FORM 8-K |
Date of Report (Date of Earliest Event Reported): | October 26, 2017 |
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 October 26, 2017. |
TIMKENSTEEL CORPORATION | |||
Date: | October 26, 2017 | By: | /s/ Christopher J. Holding |
Christopher J. Holding | |||
Executive Vice President and Chief Financial Officer |
Exhibit No. | Description | |
99.1 |
• | Ship tons were approximately 290,000, an increase of 63 percent over the third quarter of 2016 and a decrease of 1.6 percent sequentially. |
• | Year-over-year gains were related to improving industrial and energy end markets, as well as increased market penetration, including winning new business. |
• | Surcharge revenue of $77.9 million increased 169.6 percent from the prior-year quarter as a result of a rise in the No. 1 Busheling Index and higher volumes. Sequentially, surcharge revenue was similar to the prior quarter. |
• | Adjusted EBIT(1) improved over the prior year due to higher volumes and favorable raw material spread, partially offset by negative mix and price. |
• | Sequentially, adjusted EBIT(1) was lower primarily because second-quarter results included a favorable $4.9 million supplier refund. |
• | Melt utilization was 74 percent for the quarter, compared with 44 percent in the third quarter of 2016 and 76 percent in the second quarter of 2017. Higher volumes, primarily from new business and increased end-market demand and improved operating cost leverage. |
• | Shipments are expected to be between 3 percent and 5 percent higher than third- quarter 2017 as markets continue to recover. |
• | Adjusted EBITDA(1) is projected to be between breakeven and $10 million. |
• | Expenses associated with annual maintenance activities are anticipated to be between $8 million and $12 million. |
• | Raw material spread is expected to be lower in the fourth quarter primarily due to a decrease in the average No. 1 Busheling Index. |
• | 2017 capital spending is projected to be $40 million. |
Conference Call | Friday, Oct. 27, 2017 9 a.m. ET Toll-free dial-in: 866-393-4306 International dial-in: 734-385-2616 Conference ID: 93297451 |
Conference Call Replay | Replay dial-in available through Nov. 3, 2017 855-859-2056 or 404-537-3406 Replay passcode: 93297451 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||||||||
Nine Months Ended September 30, | Three Months Ended September 30, | Three Months Ended June 30, | |||||||||||||||||||||
(Dollars in millions, except per share data) (Unaudited) | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||
Net sales | $987.8 | $654.8 | $339.1 | $213.8 | $339.3 | $223.1 | |||||||||||||||||
Cost of products sold | 928.5 | 629.6 | 320.6 | 206.3 | 315.5 | 210.8 | |||||||||||||||||
Gross Profit | 59.3 | 25.2 | 18.5 | 7.5 | 23.8 | 12.3 | |||||||||||||||||
Selling, general & administrative expenses (SG&A) | 67.7 | 66.8 | 22.5 | 21.8 | 22.3 | 22.9 | |||||||||||||||||
Restructuring charges | — | 0.3 | — | — | — | 0.3 | |||||||||||||||||
Other income (expense), net | 10.7 | (12.1 | ) | 1.9 | (17.3 | ) | 4.3 | 2.6 | |||||||||||||||
Earnings (Loss) Before Interest and Taxes (EBIT) (1) | 2.3 | (54.0 | ) | (2.1 | ) | (31.6 | ) | 5.8 | (8.3 | ) | |||||||||||||
Interest expense | 11.0 | 8.0 | 3.7 | 3.9 | 3.7 | 2.1 | |||||||||||||||||
Loss (Income) Before Income Taxes | (8.7 | ) | (62.0 | ) | (5.8 | ) | (35.5 | ) | 2.1 | (10.4 | ) | ||||||||||||
Provision (benefit) for income taxes | 1.2 | (23.5 | ) | 0.1 | (13.3 | ) | 0.8 | (3.8 | ) | ||||||||||||||
Net Income (Loss) | ($9.9 | ) | ($38.5 | ) | ($5.9 | ) | ($22.2 | ) | $1.3 | ($6.6 | ) | ||||||||||||
Net Income (Loss) per Common Share: | |||||||||||||||||||||||
Basic earnings (loss) per share | ($0.22 | ) | ($0.87 | ) | ($0.13 | ) | ($0.50 | ) | $0.03 | ($0.15 | ) | ||||||||||||
Diluted earnings (loss) per share (2) | ($0.22 | ) | ($0.87 | ) | ($0.13 | ) | ($0.50 | ) | $0.03 | ($0.15 | ) | ||||||||||||
Dividends per share | $— | $— | $— | $— | $— | $— | |||||||||||||||||
Weighted average shares outstanding | 44,373,264 | 44,215,373 | 44,433,094 | 44,221,310 | 44,399,070 | 44,220,496 | |||||||||||||||||
Weighted average shares outstanding - assuming dilution | 44,373,264 | 44,215,373 | 44,433,094 | 44,221,310 | 44,830,314 | 44,220,496 | |||||||||||||||||
(1) EBIT is defined as net income (loss) 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. | |||||||||||||||||||||||
(2) For the three and nine months ended September 30, 2017 and 2016 and the three months ended June 30, 2016, common share equivalents, including shares issuable for equity-based awards and upon the conversion of outstanding convertible notes, and for the three months ended June 30, 2017, common share equivalents upon the conversion of outstanding convertible notes, were excluded from the computation of diluted earnings (loss) per share because the effect of their inclusion would have been anti-dilutive. |
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
(Dollars in millions) (Unaudited) | September 30, 2017 | June 30, 2017 | December 31, 2016 | ||||||||
ASSETS | |||||||||||
Cash and cash equivalents | $25.8 | $36.2 | $25.6 | ||||||||
Accounts receivable, net of allowances | 160.6 | 153.5 | 91.6 | ||||||||
Inventories, net | 219.5 | 199.3 | 164.2 | ||||||||
Deferred charges and prepaid expenses | 4.2 | 1.8 | 2.8 | ||||||||
Other current assets | 7.4 | 6.2 | 6.2 | ||||||||
Total Current Assets | 417.5 | 397.0 | 290.4 | ||||||||
Property, Plant and Equipment, net | 701.6 | 713.7 | 741.9 | ||||||||
Other Assets | |||||||||||
Pension assets | 9.8 | 9.3 | 6.2 | ||||||||
Intangible assets, net | 20.9 | 22.2 | 25.0 | ||||||||
Other non-current assets | 6.0 | 6.2 | 6.4 | ||||||||
Total Other Assets | 36.7 | 37.7 | 37.6 | ||||||||
Total Assets | $1,155.8 | $1,148.4 | $1,069.9 | ||||||||
LIABILITIES | |||||||||||
Accounts payable, trade | $133.8 | $130.8 | $87.0 | ||||||||
Salaries, wages and benefits | 30.4 | 25.1 | 20.3 | ||||||||
Accrued pension and postretirement costs | 3.0 | 3.0 | 3.0 | ||||||||
Other current liabilities | 21.4 | 17.9 | 20.4 | ||||||||
Total Current Liabilities | 188.6 | 176.8 | 130.7 | ||||||||
Convertible notes, net | 69.2 | 68.2 | 66.4 | ||||||||
Other long-term debt | 95.2 | 100.2 | 70.2 | ||||||||
Accrued pension and postretirement costs | 196.2 | 193.4 | 192.1 | ||||||||
Deferred income taxes | 0.7 | 0.2 | — | ||||||||
Other non-current liabilities | 13.2 | 12.7 | 13.1 | ||||||||
Total Non-Current Liabilities | 374.5 | 374.7 | 341.8 | ||||||||
SHAREHOLDERS' EQUITY | |||||||||||
Additional paid-in capital | 842.3 | 841.6 | 845.6 | ||||||||
Retained deficit | (204.1 | ) | (198.2 | ) | (193.9 | ) | |||||
Treasury shares | (37.6 | ) | (38.2 | ) | (44.9 | ) | |||||
Accumulated other comprehensive loss | (7.9 | ) | (8.3 | ) | (9.4 | ) | |||||
Total Shareholders' Equity | 592.7 | 596.9 | 597.4 | ||||||||
Total Liabilities and Shareholders' Equity | $1,155.8 | $1,148.4 | $1,069.9 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||||||
(Dollars in millions) (Unaudited) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
CASH PROVIDED (USED) | |||||||||||||||
Operating Activities | |||||||||||||||
Net Income (Loss) | ($5.9 | ) | ($22.2 | ) | ($9.9 | ) | ($38.5 | ) | |||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 18.6 | 19.0 | 56.4 | 56.2 | |||||||||||
Amortization of deferred financing fees and debt discount | 1.0 | 1.1 | 3.1 | 1.9 | |||||||||||
Impairment charges and loss on sale or disposal of assets | — | (0.1 | ) | 0.4 | 1.0 | ||||||||||
Deferred income taxes | 0.5 | (9.8 | ) | 0.7 | (24.9 | ) | |||||||||
Stock-based compensation expense | 1.5 | 1.6 | 4.9 | 4.6 | |||||||||||
Pension and postretirement expense | 3.0 | 21.0 | 4.6 | 23.4 | |||||||||||
Pension and postretirement contributions and payments | 0.2 | 0.2 | (2.5 | ) | (3.1 | ) | |||||||||
Reimbursement from postretirement plan assets | — | — | 13.3 | ||||||||||||
Changes in operating assets and liabilities: | |||||||||||||||
Accounts receivable, net | (7.1 | ) | (6.5 | ) | (69.0 | ) | (23.0 | ) | |||||||
Inventories, net | (20.2 | ) | 2.0 | (55.3 | ) | 18.5 | |||||||||
Accounts payable, trade | 3.0 | 0.5 | 46.8 | 23.6 | |||||||||||
Other accrued expenses | 9.2 | 5.5 | 10.7 | (8.4 | ) | ||||||||||
Deferred charges and prepaid expenses | (2.4 | ) | (2.1 | ) | (1.4 | ) | 7.6 | ||||||||
Other, net | (1.5 | ) | (2.7 | ) | (1.2 | ) | 3.3 | ||||||||
Net Cash (Used) Provided by Operating Activities | (0.1 | ) | 7.5 | (11.7 | ) | 55.5 | |||||||||
Investing Activities | |||||||||||||||
Capital expenditures | (5.1 | ) | (10.9 | ) | (11.9 | ) | (26.1 | ) | |||||||
Net Cash Used by Investing Activities | (5.1 | ) | (10.9 | ) | (11.9 | ) | (26.1 | ) | |||||||
Financing Activities | |||||||||||||||
Proceeds from exercise of stock options | — | — | 0.2 | — | |||||||||||
Shares surrendered for employee taxes on stock compensation | (0.2 | ) | — | (1.4 | ) | — | |||||||||
Credit agreement repayments | (5.0 | ) | (10.0 | ) | (5.0 | ) | (130.0 | ) | |||||||
Credit agreement borrowings | — | — | 30.0 | — | |||||||||||
Debt issuance costs | — | (0.5 | ) | — | (4.8 | ) | |||||||||
Proceeds from issuance of convertible notes | — | — | — | 86.3 | |||||||||||
Net Cash Provided (Used) by Financing Activities | (5.2 | ) | (10.5 | ) | 23.8 | (48.5 | ) | ||||||||
Effect of exchange rate changes on cash | — | — | — | — | |||||||||||
Increase (decrease) In Cash and Cash Equivalents | (10.4 | ) | (13.9 | ) | 0.2 | (19.1 | ) | ||||||||
Cash and cash equivalents at beginning of period | 36.2 | 37.2 | 25.6 | 42.4 | |||||||||||
Cash and Cash Equivalents at End of Period | $25.8 | $23.3 | $25.8 | $23.3 |
Reconciliation of Earnings (Loss) Before Interest and Taxes (EBIT) (1), Adjusted EBIT (3), Earnings (Loss) Before Interest, Taxes, Depreciation and Amortization (EBITDA) (2) and Adjusted EBITDA (4) to GAAP Net Income (Loss): | |||||||||||||||||||||||
This reconciliation is provided as additional relevant information about the Company's performance. EBIT, Adjusted EBIT, EBITDA, and Adjusted EBITDA 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, Adjusted EBIT, EBITDA, and Adjusted EBITDA is useful to investors as these measures are representative of the Company's performance. Management also believes that it is appropriate to compare GAAP net income (loss) to EBIT, Adjusted EBIT, EBITDA and Adjusted EBITDA. | |||||||||||||||||||||||
(Dollars in millions) (Unaudited) | Nine Months Ended September 30, | Three Months Ended September 30, | Three Months Ended June 30, | ||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||
Net Income (Loss) | ($9.9 | ) | ($38.5 | ) | ($5.9 | ) | ($22.2 | ) | $1.3 | ($6.6 | ) | ||||||||||||
Provision (Benefit) for income taxes | 1.2 | (23.5 | ) | 0.1 | (13.3 | ) | 0.8 | (3.8 | ) | ||||||||||||||
Interest expense | 11.0 | 8.0 | 3.7 | 3.9 | 3.7 | 2.1 | |||||||||||||||||
Earnings (Loss) Before Interest and Taxes (EBIT) (1) | $2.3 | ($54.0 | ) | ($2.1 | ) | ($31.6 | ) | $5.8 | ($8.3 | ) | |||||||||||||
EBIT Margin (1) | 0.2 | % | (8.2 | )% | (0.6 | )% | (14.8 | )% | 1.7 | % | (3.7 | )% | |||||||||||
Depreciation and amortization | 56.4 | 56.2 | 18.6 | 19.0 | 18.9 | 18.5 | |||||||||||||||||
Earnings (Loss) Before Interest, Taxes, Depreciation and Amortization (EBITDA) (2) | $58.7 | $2.2 | $16.5 | ($12.6 | ) | $24.7 | $10.2 | ||||||||||||||||
EBITDA Margin (2) | 5.9 | % | 0.3 | % | 4.9 | % | (5.9 | )% | 7.3 | % | 4.6 | % | |||||||||||
Loss from remeasurement of benefit plans | (2.3 | ) | (20.4 | ) | (2.3 | ) | (20.4 | ) | — | — | |||||||||||||
Adjusted EBIT (3) | $4.6 | ($33.6 | ) | $0.2 | ($11.2 | ) | $5.8 | ($8.3 | ) | ||||||||||||||
Adjusted EBITDA (4) | $61.0 | $22.6 | $18.8 | $7.8 | $24.7 | $10.2 | |||||||||||||||||
(1) EBIT is defined as net income (loss) before interest expense and income taxes. EBIT Margin is EBIT as a percentage of net sales. | |||||||||||||||||||||||
(2) EBITDA is defined as net income (loss) before interest expense, income taxes, depreciation and amortization. EBITDA Margin is EBITDA as a percentage of net sales. | |||||||||||||||||||||||
(3) Adjusted EBIT is defined as EBIT excluding the gain (loss) from remeasurement of benefit plans. | |||||||||||||||||||||||
(4) Adjusted EBITDA is defined as EBITDA excluding the gain (loss) from remeasurement of benefit plans. |
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 useful to investors as it is an important measure of the Company's financial position due to the amount of cash and cash equivalents. | |||||||||
(Dollars in millions) (Unaudited) | September 30, 2017 | June 30, 2017 | December 31, 2016 | ||||||
Convertible notes, net | $69.2 | $68.2 | $66.4 | ||||||
Other long-term debt | 95.2 | 100.2 | 70.2 | ||||||
Total long-term financing | 164.4 | 168.4 | 136.6 | ||||||
Less: Cash and cash equivalents | 25.8 | 36.2 | 25.6 | ||||||
Net Debt | $138.6 | $132.2 | $111.0 | ||||||
Total Equity | $592.7 | $596.9 | $597.4 | ||||||
Ratio of Total Debt to Capital | 21.7 | % | 22.0 | % | 18.6 | % | |||
Ratio of Net Debt to Capital | 18.3 | % | 17.3 | % | 15.1 | % |
Reconciliation of Free Cash Flow to GAAP Net Cash (Used) 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 September 30, | Nine Months Ended September 30, | |||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net Cash (Used) Provided by Operating Activities | ($0.1 | ) | $7.5 | ($11.7 | ) | $55.5 | |||||||||
Less: Capital expenditures | (5.1 | ) | (10.9 | ) | (11.9 | ) | (26.1 | ) | |||||||
Free Cash Flow | ($5.2 | ) | ($3.4 | ) | ($23.6 | ) | $29.4 |
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