TimkenSteel Corp - Quarter Report: 2023 March (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2023

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

For the transition period from to

Commission file number: 1-36313

TIMKENSTEEL CORPORATION

(Exact name of registrant as specified in its charter)


Ohio		46-4024951
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1835 Dueber Avenue SW, Canton, OH		44706
(Address of principal executive offices)		(Zip Code)

330.471.7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:


Title of each class	Trading symbol	Name of exchange in which registered
Common shares	TMST	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial reporting accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at April 30, 2023
Common Shares, without par value		43,875,976

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TimkenSteel Corporation

Table of Contents


		Page
Part I. Financial Information		3
Item 1.	Financial Statements	3
	Consolidated Statements of Operations (Unaudited)	3
	Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	4
	Consolidated Balance Sheets (Unaudited)	5
	Consolidated Statements of Shareholders’ Equity (Unaudited)	6
	Consolidated Statements of Cash Flows (Unaudited)	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	30
Part II. Other Information		30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 6.	Exhibits	31
	Signatures	32

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Part I. Financial Information

Item 1. Financial Statements

TimkenSteel Corporation

Consolidated Statements of Operations (Unaudited)


	Three Months Ended March 31,
	2023			2022
(Dollars in millions, except per share data)
Net sales	$	323.5		$	352.0
Cost of products sold		283.1			292.0
Gross Profit		40.4			60.0

Selling, general and administrative expenses		21.0			18.5
Restructuring charges		—			0.4
Loss (gain) on sale or disposal of assets, net		0.1			0.1
Interest (income) expense, net		(1.5	)		1.2
Loss on extinguishment of debt		11.4			17.0
Other (income) expense, net		(8.8	)		(15.2	)
Income (Loss) Before Income Taxes		18.2			38.0
Provision (benefit) for income taxes		3.8			0.9
Net Income (Loss)	$	14.4		$	37.1

Per Share Data:
Basic earnings (loss) per share	$	0.33		$	0.80
Diluted earnings (loss) per share	$	0.30		$	0.70

See accompanying Notes to the unaudited Consolidated Financial Statements.

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TimkenSteel Corporation

Consolidated Statement of Comprehensive Income (Loss) (Unaudited)


	Three Months Ended March 31,
	2023			2022
(Dollars in millions)
Net income (loss)	$	14.4		$	37.1
Other comprehensive income (loss), benefit (provision) for incomes taxes of $(0.1) million and $0.1 million for the three months ended March 31, 2023 and 2022
Foreign currency translation adjustments		(0.5	)		(0.8	)
Pension and postretirement liability adjustments		(0.1	)		(1.1	)
Other comprehensive income (loss), net of tax		(0.6	)		(1.9	)
Comprehensive Income (Loss), net of tax	$	13.8		$	35.2

See accompanying Notes to the unaudited Consolidated Financial Statements.

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TimkenSteel Corporation

Consolidated Balance Sheets (Unaudited)


	March 31, 2023			December 31, 2022
(Dollars in millions)
ASSETS
Current Assets
Cash and cash equivalents	$	227.4		$	257.2
Accounts receivable, net of allowances (2023 - $1.8 million; 2022 - $1.0 million)		127.1			79.4
Inventories, net		244.7			192.4
Deferred charges and prepaid expenses		4.6			6.4
Other current assets		10.9			21.2
Total Current Assets		614.7			556.6

Property, plant and equipment, net		482.8			486.1
Operating lease right-of-use assets		12.3			12.5
Pension assets		18.7			19.4
Intangible assets, net		4.4			5.0
Other non-current assets		2.4			2.4
Total Assets	$	1,135.3		$	1,082.0

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	173.3		$	113.2
Salaries, wages and benefits		16.9			21.2
Accrued pension and postretirement costs		2.0			2.0
Current operating lease liabilities		5.9			6.0
Current convertible notes, net		13.1			20.4
Other current liabilities		19.8			23.9
Total Current Liabilities		231.0			186.7

Credit Agreement		—			—
Non-current operating lease liabilities		6.3			6.5
Accrued pension and postretirement costs		165.6			162.9
Deferred income taxes		26.6			25.9
Other non-current liabilities		14.4			13.5
Total Liabilities		443.9			395.5

Shareholders’ Equity
Preferred shares, without par value; authorized 10.0 million shares, none issued		—			—
Common shares, without par value; authorized 200.0 million shares; issued 2023 - 47.1 million shares and 2022 - 47.1 million shares		—			—
Additional paid-in capital		839.5			847.0
Retained deficit		(108.7	)		(123.1	)
Treasury shares - 2023 - 3.1 million; 2022 - 3.0 million		(53.5	)		(52.1	)
Accumulated other comprehensive income (loss)		14.1			14.7
Total Shareholders’ Equity		691.4			686.5
Total Liabilities and Shareholders’ Equity	$	1,135.3		$	1,082.0

See accompanying Notes to the unaudited Consolidated Financial Statements.

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TimkenSteel Corporation

Consolidated Statements of Shareholders’ Equity (Unaudited)


(Dollars in millions)	Common Shares Outstanding			Additional Paid-in Capital			Retained Deficit			Treasury Shares			Accumulated Other Comprehensive Income (Loss)			Total
Balance As of December 31, 2022		44,064,891		$	847.0		$	(123.1	)	$	(52.1	)	$	14.7		$	686.5
Net income (loss)		—			—			14.4			—			—			14.4
Other comprehensive income (loss)		—			—			—			—			(0.6	)		(0.6	)
Stock-based compensation expense		—			2.6			—			—			—			2.6
Stock option activity		101,130			1.3			—			—			—			1.3
Purchase of treasury shares		(514,086	)		—			—			(9.4	)		—			(9.4	)
Issuance of treasury shares		555,062			(11.4	)		—			11.4			—			—
Shares surrendered for taxes		(176,720	)		—			—			(3.4	)		—			(3.4	)
Balance As of March 31, 2023		44,030,277		$	839.5		$	(108.7	)	$	(53.5	)	$	14.1		$	691.4


	Common Shares Outstanding			Additional Paid-in Capital			Retained Deficit			Treasury Shares			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2021		46,268,855		$	832.1		$	(188.2	)	$	—		$	20.7		$	664.6
Net income (loss)		—			—			37.1			—			—			37.1
Other comprehensive income (loss)		—			—			—			—			(1.9	)		(1.9	)
Stock-based compensation expense		298,648			2.1			—			—			—			2.1
Stock option activity		406,750			6.3			—			—			—			6.3
Purchase of treasury shares		(169,816	)		—			—			(3.4	)		—			(3.4	)
Shares surrendered for taxes		(91,853	)		(0.2	)		—			(1.4	)		—			(1.6	)
Balance at March 31, 2022		46,712,584		$	840.3		$	(151.1	)	$	(4.8	)	$	18.8		$	703.2

See accompanying Notes to the unaudited Consolidated Financial Statements.

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TimkenSteel Corporation

Consolidated Statements of Cash Flows (Unaudited)


	Three Months Ended March 31,
	2023			2022
(Dollars in millions)
CASH PROVIDED (USED)
Operating Activities
Net income (loss)	$	14.4		$	37.1
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation and amortization		14.5			14.6
Amortization of deferred financing fees		0.1			0.2
Loss on extinguishment of debt		11.4			17.0
Loss (gain) on sale or disposal of assets, net		0.1			0.1
Deferred income taxes		0.7			(0.1	)
Stock-based compensation expense		2.6			2.1
Pension and postretirement (benefit) expense, net		3.8			(10.7	)
Changes in operating assets and liabilities:
Accounts receivable, net		(47.5	)		(34.4	)
Inventories, net		(52.0	)		(19.0	)
Accounts payable		63.7			28.3
Other accrued expenses		(12.8	)		(20.1	)
Pension and postretirement contributions and payments		(1.5	)		(3.7	)
Deferred charges and prepaid expenses		1.8			0.3
Other, net		10.5			1.6
Net Cash Provided (Used) by Operating Activities		9.8			13.3

Investing Activities
Capital expenditures		(10.6	)		(6.5	)
Proceeds from disposals of property, plant and equipment		1.5			—
Net Cash Provided (Used) by Investing Activities		(9.1	)		(6.5	)

Financing Activities
Purchase of treasury shares		(9.4	)		(3.4	)
Proceeds from exercise of stock options		1.3			6.3
Shares surrendered for employee taxes on stock compensation		(3.4	)		(1.6	)
Repayments on convertible notes		(18.7	)		(26.8	)
Net Cash Provided (Used) by Financing Activities		(30.2	)		(25.5	)
Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash		(29.5	)		(18.7	)
Cash, cash equivalents, and restricted cash at beginning of period		257.8			259.6
Cash, Cash Equivalents, and Restricted Cash at End of Period	$	228.3		$	240.9

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:

Cash and cash equivalents	$	227.4		$	239.9
Restricted cash reported in other current assets		0.9			1.0
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows	$	228.3		$	240.9

See accompanying Notes to the unaudited Consolidated Financial Statements.

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TimkenSteel Corporation

Notes to Unaudited Consolidated Financial Statements

(dollars in millions, except per share data)

Note 1 - Basis of Presentation

The accompanying unaudited Consolidated Financial Statements have been prepared by TimkenSteel Corporation (the “Company” or “TimkenSteel”) in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to TimkenSteel’s audited Consolidated Financial Statements and Notes included in its Annual Report on Form 10-K for the year ended December 31, 2022.

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

Note 2 - Recent Accounting Pronouncements

Adoption of New Accounting Standards

The Company did not adopt any Accounting Standard Updates (“ASU”) in the first quarter of 2023. Additionally, there are no current ASUs issued, but not adopted, that are expected to have an impact on the Company.

Legislation related to the COVID-19 Pandemic

Due to a provision in the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, the Company was able to defer the employer share of Social Security payroll taxes for a specified time during 2020. During the year ended December 31, 2020, the Company deferred $6.4 million in cash payments and recorded reserves for such deferred payroll taxes in salaries, wages and benefits on the Consolidated Balance Sheets, to be paid in two equal installments. The first installment in the amount of $3.2 million was paid during the fourth quarter of 2021. The second installment was paid during the fourth quarter of 2022.

The CARES Act also provided for an employee retention credit (“Employee Retention Credit”), which is a refundable tax credit against certain employment taxes. The Company qualified for the tax credit in the second and third quarters of 2020 and accrued a benefit of $2.3 million in the fourth quarter of 2020 related to the Employee Retention Credit in other (income) expense, net on the Consolidated Statements of Operations. The Company filed for this credit in the second quarter of 2021 and received a portion of the proceeds from the Internal Revenue Service ("IRS") in the amount of $0.5 million during the fourth quarter of 2021. The Company received the remaining $1.8 million of cash proceeds in the first quarter of 2022.

Note 3 - Revenue Recognition

The following table provides the major sources of revenue by end-market sector for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023		2022
Industrial	$	143.7	$	175.0
Mobile		127.8		144.1
Energy		46.2		25.0
Other (1)		5.8		7.9
Total Net Sales	$	323.5	$	352.0

(1) “Other” sales by end-market sector relates to the Company’s scrap sales.

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The following table provides the major sources of revenue by product type for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023		2022
Bar	$	218.1	$	236.4
Tube		45.7		46.5
Manufactured components		53.9		61.2
Other (2)		5.8		7.9
Total Net Sales	$	323.5	$	352.0

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

Contract liabilities are recognized when the Company has received consideration from a customer to transfer goods at a future point in time. Contract liabilities are primarily related to deferred revenue resulting from any cash payments received in advance from customers and are included in other current liabilities on the Consolidated Balance Sheets. As of March 31, 2023, contract liabilities totaled $1.8 million and were less than $0.1 million as of March 31, 2022.

Note 4 - Restructuring Charges

The Company did not have restructuring charges for the three months ended March 31, 2023. Restructuring charges for the three months ended March 31, 2022 were $0.4 million related to severance and employee-related benefits as a result of organizational changes.

TimkenSteel recorded reserves for such restructuring charges as other current liabilities on the Consolidated Balance Sheets. The reserve balance at March 31, 2023 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, 2023 and 2022:



Balance As of December 31, 2022	$	0.5
Expenses		—
Payments		(0.2	)
Balance As of March 31, 2023	$	0.3


Balance at December 31, 2021	$	4.7
Expenses		0.4
Payments		(1.0	)
Balance at March 31, 2022	$	4.1

Note 5 - Disposition of Non-Core Assets

TimkenSteel Material Services Facility

During the first quarter of 2020, management completed its previously announced plan to close the Company’s TimkenSteel Material Services (“TMS”) facility in Houston and began selling the assets at the facility.

Land and buildings of $4.3 million associated with TMS were classified as assets held for sale on the Consolidated Balance Sheets as of December 31, 2021. All of these assets were sold during the third quarter of 2022. Net cash proceeds of $2.8 million were received and a loss on sale of assets of $1.5 million was recognized on the Consolidated Statements of Operations during 2022.

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Small-Diameter Seamless Mechanical Tubing Machinery and Equipment

In the third quarter of 2020, TimkenSteel informed customers that as of December 31, 2020 the Company would discontinue the commercial offering of specific small-diameter seamless mechanical tubing products.

In the fourth quarter of 2022, TimkenSteel entered into an agreement to sell the machinery and equipment used in the manufacturing of these specific products. Pursuant to this agreement, TimkenSteel received down payments in the amounts of $1.5 million and $1.7 million in the first quarter of 2023 and fourth quarter of 2022, respectively, which amounts are included in other current liabilities on the Consolidated Balance Sheets as of March 31, 2023. This first quarter of 2023 down payment was also classified as proceeds from disposals of property, plant, and equipment within the investing section of the Consolidated Statements of Cash Flows for the period ended March 31, 2023. The Company expects to receive the remaining $0.2 million in the second quarter of 2023, resulting in an expected gain on disposal of assets of $3.4 million, net of the broker commissions.

Note 6 – Other (Income) Expense, net

The following table provides the components of other (income) expense, net for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023			2022
Pension and postretirement non-service benefit (income) loss	$	(1.2	)	$	(8.7	)
Loss (gain) from remeasurement of benefit plans		2.2		$	(6.5	)
Insurance recoveries		(9.8	)		—
Total other (income) expense, net	$	(8.8	)	$	(15.2	)

Non-service related pension and other postretirement benefit income, for all years, consists primarily of the interest cost, expected return on plan assets and amortization components of net periodic cost.

The TimkenSteel Corporation Bargaining Unit Pension Plan ("Bargaining Plan"), the TimkenSteel Corporation Retirement Plan (“Salaried Plan”), and the Supplemental Pension Plan of TimkenSteel Corporation ("Supplemental Plan") each have a provision that permits employees to elect to receive their pension benefits in a lump sum upon retirement. In the first quarter of 2023, the cumulative cost of all lump sum payments was projected to exceed the sum of the service 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 2023 and is required to complete a full remeasurement of the plan each quarter for the remainder of 2023.

A loss of $2.2 million from the remeasurement of the Salaried Plan was recognized for the three months ended March 31, 2023. This loss was due to $4.6 million decrease in the liability driven by a decrease in the discount rate and lump sum basis losses, partially offset by $2.4 million of investment gains on plan assets.

A total gain of $6.5 million from the remeasurement of the Salaried Plan and Supplemental Plan was recognized in the first quarter of 2022. This gain was primarily driven by a $25.6 million decrease in the liability due to the change in discount rate during the first quarter of 2022, partially offset by $19.1 million of investment losses on plan assets.

For more details on the aforementioned remeasurements, refer to “Note 11 - Retirement and Postretirement Plans.”

During the second half of 2022, the Faircrest melt shop experienced unplanned operational downtime. During the first quarter of 2023, TimkenSteel recognized an insurance recovery of $9.8 million related to the unplanned downtime, of which $0.8 million was received during the first quarter and $9.0 million was received in the second quarter of 2023. The Company anticipates additional insurance recoveries, although the timing and amount of potential recovery are uncertain at this time. For further information related to previous insurance recoveries, refer to "Note 7- Other (Income) Expense, net" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

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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,
	2023			2022
Provision (benefit) for incomes taxes	$	3.8		$	0.9
Effective tax rate		21.0	%		2.4	%

Income tax expense for the three months ended March 31, 2023 was calculated using forecasted multi-jurisdictional annual effective tax rates to determine a blended annual effective tax rate. The effective tax rate of 21.0% for the three months ended March 31, 2023 was higher than the rate of 2.4% for the three months ended March 31, 2022, primarily related to higher federal taxes due to the reversal of the Company's full valuation allowance as of December 31, 2022, which offset the prior year utilization of loss carryforwards. Additionally, there are limitations on the tax deductibility of the loss on extinguishment of debt on the Convertible Senior Notes due 2025.

Note 8 - Earnings (Loss) Per Share

Basic earnings (loss) per share is computed based upon the weighted average number of common shares outstanding. Diluted earnings (loss) per share is computed based upon the weighted average number of common shares outstanding plus the dilutive effect of common share equivalents calculated using the treasury stock method or if-converted method. For the Convertible Notes, the Company utilizes the if-converted method to calculate diluted earnings (loss) per share. Under the if-converted method, the Company adjusts net earnings to add back interest expense (including amortization of debt issuance costs) recognized on the Convertible Notes and includes the number of shares potentially issuable related to the Convertible Notes in the weighted average shares outstanding. Treasury shares are excluded from the denominator in calculating both basic and diluted earnings (loss) per share.

Equity-based Awards

Common share equivalents for shares issuable for equity-based awards amounted to 3.5 million shares for the three months ended March 31, 2023. For the three months ended March 31, 2023, 0.5 million shares were excluded from the computation of diluted earnings (loss) per share, primarily related to options with exercise prices above the average market price of our common shares (i.e., “underwater” options), because the effect of their inclusion would have been anti-dilutive. The difference between the remaining 3.0 million shares and 0.9 million shares assumed purchased with potential proceeds for the three months ended March 31, 2023, were included in the denominator of the diluted earnings (loss) per share calculation.

Common share equivalents for shares issuable for equity-based awards amounted to 4.3 million shares for the three months ended March 31, 2022. For the three months ended March 31, 2022, 0.9 million shares were excluded from the computation of diluted earnings (loss) per share, primarily related to options with exercise prices above the average market price of our common shares (i.e., “underwater” options), because the effect of their inclusion would have been anti-dilutive. The difference between the remaining 3.4 million shares and 1.2 million shares assumed purchased with potential proceeds for the three months ended March 31, 2022, were included in the denominator of the diluted earnings (loss) per share calculation.

Convertible Notes

Common share equivalents for shares issuable upon the conversion of outstanding Convertible Notes were included in the computation of diluted earnings (loss) per share for the three months ended March 31, 2023 and 2022 as these shares would be dilutive.

In the first quarter of 2023, TimkenSteel repurchased $7.5 million of outstanding principal related to the Convertible Notes. The repurchase of the Convertible Notes reduced weighted average diluted shares outstanding by approximately 0.1 million shares in the first quarter of 2023. Refer to “Note 10 – Financing Arrangements” for additional information on the Convertible Notes.

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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, 2023 and 2022:


	Three Months Ended March 31,
	2023		2022
Numerator:
Net income (loss), basic	$	14.4	$	37.1
Add convertible notes interest		0.3		0.7
Net income (loss), diluted	$	14.7	$	37.8

Denominator:
Weighted average shares outstanding, basic		44.0		46.4
Dilutive effect of stock-based awards		2.1		2.2
Dilutive effect of convertible notes		2.6		5.2
Weighted average shares outstanding, diluted		48.7		53.8

Basic earnings (loss) per share	$	0.33	$	0.80
Diluted earnings (loss) per share	$	0.30	$	0.70

Note 9 - Inventories

The components of inventories, net of reserves as of March 31, 2023 and December 31, 2022 were as follows:


	March 31, 2023			December 31, 2022
Manufacturing supplies	$	38.2		$	36.9
Raw materials		31.2			23.9
Work in process		142.0			94.7
Finished products		34.0			37.4
Gross inventory		245.4			192.9
Allowance for inventory reserves		(0.7	)		(0.5	)
Total inventories, net	$	244.7		$	192.4

Note 10 - Financing Arrangements

For a detailed discussion of the Company's long-term debt and credit arrangements, refer to “Note 14 - Financing Arrangements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

The following table summarizes the current and non-current debt as of March 31, 2023 and December 31, 2022.


	March 31, 2023		December 31, 2022
Credit Agreement	$	—	$	—
Convertible Senior Notes due 2025		13.1		20.4
Total debt	$	13.1	$	20.4
Less current portion of debt		13.1		20.4
Total non-current portion of debt	$	—	$	—

Amended Credit Agreement

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(collectively, the “Lenders”), which further amends and restates the Company’s existing secured Third Amended and Restated Credit Agreement, dated as of October 15, 2019.

As of March 31, 2023, the amount available under the Amended Credit Agreement was $303.3 million, reflective of the Company’s asset borrowing base with no outstanding borrowings. Additionally, the Company is in compliance with all covenants outlined in the Amended Credit Agreement.

Convertible Senior Notes due 2025

The principal amount of the Convertible Senior Notes due 2025 upon issuance was $46.0 million. Transaction costs related to the Convertible Senior Notes due 2025 incurred upon issuance 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.

The Indenture for the Convertible Senior Notes due 2025 provides that notes will become convertible during a quarter when the share price for 20 trading days during the final 30 trading days of the immediately preceding quarter was greater than 130% of the conversion price. This criterion was met during the first quarter of 2023 and as such the notes can be converted at the option of the holders beginning April 1 through June 30, 2023. Whether the notes will be convertible following such period will depend on if this criterion, or another conversion condition, is met in the future. As such, the Convertible Senior Notes due 2025 are classified as a current liability in the Consolidated Balance Sheets as of March 31, 2023. This criterion was also met as of December 31, 2022. To date, no holders have elected to convert their notes during any optional conversion periods.

For details regarding all conversion mechanics and methods of settlement, refer to the Indenture for the Convertible Senior Notes due 2025 filed as an exhibit to a Form 8-K on December 15, 2020 and incorporated by reference in our most recent 10-K filing.

In the first quarter of 2023, TimkenSteel repurchased a total of $7.5 million aggregate principal amount of its Convertible Senior Notes Due 2025. Total cash paid to noteholders was $18.7 million. A loss on extinguishment of debt was recognized of $11.4 million, including a charge of $0.2 million for unamortized debt issuance costs related to the portion of debt extinguished, as well as the related transaction costs.

In the first quarter of 2022, TimkenSteel repurchased a total of $10.0 million aggregate principal amount of its Convertible Senior Notes Due 2025. Total cash paid to noteholders was $26.8 million. A loss on extinguishment of debt was recognized of $17.0 million, including a charge of $0.2 million for unamortized debt issuance costs related to the portion of debt extinguished, as well as the related transaction costs.

The components of the Convertible Senior Notes due 2025 as of March 31, 2023 and December 31, 2022 were as follows:


	March 31, 2023			December 31, 2022
Principal	$	13.3		$	20.8
Less: Debt issuance costs, net of amortization		(0.2	)		(0.4	)
Convertible Senior Notes due 2025, net	$	13.1		$	20.4

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


	Three Months Ended March 31,
	2023		2022
Contractual interest expense	$	0.3	$	0.6
Amortization of debt issuance costs		—		0.1
Total	$	0.3	$	0.7

The total cash interest paid for the three months ended March 31, 2023 and 2022 was $0.4 million and $0.4 million, respectively.

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Fair Value Measurement

The fair value of the Convertible Senior Notes due 2025 was approximately $34.2 million as of March 31, 2023. The fair value of the Convertible Senior Notes due 2025, which falls within Level 2 of the fair value hierarchy as defined by applicable accounting guidance, is based on a valuation model primarily using observable market inputs and requires a recurring fair value measurement on a quarterly basis.

TimkenSteel’s Credit Facility is variable-rate debt. As such, any outstanding carrying value is a reasonable estimate of fair value as interest rates on these borrowings approximate current market rates. This valuation falls within Level 2 of the fair value hierarchy and is based on quoted prices for similar assets and liabilities in active markets that are observable either directly or indirectly. There were no outstanding borrowings on the Credit Facility as of March 31, 2023.

Interest (Income) Expense, net

The following table provides the components of interest (income) expense, net for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023			2022
Interest expense	$	0.7		$	1.3
Interest income		(2.2	)		(0.1	)
Interest (income) expense, net	$	(1.5	)	$	1.2

Interest income primarily relates to interest earned on cash invested in a money market fund and deposits with financial institutions. As of March 31, 2023, the carrying value of the Company's money market investment was $94.1 million, which approximates the fair value. The Company had no cash invested in a money market fund as of March 31, 2022. The money market fund is a cash equivalent and is included in cash and cash equivalents on the Consolidated Balance Sheets. The fund consists of highly liquid investments with an average maturity of three months or less and falls within Level 1 of the fair value hierarchy as defined by applicable accounting guidance. Additionally as of March 31, 2023, the Company has $116.0 million of cash held in five accounts which generate interest income at a rate similar to the money market fund.

Treasury Shares

On December 20, 2021, TimkenSteel announced that its Board of Directors authorized a share repurchase program under which the Company may repurchase up to $50.0 million of its outstanding common shares. The share repurchase program is intended to return capital to shareholders while also offsetting dilution from annual equity compensation awards. The share repurchase program does not require the Company to acquire any dollar amount or number of shares and may be modified, suspended, extended or terminated by the Company at any time without prior notice. On November 2, 2022, the Board of Directors authorized an additional $75.0 million share repurchase program. This authorization reflects the continued confidence of the Board and senior leadership in the Company’s ability to generate sustainable through-cycle profitability while maintaining a strong balance sheet and cash flow.

For the three months ended March 31, 2023, the Company repurchased approximately 0.5 million common shares at an aggregate cost of $9.4 million in the open market, which equates to an average repurchase price of $18.20 per share. As of March 31, 2023, the Company had a balance of $63.7 million remaining on its authorized share repurchase program. For the three months ended March 31, 2022, the Company repurchased approximately 0.2 million common shares at an aggregate cost of $3.4 million in the open market, which equates to an average repurchase price of $20.27 per share.

In April 2023, the Company repurchased approximately 0.2 million common shares at an aggregate cost of $3.0 million, which equates to an average repurchase price of $17.80 per share. As of April 30, 2023, the Company had $60.7 million remaining under its authorized share repurchase program.

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Note 11 - Retirement and Postretirement Plans

Plan Amendments and Updates

Bargaining Plan

On October 29, 2021, the United Steelworkers ("USW") Local 1123 voted to ratify a new four-year contract (the “Contract”). The Contract is in effect until September 27, 2025 and resulted in several changes to the Bargaining Plan which increased the pension liability by $14.2 million in 2021. These plan amendments were recognized in other comprehensive income (loss) in 2021 and began to be amortized as part of the pension net periodic benefit cost in the first quarter of 2022. The primary change that drove the increase in the pension liability was the addition of a full lump sum form of payment option for participants commencing benefits on or after January 1, 2022. In addition, the plan is now closed to new entrants effective January 1, 2022.

The timing and amount of future required pension contributions is significantly affected by asset returns and actuarial assumptions. Plan asset losses in 2022, combined with current actuarial assumptions, have resulted in potentially accelerated timing of future required pension contributions to as early as 2024. Required future pension contribution timing and amounts are subject to significant change based on future investment performance, Company estimates and actuarial assumptions, as well as current funding laws.

Salaried Plan

During the fourth quarter of 2021, termination of the Salaried Plan was approved by the TimkenSteel Board of Directors. Participants were notified in January 2022 and the plan was terminated effective March 31, 2022, subject to regulatory approval. The purchase of an irrevocable annuity contract from an insurance company is expected to occur in 2023, after which time the insurance company selected will be responsible for all participant benefit payments.

Pension Net Periodic Benefit Cost (Income)

The components of net periodic benefit cost (income) for the three months ended March 31, 2023 were as follows:


	Pension
	United States of America								United Kingdom			Mexico
	Bargaining Plan			Salaried Plan			Supplemental Plan		Pension Scheme			Pension Plan		Total Pension			Postretirement Plans
Service cost	$	2.4		$	0.2		$	—	$	—		$	—	$	2.6		$	0.2
Interest cost		6.5			1.7			0.2		0.5			—		8.9			1.2
Expected return on plan assets		(6.7	)		(1.9	)		—		(0.6	)		—		(9.2	)		(0.9	)
Amortization of prior service cost		0.3			—			—		—			—		0.3			(1.5	)
Net remeasurement losses (gains)		—			2.2			—		—			—		2.2			—
Net Periodic Benefit Cost (Income)	$	2.5		$	2.2		$	0.2	$	(0.1	)	$	—	$	4.8		$	(1.0	)

The components of net periodic benefit cost (income) for the three months ended March 31, 2022 were as follows:


	Pension
	United States of America									United Kingdom			Mexico
	Bargaining Plan			Salaried Plan			Supplemental Plan			Pension Scheme			Pension Plan		Total Pension			Postretirement Plans
Service cost	$	4.1		$	0.1		$	—		$	—		$	—	$	4.2		$	0.3
Interest cost		7.5			1.4			0.1			0.4			—		9.4			0.8
Expected return on plan assets		(14.4	)		(1.5	)		—			(0.9	)		—		(16.8	)		(0.9	)
Amortization of prior service cost		0.3			—			—			—			—		0.3			(1.5	)
Net remeasurement losses (gains)		—			(4.0	)		(2.5	)		—			—		(6.5	)		—
Net Periodic Benefit Cost (Income)	$	(2.5	)	$	(4.0	)	$	(2.4	)	$	(0.5	)	$	—	$	(9.4	)	$	(1.3	)

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The Bargaining Plan, Salaried Plan, and Supplemental Plan each have a provision that permits employees to elect to receive their pension benefits in a lump sum upon retirement. The Company's accounting policy is to recognize settlements during the quarter in which it is projected that the costs of all settlements during the year will be greater than the sum of the service cost and intertest cost components.

In the first quarter of 2023, the cumulative cost of all lump sum payments during 2023 was projected to exceed the sum of the service and interest cost components of net periodic pension cost for the Salaried Plan. As a result, the Company completed a full remeasurement of its pension obligations and plan assets associated with the Salaried Plan during the first quarter of 2023 and is required to complete a full remeasurement of the plan each quarter for the remainder of 2023.

In the first quarter of 2022, the cumulative cost of all lump sum payments exceeded the sum of the service cost and interest cost components of net periodic pension cost for the Supplemental Plan. Additionally, the cumulative cost of all lump sum payments was projected to exceed the sum of the service and interest cost components of net periodic pension cost in 2022 for the Salaried Plan. As a result, the Company completed a full remeasurement of its pension obligations and plan assets associated with the Supplemental Plan and Salaried Plan during the first quarter of 2022.

Note 12 – Stock-Based Compensation

During the three months ended March 31, 2023, the Board of Directors granted 314,194 time-based restricted stock units and 211,639 performance-based restricted stock units, which relates to the annual grant to our employees. During the three months ended March 31, 2022, the Board of Directors granted 292,773 time-based restricted stock units and 178,467 performance-based restricted stock units, which relates to the annual grant to our employees.

Time-based restricted stock units are issued with the fair value equal to the closing market price of TimkenSteel common shares on the date of grant. These restricted stock units do not have any performance conditions for vesting. Expense is recognized over the service period, adjusted for any forfeitures that should occur during the vesting period. The fair value of the restricted stock units granted during the three months ended March 31, 2023 was $18.85 per share.

Performance-based restricted stock units issued in 2023 vest based on achievement of a total shareholder return (“TSR”) metric. The TSR metric is considered a market condition, which requires TimkenSteel to reflect it in the fair value on grant date using an advanced option-pricing model. The fair value of each performance share was therefore determined using a Monte Carlo valuation model, a generally accepted lattice pricing model under ASC 718 – Stock-based Compensation. The Monte Carlo valuation model, among other factors, uses commonly-accepted economic theory underlying all valuation models, estimates fair value using simulations of future share prices based on stock price behavior and considers the correlation of peer company returns in determining fair value. The fair value of the performance-based restricted stock units granted during the three months ended March 31, 2023 was $23.13 per share.

TimkenSteel recognized stock-based compensation expense of $2.6 million for the three months ended March 31, 2023, compared to $2.1 million for the three months ended March 31, 2022. Future stock-based compensation expense related to the unvested portion of all awards is approximately $20.0 million. The future expense is expected to be recognized over the remaining vesting periods through 2026.

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Note 13 - Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) for the three months ended March 31, 2023 and 2022 by component were as follows:


	Foreign Currency Translation Adjustments			Pension and Postretirement Liability Adjustments			Total
Balance As of December 31, 2022	$	(6.8	)	$	21.5		$	14.7
Other comprehensive income (loss) before reclassifications, before income tax		(0.5	)		—			(0.5	)
Amounts reclassified from accumulated other comprehensive income (loss), before income tax		—			(1.2	)		(1.2	)
Amounts deferred to accumulated other comprehensive income (loss), before income tax		—			1.2			1.2
Tax effect		—			(0.1	)		(0.1	)
Net current period other comprehensive income (loss), net of income taxes		(0.5	)		(0.1	)		(0.6	)
Balance As of March 31, 2023	$	(7.3	)	$	21.4		$	14.1

	Foreign Currency Translation Adjustments			Pension and Postretirement Liability Adjustments			Total
Balance as of December 31, 2021	$	(5.1	)	$	25.8		$	20.7
Other comprehensive income (loss) before reclassifications, before income tax		(0.8	)		—			(0.8	)
Amounts reclassified from accumulated other comprehensive income (loss), before income tax		—			(1.2	)		(1.2	)
Amounts deferred to accumulated other comprehensive income (loss), before income tax		—			—			—
Tax effect		—			0.1			0.1
Net current period other comprehensive income (loss), net of income taxes		(0.8	)		(1.1	)		(1.9	)
Balance as of March 31, 2022	$	(5.9	)	$	24.7		$	18.8

The amount reclassified from accumulated other comprehensive income (loss) in the three months ended March 31, 2023 and 2022 for the pension and postretirement liability adjustment was included in other (income) expense, net in the unaudited Consolidated Statements of Operations.

Note 14 – Contingencies

TimkenSteel has a number of loss exposures incurred in the ordinary course of business, such as environmental claims, product warranty claims, employee-related matters, and other litigation. Establishing loss reserves for these matters requires management’s estimate and judgment regarding risk exposure and ultimate liability or realization. These loss reserves are reviewed periodically and adjustments are made to reflect the most recent facts and circumstances. Accruals related to environmental claims represent management’s best estimate of the fees and costs associated with these claims. Although it is not possible to predict with certainty the outcome of such claims, management believes that their ultimate dispositions should not have a material adverse effect on our financial position, cash flows or results of operations. As of March 31, 2023 and December 31, 2022, TimkenSteel had a $1.4 million and a $1.1 million contingency reserve, respectively, related to loss exposures incurred in the ordinary course of business.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(dollars in millions, except per share data)

Business Overview

We manufacture alloy steel, as well as carbon and micro-alloy steel, using electric arc furnace ("EAF") technology. Our portfolio includes special bar quality (“SBQ”) bars, seamless mechanical tubing (“tubes”), manufactured components such as precision steel components, and billets. Additionally, we manage raw material recycling programs, which are used internally as a feeder system for our melt operations and allow us to sell scrap not used in our operations to third parties. Our products and services are used in a diverse range of demanding applications in the following market sectors: industrial equipment; mining; construction; rail; defense; heavy truck; agriculture; power generation; automotive; and oil and gas.

SBQ steel is made to restrictive chemical compositions and high internal purity levels and is used in critical mechanical applications. We make these products from nearly 100% recycled steel, using our expertise in raw materials to create high-quality steel products. We focus on creating tailored products for our respective end-market sectors. Our engineers are experts in both materials and applications, so we can work closely with each customer to deliver flexible solutions related to our products as well as to their applications and supply chains.

The SBQ bar, tube, and billet production processes take place at our Canton, Ohio manufacturing location. This location accounts for all of the SBQ bars, seamless mechanical tubes and billets we produce and includes three manufacturing facilities: the Faircrest, Harrison, and Gambrinus facilities. Our production of manufactured components takes place at two downstream manufacturing facilities: Tryon Peak (Columbus, North Carolina) and St. Clair (Eaton, Ohio). Many of the production processes are integrated, and the manufacturing facilities produce products that are sold in all of our market sectors. As a result, investments in our facilities and resource allocation decisions affecting our operations are designed to benefit the overall business, not any specific aspect of the business.

During the second half of 2022, the Faircrest melt shop experienced unplanned operational downtime. During the first quarter of 2023, TimkenSteel recognized an insurance recovery of $9.8 million related to the unplanned downtime, of which $0.8 million was received during the first quarter and $9.0 million was received in the second quarter of 2023. The Company anticipates additional insurance recoveries, although the timing and amount of potential recovery are uncertain at this time. Refer to “Note 6 - Other (Income) Expense, net” in the Notes to the Consolidated Financial Statements for additional information. For further information related to previous insurance recoveries, refer to "Note 7 - Other (Income) Expense, net" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

The lead time for our products varies based on product type and specifications. As of the date of this filing, our order book is full for the second quarter and we are currently booking into the third quarter.

We conduct our business activities and report financial results as one business segment. The presentation of financial results as one reportable segment is consistent with the way we operate our business and is consistent with the manner in which the CODM evaluates performance and makes resource and operating decisions for the business as described above. Furthermore, the Company notes that monitoring financial results as one reportable segment helps the CODM manage costs on a consolidated basis, consistent with the integrated nature of our operations.

Impact of Raw Material Prices

In the ordinary course of business, we are exposed to the volatility of the costs of our raw materials. For example, the current Russia-Ukraine conflict could exacerbate inflationary pressures throughout the global economy and lead to potential market disruptions, such as significant volatility in commodity prices and supply chain disruptions. Although our business has not been materially impacted by this conflict to date, it is difficult to predict the extent to which our operations, or those of our suppliers, will be impacted in the future.

Whenever possible, we manage our exposure to commodity risks primarily through the use of supplier pricing agreements that enable us to establish the purchase prices for certain inputs that are used in our manufacturing process. We also utilize a raw material and natural gas surcharge mechanism when pricing products to our customers.

There are two components of our raw material surcharge. One component is related to the scrap metal content in our finished product and is based on the published No. 1 busheling scrap index. The other component is related to alloy material content in our finished product and is based on published prices for nickel, molybdenum, vanadium, chromium, and manganese. The natural gas surcharge is only applicable when the price of natural gas exceeds a certain dollar amount per MMBtu.

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Our surcharge mechanisms are designed to mitigate the impact of increases or decreases in raw material costs, although generally with a lag effect. This timing effect can result in raw material spread whereby costs can be over- or under-recovered in certain periods. While the surcharge generally protects gross profit, it has the effect of diluting gross margin as a percent of sales. We present the raw material spread impact on gross profit for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 in the gross profit charts included within the results of operations section below.

Results of Operations

Net Sales

The charts below present net sales and shipments for the three months ended March 31, 2023 and 2022.

Net sales for the three months ended March 31, 2023 were $323.5 million, a decrease of $28.5 million, or 8%, compared with the three months ended March 31, 2022. The decrease in net sales was driven by lower volumes and surcharges, partially offset by favorable price/mix. The availability of finished goods inventory for shipment early in the first quarter of 2023 contributed to a decrease of $31.1 million in net sales and lower volumes of 23.5 thousand ship tons. Lower market prices for scrap drove the unfavorable surcharges of $25.8 million. Favorable price/mix of $28.4 million was primarily due to higher base prices across all end-market sectors. Excluding surcharges, net sales decreased $2.7 million or 1.1%.

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Gross Profit

The chart below presents the drivers of the gross profit variance from the three months ended March 31, 2023 and 2022.

Gross profit for the three months ended March 31, 2023 decreased $19.6 million, or 32.7% compared with the three months ended March 31, 2022. The decrease was driven by higher manufacturing costs, lower volume and unfavorable raw material spread, partially offset by favorable price/mix. Higher manufacturing costs were primarily due to decreased fixed cost leverage on lower production levels and higher plant spend. Raw material spread was unfavorable due to lower scrap prices. The decrease in volume was primarily due to lower industrial and mobile end-markets shipments, partially offset by higher energy end-market shipments. Favorable price/mix was due to higher base prices across all end-market sectors.

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Selling, General and Administrative Expenses

The charts below present selling, general and administrative (“SG&A”) expense for the three months ended March 31, 2023 and 2022.

SG&A expense for the three months ended March 31, 2023 increased by $2.5 million, or 13.5% compared with the three months ended March 31, 2022. This increase was driven by higher spend on professional services, primarily driven by the ongoing information technology transformation project.

Interest (Income) Expense, net

Net interest income for the three months ended March 31, 2023 was $1.5 million compared with net interest expense of $1.2 million for the three months ended March 31, 2022. The change from expense to income was due to interest earned on cash invested in a money market fund during the first quarter of 2023, as well as a reduction in average outstanding borrowings for the three months ended March 31, 2023 compared to the same period in 2022. Refer to “Note 10 - Financing Arrangements” in the Notes to the unaudited Consolidated Financial Statements for additional information.

Other (Income) Expense, net


	Three Months Ended March 31,
	2023			2022			$ Change
Pension and postretirement non-service benefit (income) loss	$	(1.2	)	$	(8.7	)	$	7.5
Loss (gain) from remeasurement benefit plan		2.2			(6.5	)		8.7
Insurance recoveries		(9.8	)		—			(9.8	)
Total other (income) expense, net	$	(8.8	)	$	(15.2	)	$	6.4

The Bargaining Plan, Salaried Plan, and the Supplemental Plan have a provision that permits employees to elect to receive their pension benefits in a lump sum upon retirement. In the first quarter of 2023, the cumulative cost of all lump sum payments was projected to exceed the sum of the service and interest cost components of net periodic pension cost for the Salaried Plan. As a result, the Company completed a full remeasurement of its pension obligations and plan assets associated with the Salaried Plan during the first quarter of 2023 and is required to complete a full remeasurement of the plan each quarter for the remainder of 2023.

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A loss of $2.2 million from the remeasurement of the Salaried Plan was recognized for the three months ended March 31, 2023. This loss was due to $4.6 million of liability losses driven by a decrease in the discount rates and lump sum basis losses, partially offset by $2.4 million of investment gains on plan assets.

For more details on the aforementioned remeasurements, refer to “Note 11 - Retirement and Postretirement Plans.”

After remeasurement of certain pension plans during the first quarter of 2023, the aggregate net periodic pension expense for the remaining three quarters of 2023 is currently forecasted to be $7.5 million, resulting in total 2023 net periodic pension expense now estimated at $10.1 million, compared to the estimated net periodic pension expense at December 31, 2022 of $10.3 million. This estimate is based on an updated weighted average discount rate of 5.55% as of March 31, 2023 for all of the pension benefit plans, which reflects an updated discount rate for the plan that has been remeasured during the first quarter of 2023. Actual asset returns have been recognized for the plan that was remeasured during the first quarter of 2023. For more details on the pension plan remeasurements, refer to "Note 6 - Other (Income) Expense, net" and “Note 11 - Retirement and Postretirement Plans” in the Notes to the unaudited Consolidated Financial Statements. As of March 31, 2023, the weighted average expected return on assets remains at 7.13%, consistent with the December 31, 2022 assumption. Actual cost is dependent on various other factors related to the employees covered by these plans, as well as subsequent remeasurement of the pension plans at December 31, 2023.

Other postretirement benefit income for 2023 is still forecasted to be $4.0 million for the full year, which is unchanged from the December 31, 2022 forecast. This estimate is based on an unchanged weighted average discount rate of 5.70%, as well as an unchanged weighted average expected return on assets of 6.25%. Actual cost is dependent on various other factors related to the employees covered by these plans.

During the second half of 2022, the Faircrest melt shop experienced unplanned operational downtime. During the first quarter of 2023, TimkenSteel recognized an insurance recovery of $9.8 million related to the unplanned downtime, of which $0.8 million was received during the first quarter and $9.0 million was received in the second quarter of 2023. The Company anticipates additional insurance recoveries, although the timing and amount of potential recovery are uncertain at this time. Refer to “Note 6 - Other (Income) Expense, net” in the Notes to the Consolidated Financial Statements for additional information. For further information related to previous insurance recoveries, refer to "Note 7 - Other (Income) Expense, net" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Provision for Income Taxes


	Three Months Ended March 31,
	2023			2022			$ Change
Provision (benefit) for income taxes	$	3.8		$	0.9		$	2.9
Effective tax rate		21.0	%		2.4	%		18.6	%

The provision for income taxes for the quarter ended March 31, 2023 was $3.8 million compared to a provision for income taxes of $0.9 million in 2022. The change from the prior year is primarily related to higher federal taxes due to the reversal of the Company's full valuation allowance as of December 31, 2022, which offset the prior year utilization of loss carryforwards. Additionally, there are limitations on the tax deductibility of the loss on extinguishment of debt on the Convertible Senior Notes due 2025.

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Non-GAAP Financial Measures

Net Sales, Excluding Surcharges

The tables below present net sales by end-market sector, adjusted to exclude surcharges, which represents a financial measure that has not been determined in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). We believe presenting net sales by end-market sector, both on a gross basis and on a per ton basis, adjusted to exclude raw material and natural gas surcharges, provides additional insight into key drivers of net sales such as base price and product mix. Due to the fact that the surcharge mechanism can introduce volatility to our net sales, net sales adjusted to exclude surcharges provides management and investors clarity of our core pricing and results. Presenting net sales by end-market sector, adjusted to exclude surcharges including on a per ton basis, allows management and investors to better analyze key market indicators and trends and allows for enhanced comparison between our end-market sectors.

When surcharges are included in a customer agreement and are applicable (i.e., reach the threshold amount), based on the terms outlined in the respective agreement, surcharges are then included as separate line items on a customer’s invoice. These additional surcharge line items adjust base prices to match cost fluctuations due to market conditions. Each month, the company will post on the surcharges page of its external website, as well as our customer portal, the scrap, alloy, and natural gas surcharges that will be applied (as a separate line item) to invoices dated in the following month (based upon shipment volumes in the following month). All surcharges invoiced are included in GAAP net sales.


(dollars in millions, tons in thousands)
	Three Months Ended March 31, 2023
	Industrial		Mobile		Energy		Other		Total
Tons		72.2		80.4		20.3		—		172.9

Net Sales	$	143.7	$	127.8	$	46.2	$	5.8	$	323.5
Less: Surcharges		38.0		31.7		13.1		—		82.8
Base Sales	$	105.7	$	96.1	$	33.1	$	5.8	$	240.7

Net Sales / Ton	$	1,990	$	1,590	$	2,276	$	—	$	1,871
Surcharges / Ton	$	526	$	394	$	645	$	—	$	479
Base Sales / Ton	$	1,464	$	1,196	$	1,631	$	—	$	1,392

	Three Months Ended March 31, 2022
	Industrial		Mobile		Energy		Other		Total
Tons		94.9		88.9		12.6		—		196.4

Net Sales	$	175.0	$	144.1	$	25.0	$	7.9	$	352.0
Less: Surcharges		54.9		45.7		8.0		—		108.6
Base Sales	$	120.1	$	98.4	$	17.0	$	7.9	$	243.4

Net Sales / Ton	$	1,844	$	1,621	$	1,984	$	—	$	1,792
Surcharges / Ton	$	578	$	514	$	635	$	—	$	553
Base Sales / Ton	$	1,266	$	1,107	$	1,349	$	—	$	1,239

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Liquidity and Capital Resources

Amended Credit Agreement

On September 30, 2022, TimkenSteel Corporation (the “Company”), as borrower, and certain domestic subsidiaries of the Company, as subsidiary guarantors (the “Subsidiary Guarantors”), entered into a Fourth Amended and Restated Credit Agreement (the “Amended Credit Agreement”), with JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative Agent”), and the lenders party thereto (collectively, the “Lenders”), which further amended and restated the Company’s existing secured Third Amended and Restated Credit Agreement, dated as of October 15, 2019.

The Amended Credit Agreement extended the maturity date of the asset-based revolving credit facility (the “Credit Facility”) from October 2024 to September 2027. Following the amendment, Credit Facility capacity remained at $400.0 million. Pursuant to the terms of the Amended Credit Agreement, the interest rate to be paid on any borrowings under the Credit Facility is now based on a two-tiered schedule rather than a three-tiered schedule with applicable rates decreasing by 25 basis points, references to LIBOR rates were updated with references to SOFR rates, the advance rate on investment-grade eligible accounts receivable was increased from 85% to 90%, and there was an improvement in the springing fixed charge coverage ratio from 1.1x to 1.0x. The Credit Facility remains undrawn at this time.

Refer to “Note 10 - Financing Arrangements” in the Notes to the unaudited Consolidated Financial Statements for additional information.

Convertible Notes

In May 2016, the Company issued $75.0 million aggregate principal amount of Convertible Senior Notes due 2021, plus an additional $11.3 million principal amount to cover over-allotments.

In December 2020, the Company entered into separate, privately negotiated exchange agreements with a limited number of holders of the Company’s then outstanding Convertible Senior Notes due 2021. Pursuant to the exchange agreements, the Company exchanged $46.0 million aggregate principal amount of Convertible Senior Notes due 2021 for $46.0 million aggregate principal amount of its new Convertible Senior Notes due 2025. The Company did not receive any cash proceeds from the issuance of the Convertible Senior Notes due 2025.

The remaining Convertible Senior Notes due 2021 matured on June 1, 2021 and were settled with a combination of cash of $38.9 million and 0.1 million shares, as most noteholders exercised their conversion option prior to maturity. The final cash payment for interest was also made to noteholders on June 1, 2021 in the amount of $1.2 million.

The Convertible Senior Notes due 2025 bear cash interest at a rate of 6.0% per year, payable semiannually on June 1 and December 1, beginning on June 1, 2021. The Convertible Senior Notes due 2025 will mature on December 1, 2025, unless earlier repurchased or converted. The net amount of this exchange was $44.5 million, after deducting the initial underwriters’ fees and paying other transaction costs.

The Convertible Senior Notes due 2025 are convertible at the option of holders in certain circumstances and during certain periods into the Company’s common shares, cash, or a combination thereof, at the Company’s election. The Indenture for the Convertible Senior Notes due 2025 provides that notes will become convertible during a quarter when the share price for 20 trading days during the final 30 trading days of the immediately preceding quarter was greater than 130% of the conversion price. This criterion was met during the first quarter of 2023 and as such the notes can be converted at the option of the holders beginning April 1 through June 30, 2023. Whether the notes will be convertible following such period will depend on if this criterion, or another conversion condition, is met in the future. To date, no holders have elected to convert their notes during any optional conversion periods.

In the first quarter of 2022, TimkenSteel repurchased a total of $10.0 million aggregate principal amount of its Convertible Senior Notes Due 2025. Total cash paid to noteholders was $26.8 million. A loss on extinguishment of debt was recognized in the first quarter of 2022 in the amount of $17.0 million, which included a charge of $0.2 million for unamortized debt issuance costs related to the portion of debt extinguished, as well as the related transaction costs. In the first half of 2022, TimkenSteel repurchased a total of $25.2 million aggregate principal amount of its Convertible Senior Notes Due 2025. There were no repurchases related to the Convertible Notes during the second half of 2022. Total cash paid to noteholders was $67.6 million and a loss on extinguishment of debt was recognized of $43.0 million, including

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a charge of $0.6 million for unamortized debt issuance costs related to the portion of debt extinguished as well as the related transaction costs. For additional details regarding the Convertible Notes please refer to “Note 14 - Financing Arrangements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Additional Liquidity Considerations

The following represents a summary of key liquidity measures under the Amended Credit Agreement as of March 31, 2023 and December 31, 2022:


	March 31, 2023			December 31, 2022
Cash and cash equivalents	$	227.4		$	257.2

Credit Agreement:
Maximum availability	$	400.0		$	400.0
Suppressed availability(1)		(91.4	)		(161.2	)
Availability		308.6			238.8
Amount borrowed		—			—
Letter of credit obligations		(5.3	)		(5.3	)
Availability not borrowed	$	303.3		$	233.5

Total liquidity	$	530.7		$	490.7

(1) As of March 31, 2023, and December 31, 2022, TimkenSteel had less than $400.0 million in collateral assets to borrow against.

Our principal sources of liquidity are cash and cash equivalents, cash flows from operations and available borrowing capacity under our Amended Credit Agreement. As of March 31, 2023, taking into account our view of industrial, mobile, and energy market demand for our products, and our 2023 operating and long-range plan, we believe that our cash balance as of March 31, 2023, projected cash generated from operations, and borrowings available under the Amended Credit Agreement, will be sufficient to satisfy our working capital needs, capital expenditures and other liquidity requirements associated with our operations, including servicing our debt and pension and postretirement benefit obligations, for at least the next twelve months.

To the extent our liquidity needs prove to be greater than expected or cash generated from operations is less than anticipated, and cash on hand or credit availability is insufficient, we would seek additional financing to provide additional liquidity. We regularly evaluate our potential access to the equity and debt capital markets as sources of liquidity and we believe additional financing would likely be available if necessary, although we can make no assurance as to the form or terms of any such financing.

We continue to evaluate the best use of our liquidity which would allow us to invest in profitable growth, maintain a strong balance sheet, and return capital to shareholders. We expect capital expenditures to be approximately $45 million in 2023.

In the first quarter of 2023, TimkenSteel repurchased a total of $7.5 million aggregate principal amount of its Convertible Senior Notes Due 2025. In addition to reducing outstanding debt and generating interest savings of $0.1 million, the repurchases of convertible notes reduced weighted average diluted shares outstanding for the year ended December 31, 2023 by 0.7 million shares and, on a go-forward basis reduced diluted shares outstanding by 1.0 million shares.

During the first half of 2022, we privately negotiated early repurchases of $25.2 million aggregate principal amount of our Convertible Senior Notes Due 2025. In addition to reducing outstanding debt and generating $1.5 million of annual interest savings, the repurchases of convertible notes reduced weighted average diluted shares outstanding for the year ended December 31, 2022 by 2.3 million shares and, on a go-forward basis, reduced diluted shares outstanding by 3.2 million shares.

For the three months ended March 31, 2023, the Company repurchased approximately 0.5 million common shares in the open market at an aggregate cost of $9.4 million, which equates to an average repurchase price of $18.20 per share. As of March 31, 2023, the Company had a balance of $63.7 million remaining under its share repurchase program.

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Coronavirus Aid, Relief, and Economic Security Act

Due to a provision in the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, the Company was able to defer the employer share of Social Security payroll taxes for a specified time during 2020. During the year ended December 31, 2020, the Company deferred $6.4 million in cash payments and recorded reserves for such deferred payroll taxes in salaries, wages and benefits on the Consolidated Balance Sheets, to be paid in two equal installments. The first installment in the amount of $3.2 million was paid during the fourth quarter of 2021 and the second installment of $3.2 million was paid during the fourth quarter of 2022.

Cash Flows

The following table reflects the major categories of cash flows for the three months ended March 31, 2023 and 2022. For additional details, please refer to the unaudited Consolidated Statements of Cash Flows included in this quarterly report.


	Three Months Ended March 31,
	2023			2022
Net cash provided (used) by operating activities	$	9.8		$	13.3
Net cash provided (used) by investing activities		(9.1	)		(6.5	)
Net cash provided (used) by financing activities		(30.2	)		(25.5	)
Increase (Decrease) in Cash and Cash Equivalents	$	(29.5	)	$	(18.7	)

Operating activities

Net cash provided by operating activities for the three months ended March 31, 2023 was $9.8 million compared to net cash provided of $13.3 million for the three months ended March 31, 2022. The change was primarily driven by lower profitability, an increased use of cash for working capital, and insurance recoveries, during the first quarter of 2023 compared to the first quarter of 2022.

Investing activities

Net cash used by investing activities for the three months ended March 31, 2023 was $9.1 million compared to net cash used of $6.5 million for the three months ended March 31, 2022. The change was due to higher capital expenditures in the first quarter of 2023 compared to the first quarter of 2022.

Financing activities

Net cash used by financing activities for the three months ended March 31, 2023 was $30.2 million compared to net cash used of $25.5 million for the three months ended March 31, 2022. The change was due to a higher level of common share repurchase activity under the share repurchase program and lower proceeds from the exercise of stock options in the first quarter of 2023 compared to the first quarter of 2022. This is partially offset by lower repurchases of Convertible Senior Notes, compared to the first quarter of 2022. Refer to “Note 10 - Financing Arrangements” for more detail related to the Convertible Senior Notes due in 2025 and the share repurchase program.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. We review our critical accounting policies throughout the year.

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New Accounting Guidance

See “Note 2 - Recent Accounting Pronouncements” in the Notes to the unaudited Consolidated Financial Statements.

Forward-Looking Statements

Certain statements set forth in this Quarterly Report on Form 10-Q (including our forecasts, beliefs and expectations) that are not historical in nature are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, Management’s Discussion and Analysis of Financial Condition and Results of Operations contains numerous forward-looking statements. Forward-looking statements generally will be accompanied by words such as “anticipate,” ,“aspire,” “believe,” “could,” “estimate,” “expect,” “forecast,” “outlook,” “intend,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “strategic direction,” “strategy,” “target,” “will,” “would,” or other similar words, phrases or expressions that convey the uncertainty of future events or outcomes. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Form 10-Q. We caution readers that actual results may differ materially from those expressed or implied in forward-looking statements made by or on behalf of us due to a variety of factors, such as:

•

deterioration in world economic conditions, or in economic conditions in any of the geographic regions in which we conduct business, including additional adverse effects from global economic slowdown, terrorism or hostilities. This includes: political risks associated with the potential instability of governments and legal systems in countries in which we or our customers conduct business, and changes in currency valuations;

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the impact of the Russia-Ukraine conflict on the global economy, sourcing of raw materials, and commodity prices;

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climate-related risks, including environmental and severe weather caused by climate changes, and legislative and regulatory initiatives addressing global climate change or other environmental concerns;

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the effects of fluctuations in customer demand on sales, product mix and prices in the industries in which we operate. This includes: our ability to respond to rapid changes in customer demand including but not limited to changes in customer operating schedules due to supply chain constraints; the effects of customer bankruptcies or liquidations; the impact of changes in industrial business cycles; and whether conditions of fair trade exist in the U.S. markets;

•

the potential impact of the COVID-19 pandemic on our operations and financial results, including cash flows and liquidity;

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whether we are able to successfully implement actions designed to improve profitability on anticipated terms and timetables and whether we are able to fully realize the expected benefits of such actions;

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competitive factors, including changes in market penetration; increasing price competition by existing or new foreign and domestic competitors; the introduction of new products by existing and new competitors; and new technology that may impact the way our products are sold or distributed;

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changes in operating costs, including the effect of changes in our manufacturing processes; changes in costs associated with varying levels of operations and manufacturing capacity; availability of raw materials and energy; our ability to mitigate the impact of fluctuations in raw materials and energy costs and the effectiveness of our surcharge mechanism; changes in the expected costs associated with product warranty claims; changes resulting from inventory management, cost reduction initiatives and different levels of customer demands; the effects of unplanned work stoppages; and changes in the cost of labor and benefits;

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the success of our operating plans, announced programs, initiatives and capital investments; and our ability to maintain appropriate relations with the union that represents our associates in certain locations in order to avoid disruptions of business;

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unanticipated litigation, claims or assessments, including claims or problems related to intellectual property, product liability or warranty, employment matters, and environmental issues and taxes, among other matters;

•

cyber-related risks, including information technology system failures, interruptions and security breaches;

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•

with respect to the company's ability to achieve its sustainability goals, including its 2030 environmental goals, the ability to meet such goals within the expected timeframe, changes in laws, regulations, prevailing standards or public policy, the alignment of the scientific community on measurement and reporting approaches, the complexity of commodity supply chains and the evolution of and adoption of new technology, including traceability practices, tools and processes;

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the availability of financing and interest rates, which affect our cost of funds and/or ability to raise capital, including our ability to refinance and/or repay prior to or at maturity the Convertible Notes due December 1, 2025; our pension obligations and investment performance; and/or customer demand and the ability of customers to obtain financing to purchase our products or equipment that contain our products;

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the overall impact of the pension and postretirement mark-to-market accounting;

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the effects of the conditional conversion feature of the Convertible Senior Notes due 2025, which, if triggered, entitles holders to convert the notes at any time during specified periods at their option and therefore could result in potential dilution if the holder elects to convert and the Company elects to satisfy a portion or all of the conversion obligation by delivering common shares instead of cash;

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the consistency of melt production to meet forecasted demand levels following unplanned downtime in the second half of 2022;

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additional amounts, if any, that the company is able to obtain from its business interruption insurance in connection with the unplanned downtime;

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the impacts from any repurchases of our common shares and convertible notes, including the timing and amount of any repurchases; and

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those items identified under the caption Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022.

You are cautioned that it is not possible to predict or identify all of the risks, uncertainties and other factors that may affect future results, and that the above list should not be considered to be a complete list. Except as required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Further, this report includes our current policy and intent and is not intended to create legal rights or obligations. Certain standards of measurement and performance contained in this report are developing and based on assumptions, and no assurance can be given that any plan, objective, initiative, projection, goal, mission, commitment, expectation, or prospect set forth in this report can or will be achieved. Inclusion of information in this report is not an indication that the subject or information is material to our business or operating results.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our borrowings include both fixed and variable-rate debt. The variable debt consists principally of borrowings under our Credit Agreement. We are exposed to the risk of rising interest rates to the extent we fund our operations with these variable-rate borrowings. As of March 31, 2023, we have $13.1 million of aggregate debt outstanding. None of our outstanding debt as of March 31, 2023 has variable interest rates, thus a rise in interest rates would not impact our interest expense at this point in time.

Foreign Currency Exchange Rate Risk

Fluctuations in the value of the U.S. dollar compared to foreign currencies may impact our earnings. Geographically, our sales are primarily made to customers in the United States. Currency fluctuations could impact us to the extent they impact the currency or the price of raw materials in foreign countries in which our competitors operate or have significant sales.

Commodity Price Risk

In the ordinary course of business, we are exposed to market risk with respect to commodity price fluctuations, primarily related to our purchases of raw materials and energy, principally scrap steel, other ferrous and non-ferrous metals, alloys, natural gas and electricity. Additionally, the current Russia-Ukraine conflict could also exacerbate inflationary pressures throughout the global economy and lead to potential market disruptions, such as significant volatility in commodity prices and supply chain disruptions. Although our business has not

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been materially impacted by this conflict to date, it is difficult to predict the extent to which our operations, or those of our suppliers, will be impacted in the future.

Whenever possible, we manage our exposure to commodity risks primarily through the use of supplier pricing agreements that enable us to establish the purchase prices for certain inputs that are used in our manufacturing business. We utilize a raw material surcharge as a component of pricing steel to pass through the cost increases of scrap, alloys and other raw materials, as well as natural gas. From time to time, we may use financial instruments to hedge a portion of our exposure to commodity price risk. In periods of stable demand for our products, the surcharge mechanism has worked effectively to reduce the normal time lag in passing through higher raw material costs so that we can maintain our gross margins. When demand and cost of raw materials are lower, however, the surcharge impacts sales prices to a lesser extent.

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Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). Based upon that evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.

(b) Changes in Internal Control Over Financial Reporting

During the Company’s most recent fiscal quarter, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

We are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of our management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Item 1A. Risk Factors

We are subject to various risks and uncertainties in the course of our business. The discussion of such risks and uncertainties may be found under Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The table below provides information concerning our repurchase of common shares for the three months ended March 31, 2023.


(Dollars in millions, except shares and per share data)	Total number of shares purchased (1)		Average price paid per share (3)		Total number of shares purchased as part of publicly announced plans or programs (1)		Maximum dollar value of shares that may yet be purchased under the plans or programs (2)
Beginning shares available							$	73.0
January, 2023		157,986	$	18.93		157,986	$	70.0
February, 2023		83,140	$	19.60		83,140	$	68.4
March, 2023		272,960	$	17.36		272,960	$	63.7
Quarter-to-date		514,086	$	18.20		514,086	$	63.7

(1) The Company may utilize various methods to repurchase shares, which could include open market repurchases, including repurchases through Rule 10b5-1 plans, privately-negotiated transactions or by other means. The actual timing, number and value of shares repurchased under the program will depend on a number of factors, including the price of the Company's shares, general market and economic conditions, capital needs and other factors.

(2) On December 20, 2021, TimkenSteel announced that its Board of Directors authorized a share repurchase program under which the Company may repurchase up to $50.0 million of its outstanding common shares. On November 2, 2022, the Board of Directors authorized an additional $75.0 million share repurchase program. The share repurchase program does not require the Company to acquire any dollar amount or number of shares and does not have an expiration date.

(3) The average price paid per share excludes any broker commissions.

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Item 6. Exhibits


Exhibit Number		Exhibit Description

31.1*		Certification of the Chief Executive Officer pursuant to Rule 13a-14 of the Exchange Act, as adopted, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of the Chief Financial Officer pursuant to Rule 13a-14 of the Exchange Act, as adopted, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		Inline XBRL Instance Document.

101.SCH*		Inline XBRL Taxonomy Extension Schema Document.

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith.

** Furnished herewith.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		TIMKENSTEEL CORPORATION


Date:	May 4, 2023	/s/ Kristopher R. Westbrooks
		Kristopher R. Westbrooks Executive Vice President and Chief Financial Officer (Principal Financial Officer)