FORM 8-K |
Date of Report (Date of Earliest Event Reported): | January 28, 2016 |
TIMKENSTEEL CORPORATION (Exact name of registrant as specified in its charter) |
Ohio | 1-36313 | 46-4024951 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (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) |
Not Applicable |
(Former name or former address, if changed since last report) |
Item 2.02 | Results of Operations and Financial Condition. |
Item 9.01 | Financial Statements and Exhibits. |
Exhibit No. | Description | |
99.1 | Press Release of TimkenSteel Corporation dated January 28, 2016 |
TIMKENSTEEL CORPORATION | |||
Date: | January 28, 2016 | By: | /s/ Christopher J. Holding |
Christopher J. Holding | |||
Executive Vice President and Chief Financial Officer |
Exhibit No. | Description | |
99.1 | Press Release of TimkenSteel Corporation dated January 28, 2016 |
• | Net sales of $206.6 million decreased 11.2 percent sequentially. |
• | Quarterly EBITDA results favorable to guidance. |
• | Net loss of $25.5 million or minus 58 cents per share driven by weak commodity markets, partially mitigated by cost reduction tactics. |
• | Generated $18 million of free cash flow for the period. |
• | Amended $300 million credit agreement. |
• | Ship tons were approximately 175,000, a decrease of 35.1 percent over the fourth quarter of 2014 and 1.9 percent sequentially. |
• | U.S. rig count dropped more than 60 percent compared with previous year, resulting in lower demand for energy and related industrial products. |
• | Surcharge revenue of $19.2 million decreased 79.5 percent from the prior-year quarter and 38.1 percent from the third quarter of 2015 as a result of lower volumes and a drop in the No. 1 Busheling Index. |
• | Year over year, fourth-quarter EBIT was lower primarily due to reduced volume, increased manufacturing costs per ton and unfavorable timing impact related to raw material spread, partially offset by LIFO income and realization of cost reduction actions. |
• | Sequentially, EBIT was favorable primarily due to the impact of cost reductions and the timing of plant shutdowns. |
• | Melt utilization was 41 percent for the quarter, compared with 74 percent in fourth-quarter 2014 and 40 percent in third-quarter 2015. Lower volumes and inventory reduction efforts impacted melt utilization, increasing manufacturing costs. |
• | Net sales of $171.3 million, including surcharges of $15.5 million, represents a 27.0 percent decrease compared with fourth-quarter 2014. This was driven primarily by lower surcharges and reduced demand in the industrial market sector, which offset increased mobile demand. |
• | Fourth-quarter EBIT was a loss of $20.8 million compared with EBIT of $12.1 million in the same period last year. Primary drivers of the change were lower volume and corresponding higher per ton manufacturing costs and the unfavorable timing impact related to raw material spread, slightly offset by favorable impacts from cost reduction actions. |
• | Net sales of $35.3 million, including surcharges of $3.7 million, represents a 79.7 percent decrease over the fourth quarter of the prior year, driven primarily by lower surcharges and reduced demand for energy-related products as a result of the drop in rig count and customer destocking. |
• | Fourth-quarter EBIT was a loss of $23.1 million compared with income of $14.6 million in the same period last year, primarily driven by unfavorable volume and higher per-ton manufacturing costs slightly offset by favorable impacts from cost reduction actions. |
▪ | Shipments approximately 5 percent higher than fourth-quarter 2015. |
▪ | Automotive demand remains strong with shipments slightly higher sequentially. |
▪ | Industrial end markets continue to be weak due to impact from low oil prices and global commodity markets. |
▪ | Oil and gas markets sequentially weaker due to low rig activity and decrease in energy exploration and production spend. |
▪ | Higher sequential demand in distribution channel due to tapering of inventory destocking in industrial end markets. |
▪ | EBITDA between a loss of $10 million and a loss of $20 million. |
▪ | Pricing pressure from imports and weak market dynamics. |
▪ | Improved sequential performance in manufacturing due to higher melt utilization of approximately 45 percent and continued benefits from cost reductions. |
▪ | Favorable raw material spread compared with fourth-quarter 2015 due to stabilizing scrap markets. |
▪ | 2016 capital spending to be $45 million. |
▪ | Will fund 2016 other post-employment benefit (OPEB) expenses primarily from VEBA trust rather than operating cash flow. |
Conference Call Friday, Jan. 29, 2016 9 a.m. EDT | Toll-free dial-in: 877-201-0168 International dial-in: 647-788-4901 Conference ID: 18744393 |
Conference Call Replay Available through Feb. 12, 2016 | Dial-in: 855-859-2056 or 404-537-3406 Replay passcode: 18744393 |
Live Webcast | investors.timkensteel.com |
TimkenSteel Corporation | ||
1835 Dueber Ave. S.W., GNE-14, Canton, OH 44706 | ||
Media Contact: Joe Milicia | Investor Contact: Tina Beskid | |
P 330.471.7760 | P 330.471.5621 | |
news@timkensteel.com | ir@timkensteel.com |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||
(Dollars in millions, except per share data) (Unaudited) | |||||||||||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Net sales | $206.6 | $408.3 | $1,106.2 | $1,674.2 | |||||||||||
Cost of products sold | 214.8 | 351.9 | 1,099.4 | 1,400.4 | |||||||||||
Gross (Loss) Profit | (8.2 | ) | 56.4 | 6.8 | 273.8 | ||||||||||
Selling, general & administrative expenses (SG&A) | 25.6 | 30.6 | 111.0 | 112.1 | |||||||||||
Impairment and restructuring charges | 3.7 | 1.2 | 6.5 | 1.2 | |||||||||||
Other expense, net | 0.5 | 1.3 | 2.9 | 1.4 | |||||||||||
(Loss) Earnings Before Interest and Taxes (EBIT) (1) | (38.0 | ) | 23.3 | (113.6 | ) | 159.1 | |||||||||
Interest expense | 1.4 | — | 3.4 | 0.9 | |||||||||||
(Loss) Income Before Income Taxes | (39.4 | ) | 23.3 | (117.0 | ) | 158.2 | |||||||||
(Benefit) provision for income taxes | (13.9 | ) | 6.9 | (43.3 | ) | 53.8 | |||||||||
Net (Loss) Income | ($25.5 | ) | $16.4 | ($73.7 | ) | $104.4 | |||||||||
Net (Loss) Income per Common Share: | |||||||||||||||
Basic (loss) earnings per share | ($0.58 | ) | $0.36 | ($1.65 | ) | $2.29 | |||||||||
Diluted (loss) earnings per share | ($0.58 | ) | $0.36 | ($1.65 | ) | $2.27 | |||||||||
Weighted average shares outstanding | 44,192,218 | 45,283,420 | 44,533,725 | 45,541,705 | |||||||||||
Weighted average shares outstanding - assuming dilution | 44,192,218 | 45,670,482 | 44,533,725 | 46,044,143 | |||||||||||
(1) EBIT is defined as net (loss) income before interest expense and income taxes. EBIT is an important financial measure used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. Management believes that reporting EBIT is useful to investors as this measure is representative of the Company's performance. |
BUSINESS SEGMENTS | |||||||||||||||
(Dollars in millions, except per ton data) (Unaudited) | |||||||||||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Industrial & Mobile | |||||||||||||||
Net sales | $171.3 | $234.7 | $804.0 | $962.0 | |||||||||||
(Loss) earnings before interest and taxes (EBIT) (1) | (20.8 | ) | 12.1 | (60.1 | ) | 79.8 | |||||||||
EBIT Margin (1) | (12.1 | )% | 5.2 | % | (7.5 | )% | 8.3 | % | |||||||
Shipments (in tons) | 143,463 | 158,865 | 610,746 | 639,744 | |||||||||||
Average selling price per ton, including surcharges | $1,194 | $1,477 | $1,316 | $1,504 | |||||||||||
Energy & Distribution | |||||||||||||||
Net sales | $35.3 | $173.6 | $302.2 | $712.2 | |||||||||||
(Loss) earnings before interest and taxes (EBIT) (1) | (23.1 | ) | 14.6 | (72.1 | ) | 98.8 | |||||||||
EBIT Margin (1) | (65.4 | )% | 8.4 | % | (23.9 | )% | 13.9 | % | |||||||
Shipments (in tons) | 31,887 | 111,385 | 226,389 | 453,948 | |||||||||||
Average selling price per ton, including surcharges | $1,107 | $1,559 | $1,335 | $1,569 | |||||||||||
Unallocated (2) | $5.9 | ($3.4 | ) | $18.6 | ($19.5 | ) | |||||||||
Consolidated | |||||||||||||||
Net sales | $206.6 | $408.3 | $1,106.2 | $1,674.2 | |||||||||||
(Loss) earnings before interest and taxes (EBIT) (1) | (38.0 | ) | 23.3 | (113.6 | ) | 159.1 | |||||||||
EBIT Margin (1) | (18.4 | )% | 5.7 | % | (10.3 | )% | 9.5 | % | |||||||
(1) EBIT is defined as net (loss) income before interest expense and income taxes. EBIT Margin is EBIT as a percentage of net sales. EBIT and EBIT Margin are important financial measures used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. Management believes that reporting EBIT and EBIT Margin is useful to investors as these measures are representative of the Company's performance. | |||||||||||||||
(2) Unallocated are costs associated with strategy, corporate development, tax, treasury, legal, internal audit, LIFO and general administration expenses. | |||||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||
(Dollars in millions) (Unaudited) | December 31, 2015 | December 31, 2014 | |||||
ASSETS | |||||||
Cash and cash equivalents | $42.4 | $34.5 | |||||
Accounts receivable, net of allowances | 80.9 | 167.1 | |||||
Inventories, net | 171.9 | 293.8 | |||||
Deferred income taxes | — | 20.3 | |||||
Prepaid expenses | 11.4 | 28.0 | |||||
Other current assets | 9.2 | 7.6 | |||||
Total Current Assets | 315.8 | 551.3 | |||||
Property, Plant and Equipment, net | 769.3 | 771.9 | |||||
Pension assets | 20.0 | 8.0 | |||||
Intangible assets, net | 30.6 | 30.3 | |||||
Other non-current assets | 4.1 | 2.6 | |||||
Total Other Assets | 54.7 | 40.9 | |||||
Total Assets | $1,139.8 | $1,364.1 | |||||
LIABILITIES | |||||||
Accounts payable, trade | $49.5 | $120.2 | |||||
Salaries, wages and benefits | 21.4 | 49.1 | |||||
Accrued pension and postretirement cost | 3.2 | 17.8 | |||||
Income taxes payable | 0.4 | 0.3 | |||||
Other current liabilities | 29.0 | 38.1 | |||||
Total Current Liabilities | 103.5 | 225.5 | |||||
Long-term debt | 200.2 | 185.2 | |||||
Accrued pension and postretirement cost | 114.1 | 119.1 | |||||
Deferred income taxes | 26.9 | 75.1 | |||||
Other non-current liabilities | 10.0 | 11.1 | |||||
Total Non-Current Liabilities | 351.2 | 390.5 | |||||
SHAREHOLDERS' EQUITY | |||||||
Additional paid-in capital | 1,058.2 | 1,050.7 | |||||
Retained (deficit) earnings | (63.0 | ) | 29.4 | ||||
Treasury shares | (46.3 | ) | (34.7 | ) | |||
Accumulated other comprehensive loss | (263.8 | ) | (297.3 | ) | |||
Total Shareholders' Equity | 685.1 | 748.1 | |||||
Total Liabilities and Shareholders' Equity | $1,139.8 | $1,364.1 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||
(Dollars in millions) (Unaudited) | 2015 | 2014 | 2015 | 2014 | |||||||||||
CASH PROVIDED (USED) | |||||||||||||||
Operating Activities | |||||||||||||||
Net (loss) income | ($25.5 | ) | $16.4 | ($73.7 | ) | $104.4 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 18.8 | 15.1 | 73.4 | 58.0 | |||||||||||
Impairment charges | — | 1.2 | 0.9 | 1.2 | |||||||||||
Loss on sale or disposal of assets | — | 0.1 | 1.0 | 1.4 | |||||||||||
Deferred income taxes | (4.9 | ) | 15.5 | (35.1 | ) | 1.4 | |||||||||
Stock-based compensation expense | 1.0 | 1.7 | 7.0 | 6.0 | |||||||||||
Pension and postretirement expense | 7.8 | 5.3 | 30.7 | 14.9 | |||||||||||
Pension and postretirement contributions and payments | (3.4 | ) | (5.4 | ) | (15.6 | ) | (20.7 | ) | |||||||
Changes in operating assets and liabilities: | |||||||||||||||
Accounts receivable, including due from related party | 25.8 | 36.4 | 86.2 | (17.7 | ) | ||||||||||
Inventories, net | 24.1 | (20.7 | ) | 121.9 | (66.8 | ) | |||||||||
Accounts payable, including due to related party | 0.6 | (17.9 | ) | (70.7 | ) | 16.2 | |||||||||
Other accrued expenses | 1.6 | (6.3 | ) | (32.2 | ) | 26.2 | |||||||||
Prepaid expenses | (1.4 | ) | (27.6 | ) | 16.6 | (27.6 | ) | ||||||||
Other, net | (1.2 | ) | 11.6 | (3.3 | ) | (3.0 | ) | ||||||||
Net Cash Provided by Operating Activities | 43.3 | 25.4 | 107.1 | 93.9 | |||||||||||
Investing Activities | |||||||||||||||
Capital expenditures | (25.3 | ) | (46.5 | ) | (78.2 | ) | (129.6 | ) | |||||||
Proceeds from sale of assets | — | — | 0.4 | — | |||||||||||
Net Cash Used by Investing Activities | (25.3 | ) | (46.5 | ) | (77.8 | ) | (129.6 | ) | |||||||
Financing Activities | |||||||||||||||
Cash dividends paid to shareholders | 37.4 | 19.1 | 18.7 | 12.7 | |||||||||||
Purchase of treasury shares | — | (30.6 | ) | (17.3 | ) | (34.7 | ) | ||||||||
Proceeds from exercise of stock options | — | — | 1.5 | 5.8 | |||||||||||
Payment on long-term debt | (5.0 | ) | — | (50.0 | ) | (30.2 | ) | ||||||||
Proceeds from issuance of debt | — | 55.0 | 65.0 | 185.2 | |||||||||||
Deferred financing costs | (1.4 | ) | — | (1.4 | ) | — | |||||||||
Dividend paid to The Timken Company (Timken) | — | 100.0 | — | 50.0 | |||||||||||
Net transfers (to) from Timken and subsidiaries | — | — | (0.5 | ) | 3.8 | ||||||||||
Cash received from Timken for settlement of separation | — | — | — | 3.0 | |||||||||||
Net Cash (Used) Provided by Financing Activities | 31.0 | 143.5 | 16.0 | 195.6 | |||||||||||
Increase (Decrease) In Cash and Cash Equivalents | 49.0 | 122.4 | 45.3 | 159.9 | |||||||||||
Cash and cash equivalents at beginning of period | 30.8 | 37.5 | 34.5 | — | |||||||||||
Cash and Cash Equivalents at End of Period | $79.8 | $159.9 | $79.8 | $159.9 |
Reconciliation of EBIT and EBIT Excluding Restructuring Charges to GAAP Net (Loss) Income: | |||||||||||||||
This reconciliation is provided as additional relevant information about the Company's performance. Management believes EBIT and EBIT excluding restructuring charges is representative of the Company's performance and therefore useful to investors. Management also believes that it is appropriate to compare GAAP net (loss) income to EBIT and EBIT excluding restructuring charges. | |||||||||||||||
(Dollars in millions) (Unaudited) | |||||||||||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Net (loss) income | ($25.5 | ) | $16.4 | ($73.7 | ) | $104.4 | |||||||||
(Benefit) provision for income taxes | (13.9 | ) | 6.9 | (43.3 | ) | 53.8 | |||||||||
Interest expense | 1.4 | — | 3.4 | 0.9 | |||||||||||
(Loss) Earnings Before Interest and Taxes (EBIT) | ($38.0 | ) | $23.3 | ($113.6 | ) | $159.1 | |||||||||
Restructuring charges | 3.7 | — | 5.6 | — | |||||||||||
EBIT Excluding Restructuring Charges | ($34.3 | ) | $23.3 | ($108.0 | ) | $159.1 |
Reconciliation of Total Debt to Net Debt and the Ratio of Total Debt and Net Debt to Capital: | |||||||
This reconciliation is provided as additional relevant information about the Company's financial position. Capital, used for the ratio of total debt to capital and net debt to capital, is defined as total debt plus total equity. Management believes net debt is an important measure of the Company's financial position due to the amount of cash and cash equivalents. | |||||||
(Dollars in millions) (Unaudited) | |||||||
December 31, 2015 | December 31, 2014 | ||||||
Long-term debt | $200.2 | $185.2 | |||||
Less: Cash and cash equivalents | 42.4 | 34.5 | |||||
Net Debt | $157.8 | $150.7 | |||||
Total Equity | $685.1 | $748.1 | |||||
Ratio of Total Debt to Capital | 22.6 | % | 19.8 | % | |||
Ratio of Net Debt to Capital | 17.8 | % | 16.1 | % |
Reconciliation of Free Cash Flow to GAAP Net Cash Provided by Operating Activities: | |||||||||||||||
Management believes that free cash flow is useful to investors because it is a meaningful indicator of cash generated from operating activities available for the execution of its business strategy. | |||||||||||||||
(Dollars in millions) (Unaudited) | |||||||||||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Net Cash Provided by Operating Activities | $43.3 | $25.4 | $107.1 | $93.9 | |||||||||||
Less: Capital expenditures | (25.3 | ) | (46.5 | ) | (78.2 | ) | (129.6 | ) | |||||||
Free Cash Flow | $18.0 | ($21.1 | ) | $28.9 | ($35.7 | ) |
Adjusted EBIT and Adjusted EBIT Margin Reconciliation: | |||||||||||||||
Management believes that reporting adjusted EBIT and adjusted EBIT margin is useful to investors to give an indication of the Company's performance as an independent public company. | |||||||||||||||
(Dollars in millions) (Unaudited) | |||||||||||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Net Sales | |||||||||||||||
Industrial & Mobile | $171.3 | $234.7 | $804.0 | $962.0 | |||||||||||
Energy & Distribution | 35.3 | 173.6 | 302.2 | 712.2 | |||||||||||
$206.6 | $408.3 | $1,106.2 | $1,674.2 | ||||||||||||
Adjusted EBIT (3) | |||||||||||||||
Industrial & Mobile EBIT | ($20.8 | ) | $12.1 | ($60.1 | ) | $79.8 | |||||||||
Incremental stand-alone costs | — | — | — | (5.6 | ) | ||||||||||
Adjusted Industrial & Mobile EBIT | ($20.8 | ) | $12.1 | ($60.1 | ) | $74.2 | |||||||||
Energy & Distribution EBIT | ($23.1 | ) | $14.6 | ($72.1 | ) | $98.8 | |||||||||
Incremental stand-alone costs | — | — | — | (6.7 | ) | ||||||||||
Adjusted Energy & Distribution EBIT | ($23.1 | ) | $14.6 | ($72.1 | ) | $92.1 | |||||||||
Unallocated | $5.9 | ($3.4 | ) | $18.6 | ($19.5 | ) | |||||||||
Incremental stand-alone costs | — | — | — | 0.9 | |||||||||||
Adjusted Unallocated | $5.9 | ($3.4 | ) | $18.6 | ($18.6 | ) | |||||||||
Consolidated EBIT | ($38.0 | ) | $23.3 | ($113.6 | ) | $159.1 | |||||||||
Incremental stand-alone costs | — | — | — | (11.4 | ) | ||||||||||
Adjusted Consolidated EBIT | ($38.0 | ) | $23.3 | ($113.6 | ) | $147.7 | |||||||||
Adjusted EBIT Margin (3) | |||||||||||||||
Industrial & Mobile | (12.1 | %) | 5.2 | % | (7.5 | %) | 7.7 | % | |||||||
Energy & Distribution | (65.4 | %) | 8.4 | % | (23.9 | %) | 12.9 | % | |||||||
Consolidated | (18.4 | %) | 5.7 | % | (10.3 | %) | 8.8 | % | |||||||
(3) EBIT is defined as net (loss) income before interest expense and income taxes. Adjusted EBIT reflects EBIT adjusted for the impact of estimated incremental stand-alone costs. Adjusted EBIT Margin is defined as adjusted EBIT as a percentage of net sales. |
Adjusted (Loss) Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) Reconciliation: | |||||||||||||||
Management believes that reporting adjusted EBITDA is useful to investors to give an indication of the Company's performance as an independent public company. | |||||||||||||||
(Dollars in millions) (Unaudited) | |||||||||||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Adjusted Consolidated EBIT | ($38.0 | ) | $23.3 | ($113.6 | ) | $147.7 | |||||||||
Depreciation and amortization | 18.8 | 15.1 | 73.4 | 58.0 | |||||||||||
Incremental depreciation and amortization | — | — | — | 5.4 | |||||||||||
Total Depreciation and Amortization | $18.8 | $15.1 | $73.4 | $63.4 | |||||||||||
Adjusted EBITDA (4) | ($19.2 | ) | $38.4 | ($40.2 | ) | $211.1 | |||||||||
% of net sales | (9.3 | %) | 9.4 | % | (3.6 | %) | 12.6 | % | |||||||
(4) Adjusted EBITDA is defined as net (loss) income before interest expense, income taxes, depreciation and amortization adjusted for impact of estimated incremental depreciation and amortization. |
Adjusted Net (Loss) Income Reconciliation: | |||||||||||||||
Management believes that reporting adjusted net (loss) income is useful to investors to give an indication of the Company's performance as an independent public company. | |||||||||||||||
(Dollars and shares in millions, except per share data) (Unaudited) | |||||||||||||||
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Net (Loss) Income | ($25.5 | ) | $16.4 | ($73.7 | ) | $104.4 | |||||||||
Incremental stand-alone costs, net of tax | — | — | — | (7.8 | ) | ||||||||||
Adjusted Net (Loss) Income | ($25.5 | ) | $16.4 | ($73.7 | ) | $96.6 | |||||||||
Weighted Average Shares Outstanding - Assuming Dilution | 44.2 | 45.7 | 44.5 | 46.0 | |||||||||||
Adjusted Diluted (Loss) Earnings Per Share | ($0.58 | ) | $0.36 | ($1.65 | ) | $2.10 |
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