

 

2.1

 

Net Income (Loss)

 

$

(13.3

)

 

$

50.1

 

 

$

98.3

 

 

$

113.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Per Share Data:

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

(0.29

)

 

$

1.08

 

 

$

2.12

 

 

$

2.49

 

Diluted earnings (loss) per share

 

$

(0.29

)

 

$

0.94

 

 

$

1.91

 

 

$

2.12

 

See accompanying Notes to the unaudited Consolidated Financial Statements.

3

 


Table of Contents

 

TimkenSteel Corporation

Consolidated Statement of Comprehensive Income (Loss) (Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

(Dollars in millions)

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(13.3

)

 

$

50.1

 

 

$

98.3

 

 

$

113.9

 

Other comprehensive income (loss), net of tax of $0.2 million for the three months ended September 30, 2022 and $0.6 million for the nine months ended September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(2.3

)

 

 

(0.1

)

 

 

(5.4

)

 

 

0.3

 

Pension and postretirement liability adjustments

 

 

(0.8

)

 

 

(1.4

)

 

 

(2.7

)

 

 

(4.3

)

Other comprehensive income (loss), net of tax

 

 

(3.1

)

 

 

(1.5

)

 

 

(8.1

)

 

 

(4.0

)

Comprehensive Income (Loss), net of tax

 

$

(16.4

)

 

$

48.6

 

 

$

90.2

 

 

$

109.9

 

See accompanying Notes to the unaudited Consolidated Financial Statements.

4

 


Table of Contents

 

TimkenSteel Corporation

Consolidated Balance Sheets (Unaudited)

 

 

 

September 30,
2022

 

 

December 31,
2021

 

(Dollars in millions)

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

262.5

 

 

$

259.6

 

Accounts receivable, net of allowances (2022 - $1.5 million; 2021 - $1.9 million)

 

 

100.1

 

 

 

100.5

 

Inventories, net

 

 

205.6

 

 

 

210.9

 

Deferred charges and prepaid expenses

 

 

6.9

 

 

 

3.9

 

Assets held for sale

 

 

 

 

 

4.3

 

Other current assets

 

 

7.4

 

 

 

3.1

 

Total Current Assets

 

 

582.5

 

 

 

582.3

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

485.1

 

 

 

510.2

 

Operating lease right-of-use assets

 

 

14.0

 

 

 

14.5

 

Pension assets

 

 

32.8

 

 

 

43.1

 

Intangible assets, net

 

 

5.4

 

 

 

6.7

 

Other non-current assets

 

 

2.5

 

 

 

2.1

 

Total Assets

 

$

1,122.3

 

 

$

1,158.9

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable

 

$

123.8

 

 

$

141.9

 

Salaries, wages and benefits

 

 

22.6

 

 

 

37.9

 

Accrued pension and postretirement costs

 

 

2.6

 

 

 

4.3

 

Current operating lease liabilities

 

 

6.2

 

 

 

5.7

 

Current convertible notes, net

 

 

20.4

 

 

 

44.9

 

Other current liabilities

 

 

16.3

 

 

 

16.1

 

Total Current Liabilities

 

 

191.9

 

 

 

250.8

 

 

 

 

 

 

 

 

Credit Agreement

 

 

 

 

 

 

Non-current operating lease liabilities

 

 

7.8

 

 

 

8.8

 

Accrued pension and postretirement costs

 

 

172.9

 

 

 

223.0

 

Deferred income taxes

 

 

1.7

 

 

 

2.2

 

Other non-current liabilities

 

 

12.9

 

 

 

9.5

 

Total Liabilities

 

 

387.2

 

 

 

494.3

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

Preferred shares, without par value; authorized 10.0 million shares, none issued

 

 

 

 

 

 

Common shares, without par value; authorized 200.0 million shares;
   issued 2022 -
47.1 million shares and 2021 - 46.3 million shares

 

 

 

 

 

 

Additional paid-in capital

 

 

846.0

 

 

 

832.1

 

Retained deficit

 

 

(89.9

)

 

 

(188.2

)

Treasury shares - 2022 - 1.9 million; 2021 - None

 

 

(33.6

)

 

 

 

Accumulated other comprehensive income (loss)

 

 

12.6

 

 

 

20.7

 

Total Shareholders’ Equity

 

 

735.1

 

 

 

664.6

 

Total Liabilities and Shareholders’ Equity

 

$

1,122.3

 

 

$

1,158.9

 

See accompanying Notes to the unaudited Consolidated Financial Statements.

5

 


Table of Contents

 

TimkenSteel Corporation

Consolidated Statements of Shareholders’ Equity (Unaudited)

 

(Dollars in millions)

 

Common
Shares
Outstanding

 

 

Additional
Paid-in
Capital

 

 

Retained
Deficit

 

 

Treasury
Shares

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total

 

Balance at December 31, 2021

 

 

46,268,855

 

 

$

832.1

 

 

$

(188.2

)

 

$

 

 

$

20.7

 

 

$

664.6

 

Net income (loss)

 

 

 

 

 

 

 

 

37.1

 

 

 

 

 

 

 

 

 

37.1

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.9

)

 

 

(1.9

)

Stock-based compensation expense

 

 

298,648

 

 

 

2.1

 

 

 

 

 

 

 

 

 

 

 

 

2.1

 

Stock option activity

 

 

406,750

 

 

 

6.3

 

 

 

 

 

 

 

 

 

 

 

 

6.3

 

Purchase of treasury shares

 

 

(169,816

)

 

 

 

 

 

 

 

 

(3.4

)

 

 

 

 

 

(3.4

)

Shares surrendered for taxes

 

 

(91,853

)

 

 

(0.2

)

 

 

 

 

 

(1.4

)

 

 

 

 

 

(1.6

)

Balance at March 31, 2022

 

 

46,712,584

 

 

$

840.3

 

 

$

(151.1

)

 

$

(4.8

)

 

$

18.8

 

 

$

703.2

 

Net income (loss)

 

 

 

 

 

 

 

 

74.5

 

 

 

 

 

 

 

 

 

74.5

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3.1

)

 

 

(3.1

)

Stock-based compensation expense

 

 

44,157

 

 

 

2.2

 

 

 

 

 

 

 

 

 

 

 

 

2.2

 

Stock option activity

 

 

92,290

 

 

 

1.5

 

 

 

 

 

 

 

 

 

 

 

 

1.5

 

Purchase of treasury shares

 

 

(437,638

)

 

 

 

 

 

 

 

 

(9.3

)

 

 

 

 

 

(9.3

)

Issuance of treasury shares

 

 

2,285

 

 

 

(0.1

)

 

 

 

 

 

0.1

 

 

 

 

 

 

 

Shares surrendered for taxes

 

 

(2,285

)

 

 

 

 

 

 

 

 

(0.1

)

 

 

 

 

 

(0.1

)

Balance at June 30, 2022

 

 

46,411,393

 

 

$

843.9

 

 

$

(76.6

)

 

$

(14.1

)

 

$

15.7

 

 

$

768.9

 

Net income (loss)

 

 

 

 

 

 

 

 

(13.3

)

 

 

 

 

 

 

 

 

(13.3

)

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3.1

)

 

 

(3.1

)

Stock-based compensation expense

 

 

 

 

 

2.2

 

 

 

 

 

 

 

 

 

 

 

 

2.2

 

Stock option activity

 

 

 

 

 

0.1

 

 

 

 

 

 

 

 

 

 

 

 

0.1

 

Purchase of treasury shares

 

 

(1,252,112

)

 

 

 

 

 

 

 

 

(19.7

)

 

 

 

 

 

(19.7

)

Issuance of treasury shares

 

 

10,724

 

 

 

(0.2

)

 

 

 

 

 

0.2

 

 

 

 

 

 

 

Shares surrendered for taxes

 

 

(348

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2022

 

 

45,169,657

 

 

$

846.0

 

 

$

(89.9

)

 

$

(33.6

)

 

$

12.6

 

 

$

735.1

 

 

6

 


Table of Contents

 

 

 

 

Common
Shares
Outstanding

 

 

Additional
Paid-in
Capital

 

 

Retained
Deficit

 

 

Treasury
Shares

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

 

Total

 

Balance at December 31, 2020

 

 

45,164,308

 

 

$

843.4

 

 

$

(363.4

)

 

$

(12.9

)

 

$

40.4

 

 

$

507.5

 

Net income (loss)

 

 

 

 

 

 

 

 

9.8

 

 

 

 

 

 

 

 

 

9.8

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.4

)

 

 

(1.4

)

Adoption of new accounting standard

 

 

 

 

 

(10.6

)

 

 

4.2

 

 

 

 

 

 

 

 

 

(6.4

)

Stock-based compensation expense

 

 

 

 

 

1.8

 

 

 

 

 

 

 

 

 

 

 

 

1.8

 

Stock option activity

 

 

 

 

 

2.5

 

 

 

 

 

 

 

 

 

 

 

 

2.5

 

Issuance of treasury shares

 

 

580,248

 

 

 

(12.4

)

 

 

 

 

 

12.4

 

 

 

 

 

 

 

Shares surrendered for taxes

 

 

(72,174

)

 

 

 

 

 

 

 

 

(0.5

)

 

 

 

 

 

(0.5

)

Balance at March 31, 2021

 

 

45,672,382

 

 

$

824.7

 

 

$

(349.4

)

 

$

(1.0

)

 

$

39.0

 

 

$

513.3

 

Net income (loss)

 

 

 

 

 

 

 

 

54.0

 

 

 

 

 

 

 

 

 

54.0

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.1

)

 

 

(1.1

)

Stock-based compensation expense

 

 

178,886

 

 

 

1.8

 

 

 

 

 

 

 

 

 

 

 

 

1.8

 

Stock option activity

 

 

66,615

 

 

 

0.7

 

 

 

 

 

 

 

 

 

 

 

 

0.7

 

Issuance of treasury shares

 

 

57,845

 

 

 

(1.0

)

 

 

 

 

 

1.0

 

 

 

 

 

 

 

Convertible notes settlement

 

 

113,226

 

 

 

1.3

 

 

 

 

 

 

 

 

 

 

 

 

1.3

 

Balance at June 30, 2021

 

 

46,088,954

 

 

$

827.5

 

 

$

(295.4

)

 

$

 

 

$

37.9

 

 

$

570.0

 

Net income (loss)

 

 

 

 

 

 

 

 

50.1

 

 

 

 

 

 

 

 

 

50.1

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.5

)

 

 

(1.5

)

Stock-based compensation expense

 

 

93,350

 

 

 

1.9

 

 

 

 

 

 

 

 

 

 

 

 

1.9

 

Stock option activity

 

 

25,940

 

 

 

0.1

 

 

 

 

 

 

 

 

 

 

 

 

0.1

 

Balance at September 30, 2021

 

 

46,208,244

 

 

$

829.5

 

 

$

(245.3

)

 

$

 

 

$

36.4

 

 

$

620.6

 

See accompanying Notes to the unaudited Consolidated Financial Statements.

7

 


Table of Contents

 

TimkenSteel Corporation

Consolidated Statements of Cash Flows (Unaudited)

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

(Dollars in millions)

 

 

 

 

 

 

CASH PROVIDED (USED)

 

 

 

 

 

 

Operating Activities

 

 

 

 

 

 

Net income (loss)

 

$

98.3

 

 

$

113.9

 

Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

43.7

 

 

 

48.1

 

Amortization of deferred financing fees

 

 

0.6

 

 

 

0.7

 

Loss on extinguishment of debt

 

 

43.1

 

 

 

 

Loss on sale of consolidated subsidiary

 

 

 

 

 

1.1

 

Loss (gain) on sale or disposal of assets, net

 

 

2.5

 

 

 

0.5

 

Impairment charges

 

 

 

 

 

8.2

 

Deferred income taxes

 

 

(0.5

)

 

 

(0.1

)

Stock-based compensation expense

 

 

6.5

 

 

 

5.5

 

Pension and postretirement (benefit) expense, net

 

 

(44.7

)

 

 

(11.7

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

0.5

 

 

 

(66.9

)

Inventories, net

 

 

5.4

 

 

 

(45.1

)

Accounts payable

 

 

(19.9

)

 

 

44.3

 

Other accrued expenses

 

 

(12.5

)

 

 

10.3

 

Pension and postretirement contributions and payments

 

 

(4.9

)

 

 

(2.9

)

Deferred charges and prepaid expenses

 

 

(3.1

)

 

 

(1.1

)

Other, net

 

 

(4.2

)

 

 

1.4

 

Net Cash Provided (Used) by Operating Activities

 

 

110.8

 

 

 

106.2

 

 

 

 

 

 

 

 

Investing Activities

 

 

 

 

 

 

Capital expenditures

 

 

(15.7

)

 

 

(7.3

)

Proceeds from sale of consolidated subsidiary, net

 

 

 

 

 

6.2

 

Proceeds from disposals of property, plant and equipment

 

 

3.0

 

 

 

0.2

 

Net Cash Provided (Used) by Investing Activities

 

 

(12.7

)

 

 

(0.9

)

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

Purchase of treasury shares

 

 

(32.4

)

 

 

 

Proceeds from exercise of stock options

 

 

7.9

 

 

 

3.3

 

Shares surrendered for employee taxes on stock compensation

 

 

(1.7

)

 

 

(0.5

)

Repayments on convertible notes

 

 

(67.6

)