TimkenSteel Announces Second Quarter of 2019 Results

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Six Months Ended June 30,

(Dollars in millions, except per share data) (Unaudited)

2019

2018

2019

2018

Net sales

$

336.7

$

413.5

$

707.7

$

794.3

Cost of products sold

311.3

381.4

653.2

741.1

Gross Profit

25.4

32.1

54.5

53.2

Selling, general & administrative expenses (SG&A)

20.2

24.9

43.5

49.6

Restructuring charges

3.6

—

3.6

—

Impairments

1.8

0.9

1.8

0.9

Other income (expense), net

0.2

6.2

2.9

12.6

Earnings Before Interest and Taxes (EBIT) ⁽¹⁾

—

12.5

8.5

15.3

Interest expense

4.2

3.9

8.4

8.5

Income (Loss) Before Income Taxes

(4.2)

8.6

0.1

6.8

Provision for income taxes

0.2

0.2

0.3

0.3

Net Income (Loss)

$

(4.4)

$

8.4

$

(0.2)

$

6.5

Net Income (Loss) per Common Share:

Basic loss per share

$

(0.10)

$

0.19

$

—

$

0.15

Diluted loss per share ⁽²⁾

$

(0.10)

$

0.19

$

—

$

0.14

Weighted average shares outstanding - basic

44.8

44.6

44.7

44.5

Weighted average shares outstanding - diluted

44.8

45.2

44.7

45.2

⁽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⁾ Common share equivalents for shares issuable for equity-based awards were excluded from the computation of diluted earnings (loss) per share for the three and six months ended June 30, 2019 because the effect of their inclusion would have been anti-dilutive. Common share equivalents for shares issuable upon the conversion of outstanding convertible notes, were excluded from the computation of diluted earnings (loss) per share for the three and six months ended June 30, 2019 and 2018 because the effect of their inclusion would have been anti-dilutive.

CONDENSED CONSOLIDATED BALANCE SHEETS

 (Dollars in millions) (Unaudited)

June 30, 2019

December 31, 2018

ASSETS

Cash and cash equivalents

$

20.9

$

21.6

Accounts receivable, net of allowances

146.4

163.4

Inventories, net

304.8

296.8

Deferred charges and prepaid expenses

2.6

3.5

Other current assets

7.6

6.1

Total Current Assets

482.3

491.4

Property, Plant and Equipment, net

649.7

674.4

Operating lease right-of-use assets

14.5

—

Pension assets

13.0

10.5

Intangible assets, net

17.4

17.8

Other non-current assets

2.7

3.5

Total Assets

$

1,179.6

$

1,197.6

LIABILITIES

Accounts payable

$110.3

$160.6

Salaries, wages and benefits

15.5

36.8

Accrued pension and postretirement costs

3.0

3.0

Current operating lease liabilities

5.7

—

Other current liabilities

20.5

20.4

Total Current Liabilities

155.0

220.8

Convertible notes, net

76.3

74.1

Other long-term debt

145.0

115.0

Non-current operating lease liabilities

8.8

—

Accrued pension and postretirement costs

176.0

240.0

Deferred income taxes

0.6

0.8

Other non-current liabilities

10.6

11.7

Total Liabilities

572.3

662.4

SHAREHOLDERS' EQUITY

Additional paid-in capital

841.4

846.3

Retained deficit

(269.4)

(269.2)

Treasury shares

(25.1)

(33.0)

Accumulated other comprehensive loss

60.4

(8.9)

607.3

535.2

Total Liabilities and Shareholders' Equity

$

1,179.6

$

1,197.6

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Dollars in millions) (Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Operating Activities

Net income (loss)

$

(4.4)

$

8.4

$

(0.2)

$

6.5

Adjustments to reconcile net income (loss) to net cash provided 
     by operating activities:

Depreciation and amortization

17.9

18.4

35.7

36.9

Amortization of deferred financing fees and debt discount

1.2

1.2

2.5

3.0

Impairment charges and loss on sale or disposal of assets

1.8

0.9

1.8

0.9

Deferred income taxes

—

—

(0.2)

(0.3)

Stock-based compensation expense

1.6

1.5

3.8

3.7

Pension and postretirement expense (benefit), net

4.6

(1.5)

6.4

(2.9)

Pension and postretirement contributions and payments

(1.1)

(10.4)

(3.5)

(12.9)

Changes in operating assets and liabilities:

Accounts receivable, net

4.9

7.5

17.0

(23.8)

Inventories, net

19.5

(41.7)

(8.0)

(70.5)

Accounts payable

(19.6)

6.8

(50.3)

42.5

Other accrued expenses

(10.9)

0.3

(22.3)

(12.9)

Deferred charges and prepaid expenses

0.8

1.2

0.9

1.6

Other, net

(0.3)

(3.3)

(1.2)

(1.9)

Net Cash Provided (Used) by Operating Activities

16.0

(10.7)

(17.6)

(30.1)

Investing Activities

Capital expenditures

(7.9)

(6.8)

(12.3)

(9.0)

Proceeds from disposals of property, plant and equipment

—

1.0

—

1.0

Net Cash Used by Investing Activities

(7.9)

(5.8)

(12.3)

(8.0)

Financing Activities

Proceeds from exercise of stock options

—

0.1

0.2

0.2

Shares surrendered for employee taxes on stock compensation

—

—

(1.0)

(0.7)

Revenue Refunding Bonds repayment

—

—

—

(30.2)

Repayments on credit agreements

(5.0)

(5.0)

(10.0)

(70.0)

Borrowings on credit agreements

10.0

25.0

40.0

155.0

Debt issuance costs

—

—

—

(1.7)

Net Cash Provided by Financing Activities

5.0

20.1

29.2

52.6

Increase (Decrease) In Cash and Cash Equivalents

13.1

3.6

(0.7)

14.5

Cash and cash equivalents at beginning of period

7.8

35.4

21.6

24.5

Cash and Cash Equivalents at End of Period

$

20.9

$

39.0

$

20.9

$

39.0

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.

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Net income (loss)

$

(4.4)

$

8.4

$

(0.2)

$

6.5

Provision for income taxes

0.2

0.2

0.3

0.3

Interest expense

4.2

3.9

8.4

8.5

Earnings Before Interest and Taxes (EBIT) ⁽¹⁾

$

—

$

12.5

$

8.5

$

15.3

EBIT Margin ⁽¹⁾

—

%

3.0

%

1.2

%

1.9

%

Depreciation and amortization

17.9

18.4

35.7

36.9

Earnings Before Interest, Taxes, Depreciation and
Amortization (EBITDA) ⁽²⁾

$

17.9

$

30.9

$

44.2

$

52.2

EBITDA Margin ⁽²⁾

5.3

%

7.5

%

6.2

%

6.6

%

Loss on abandonment of long-lived assets

(1.6)

—

(1.6)

—

Restructuring charges

(3.6)

—

(3.6)

—

Loss from remeasurement of benefit plans

(4.4)

—

(4.4)

—

Adjusted EBIT ⁽³⁾

$

9.6

$

12.5

$

18.1

$

15.3

Adjusted EBIT Margin ⁽³⁾

2.9

%

3.0

%

2.6

%

1.9

%

Adjusted EBITDA ⁽⁴⁾

$

27.5

$

30.9

$

53.8

$

52.2

Adjusted EBITDA Margin ⁽⁴⁾

8.2

%

7.5

%

7.6

%

6.6

%

⁽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 for the three and six month periods ended June 30, 2019, the loss from remeasurement of benefit plans, restructuring charges, and loss on abandonment of long-lived assets. Adjusted EBIT Margin is Adjusted EBIT as a percentage of net sales.

⁽⁴⁾ Adjusted EBITDA is defined as EBITDA excluding for the three and six month periods ended June 30, 2019, the loss from remeasurement of benefit plans, restructuring charges, and loss on abandonment of long-lived assets. Adjusted EBITDA Margin is Adjusted EBITDA as a percentage of net sales.

Reconciliation of adjusted net income (loss)⁽³⁾ to GAAP net income (loss) and adjusted diluted earnings per share⁽⁴⁾ to GAAP diluted earnings per share for the three months ended June 30, 2019

Adjusted net income, adjusted  diluted earnings per share and other adjusted items referred to below are financial measures not required by, or presented in accordance with GAAP. These Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with GAAP, and a reconciliation of these financial measures to the most comparable GAAP financial measures is presented. We believe this data provides investors with additional useful information on the underlying operations and trends of the business and enables period-to-period comparability of our financial performance.

Three months ended June 30, 2019

Net income
(loss)

Restructuring
charges

Impairment
charges and
loss on asset
disposals

Other
income
(expense),
Net

Income tax
(benefit)
expense⁽²⁾

Diluted
earnings
per
share ⁽¹⁾

As reported

$

(4.4)

$

3.6

$

1.8

$

0.2

$

0.2

$

(0.10)

Adjustments:⁽³⁾

Loss on abandonment of long-lived
assets

1.6

—

(1.6)

—

—

0.04

Restructuring charges

3.6

(3.6)

—

—

—

0.08

Loss from remeasurement of benefit
plans

4.4

—

—

4.4

—

0.10

As adjusted

$

5.2

$

—

$

0.2

$

4.6

$

0.2

$

0.12

⁽¹⁾Common share equivalents for shares issuable upon the conversion of outstanding convertible notes for the three months ended June 30, 2019, were excluded from the computation of adjusted diluted earnings (loss) per share because the effect of their inclusion would have been anti-dilutive.

⁽²⁾These adjustments have a $0 net tax effect, since the company has Net Operating Loss carryforwards.

⁽³⁾Adjusted net income (loss) is defined as net income (loss) excluding for the three months ended June 30, 2019, the loss from remeasurement of benefit plans, restructuring charges, and loss on abandonment of long-lived assets.

⁽⁴⁾Adjusted diluted earnings per share is defined as diluted earnings per share excluding for the three months ended June 30, 2019, the loss from remeasurement of benefit plans, restructuring charges, and loss on abandonment of long-lived assets.

Reconciliation of adjusted net income (loss)⁽³⁾ to GAAP net income (loss) and adjusted diluted earnings per share⁽⁴⁾ to GAAP diluted earnings per share for the six months ended June 30, 2019

Adjusted net income, adjusted  diluted earnings per share and other adjusted items referred to below are financial measures not required by, or presented in accordance with GAAP. These Non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, the financial measures prepared in accordance with GAAP, and a reconciliation of these financial measures to the most comparable GAAP financial measures is presented. We believe this data provides investors with additional useful information on the underlying operations and trends of the business and enables period-to-period comparability of our financial performance.

Six months ended June 30, 2019

Net income
(loss)

Restructuring
charges

Impairment
charges and
loss on asset
disposals

Other
income
(expense),
Net

Income tax
(benefit)
expense⁽²⁾

Diluted
earnings
per share ⁽¹⁾

As reported

$

(0.2)

$

3.6

$

1.8

$

2.9

$

0.3

$

—

Adjustments:⁽³⁾

Loss on abandonment of long-lived
assets

1.6

—

(1.6)

—

—

0.04

Restructuring charges

3.6

(3.6)

—

—

—

0.08

Loss from remeasurement of
benefit plans

4.4

—

—

4.4

—

0.10

As adjusted

$

9.4

$

—

$

0.2

$

7.3

$

0.3

$

0.22

⁽¹⁾Common share equivalents for shares issuable upon the conversion of outstanding convertible notes for the six months ended

June 30, 2019, were excluded from the computation of adjusted diluted earnings (loss) per share because the effect of their inclusion would have been anti-dilutive.

⁽²⁾These adjustments have a $0 net tax effect, since the company has Net Operating Loss carryforwards.

⁽³⁾Adjusted net income (loss) is defined as net income (loss) excluding for the six months ended June 30, 2019, the loss from remeasurement of benefit plans, restructuring charges, and loss on abandonment of long-lived assets.

⁽⁴⁾Adjusted diluted earnings per share is defined as diluted earnings per share excluding for the six months ended June 30, 2019, the loss from remeasurement of benefit plans, restructuring charges, and loss on abandonment of long-lived assets.

Reconciliation of Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) ⁽¹⁾ to GAAP Net Income:

This reconciliation is provided as additional relevant information about the company's third quarter guidance. EBITDA 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 EBITDA is useful to investors as this measure is representative of the company's performance. Management also believes that it is appropriate to compare GAAP net income (loss) to EBITDA.

Three Months Ended
September 30,

(Dollars in millions) (Unaudited)

2019

Low

High

Net loss

$

(27.0)

$

(17.0)

Provision for income taxes

—

—

Interest expense

4.0

4.0

Depreciation and amortization

18.0

18.0

Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) ⁽¹⁾

$

(5.0)

$

5.0

⁽¹⁾ EBITDA is defined as net income (loss) before interest expense, income taxes, depreciation and amortization.