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Income Tax Provision
12 Months Ended
Dec. 31, 2022
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,

 

 

 

2022

 

 

2021

 

 

2020

 

United States

 

$

108.5

 

 

$

171.2

 

 

$

(64.1

)

Non-United States

 

 

(11.4

)

 

 

5.5

 

 

 

3.4

 

Income (loss) from operations before income taxes

 

$

97.1

 

 

$

176.7

 

 

$

(60.7

)

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

 

 

Years Ended December 31,

 

 

 

2022

 

 

2021

 

 

2020

 

Current:

 

 

 

 

 

 

 

 

 

Federal

 

$

0.6

 

 

$

0.2

 

 

$

0.6

 

State and local

 

 

5.7

 

 

 

3.7

 

 

 

 

Foreign

 

 

0.8

 

 

 

0.6

 

 

 

0.5

 

Total current tax expense (benefit)

 

$

7.1

 

 

$

4.5

 

 

$

1.1

 

Deferred:

 

 

 

 

 

 

 

 

 

Federal

 

$

24.2

 

 

$

0.8

 

 

$

(0.4

)

State and local

 

 

0.7

 

 

 

0.3

 

 

 

0.5

 

Foreign

 

 

 

 

 

0.1

 

 

 

 

Total deferred tax expense (benefit)

 

 

24.9

 

 

 

1.2

 

 

 

0.1

 

Provision (benefit) for incomes taxes

 

$

32.0

 

 

$

5.7

 

 

$

1.2

 

For the year ended December 31, 2022, TimkenSteel made $0.2 million in foreign tax payments, $5.0 million in state and local tax payments, $2.0 million U.S. federal payments, and had refundable overpayments of $2.2 million related to U.S. federal, state, and local income taxes. For the year ended December 31, 2021, TimkenSteel $0.9 million in foreign tax payments, $4.6 million in state and local tax payments, 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,

 

 

 

2022

 

 

2021

 

 

2020

 

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

 

$

20.4

 

 

$

37.1

 

 

$

(12.7

)

Adjustments:

 

 

 

 

 

 

 

 

 

State and local income taxes, net of federal tax benefit

 

 

8.4

 

 

 

4.1

 

 

 

2.3

 

Permanent differences

 

 

8.9

 

 

 

(0.2

)

 

 

1.3

 

Foreign earnings taxed at different rates

 

 

(3.6

)

 

 

(0.5

)

 

 

0.1

 

Valuation allowance

 

 

(2.5

)

 

 

(34.8

)

 

 

10.3

 

U.S. research tax credit

 

 

(0.6

)

 

 

 

 

 

 

Global intangible low-taxed income

 

 

 

 

 

 

 

 

 

Other items, net

 

 

1.0

 

 

 

 

 

 

(0.1

)

Provision (benefit) for income taxes

 

$

32.0

 

 

$

5.7

 

 

$

1.2

 

Effective tax rate

 

 

32.9

%

 

 

3.2

%

 

 

(2.0

)%

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.

The year over year increases in state and local income taxes, net of federal tax benefit is primarily related to limitations on the use of loss carryforwards in certain states. The permanent differences for the year ended December 31, 2022 are due to limitations on the tax deductibility of the loss on extinguishment of debt on the Convertible Senior Notes due 2025.

During the second and third quarters of 2021, TimkenSteel (Shanghai) Corporation Limited declared and paid dividends of $0.8 million and $0.4 million, respectively, net of withholding taxes, to TimkenSteel. During the third quarter of 2020, TimkenSteel (Shanghai) Corporation Limited declared a dividend of $5.1 million, net of withholding taxes, to TimkenSteel.

As of December 31, 2021 and 2022, there was no deferred tax liability related to undistributed earnings. The Company had recognized a deferred tax liability in the amount of $0.3 million at December 31, 2020, for undistributed earnings at its TimkenSteel (Shanghai) Corporation Limited and TimkenSteel de Mexico S. de R.C. de C.V. subsidiaries.

The effect of temporary differences giving rise to deferred tax assets and liabilities at December 31, 2022 and 2021 was as follows:

 

 

Years Ended December 31,

 

 

 

2022

 

 

2021

 

Deferred tax liabilities:

 

 

 

 

 

 

Depreciation

 

$

(81.4

)

 

$

(89.0

)

Inventory

 

 

 

 

 

(8.0

)

Leases - right-of-use asset

 

 

(3.1

)

 

 

(3.5

)

Deferred tax liabilities

 

$

(84.5

)

 

$

(100.5

)

Deferred tax assets:

 

 

 

 

 

 

Tax loss carryforwards

 

$

20.5

 

 

$

52.6

 

Pension and postretirement benefits

 

 

35.5

 

 

 

44.3

 

Other employee benefit accruals

 

 

6.6

 

 

 

8.2

 

Lease liability

 

 

3.1

 

 

 

3.5

 

State decoupling

 

 

0.8

 

 

 

1.3

 

Accrued restructuring

 

 

0.1

 

 

 

1.1

 

Capital loss carryforward

 

 

0.8

 

 

 

0.8

 

Intangible assets

 

 

0.2

 

 

 

0.6

 

Inventory

 

 

0.7

 

 

 

0.6

 

Allowance for doubtful accounts

 

 

0.3

 

 

 

0.5

 

Accrued Legal

 

 

2.0

 

 

 

 

Capitalized R&D

 

 

0.9

 

 

 

 

Other, net

 

 

0.1

 

 

 

0.3

 

Deferred tax assets subtotal

 

$

71.6

 

 

$

113.8

 

Valuation allowances

 

 

(13.0

)

 

 

(15.5

)

Deferred tax assets

 

 

58.6

 

 

 

98.3

 

Net deferred tax assets (liabilities)

 

$

(25.9

)

 

$

(2.2

)

As of December 31, 2022 and 2021, the Company had a deferred tax liability of $25.9 million and $2.2 million, respectively, on the Consolidated Balance Sheets. As of December 31, 2022, TimkenSteel had loss carryforwards in the U.S. and various non-U.S. jurisdictions totaling $71.7 million (of which $17.2 million relates to the U.S. and $54.5 million relates to the UK jurisdiction), having various expiration dates.

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 at the time, and concluded that it was more likely than not that it would not realize a portion of its U.S. deferred tax assets. As such, the Company recorded a valuation allowance in 2016.

Each reporting period we assess available positive and negative evidence and estimate if sufficient future taxable income will be generated to utilize the Company’s deferred tax assets. Due to TimkenSteel’s historical operating performance in the U.S., we have historically been limited in our ability to rely on other subjective evidence such as projections of our future profitability. However, as of December 31, 2022, based on consecutive years of profitability, utilization of the majority of previously generated loss carryforwards in the U.S., and forecasted future profitability, the Company released a portion of its U.S. valuation allowance. The Company maintained a domestic partial valuation allowance on a capital loss carryforward and certain state loss carryforwards that are expected to expire unused. TimkenSteel has provided a valuation allowance on the aforementioned UK loss carryforward.

The need to maintain valuation allowances against deferred tax assets in the U.S. and other affected countries may cause variability in the Company’s effective tax rate. The majority of TimkenSteel’s income taxes are derived from federal, domestic state and local taxes.

As of December 31, 2022, 2021 and 2020, 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, 2022, 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, 2022, 2021 and 2020.

As of December 31, 2022, the tax years 2019 to the present remain open to examination by the IRS.