TIMKENSTEEL CORP, 10-K filed on 2/25/2021
Annual Report
v3.20.4
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2020
Feb. 15, 2021
Jun. 30, 2020
Cover [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2020    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
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 Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Common Stock, Shares Outstanding   45,175,486  
Entity Public Float     $ 160,935,221
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Shell Company false    
ICFR Auditor Attestation Flag true    
Document Annual 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    
Documents Incorporated by Reference

DOCUMENTS INCORPORATED BY REFERENCE

 

Document

 

Parts Into Which Incorporated

Proxy Statement for the 2021 Annual Meeting of Shareholders

 

Part III

   
v3.20.4
Consolidated Statements of Operations - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Income Statement [Abstract]      
Net sales $ 830.7 $ 1,208.8 $ 1,610.6
Cost of products sold 815.1 1,186.2 1,484.0
Gross Profit 15.6 22.6 126.6
Selling, general and administrative expenses 76.7 91.8 98.2
Restructuring charges 3.1 8.6 0.0
Impairment charges and (gain) loss on sale or disposal of assets (2.4) 9.3 0.9
Interest expense 12.2 15.7 17.1
Loss on extinguishment of debt 0.9    
Other (income) expense, net (14.2) 23.3 18.6
Income (Loss) Before Income Taxes (60.7) (126.1) (8.2)
Provision (benefit) for income taxes 1.2 (16.1) 1.8
Net Income (Loss) $ (61.9) $ (110.0) $ (10.0)
Per Share Data:      
Basic earnings (loss) per share $ (1.38) $ (2.46) $ (0.22)
Diluted earnings (loss) per share $ (1.38) $ (2.46) $ (0.22)
v3.20.4
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement Of Income And Comprehensive Income [Abstract]      
Net income (loss) $ (61.9) $ (110.0) $ (10.0)
Other comprehensive income (loss), net of tax of $0.1 million in 2020, $16.7 million in 2019 and $0.1 million in 2018:      
Foreign currency translation adjustments 1.4 0.5 (1.4)
Pension and postretirement liability adjustments (5.7) 53.1 0.1
Other comprehensive income (loss), net of tax (4.3) 53.6 (1.3)
Comprehensive Income (Loss), net of tax $ (66.2) $ (56.4) $ (11.3)
v3.20.4
Consolidated Statements of Comprehensive Income (Loss) (Parenthetical) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement Of Income And Comprehensive Income [Abstract]      
Other Comprehensive income (loss), tax $ 0.1 $ 16.7 $ 0.1
v3.20.4
Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2020
Dec. 31, 2019
Current Assets    
Cash and cash equivalents $ 102.8 $ 27.1
Accounts receivable, net of allowances (2020 - $1.3 million; 2019 - $1.5 million) 63.3 77.5
Inventories, net 178.4 281.9
Deferred charges and prepaid expenses 4.0 3.3
Assets held for sale 0.3 4.1
Other current assets 8.8 7.8
Total Current Assets 357.6 401.7
Property, plant and equipment, net 569.8 626.4
Operating lease right-of-use assets 21.0 14.3
Pension assets 33.5 25.2
Intangible assets, net 9.3 14.3
Other non-current assets 2.8 3.3
Total Assets 994.0 1,085.2
Current Liabilities    
Accounts payable 89.5 69.3
Salaries, wages and benefits 29.4 13.9
Accrued pension and postretirement costs 2.3 3.0
Current operating lease liabilities 7.5 6.2
Current convertible notes, net 38.9  
Other current liabilities 13.4 19.9
Total Current Liabilities 181.0 112.3
Non-Current Liabilities    
Non-current convertible notes, net 39.3 78.6
Credit Agreement   90.0
Non-current operating lease liabilities 13.5 8.2
Accrued pension and postretirement costs 240.7 222.1
Deferred income taxes 1.0 0.9
Other non-current liabilities 11.0 10.0
Total Liabilities 486.5 522.1
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 2020 and 2019 - 45.7 million shares 0.0 0.0
Additional paid-in capital 843.4 844.8
Retained deficit (363.4) (301.5)
Treasury shares - 2020 - 0.6 million; 2019 - 0.9 million (12.9) (24.9)
Accumulated other comprehensive income (loss) 40.4 44.7
Total Shareholders’ Equity 507.5 563.1
Total Liabilities and Shareholders’ Equity $ 994.0 $ 1,085.2
v3.20.4
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Dec. 31, 2020
Dec. 31, 2019
Statement Of Financial Position [Abstract]    
Allowances for accounts receivable $ 1.3 $ 1.5
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) 600,000 900,000
v3.20.4
Consolidated Statements of Shareholder's Equity - USD ($)
$ in Millions
Total
Cumulative Effect, Period of Adoption, Adjustment
Common Shares Outstanding
Additional Paid-in Capital
Retained Deficit
Retained Deficit
Cumulative Effect, Period of Adoption, Adjustment
Treasury Shares
Accumulated Other Comprehensive Income (Loss)
Beginning balance at Dec. 31, 2017 $ 616.7 $ 0.7   $ 843.7 $ (182.0) $ 0.7 $ (37.4) $ (7.6)
Beginning balance (in shares) at Dec. 31, 2017     44,445,747          
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income (loss) (10.0)       (10.0)      
Other comprehensive income (loss) (1.3)             (1.3)
Stock-based compensation expense 7.3     7.3        
Stock option activity 0.2     0.2        
Issuance of treasury shares       (4.9) (0.2)   5.1  
Issuance of treasury shares (in shares)     176,454          
Shares surrendered for taxes (0.7)           (0.7)  
Shares surrendered for taxes (in shares)     (37,533)          
Ending balance at Dec. 31, 2018 612.9     846.3 (191.5)   (33.0) (8.9)
Ending balance (in shares) at Dec. 31, 2018     44,584,668          
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income (loss) (110.0)       (110.0)      
Other comprehensive income (loss) 53.6             53.6
Stock-based compensation expense 7.4     7.4        
Stock option activity 0.2     0.2        
Issuance of treasury shares       (9.1)     9.1  
Issuance of treasury shares (in shares)     321,739          
Shares surrendered for taxes (1.0)           (1.0)  
Shares surrendered for taxes (in shares)     (86,254)          
Ending balance at Dec. 31, 2019 563.1     844.8 (301.5)   (24.9) 44.7
Ending balance (in shares) at Dec. 31, 2019     44,820,153          
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income (loss) (61.9)       (61.9)      
Other comprehensive income (loss) (4.3)             (4.3)
Stock-based compensation expense 6.6     6.6        
Issuance of treasury shares       (12.6)     12.6  
Issuance of treasury shares (in shares)     486,260          
Shares surrendered for taxes (0.6)           (0.6)  
Shares surrendered for taxes (in shares)     (142,105)          
Equity component of convertible notes, net 4.6     4.6        
Ending balance at Dec. 31, 2020 $ 507.5     $ 843.4 $ (363.4)   $ (12.9) $ 40.4
Ending balance (in shares) at Dec. 31, 2020     45,164,308          
v3.20.4
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Operating Activities      
Net income (loss) $ (61.9) $ (110.0) $ (10.0)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:      
Depreciation and amortization 70.0 73.5 73.0
Amortization of deferred financing fees and debt discount 5.3 5.1 5.5
Loss on extinguishment of debt 0.9    
Impairment charges and (gain) loss on sale or disposal of assets (2.4) 9.3 0.9
Deferred income taxes   (16.6) 0.8
Stock-based compensation expense 6.6 7.4 7.3
Pension and postretirement expense (benefit), net 8.6 41.6 37.4
Changes in operating assets and liabilities:      
Accounts receivable, net 14.2 85.9 (13.6)
Inventories, net 103.5 92.6 (94.5)
Accounts payable 23.1 (87.7) 24.4
Other accrued expenses 9.4 (26.0) (3.8)
Deferred charges and prepaid expenses (0.7) 0.2 0.4
Pension and postretirement contributions and payments (4.1) (3.8) (13.1)
Other, net 1.0 (1.2) 3.8
Net Cash Provided (Used) by Operating Activities 173.5 70.3 18.5
Investing Activities      
Capital expenditures (16.9) (38.0) (40.0)
Proceeds from disposals of property, plant and equipment 10.9   1.0
Net Cash Provided (Used) by Investing Activities (6.0) (38.0) (39.0)
Financing Activities      
Proceeds from exercise of stock options   0.2 0.2
Shares surrendered for employee taxes on stock compensation (0.6) (1.0) (0.7)
Refunding bonds repayments     (30.2)
Repayments on credit agreements (90.0) (65.0) (105.0)
Borrowings on credit agreements   40.0 155.0
Debt issuance costs (1.2) (1.0) (1.7)
Net Cash Provided (Used) by Financing Activities (91.8) (26.8) 17.6
Increase (Decrease) in Cash and Cash Equivalents 75.7 5.5 (2.9)
Cash and cash equivalents at beginning of period 27.1 21.6 24.5
Cash and Cash Equivalents at End of Period $ 102.8 $ 27.1 $ 21.6
v3.20.4
Basis of Presentation
12 Months Ended
Dec. 31, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Basis of Presentation

Note 1 - Basis of Presentation

TimkenSteel Corporation (the Company or TimkenSteel) manufactures alloy steel, as well as carbon and micro-alloy steel, with an annual melt capacity of approximately 2 million tons and shipment capacity of 1.5 million tons. TimkenSteel’s portfolio includes special bar quality (SBQ) bars, seamless mechanical tubing (tubes), value-added solutions such as precision steel components, and billets. In addition, TimkenSteel supplies machining and thermal treatment services and manages raw material recycling programs, which are also used as a feeder system for the Company’s melt operations. The Company’s 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).

The SBQ bar, tube, and billet production processes take place at the Company’s Canton, Ohio manufacturing location. This location accounts for all of the SBQ bars, seamless mechanical tubes and billets the Company produces and includes three manufacturing facilities: the Faircrest, Harrison, and Gambrinus facilities. TimkenSteel’s value-added solutions production processes take 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 the Company’s market sectors. As a result, investments in the Company’s facilities and resource allocation decisions affecting the Company’s operations are designed to benefit the overall business, not any specific aspect of the business. During the first quarter of 2020, management completed its previously announced plan to close the Company’s TimkenSteel Material Services facility in Houston, Texas.

Basis of Consolidation:

The Consolidated Financial Statements include the consolidated assets, liabilities, revenues and expenses related to TimkenSteel as of December 31, 2020, 2019 and 2018. All significant intercompany accounts and transactions within TimkenSteel have been eliminated in the preparation of the Consolidated Financial Statements.

Use of Estimates:

The preparation of these Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. These estimates and assumptions are reviewed and updated regularly to reflect recent experience.

Presentation:

Certain items previously reported in specific financial statement captions have been reclassified to conform to the fiscal 2020 presentation.

 

v3.20.4
Significant Accounting Policies
12 Months Ended
Dec. 31, 2020
Accounting Policies [Abstract]  
Significant Accounting Policies

Note 2 - Significant Accounting Policies

Revenue Recognition:

TimkenSteel recognizes revenue from contracts at a point in time when it has satisfied its performance obligation and the customer obtains control of the goods, at the amount that reflects the consideration the Company expects to receive for those goods. The Company receives and acknowledges purchase orders from its customers, which define the quantity, pricing, payment and other applicable terms and conditions. In some cases, the Company receives a blanket purchase order from its customer, which includes pricing, payment and other terms and conditions, with quantities defined at the time the customer issues periodic releases from the blanket purchase order. Certain contracts contain variable consideration, which primarily consists of rebates that are accounted for in net sales and accrued based on the estimated probability of the requirements being met.

Cash Equivalents:

TimkenSteel considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Accounts Receivables, Net:

The Company’s accounts receivables arise from sales to customers across the mobile, industrial, energy, and other end-markets. The allowance for doubtful account reserve has been established using qualitative and quantitative methods. In general, account balances greater than one year of age or sent to third party collection are fully reserved. Account balances for customers that are viewed as higher risk are also analyzed for a reserve. In addition to these methods, the allowance for doubtful accounts is adjusted for forward looking uncollectible balances based on end-market outlook and dynamics, such as in the energy and mobile end-markets in 2020. The amount recorded was based on the Company’s

assessment of the risk presented by customers in these end-markets as a result of the COVID-19 pandemic as well as geo-political factors facing the energy end-market. Historically, TimkenSteel’s allowance for doubtful accounts write-offs have been immaterial.

Inventories, Net:

Inventories are stated at lower of cost or net realizable value. All inventories, including raw materials, manufacturing supplies inventory as well as international (outside the U.S.) inventories, have been valued using the FIFO or average cost method as of December 31, 2020 and 2019.

Property, Plant and Equipment, Net:

Property, plant and equipment, net are valued at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred. The provision for depreciation is computed principally by the straight-line method based upon the estimated useful lives of the assets. The useful lives are approximately 30 years for buildings and three to 20 years for machinery and equipment.

Intangible Assets, Net:

Intangible assets subject to amortization are amortized on a straight-line method over their legal or estimated useful lives, with useful lives ranging from 3 to 15 years.

In accordance with applicable accounting guidance, TimkenSteel capitalizes certain costs incurred for computer software developed or obtained for internal use. TimkenSteel capitalizes substantially all external costs and qualifying internal costs related to the purchase and implementation of software projects used for business operations. Capitalized software costs primarily include purchased software and external consulting fees. Capitalized software projects are amortized over the estimated useful lives of the software.

Long-lived Assets:

Long-lived assets (including tangible assets and intangible assets subject to amortization) are reviewed for impairment when events or changes in circumstances have occurred indicating that the carrying value of the assets may not be recoverable.

TimkenSteel tests recoverability of long-lived assets at the lowest level for which there are identifiable cash flows that are independent from the cash flows of other assets. Assets and asset groups held and used are measured for recoverability by comparing the carrying amount of the asset or asset group to the sum of future undiscounted net cash flows expected to be generated by the asset or asset group.

Assumptions and estimates about future values and remaining useful lives of TimkenSteel’s long-lived assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends and internal factors such as changes in TimkenSteel’s business strategy and internal forecasts.

If an asset or asset group is considered to be impaired, the impairment loss that would be recognized is the amount by which the carrying amount of the assets exceeds the fair value of the assets. To determine fair value, TimkenSteel uses internal cash flow estimates discounted at an appropriate interest rate, third party appraisals, as appropriate, and/or market prices of similar assets, when available.

Refer to “Note 6 - Disposition of Non-Core Assets” and “Note 11 - Property, Plant and Equipment” for additional information.

Product Warranties:

TimkenSteel accrues liabilities for warranties based upon specific claim incidents in accordance with accounting rules relating to contingent liabilities. Should TimkenSteel become aware of a specific potential warranty claim for which liability is probable and reasonably estimable, a specific charge is recorded and accounted for accordingly. TimkenSteel had no significant warranty claims for the years ended December 31, 2020, 2019 or 2018.

Income Taxes:

Deferred tax assets and liabilities are recorded for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as net operating loss and tax credit carryforwards. TimkenSteel accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. TimkenSteel recognizes deferred tax assets to the extent TimkenSteel believes these assets are more likely than not to be realized. In making such a determination, TimkenSteel considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If TimkenSteel determines that it would be able to realize deferred tax assets in the future in excess of their net recorded amount, TimkenSteel would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

TimkenSteel records uncertain tax positions in accordance with applicable accounting guidance, on the basis of a two-step process whereby (1) TimkenSteel determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, TimkenSteel recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

TimkenSteel recognizes interest and penalties related to unrecognized tax benefits within the provision (benefit) for income taxes line in the accompanying Consolidated Statements of Operations. Accrued interest and penalties are included within the related tax liability line in the Consolidated Balance Sheets.

The Company made the accounting policy election to treat taxes related to Global Intangible Low-Taxed Income (GILTI) as a current period expense when incurred.

Foreign Currency:

Assets and liabilities of subsidiaries are translated at the rate of exchange in effect on the balance sheet date. Income and expenses are translated at the average rates of exchange prevailing during the year. The related translation adjustments are reflected as a separate component of accumulated other comprehensive loss. Gains and losses resulting from foreign currency transactions are included in other (income) expense, net in the Consolidated Statements of Operations. TimkenSteel realized a foreign currency exchange loss of $0.2 million in both 2020 and 2018. There were no foreign currency exchange gains or losses in 2019.

Pension and Other Postretirement Benefits:

TimkenSteel recognizes an overfunded status or underfunded status (e.g., the difference between the fair value of plan assets and the benefit obligations) as either an asset or a liability for its defined benefit pension and other postretirement benefit plans on the Consolidated Balance Sheets. The Company recognizes actuarial gains and losses immediately through net periodic benefit cost in the Consolidated Statements of Operations upon the annual remeasurement at December 31, or on an interim basis as triggering events warrant remeasurement. In addition, the Company uses fair value to account for the value of plan assets.

Stock-Based Compensation:

TimkenSteel recognizes stock-based compensation expense based on the grant date fair value of the stock-based awards over their required vesting period on a straight-line basis, whether the awards were granted with graded or cliff vesting. Stock options are issued with an exercise price equal to the closing market price of TimkenSteel common shares on the date of grant. The fair value of stock options is determined using a Black-Scholes option pricing model, which incorporates assumptions regarding the expected volatility, the expected option life, the risk-free interest rate and the expected dividend yield.

Performance-vested restricted stock units issued in 2020 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. 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 stock-based awards that will settle in TimkenSteel common shares, other than stock options and performance-vested restricted stock units, is based on the closing market price of TimkenSteel common shares on the grant date. The fair values of stock-based awards that will settle in cash are remeasured at each reporting period until settlement of the awards.

TimkenSteel recognizes all excess tax benefits and tax deficiencies as income tax expense or benefit in the Consolidated Statements of Operations. The excess tax benefits and tax deficiencies are considered discrete items in the reporting period they occur and are not included in the estimate of an entity’s annual effective tax rate.

Research and Development:

Expenditures for TimkenSteel research and development amounted to $1.8 million for the year ended December 31, 2020, $4.1 million for the year ended December 31, 2019 and $8.1 million for the year ended December 31, 2018, and were recorded as a component of selling, general and administrative expenses in the Consolidated Statements of Operations. These expenditures may fluctuate from year to year depending on special projects and the needs of TimkenSteel and its customers.

Adoption of New Accounting Standards

The Company adopted the following Accounting Standard Updates (ASU) during the year ended December 31, 2020. The adoption of these standards did not have a material impact on the Consolidated Financial Statements or the related Notes to the Consolidated Financial Statements.

Standards Adopted

Description

Date of Adoption

ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326)

The standard changes how entities will measure credit losses for most financial assets, including trade and other receivables, and replaces the current incurred loss approach with an expected loss model.

January 1, 2020

ASU 2018-13, Fair Value Measurement (Topic 820)

The standard eliminates, modifies and adds disclosure requirements for fair value measurements.

January 1, 2020

ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20)

The standard eliminates, modifies and adds disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.

January 1, 2020

ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)

The standard aligns the requirements for capitalizing implementation costs in cloud computing software arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

January 1, 2020

ASU 2020-04, Reference Rate Reform (Topic 848)

The standard provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.

March 12, 2020

Accounting Standards Issued But Not Yet Adopted

The Company has considered the recent ASUs issued by the Financial Accounting Standards Board summarized below:

 

Standard Pending Adoption

Description

Effective Date

Anticipated Impact

ASU 2019-12, Income Taxes (Topic 740)

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

January 1, 2021

The Company has evaluated the impact of adopting of this ASU and it will not have a material impact on the Consolidated Financial Statements.

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. The amendments in the standard are effective for fiscal years beginning after December 15, 2021, however early adoption is permitted for fiscal years beginning after December 15, 2020. Entities can adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition.

January 1, 2021 (Early Adoption Date)

The Company has elected to early adopt this standard as of January 1, 2021 using the modified retrospective method of transition. We expect this standard will have a material impact on the Consolidated Financial Statements. Refer to “Note 14 – Financing Arrangements” for additional information.

 

v3.20.4
Segment Information
12 Months Ended
Dec. 31, 2020
Segment Reporting [Abstract]  
Segment Information

Note 3 - Segment Information

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 the Company operates its business and is consistent with the manner in which the Chief Operating Decision Maker (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 the operations.

Geographic Information

Net sales by geographic area are reported by the country in which the customer is domiciled. Long-lived assets include property, plant and equipment and intangible assets subject to amortization. Long-lived assets by geographic area are reported by the location of the TimkenSteel operations to which the asset is attributed.

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Net Sales:

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

746.8

 

 

$

1,096.8

 

 

$

1,456.2

 

Foreign

 

 

83.9

 

 

 

112.0

 

 

 

154.4

 

 

 

$

830.7

 

 

$

1,208.8

 

 

$

1,610.6

 

 

 

 

December 31,

 

 

 

2020

 

 

2019

 

Long-lived Assets, net:

 

 

 

 

 

 

 

 

United States

 

$

599.1

 

 

$

654.8

 

Foreign

 

 

1.0

 

 

 

0.2

 

 

 

$

600.1

 

 

$

655.0

 

 

v3.20.4
Revenue Recognition
12 Months Ended
Dec. 31, 2020
Revenue From Contract With Customer [Abstract]  
Revenue Recognition

Note 4 - Revenue Recognition

The following table provides the major sources of revenue by end-market sector for the years ended December 31, 2020, 2019 and 2018:

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Mobile

 

$

346.0

 

 

$

479.3

 

 

$

553.9

 

Industrial

 

 

391.7

 

 

 

486.3

 

 

 

637.5

 

Energy

 

 

53.2

 

 

 

166.4

 

 

 

265.6

 

Other(1)

 

 

39.8

 

 

 

76.8

 

 

 

153.6

 

Total Net Sales

 

$

830.7

 

 

$

1,208.8

 

 

$

1,610.6

 

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

The following table provides the major sources of revenue by product type for the years ended December 31, 2020, 2019 and 2018:

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Bar

 

$

502.5

 

 

$

783.0

 

 

$

1,030.7

 

Tube

 

 

101.4

 

 

 

151.8

 

 

 

254.7

 

Value-add

 

 

208.1

 

 

 

240.6

 

 

 

284.3

 

Other(2)

 

 

18.7

 

 

 

33.4

 

 

 

40.9

 

Total Net Sales

 

$

830.7

 

 

$

1,208.8

 

 

$

1,610.6

 

 

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

v3.20.4
Restructuring Charges
12 Months Ended
Dec. 31, 2020
Restructuring And Related Activities [Abstract]  
Restructuring Charges

Note 5 - Restructuring Charges

During 2019 and throughout 2020, TimkenSteel made organizational changes to streamline its organizational structure to drive enhanced profitability 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 215 salaried positions and recognized restructuring charges of $3.1 million in 2020 and $8.6 million in 2019, primarily consisting of severance and employee-related benefits. Approximately 55 of these positions were eliminated in 2020. TimkenSteel recorded reserves for such restructuring charges as other current liabilities on the Consolidated Balance Sheets. The reserve balance at December 31, 2020 is expected to be substantially used in the next twelve months.

The following is a summary of the restructuring reserve for the twelve months ended December 31, 2020 and 2019:

Balance at December 31, 2019

 

$

6.0

 

Expenses (1)

 

 

3.1

 

Payments

 

 

(7.6

)

Balance at December 31, 2020

 

$

1.5

 

 

(1)

Expenses of $3.1 million exclude stock compensation of $0.1 million that was accelerated as a result of the Company’s restructuring activities.

 

Balance at December 31, 2018

 

$

 

Expenses (2)

 

 

8.6

 

Payments

 

 

(2.6

)

Balance at December 31, 2019

 

$

6.0

 

 

(2)

Expenses of $8.6 million exclude stock compensation of $0.3 million that was accelerated as a result of the Company’s restructuring activities.

There were no restructuring charges for the year ended December 31, 2018.

v3.20.4
Disposition of Non-Core Assets
12 Months Ended
Dec. 31, 2020
Discontinued Operations And Disposal Groups [Abstract]  
Disposition of Non-Core Assets

Note 6 - Disposition of Non-Core Assets

Scrap Processing Facility

During the fourth quarter of 2019, management signed a letter of intent to dispose of the Company’s scrap processing facility in Akron, Ohio for cash consideration of approximately $4.0 million. This letter of intent and cash consideration were for the land, buildings, machinery and equipment associated with this facility.

As a result of the agreement to sell the scrap processing facility, the Company ceased depreciation of the assets and recorded them as assets held for sale on the Consolidated Balance Sheets as of December 31, 2019. This disposal does not represent a discontinued operation. Additionally, the Company recorded an impairment charge of $7.3 million in the fourth quarter of 2019 which represents the cash consideration to be received less cost to sell the assets compared with the $11.3 million carrying value of the assets being sold, including supplies inventory. An additional loss on disposal of $0.1 million was recognized in the first quarter of 2020 as the sale was completed.

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 $2.8 million was recorded in the fourth quarter of 2019, with an additional $1.6 million of accelerated depreciation and amortization recorded in the first quarter of 2020, to reduce the net book value of the machinery and equipment to its estimated fair value. Subsequent to the closure, certain assets were sold and a gain on sale of $3.6 million was recognized for the year ended December 31, 2020.

At December 31, 2020, the remaining associated machinery and equipment, with a net book value of $0.3 million, was classified as held for sale on the Consolidated Balance Sheets. The land and buildings associated with TMS were not classified as held for sale, as they were not considered available for immediate sale in their present condition.

Inventory write-downs of $4.8 million were recorded as of December 31, 2019, which represented the difference between the expected selling price and carrying value of the related inventory. The expected selling price was based upon the Company’s most recently published price lists related to this inventory. While the Company began selling the inventory associated with TMS in the first quarter of 2020 at prices that were in line with the net realizable value of the inventory established in the fourth quarter of 2019, excess inventory related to the energy end-market sector resulted in an additional reserve of approximately $3.1 million being recorded in the second quarter of 2020. The excess inventory is the

result of continued weakness in this end-market sector, as well as recent closures of several distributors that were holding considerable amounts of similar inventory.

 

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 product offerings. As a result, the Company recognized accelerated depreciation of $1.8 million for the year ended December 31, 2020 on the machinery and equipment used in the manufacturing of these specific products. Additional accelerated depreciation of $1.3 million will be recognized in the first quarter of 2021 in alignment with the ramp down of this machinery and equipment.

 

Property Sales

 

In the fourth quarter of 2020, TimkenSteel sold portions of non-core property at the Canton, Ohio manufacturing location, resulting in a gain on sale of assets of $0.5 million for the year ended December 31, 2020.

v3.20.4
Other (Income) Expense, Net
12 Months Ended
Dec. 31, 2020
Other Income And Expenses [Abstract]  
Other (Income) Expense, Net

Note 7 - Other (Income) Expense, net

The following table provides the components of other (income) expense, net for the years ended December 31, 2020, 2019 and 2018:

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Pension and postretirement non-service benefit (income) loss

 

$

(26.6

)

 

$

(17.5

)

 

$

(25.2

)

Loss (gain) from remeasurement of benefit plans

 

 

14.7

 

 

 

40.6

 

 

 

43.5

 

Foreign currency exchange loss (gain)

 

 

0.2

 

 

 

 

 

 

0.2

 

Employee retention credit

 

 

(2.3

)

 

 

 

 

 

 

Miscellaneous (income) expense

 

 

(0.2

)

 

 

0.2

 

 

 

0.1

 

Total other (income) expense, net

 

$

(14.2

)

 

$

23.3

 

 

$

18.6

 

Non-service related pension and other postretirement benefit income, for all years, consists primarily of the interest cost, expected return on plan assets and amortization components of net periodic cost. The loss from remeasurement of benefit plans is due to the Company performing mark-to-market accounting on its pension and postretirement assets at year-end and upon the occurrence of certain triggering events. For more details on the remeasurement refer to “Note 15 - Retirement and Postretirement Plans.”

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 has taken 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 Act. Through December 31, 2020, the Company has 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.

v3.20.4
Income Tax Provision
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Tax Provision

Note 8 - Income Tax Provision

Income (loss) from operations before income taxes, based on geographic location of the operations to which such earnings are attributable, is provided below.

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

United States

 

$

(64.1

)

 

$

(130.8

)

 

$

(10.1

)

Non-United States

 

 

3.4

 

 

 

4.7

 

 

 

1.9

 

Loss from operations before income taxes

 

$

(60.7

)

 

$

(126.1

)

 

$

(8.2

)

 

The provision (benefit) for income taxes consisted of the following:

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

0.6

 

 

$

 

 

$

 

State and local

 

 

 

 

 

0.1

 

 

 

0.3

 

Foreign

 

 

0.5

 

 

 

0.4

 

 

 

0.7

 

Total current tax expense (benefit)

 

$

1.1

 

 

$

0.5

 

 

$

1.0

 

Deferred:

 

 

 

 

 

 

 

 

 

 

 

 

Federal

 

$

(0.4

)

 

$

(14.4

)

 

$

0.4

 

State and local

 

 

0.5

 

 

 

(2.0

)

 

 

 

Foreign

 

 

 

 

 

(0.2

)

 

 

0.4

 

Total deferred tax expense (benefit)

 

 

0.1

 

 

 

(16.6

)

 

 

0.8

 

Provision (benefit) for incomes taxes

 

$

1.2

 

 

$

(16.1

)

 

$

1.8

 

For the year ended December 31, 2020, TimkenSteel made $0.4 million in foreign tax payments, $0.1 million in state tax payments, and no U.S. federal payments, and had no refundable overpayments of state income taxes. For the year ended December 31, 2019, TimkenSteel made $0.6 million in foreign tax payments, $0.2 million in state tax payments, and no U.S. federal payments, and had no refundable overpayments of state income taxes.

The reconciliation between TimkenSteel’s effective tax rate on income (loss) from continuing operations and the statutory tax rate is as follows:

 

 

Years Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

U.S. federal income tax provision (benefit) at statutory rate

 

$

(12.7

)

 

$

(26.5

)

 

$

(6.3

)

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

State and local income taxes, net of federal tax benefit

 

 

2.3

 

 

 

(1.3

)

 

 

(0.5

)

Foreign earnings taxed at different rates

 

 

0.1

 

 

 

 

 

 

0.2

 

U.S. research tax credit

 

 

 

 

 

0.2

 

 

 

(0.2

)

Valuation allowance

 

 

10.3

 

 

 

10.2

 

 

 

7.5

 

Global intangible low-taxed income

 

 

 

 

 

0.2

 

 

 

0.5

 

Permanent differences

 

 

1.3

 

 

 

1.3

 

 

 

0.8

 

Other items, net

 

 

(0.1

)

 

 

(0.2

)

 

 

(0.2

)

Provision (benefit) for income taxes

 

$

1.2

 

 

$

(16.1

)

 

$

1.8

 

Effective tax rate

 

 

(2.0

)%

 

 

12.8

%

 

 

(5.9

)%

Income tax expense includes U.S. and international income taxes. Except as required under U.S. tax law, U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside the U.S. This amount becomes taxable upon a repatriation of assets from the subsidiary or a sale or liquidation of the subsidiary. During the third quarter of 2020, TimkenSteel (Shanghai) Corporation Limited declared a dividend of $5.1 million to TimkenSteel. Foreign withholding taxes paid on this repatriation of previous profits were $0.5 million, resulting in $4.6 million of cash sent to the U.S.

Undistributed earnings of foreign subsidiaries outside of the U.S. were $2.7 million, $6.5 million and $5.5 million at December 31, 2020, 2019 and 2018, respectively. The Company has recognized a deferred tax liability in the amount of $0.3 million and $0.7 million at December 31, 2020 and 2019, respectively, for undistributed earnings at its TimkenSteel (Shanghai) Corporation Limited and TimkenSteel de Mexico S. de R.C. de C.V. subsidiaries, as those earnings are not permanently reinvested by the Company.

The effect of temporary differences giving rise to deferred tax assets and liabilities at December 31, 2020 and 2019 was as follows:

 

 

December 31,

 

 

 

2020

 

 

2019

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Depreciation

 

$

(97.5

)

 

$

(98.6

)

Inventory

 

 

(16.2

)

 

 

(24.3

)

Convertible debt

 

 

(1.6

)

 

 

(1.7

)

Leases - right-of-use asset

 

 

(5.0

)

 

 

(3.4

)

Other, net

 

 

(0.3

)

 

 

(0.7

)

Deferred tax liabilities

 

$

(120.6

)

 

$

(128.7

)

Deferred tax assets:

 

 

 

 

 

 

 

 

Pension and postretirement benefits

 

$

50.3

 

 

$

47.9

 

Other employee benefit accruals

 

 

8.7

 

 

 

7.2

 

Tax loss carryforwards

 

 

94.4

 

 

 

86.0

 

Intangible assets

 

 

1.0

 

 

 

1.1

 

Inventory

 

 

4.5

 

 

 

5.4

 

State decoupling

 

 

2.8

 

 

 

4.5

 

Lease liability

 

 

5.0

 

 

 

3.4

 

Interest limitation

 

 

 

 

 

6.0

 

Other, net

 

 

0.6

 

 

 

1.2

 

Deferred tax assets subtotal

 

$

167.3

 

 

$

162.7

 

Valuation allowances

 

 

(47.7

)

 

 

(34.9

)

Deferred tax assets

 

 

119.6

 

 

 

127.8

 

Net deferred tax assets (liabilities)

 

$

(1.0

)

 

$

(0.9

)

As of December 31, 2020 and 2019, the Company had a deferred tax liability of $1.0 million and $0.9 million, respectively, on the Consolidated Balance Sheets.

As of December 31, 2020, TimkenSteel had loss carryforwards in the U.S. and various non-U.S. jurisdictions totaling $406.8 million (of which $348.3 million relates to the U.S. and $58.5 million relates to the UK jurisdiction), having various expiration dates. TimkenSteel has provided valuation allowances of $47.7 million against these carryforwards. The majority of the non-U.S. loss carryforwards represent local country net operating losses for branches of TimkenSteel or entities treated as branches of TimkenSteel under U.S. tax law. Tax benefits have previously been recorded for these losses in the U.S. The related local country net operating loss carryforwards are offset fully by valuation allowances.  

During 2016, operating losses generated in the U.S. resulted in a decrease in the carrying value of the Company’s U.S. deferred tax liability to the point that would result in a net U.S. deferred tax asset at December 31, 2016. In light of TimkenSteel’s operating performance in the U.S. and current industry conditions, the Company assessed, based upon all available evidence, and concluded that it was more likely than not that it would not realize a portion of its U.S. deferred tax assets. The Company recorded a valuation allowance in 2016 and as a result of current year activity, the Company remained in a full valuation allowance position through 2020. 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 Company will maintain a valuation allowance against its deferred tax assets in the U.S. and applicable foreign countries until sufficient positive evidence exists to eliminate them.

As of December 31, 2020, 2019 and 2018, TimkenSteel had no total gross unrecognized tax benefits, and no amounts which represented unrecognized tax benefits that would favorably impact TimkenSteel’s effective income tax rate in any future periods if such benefits were recognized. As of December 31, 2020, TimkenSteel does not anticipate a change in its unrecognized tax positions during the next 12 months. TimkenSteel had no accrued interest and penalties related to uncertain tax positions as of December 31, 2020, 2019 and 2018.

As of December 31, 2020, TimkenSteel is not subject to examination by the IRS. Pursuant to the Tax Sharing Agreement dated June 30, 2014 between TimkenSteel and The Timken Company, TimkenSteel may be subject to results from tax examinations for The Timken Company for federal, state and local and various foreign tax jurisdictions in various open audit periods.

Consolidated Appropriations Act of 2021

On December 27, 2020 the Consolidated Appropriations Act of 2021 (“the Appropriations Act”) was signed into law. The Appropriations Act, among other things includes provisions related to the deductibility of paycheck protection program (“PPP”) expenses paid with PPP loan proceeds, payroll tax credits, modifications to the meals and entertainment deduction, increased limitations on charitable deductions for corporate taxpayers, and enhancements of expiring tax “extender” provisions. The Company has completed its assessment of the impact of the legislation, and there is no significant impact to the Consolidated Financial Statements.

v3.20.4
Earnings (Loss) Per Share
12 Months Ended
Dec. 31, 2020
Earnings Per Share [Abstract]  
Earnings (Loss) Per Share

Note 9 - Earnings (Loss) Per Share

 

Basic loss per share is computed based upon the weighted average number of common shares outstanding. Diluted 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 loss per share. Under the if-converted method, the Company adjusts net earnings to add back interest expense (including amortization of debt discount) 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 loss per share.

For the years ended December 31, 2020, 2019 and 2018, 4.6 million, 3.7 million, and 3.3 million shares issuable for equity-based awards, respectively, were excluded from the computation of diluted loss per share because the effect of their inclusion would have been anti-dilutive. The shares potentially issuable related to the Convertible Notes for the years ended December 31, 2020, 2019, and 2018 of 9.1 million, 6.9 million, and 6.9 million, respectively, were also anti-dilutive and therefore excluded from the computation of diluted loss per share.

The following table sets forth the reconciliation of the numerator and the denominator of basic and diluted loss per share for the years ended December 31, 2020, 2019 and 2018:

 

 

Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(61.9

)

 

$

(110.0

)

 

$

(10.0

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic

 

 

45.0

 

 

 

44.8

 

 

 

44.6

 

Weighted average shares outstanding, diluted

 

 

45.0

 

 

 

44.8

 

 

 

44.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

(1.38

)

 

$

(2.46

)

 

$

(0.22

)

Diluted earnings (loss) per share

 

$

(1.38

)

 

$

(2.46

)

 

$

(0.22

)

 

v3.20.4
Inventories
12 Months Ended
Dec. 31, 2020
Inventory Disclosure [Abstract]  
Inventories

Note 10 Inventories

The components of inventories as of December 31, 2020 and 2019 were as follows:

 

 

December 31,

 

 

 

2020

 

 

2019

 

Manufacturing supplies

 

$

37.6

 

 

$

49.8

 

Raw materials

 

 

20.0

 

 

 

26.0

 

Work in process

 

 

79.1

 

 

 

123.7

 

Finished products

 

 

55.6

 

 

 

93.1

 

Gross inventory

 

 

192.3

 

 

 

292.6

 

Allowance for inventory reserves

 

 

(13.9

)

 

 

(10.7

)

Total inventories, net