TIMKENSTEEL CORP, 10-Q filed on 5/6/2021
Quarterly Report
v3.21.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2021
Apr. 30, 2021
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2021  
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q1  
Trading Symbol TMST  
Title of 12(b) Security Common shares  
Security Exchange Name NYSE  
Entity Registrant Name TIMKENSTEEL CORPORATION  
Entity Central Index Key 0001598428  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   45,702,530
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Shell Company false  
Document Quarterly Report true  
Document Transition Report false  
Entity Incorporation, State or Country Code OH  
Entity Address, Address Line One 1835 Dueber Avenue SW  
Entity Address, City or Town Canton  
Entity Address, State or Province OH  
City Area Code 330  
Local Phone Number 471.7000  
Entity Address, Postal Zip Code 44706  
Entity Tax Identification Number 46-4024951  
Entity File Number 1-36313  
v3.21.1
Consolidated Statements of Operations (Unaudited) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Income Statement [Abstract]    
Net sales $ 273.6 $ 259.7
Cost of products sold 242.9 251.9
Gross Profit 30.7 7.8
Selling, general and administrative expenses 19.5 23.4
Restructuring charges 0.5 0.6
Loss (gain) on sale or disposal of assets, net   (2.3)
Impairment charges 8.2  
Interest expense 1.9 3.2
Other (income) expense, net (9.4) 2.7
Income (Loss) Before Income Taxes 10.0 (19.8)
Provision (benefit) for income taxes 0.2 0.1
Net Income (Loss) $ 9.8 $ (19.9)
Per Share Data:    
Basic earnings (loss) per share $ 0.22 $ (0.44)
Diluted earnings (loss) per share $ 0.20 $ (0.44)
v3.21.1
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Statement Of Income And Comprehensive Income [Abstract]    
Net income (loss) $ 9.8 $ (19.9)
Other comprehensive income (loss)    
Foreign currency translation adjustments 0.1 (1.8)
Pension and postretirement liability adjustments (1.5) (1.1)
Other comprehensive income (loss), net of tax (1.4) (2.9)
Comprehensive Income (Loss), net of tax $ 8.4 $ (22.8)
v3.21.1
Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Millions
Mar. 31, 2021
Dec. 31, 2020
Current Assets    
Cash and cash equivalents $ 115.7 $ 102.8
Accounts receivable, net of allowances (2021 - $1.6 million; 2020 - $1.3 million) 96.3 63.3
Inventories, net 202.7 178.4
Deferred charges and prepaid expenses 3.7 4.0
Assets held for sale   0.3
Other current assets 12.0 8.8
Total Current Assets 430.4 357.6
Property, plant and equipment, net 550.0 569.8
Operating lease right-of-use assets 19.3 21.0
Pension assets 37.3 33.5
Intangible assets, net 8.5 9.3
Other non-current assets 2.6 2.8
Total Assets 1,048.1 994.0
Current Liabilities    
Accounts payable 136.4 89.5
Salaries, wages and benefits 28.7 29.4
Accrued pension and postretirement costs 2.3 2.3
Current operating lease liabilities 7.0 7.5
Current convertible notes, net 40.2 38.9
Other current liabilities 12.5 13.4
Total Current Liabilities 227.1 181.0
Non-Current Liabilities    
Non-current convertible notes, net 44.7 39.3
Non-current operating lease liabilities 12.3 13.5
Accrued pension and postretirement costs 239.4 240.7
Deferred income taxes 1.0 1.0
Other non-current liabilities 10.3 11.0
Total Liabilities 534.8 486.5
Shareholders’ Equity    
Preferred shares, without par value; authorized 10.0 million shares, none issued 0.0 0.0
Common shares, without par value; authorized 200.0 million shares; issued 2021 and 2020 - 45.7 million shares 0.0 0.0
Additional paid-in capital 824.7 843.4
Retained deficit (349.4) (363.4)
Treasury shares - 2021 - 0.1 million; 2020 - 0.6 million (1.0) (12.9)
Accumulated other comprehensive income (loss) 39.0 40.4
Total Shareholders’ Equity 513.3 507.5
Total Liabilities and Shareholders’ Equity $ 1,048.1 $ 994.0
v3.21.1
Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)
$ in Millions
Mar. 31, 2021
Dec. 31, 2020
Statement Of Financial Position [Abstract]    
Allowances for accounts receivable $ 1.6 $ 1.3
Preferred shares, authorized (in shares) 10,000,000.0 10,000,000.0
Preferred shares, issued (in shares) 0 0
Common shares, authorized (in shares) 200,000,000.0 200,000,000.0
Common shares, issued (in shares) 45,700,000 45,700,000
Treasury shares (in shares) 100,000 600,000
v3.21.1
Consolidated Statements of Shareholder's Equity (Unaudited) - USD ($)
$ in Millions
Total
Cumulative Effect, Period of Adoption, Adjustment
Common Shares Outstanding
Additional Paid-in Capital
Additional Paid-in Capital
Cumulative Effect, Period of Adoption, Adjustment
Retained Deficit
Retained Deficit
Cumulative Effect, Period of Adoption, Adjustment
Treasury Shares
Accumulated Other Comprehensive Income (Loss)
Beginning balance at Dec. 31, 2019 $ 563.1     $ 844.8   $ (301.5)   $ (24.9) $ 44.7
Beginning balance (in shares) at Dec. 31, 2019     44,820,153            
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Net income (loss) (19.9)         (19.9)      
Other comprehensive income (loss) (2.9)               (2.9)
Stock-based compensation expense 2.0     2.0          
Issuance of treasury shares       (5.7)       5.7  
Issuance of treasury shares (in shares)     215,708            
Shares surrendered for taxes (0.2)             (0.2)  
Shares surrendered for taxes (in shares)     (70,033)            
Ending balance at Mar. 31, 2020 542.1     841.1   (321.4)   (19.4) 41.8
Ending balance (in shares) at Mar. 31, 2020     44,965,828            
Beginning balance at Dec. 31, 2020 507.5 $ (6.4)   843.4 $ (10.6) (363.4) $ 4.2 (12.9) 40.4
Beginning balance (in shares) at Dec. 31, 2020     45,164,308            
Increase (Decrease) in Stockholders' Equity [Roll Forward]                  
Net income (loss) 9.8         9.8      
Other comprehensive income (loss) (1.4)               (1.4)
Stock-based compensation expense 1.8     1.8          
Stock option activity 2.5     2.5          
Issuance of treasury shares       (12.4)       12.4  
Issuance of treasury shares (in shares)     580,248            
Shares surrendered for taxes (0.5)             (0.5)  
Shares surrendered for taxes (in shares)     (72,174)            
Ending balance at Mar. 31, 2021 $ 513.3     $ 824.7   $ (349.4)   $ (1.0) $ 39.0
Ending balance (in shares) at Mar. 31, 2021     45,672,382            
v3.21.1
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2021
Mar. 31, 2020
Operating Activities    
Net income (loss) $ 9.8 $ (19.9)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:    
Depreciation and amortization 17.6 18.6
Amortization of deferred financing fees and debt discount 0.3 1.3
Loss (gain) on sale or disposal of assets, net   (2.3)
Impairment charges 8.2  
Deferred income taxes   0.2
Stock-based compensation expense 1.8 2.0
Pension and postretirement (benefit) expense, net (4.7) 8.1
Changes in operating assets and liabilities:    
Accounts receivable, net (33.0) (16.3)
Inventories, net (28.2) 41.2
Accounts payable 48.1 26.7
Other accrued expenses (2.4) 5.7
Pension and postretirement contributions and payments (1.6) (2.5)
Deferred charges and prepaid expenses 0.3 (0.3)
Other, net (3.0) 1.3
Net Cash Provided (Used) by Operating Activities 13.2 63.8
Investing Activities    
Capital expenditures (2.3) (2.9)
Proceeds from disposals of property, plant and equipment   7.8
Net Cash Provided (Used) by Investing Activities (2.3) 4.9
Financing Activities    
Proceeds from exercise of stock options 2.5  
Shares surrendered for employee taxes on stock compensation (0.5) (0.2)
Repayments on credit agreements   (30.0)
Net Cash Provided (Used) by Financing Activities 2.0 (30.2)
Increase (Decrease) in Cash and Cash Equivalents 12.9 38.5
Cash and cash equivalents at beginning of period 102.8 27.1
Cash and Cash Equivalents at End of Period $ 115.7 $ 65.6
v3.21.1
Basis of Presentation
3 Months Ended
Mar. 31, 2021
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Basis of Presentation

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, 2020.

Certain items previously reported in specific financial statement captions have been reclassified to conform with current year presentation.

v3.21.1
Recent Accounting Pronouncements
3 Months Ended
Mar. 31, 2021
Accounting Policies [Abstract]  
Recent Accounting Pronouncements

 

Note 2 - Recent Accounting Pronouncements

Adoption of New Accounting Standards

The Company adopted the following Accounting Standard Updates (“ASU”) in the first quarter of 2021.       

Standard Adopted

Description

Date of Adoption

Impact

ASU 2019-12, Income Taxes (Topic 740)

The standard simplifies the accounting for income taxes by removing various exceptions.

January 1, 2021

The adoption of this standard had an immaterial impact on the Company’s tax provision.

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)

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.

January 1, 2021

The Company early adopted this standard as of January 1, 2021 using the modified retrospective method of transition. The standard had a material impact on the Consolidated Financial Statements. See below for additional information.

Upon adoption of ASU 2020-06 prospectively as of January 1, 2021, all outstanding Convertible Notes are now fully classified as a liability, there is no longer a separate equity component and the Convertible Notes will no longer have a debt discount that is amortized. This resulted in a decrease of $10.6 million to additional paid-in capital and an increase of $1.1 million and $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 $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, and the methodology used for the earnings per share calculation. Refer to “Note 10 – Financing Arrangements” for additional information on the Company’s Convertible Notes.

There are no current ASUs issued, but not adopted, that will have an impact on the Company.

Legislation related to the COVID-19 Pandemic

Coronavirus Aid, Relief, and Economic Security ("CARES") Act

On March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, an economic stimulus package intended to provide support, principally in the form of tax benefits, to companies and individuals negatively impacted by the COVID-19 pandemic. Although the majority of the provisions included in the CARES Act did not immediately benefit the Company from a cash tax perspective due to its significant net operating losses, the Company took advantage of the deferral of the employer share (6.2% of employee wages) of Social Security payroll taxes that would otherwise have been owed from the date of enactment of the legislation through December 31, 2020, as afforded by the CARES Act. At December 31, 2020, the Company had 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. The deferred amount of payments is to be paid in two equal installments at December 31, 2021 and 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 of up to $5,000 per employee for eligible employers. The tax credit is equal to 50% of qualified wages paid to

employees during a quarter, capped at $10,000 of qualified wages per employee throughout the year. 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 Company’s Consolidated Statements of Operations. The Company is currently in the process of filing for this credit.

Consolidated Appropriations Act, 2021 (“CAA”)

On December 27, 2020, the President of the United States signed the Consolidated Appropriation Act, 2021 (“CAA”). The CAA includes additional COVID-19 relief that expands upon the relief provided in the CARES Act, including, but not limited to, the extension of tax deductions, credits, and incentives. The Company has evaluated the CAA for any potential impact. While it was determined that the CAA revised and extended the Employee Retention Credit into 2021, the CAA is not expected to have an impact on the Company as furloughs related to the COVID-19 pandemic ceased in 2020. Furthermore, the Company does not expect any of the other provisions within the CAA to provide a benefit.

American Rescue Plan Act of 2021 (“ARPA”)

On March 11, 2021, the President of the United States signed the American Rescue Plan Act of 2021 (“ARPA”). APRA strengthens and extends certain programs enacted through the CARES Act and establishes new relief programs aimed at mitigating the financial impact of the COVID-19 pandemic. The Company is evaluating the provisions within the ARPA. At this time, two provisions are anticipated to impact the Company.

The first applicable provision imposes new requirements related to health coverage provided by the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). Under the ARPA, employers are required to provide a 100% premium subsidy for COBRA health care continuation coverage for certain employees for the period of April 1, 2021 through September 30, 2021. The Company will be reimbursed for this additional coverage through fully refundable payroll tax credits.

The second applicable provision offers funding relief for single-employer defined benefit pension plans. Specifically, the ARPA provides enhanced interest rate stabilization, as well as extended amortization of funding shortfalls. The Company is currently evaluating the impact and timing of election options permitted by the ARPA on required contributions to our domestic defined benefit pension plans. At this time based on current assumptions and expected asset returns, pending further IRS guidance, we believe that the ARPA provisions are likely to result in a delay in the timing of required Company contributions until 2028. However, these estimates are subject to significant uncertainty.

 

v3.21.1
Revenue Recognition
3 Months Ended
Mar. 31, 2021
Revenue From Contract With Customer [Abstract]  
Revenue Recognition

Note 3 - Revenue Recognition

The following table provides the major sources of revenue by end-market sector for the three months ended March 31, 2021 and 2020:

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Mobile

 

$

133.6

 

 

$

97.7

 

Industrial

 

 

124.7

 

 

 

113.3

 

Energy

 

 

7.7

 

 

 

25.2

 

Other (1)

 

 

7.6

 

 

 

23.5

 

Total Net Sales

 

$

273.6

 

 

$

259.7

 

(1) “Other” sales by end-market sector includes the Company’s scrap and oil country tubular goods (“OCTG”) billet sales.

The following table provides the major sources of revenue by product type for the three months ended March 31, 2021 and 2020:

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Bar

 

$

173.2

 

 

$

168.1

 

Tube

 

 

36.1

 

 

 

30.4

 

Value-add

 

 

56.7

 

 

 

55.5

 

Other (2)

 

 

7.6

 

 

 

5.7

 

Total Net Sales

 

$

273.6

 

 

$

259.7

 

(2) “Other” sales by product type includes the Company’s scrap sales.

 

v3.21.1
Restructuring Charges
3 Months Ended
Mar. 31, 2021
Restructuring And Related Activities [Abstract]  
Restructuring Charges

 

 

 

 

Note 4 - Restructuring Charges

Beginning in 2019, TimkenSteel made 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, the closure of the TimkenSteel Material Services (“TMS”) facility in Houston, Texas and other domestic and international actions to further improve the Company’s overall cost structure. Through these restructuring efforts, to date the Company has eliminated approximately 230 salaried positions and recognized restructuring charges of $12.2 million.

Restructuring charges in the first quarter of 2021 amounted to $0.5 million, consisting of $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 $0.2 million related to severance and employee-related benefits as a result of continued organizational changes. Approximately 15 salaried positions were eliminated in the first quarter of 2021. TimkenSteel recorded reserves for such restructuring charges as other current liabilities on the Consolidated Balance Sheets. The reserve balance at March 31, 2021 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, 2021 and 2020.

 

 

 

 

 

Balance at December 31, 2020

 

$

1.5

 

Expenses

 

 

0.5

 

Payments

 

 

(1.4

)

Balance at March 31, 2021

 

$

0.6

 

 

Balance at December 31, 2019

 

$

6.0

 

Expenses

 

 

0.6

 

Payments

 

 

(4.0

)

Balance at March 31, 2020

 

$

2.6

 

 

v3.21.1
Disposition of Non-Core Assets
3 Months Ended
Mar. 31, 2021
Discontinued Operations And Disposal Groups [Abstract]  
Disposition of Non-Core Assets

Note 5 - Disposition of Non-Core Assets

TimkenSteel Material Services Facility

During the first quarter of 2020, management completed its previously announced plan to close the Company’s TMS facility in Houston and began selling the assets at the facility. Accelerated depreciation and amortization on TMS assets of $1.6 million was recorded in the first quarter of 2020 to reduce the net book value of the machinery and equipment to its expected fair value. Subsequent to the closure, certain assets were sold and a gain on sale of $3.2 million was recognized for the three months ended March 31, 2020.

At March 31, 2021, the remaining associated machinery and equipment that was classified as held for sale with a net book value of $0.3 million as of December 31, 2020, was fully impaired as there is no longer an expected market value for these assets. This is classified as impairment charges on the Consolidated Statements of Operations.

The land and buildings associated with TMS are classified as property, plant and equipment, net on the Consolidated Balance Sheets, as it is not 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 will discontinue the commercial offering of specific small-diameter seamless mechanical tubing products. As a result, the Company recognized accelerated depreciation of $1.5 million for the three months ended March 31, 2021 in alignment with the ramp down of the machinery and equipment used in the manufacturing of these specific products, which was completed in the first quarter of 2021. Spare parts related to this machinery and equipment of $0.5 million was 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. Going forward, all of the Company’s melt and casting activities will 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 $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 $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 $1.6 million, 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. has agreed to acquire all of the Company’s ownership interest in TimkenSteel (Shanghai) Corporation Limited in an all-cash transaction for approximately $7 million, subject to certain regulatory approvals and other closing conditions. As of March 31, 2021, the Company does not expect a material impact to our Consolidated Statements of Operations. The transaction is expected to close during the third quarter of 2021.

 

v3.21.1
Other (Income) Expense, Net
3 Months Ended
Mar. 31, 2021
Other Income And Expenses [Abstract]  
Other (Income) Expense, Net

Note 6 Other (Income) Expense, net

The following table provides the components of other (income) expense, net for the three months ended March 31, 2021 and 2020:

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Pension and postretirement non-service benefit (income) loss

 

$

(9.6

)

 

$

(6.6

)

Loss (gain) from remeasurement of benefit plans

 

 

0.2

 

 

 

9.5

 

Miscellaneous (income) expense

 

 

 

 

 

(0.2

)

Total other (income) expense, net

 

$

(9.4

)

 

$

2.7

 

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 TimkenSteel Corporation Retirement Plan (“Salaried Plan”) has a provision that permits employees to elect to receive their pension benefits in a lump sum. In the first quarter of 2021, 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 Salaried Plan. As a result, the Company completed a full remeasurement of its pension obligations and plan assets associated with the Salaried Plan during the first quarter of 2021, which resulted in a non-cash loss from remeasurement of $0.2 million. A full remeasurement of the pension obligations and plan assets associated with the Salaried Plan was also required in the first quarter of 2020 resulting in a non-cash loss from remeasurement of $9.5 million for the three months ended March 31, 2020. For more details on the remeasurement, refer to “Note 11 - Retirement and Postretirement Plans”.

v3.21.1
Income Tax Provision
3 Months Ended
Mar. 31, 2021
Income Tax Disclosure [Abstract]  
Income Tax Provision

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

 

 

2020

 

Provision (benefit) for incomes taxes

 

$

0.2

 

 

$

0.1

 

Effective tax rate

 

 

2.0

%

 

 

(0.5

)%

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 will cause variability in the Company’s effective tax rate. The majority of TimkenSteel’s income taxes are derived from foreign operations.

 

v3.21.1
Earnings (Loss) Per Share
3 Months Ended
Mar. 31, 2021
Earnings Per Share [Abstract]  
Earnings (Loss) Per Share

 

 

 

 

 

 

 

 

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 stock is excluded from the denominator in calculating both basic and diluted earnings (loss) per share.

Common share equivalents for shares issuable for equity-based awards amounted to 5.1 million shares and 4.1 million shares as of March 31, 2021 and March 31, 2020, respectively. As of March 31, 2021, 2.3 million shares primarily related to options with exercise prices more than the average market price of our common shares (i.e., “underwater” options) were excluded from the computation of diluted earnings (loss) per share because the effect of their inclusion would have been anti-dilutive. The difference between the remaining 2.8 million shares assumed issued and the 1.6 million shares assumed purchased with potential proceeds were included in the denominator of the diluted earnings (loss) per share calculation. All common share equivalents for shares issuable for equity-based awards were excluded from the computation of diluted earnings (loss) per share for the three months ended March 31, 2020 because the effect of their inclusion would have been anti-dilutive.

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, 2021 as these shares would be dilutive. Common share equivalents for shares issuable upon the conversion of outstanding convertible notes were excluded from the computation of diluted earnings (loss) per share for the three months ended March 31, 2020 because the effect of their inclusion would have been anti-dilutive.

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, 2021 and 2020:

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

 

Net income (loss), basic

 

$

9.8

 

 

$

(19.9

)

Add convertible notes interest

 

 

1.3

 

 

 

 

Net income (loss), diluted

 

$

11.1

 

 

$

(19.9

)

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

 

45.4

 

 

 

44.9

 

Dilutive effect of stock-based awards

 

 

1.2

 

 

 

 

Dilutive effect of convertible notes

 

 

9.1

 

 

 

 

Weighted average shares outstanding, diluted

 

 

55.7

 

 

 

44.9

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

0.22

 

 

$

(0.44

)

Diluted earnings (loss) per share

 

$

0.20

 

 

$

(0.44

)

 

v3.21.1
Inventories
3 Months Ended
Mar. 31, 2021
Inventory Disclosure [Abstract]  
Inventories

Note 9 - Inventories

The components of inventories, net of reserves as of March 31, 2021 and December 31, 2020 were as follows:

 

 

March 31,

2021

 

 

December 31,

2020

 

Manufacturing supplies

 

$

28.5

 

 

$

37.6

 

Raw materials

 

 

25.1

 

 

 

20.0

 

Work in process

 

 

99.5

 

 

 

79.1

 

Finished products

 

 

58.2

 

 

 

55.6

 

Gross inventory

 

 

211.3

 

 

 

192.3

 

Allowance for inventory reserves

 

 

(8.6

)

 

 

(13.9

)

Total inventories, net

 

$

202.7

 

 

$

178.4

 

 

v3.21.1
Financing Arrangements
3 Months Ended
Mar. 31, 2021
Debt Disclosure [Abstract]  
Financing Arrangements

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, 2020.

The following table summarizes the current and non-current debt as of March 31, 2021 and December 31, 2020.

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Credit Agreement

 

$

 

 

$

 

Convertible Senior Notes due 2021

 

 

40.2

 

 

 

38.9

 

Convertible Senior Notes due 2025

 

 

44.7

 

 

 

39.3

 

Total debt

 

$

84.9

 

 

$

78.2

 

     Less current portion of debt

 

 

40.2

 

 

 

38.9

 

Total non-current portion of debt

 

$

44.7

 

 

$

39.3

 

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, 2021, the amount available under the Amended Credit Agreement was $241.8 million, reflective of the Company’s asset borrowing base with no outstanding borrowings. Additionally, the Company is in compliance with all covenants outlined in the Amended Credit Agreement.

Convertible Senior Notes due 2021

The components of the Convertible Senior Notes due 2021 as of March 31, 2021 and December 31, 2020 were as follows:

 

 

March 31,

2021

 

 

December 31,

2020

 

Principal

 

$

40.2

 

 

$

40.2

 

Less: Debt issuance costs, net of amortization

 

 

 

 

 

(0.1

)

Less: Debt discount, net of amortization

 

 

 

 

 

(1.2

)

Convertible Senior Notes due 2021, net

 

$

40.2

 

 

$

38.9

 

The principal amount of the outstanding Convertible Senior Notes due 2021 as of March 31, 2021 is $40.2 million. Transaction costs related to the outstanding Convertible Senior Notes due 2021 were $1.4 million. These costs are amortized to interest expense over the term of the notes. The Convertible Senior Notes due 2021 mature on June 1, 2021. The Convertible Senior Notes due 2021 are currently convertible at the option of holders into a combination of the Company’s common shares and cash, up until the close of business on the business day immediately preceding the maturity date; upon maturity, the Convertible Senior Notes due 2021 remaining outstanding will be settled in cash. For details regarding conversion mechanics and method of settlement, 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 Convertible Senior Notes due 2021 are classified as a current liability in the Consolidated Balance Sheets as of March 31, 2021.

Convertible Senior Notes due 2025

The components of the Convertible Senior Notes due 2025 as of March 31, 2021 and December 31, 2020 were as follows:

 

 

March 31,

2021

 

 

December 31,

2020

 

Principal

 

$

46.0

 

 

$

46.0

 

Less: Debt issuance costs, net of amortization

 

 

(1.3

)

 

 

(1.3

)

Less: Debt discount, net of amortization

 

 

 

 

 

(5.4

)

Convertible Senior Notes due 2025, net

 

$

44.7

 

 

$

39.3

 

The principal amount of the Convertible Senior Notes due 2025 as of March 31, 2021 is $46.0 million. Transaction costs related to the Convertible Senior Notes due 2025 were $1.5 million. These costs are amortized to interest expense over the term of the notes. The Convertible Senior Notes due 2025 mature on December 1, 2025. The Convertible Senior Notes due 2025 are convertible at the option of holders in certain circumstances and during certain periods into the Company’s common shares, cash, or a combination thereof, at the Company’s election. For details regarding conversion mechanics and method 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. The Convertible Senior Notes due 2025 are classified as a non-current liability in the Consolidated Balance Sheets as of March 31, 2021.

 

Convertible Notes Interest Expense

 

The following table sets forth total interest expense recognized related to the Convertible Notes:

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Contractual interest expense

 

$

1.2

 

 

$

1.3

 

Amortization of debt issuance costs

 

 

0.1

 

 

 

0.1

 

Amortization of debt discount

 

 

 

 

 

1.1

 

Total

 

$

1.3

 

 

$

2.5

 

 

Fair Value Measurement

The fair value of the Convertible Senior Notes due 2021 was approximately $40.8 million as of March 31, 2021. The fair value of the Convertible Senior Notes due 2021, which falls within Level 1 of the fair value hierarchy as defined by applicable accounting guidance, is based on the price traded closest to March 31, 2021.

The fair value of the Convertible Senior Notes due 2025 was approximately $77.2 million as of March 31, 2021. The fair value of the Convertible Senior Notes due 2025, which falls within Level 1 of the fair value hierarchy as defined by applicable accounting guidance, is based on the last price traded in March 2021.

TimkenSteel’s Credit Facility is variable-rate debt. As such, any outstanding carrying value is a reasonable estimate of fair value as interest rates on these borrowings approximate current market rates. This valuation falls within Level 2 of the fair value hierarchy and is based on quoted prices for similar assets and liabilities in active markets that are observable either directly or indirectly. There were no outstanding borrowings on the Credit Facility as of March 31, 2021.

Cash Interest Paid

The total cash interest paid for the three months ended March 31, 2021 and 2020 was $0.3 million and $0.8 million, respectively.

 

v3.21.1
Retirement and Postretirement Plans
3 Months Ended
Mar. 31, 2021
Defined Benefit Plans And Other Postretirement Benefit Plans Disclosures [Abstract]  
Retirement and Postretirement Plans

Note 11 - Retirement and Postretirement Plans

The components of net periodic benefit cost (income) for the three months ended March 31, 2021 and 2020 were as follows:

 

 

Three Months Ended

March 31, 2021

 

 

Three Months Ended

March 31, 2020

 

 

 

Pension

 

 

Postretirement

 

 

Pension

 

 

Postretirement

 

Service cost

 

$

4.4

 

 

$

0.3

 

 

$

4.9

 

 

$

0.3

 

Interest cost

 

 

9.1

 

 

 

0.8

 

 

 

10.9

 

 

 

1.0

 

Expected return on plan assets

 

 

(17.2

)

 

 

(0.9

)

 

 

(16.2

)

 

 

(0.9

)

Amortization of prior service cost

 

 

0.1

 

 

 

(1.5

)

 

 

0.1

 

 

 

(1.5

)

Net remeasurement losses

 

 

0.2

 

 

 

 

 

 

9.5

 

 

 

 

Net Periodic Benefit Cost (Income)

 

$

(3.4

)

 

$

(1.3

)

 

$

9.2

 

 

$

(1.1

)

 

The Salaried Plan has a provision that permits employees to elect to receive their pension benefits in a lump sum. In the first quarter of 2021, 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 Salaried Plan. As a result, the Company completed a full remeasurement of its pension obligations and plan assets associated with the Salaried Plan during the first quarter of 2021, which resulted in a non-cash loss from remeasurement of $0.2 million. A full remeasurement of the pension obligations and plan assets associated with the Salaried Plan was also required in the first quarter of 2020, resulting in a non-cash loss from remeasurement of $9.5 million for the three months ended March 31, 2020.

  

 

 

 

v3.21.1
Stock-Based Compensation
3 Months Ended
Mar. 31, 2021
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-Based Compensation

 

 

Note 12 – Stock-Based Compensation

During the first quarter of 2021, the Board of Directors granted 797,320 time-based restricted stock units and 651,240 performance-based restricted stock units, which includes the annual grant to our employees, as well as the inducement grant made to our newly hired CEO in January 2021. There were no stock option grants in the first quarter of 2021.

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 weighted average fair value of the restricted stock units granted during the three months ended March 31, 2021 was $6.79 per share.

Performance-based restricted stock units issued in 2021 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 weighted average fair value of the performance-based restricted stock units granted during the three months ended March 31, 2021 was $7.57 per share.  

TimkenSteel recognized stock-based compensation expense of $1.8 million and $2.0 million for the three months ended March 31, 2021 and 2020, respectively. Future stock-based compensation expense regarding the unvested portion of all awards is approximately $15.2 million. The future expense is expected to be recognized over the remaining vesting periods through 2024.

v3.21.1
Accumulated Other Comprehensive Income (Loss)
3 Months Ended
Mar. 31, 2021
Accumulated Other Comprehensive Income Loss Net Of Tax [Abstract]  
Accumulated Other Comprehensive Income (Loss)

Note 13 - Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2021 and 2020 by component were as follows:

 

 

Foreign Currency

Translation

Adjustments

 

 

Pension and

Postretirement

Liability Adjustments

 

 

Total

 

Balance as of December 31, 2020

 

$

(5.4

)

 

$

45.8

 

 

$

40.4

 

Other comprehensive income (loss) before reclassifications,

   before income tax

 

 

0.1

 

 

 

 

 

 

0.1

 

Amounts reclassified from accumulated other comprehensive

   income (loss), before income tax

 

 

 

 

 

(1.5

)

 

 

(1.5

)

Tax effect

 

 

 

 

 

 

 

 

 

Net current period other comprehensive income (loss), net of income taxes

 

 

0.1

 

 

 

(1.5

)

 

 

(1.4

)

Balance as of March 31, 2021

 

$

(5.3

)

 

$

44.3

 

 

$

39.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Currency

Translation

Adjustments

 

 

Pension and

Postretirement

Liability Adjustments

 

 

Total

 

Balance at December 31, 2019

 

$

(6.8

)

 

$

51.5

 

 

$

44.7

 

Other comprehensive income (loss) before reclassifications, before income tax

 

 

(1.8

)

 

 

 

 

 

(1.8

)

Amounts reclassified from accumulated other comprehensive

   income (loss), before income tax

 

 

 

 

 

(1.4

)

 

 

(1.4

)

Amounts deferred to accumulated other comprehensive income

   (loss), before income tax

 

 

 

 

 

0.3

 

 

 

0.3

 

Tax effect

 

 

 

 

 

 

 

 

 

Net current period other comprehensive income (loss), net of income taxes

 

 

(1.8

)

 

 

(1.1

)

 

 

(2.9

)

Balance as of March 31, 2020

 

$

(8.6

)

 

$

50.4

 

 

$

41.8

 

The amount reclassified from accumulated other comprehensive income (loss) in the three months ended March 31, 2021 and 2020 for the pension and postretirement liability adjustment was included in other (income) expense, net in the unaudited Consolidated Statements of Operations.  

v3.21.1
Contingencies
3 Months Ended
Mar. 31, 2021
Loss Contingency Accrual Disclosures [Abstract]  
Contingencies

Note 14 Contingencies

TimkenSteel has a number of loss exposures incurred in the ordinary course of business, such as environmental claims, product warranty claims, and 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, 2021 and December 31, 2020, TimkenSteel had a $0.9 million and a $1.0 million contingency reserve, respectively, related to loss exposures incurred in the ordinary course of business

 

v3.21.1
Subsequent Events
3 Months Ended
Mar. 31, 2021
Subsequent Events [Abstract]  
Subsequent Events

Note 15 – Subsequent Events

 

Effective May 7, 2021, Thomas D. Moline, executive vice president of commercial operations, and William P. Bryan, executive vice president of manufacturing and supply chain, will leave the company. Kevin A. Raketich, currently serving as executive vice president of strategy and corporate development at TimkenSteel, will assume a new role as executive vice president of sales, marketing, and business development. In connection with these leadership changes, the Company is expecting to recognize severance and transition charges of approximately $2.1 million in the second quarter of 2021, of which approximately $1.3 million will be a cash charge.

v3.21.1
Recent Accounting Pronouncements (Policies)
3 Months Ended
Mar. 31, 2021
Accounting Policies [Abstract]  
Adoption of New Accounting Standards

Adoption of New Accounting Standards

The Company adopted the following Accounting Standard Updates (“ASU”) in the first quarter of 2021.       

Standard Adopted

Description

Date of Adoption

Impact

ASU 2019-12, Income Taxes (Topic 740)

The standard simplifies the accounting for income taxes by removing various exceptions.

January 1, 2021

The adoption of this standard had an immaterial impact on the Company’s tax provision.

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)

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.

January 1, 2021

The Company early adopted this standard as of January 1, 2021 using the modified retrospective method of transition. The standard had a material impact on the Consolidated Financial Statements. See below for additional information.

Upon adoption of ASU 2020-06 prospectively as of January 1, 2021, all outstanding Convertible Notes are now fully classified as a liability, there is no longer a separate equity component and the Convertible Notes will no longer have a debt discount that is amortized. This resulted in a decrease of $10.6 million to additional paid-in capital and an increase of $1.1 million and $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 $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, and the methodology used for the earnings per share calculation. Refer to “Note 10 – Financing Arrangements” for additional information on the Company’s Convertible Notes.

There are no current ASUs issued, but not adopted, that will have an impact on the Company.

v3.21.1
Revenue Recognition (Tables)
3 Months Ended
Mar. 31, 2021
Revenue From Contract With Customer [Abstract]  
Disaggregation of Revenue

The following table provides the major sources of revenue by end-market sector for the three months ended March 31, 2021 and 2020:

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Mobile

 

$

133.6

 

 

$

97.7

 

Industrial

 

 

124.7

 

 

 

113.3

 

Energy

 

 

7.7

 

 

 

25.2

 

Other (1)

 

 

7.6

 

 

 

23.5

 

Total Net Sales

 

$

273.6

 

 

$

259.7

 

(1) “Other” sales by end-market sector includes the Company’s scrap and oil country tubular goods (“OCTG”) billet sales.

The following table provides the major sources of revenue by product type for the three months ended March 31, 2021 and 2020:

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Bar

 

$

173.2

 

 

$

168.1

 

Tube

 

 

36.1

 

 

 

30.4

 

Value-add

 

 

56.7

 

 

 

55.5

 

Other (2)

 

 

7.6

 

 

 

5.7

 

Total Net Sales

 

$

273.6

 

 

$

259.7

 

(2) “Other” sales by product type includes the Company’s scrap sales.

 

v3.21.1
Restructuring Charges (Tables)
3 Months Ended
Mar. 31, 2021
Restructuring And Related Activities [Abstract]  
Schedule of Restructuring Reserve

The following is a summary of the restructuring reserve for the three months ended March 31, 2021 and 2020.

 

 

 

 

 

Balance at December 31, 2020

 

$

1.5

 

Expenses

 

 

0.5

 

Payments

 

 

(1.4

)

Balance at March 31, 2021

 

$

0.6

 

 

Balance at December 31, 2019

 

$

6.0

 

Expenses

 

 

0.6

 

Payments

 

 

(4.0

)

Balance at March 31, 2020

 

$

2.6

 

v3.21.1
Other (Income) Expense, Net (Tables)
3 Months Ended
Mar. 31, 2021
Other Income And Expenses [Abstract]  
Schedule of Other (Income) Expense, Net

The following table provides the components of other (income) expense, net for the three months ended March 31, 2021 and 2020:

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Pension and postretirement non-service benefit (income) loss

 

$

(9.6

)

 

$

(6.6

)

Loss (gain) from remeasurement of benefit plans

 

 

0.2

 

 

 

9.5

 

Miscellaneous (income) expense

 

 

 

 

 

(0.2

)

Total other (income) expense, net

 

$

(9.4

)

 

$

2.7

 

v3.21.1
Income Tax Provision (Tables)
3 Months Ended
Mar. 31, 2021
Income Tax Disclosure [Abstract]  
Schedule of (Benefit) Provision for Income Taxes

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Provision (benefit) for incomes taxes

 

$

0.2

 

 

$

0.1

 

Effective tax rate

 

 

2.0

%

 

 

(0.5

)%