# Metallus Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Metallus Inc.](/companies/mtus.md) (CIK 1598428)
- Form: 10-Q
- Filed: 2023-11-02
- Accepted by EDGAR: Nov 2, 2023, 16:16 ET
- Period: 2023-09-30
- Accession: 0000950170-23-058233
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1598428/000095017023058233/tmst-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1598428/000095017023058233/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $354.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.03bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $303.2m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $889.2m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $51.0m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $145.1m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $20.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $61.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $600.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $1.9m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $9.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $24.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $24.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $68.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.51 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.43 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.56 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.55 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 47,900,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 48,000,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $51.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $28.5m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $225.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $630.5m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $1.15bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $207.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $423.5m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $0 | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $13.1m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $730.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 41,126 characters.

#### (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 solutions 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. TimkenSteel recognized insurance recoveries of $11.3 million related to the unplanned downtime in the first half of 2023, of which $9.8 million was recorded during the first quarter and $1.5 million was recorded in the second quarter. Additional amounts, if any, and timing of potential recoveries 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 lead times for bar products currently extend to mid-December 2023 and tube product lead times extend into February 2024.

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 impact of global conflicts 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 current conflicts 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.

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 and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 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 September 30, 2023 and 2022.

Net sales for the three months ended September 30, 2023 were $354.2 million, an increase of $37.4 million, or 11.8% compared with the three months ended September 30, 2022. The increase in net sales was primarily driven by favorable price/mix and higher volumes, partially offset by unfavorable surcharges. Favorable price/mix of $28.1 million was due to higher base prices across all end-market sectors. Higher volumes of 17.3 thousand ship tons resulted in a net sales increase of $22.7 million. The decrease in surcharges of $13.4 million was primarily due to a decrease in surcharge revenue per ton. Excluding surcharges, net sales increased $50.8 million or 23.4%. Shipments and net sales in the prior year were also negatively impacted by the availability of inventory as a result of unplanned melt shop downtime in the third quarter of 2022.

The charts below present net sales and shipments for the nine months ended September 30, 2023 and 2022.

Net sales for the nine months ended September 30, 2023 were $1,034.3 million, a decrease of $50.2 million, or 4.6% compared with the nine months ended September 30, 2022. The decrease in net sales was driven by lower surcharges and volumes, partially offset by favorable price/mix. Lower market prices for scrap drove the unfavorable surcharges of $87.3 million, partially offset by higher alloy prices per ton. Lower volumes of 37.6 thousand ship tons resulted in a net sales decrease of $52.1 million, partially driven by the availability of finished goods inventory for shipment. Favorable price/mix of $89.2 million was primarily due to higher base prices across all end-market sectors. Excluding surcharges, net sales increased $37.1 million or 5.1%.

### Gross Profit

The chart below presents the drivers of the gross profit variance from the three months ended September 30, 2022 to the three months ended September 30, 2023.

Gross profit for the three months ended September 30, 2023 increased $45.4 million, or 810.7% compared with the three months ended September 30, 2022. The increase was primarily driven by favorable price/mix, lower manufacturing costs, higher volumes and favorable raw material spread. Favorable price/mix was due to higher base prices across all end-market sectors. Lower manufacturing costs were primarily driven by increased fixed cost leverage on higher production given the unplanned melt shop downtime in the third quarter of 2022. Raw material spread was favorable due to higher scrap and alloy prices.

The chart below presents the drivers of the gross profit variance from the nine months ended September 30, 2022 to the nine months ended September 30, 2023.

Gross profit for the nine months ended September 30, 2023 decreased $1.9 million, or 1.3% compared with the nine months ended September 30, 2022. The decrease was driven by higher manufacturing costs, lower volume and unfavorable raw material spread, partially offset by favorable price/mix. Higher plant spend resulted in unfavorable manufacturing costs. The industrial and mobile end-market sectors were unfavorably impacted by lower volume, partially offset by favorable price/mix. Raw material spread was unfavorable due to lower scrap prices, partially offset by higher alloy prices.

### Selling, General and Administrative Expenses

The charts below present selling, general and administrative (“SG&A”) expense for the three and nine months ended September 30, 2023 and 2022.

SG&A expense for the three months ended September 30, 2023 increased by $4.3 million, or 26.5%, compared with the same period in 2022. This increase was primarily due to higher variable compensation expense and professional services, primarily driven by the ongoing information technology transformation project.

SG&A expense for the nine months ended September 30, 2023 increased by $5.5 million, or 9.8% compared with the nine months ended September 30, 2022. This increase was primarily due to higher stock-based compensation and professional services, primarily driven by the ongoing information technology transformation project.

### Interest (Income) Expense, net

Net interest income for the three and nine months ended September 30, 2023 was $1.8 million and $5.0 million, respectively, compared with net interest income of $0.2 million and net interest expense of $1.6 million for the three and nine months ended September 30, 2022, respectively. The change was due to interest earned on cash invested in a money market fund and in other accounts which generate interest income at a rate similar to the money market fund during 2023, as well as a reduction in average outstanding borrowings 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 September 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: |
| Pension and postretirement non-service benefit (income) loss | **$(1.2)** | $(3.0) | $1.8 |
| Loss (gain) from remeasurement benefit plans | **(1.0)** | 4.8 | (5.8) |
| Foreign currency exchange (gain) loss | **—** | — | — |
| Insurance recoveries | **—** | (1.5) | 1.5 |
| Miscellaneous (income) expense | **0.2** | (0.1) | 0.3 |
| **Total other (income) expense, net** | **$(2.0)** | $0.2 | $(2.2) |

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: |
| Pension and postretirement non-service benefit (income) loss | **$(3.7)** | $(19.8) | $16.1 |
| Loss (gain) from remeasurement of benefit plans | **1.7** | (37.2) | 38.9 |
| Foreign currency exchange (gain) loss | **(0.1)** | (0.1) | — |
| Insurance recoveries | **(11.3)** | (1.5) | (9.8) |
| Miscellaneous (income) expense | **0.3** | (0.2) | 0.5 |
| **Total other (income) expense, net** | **$(13.1)** | $(58.8) | $45.7 |

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 costs 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 each quarter of 2023.

A gain of $1.0 million from the remeasurement of the Salaried Plan was recognized for the three months ended September 30, 2023. The gain for the three months ended September 30, 2023 was due to a $6.5 million decrease in the liability mainly driven by an increase in the discount rate, partially offset by $5.5 million of investment losses on plan assets. For the nine months ended September 30, 2023, the loss of $1.7 million was primarily related to investment losses on plan assets of $5.6 million and lump sum basis losses of $1.3 million, partially offset by a decrease in the pension liability of $5.2 million due to an increase in the discount rate.

A net loss of $4.8 million from the remeasurement of these benefit plans was recognized for the three months ended September 30, 2022. This loss was due to $73.6 million of investment losses on plan assets and lump sum basis losses, partially offset by a gain of $68.8 million primarily driven by a decrease in the pension liability due to an increase in discount rate.

A net gain of $37.2 million from the remeasurement of these benefit plans was recognized for the nine months ended September 30, 2022. This gain was driven by a $299.9 million decrease in the pension liability primarily due to an increase in discount rate, partially offset by a loss of $262.7 million driven by investment losses on plan assets and lump sum basis losses.

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. TimkenSteel recognized insurance recoveries of $11.3 million related to the unplanned downtime in the first half of 2023, of which $9.8 million was recorded during the first quarter and $1.5 million was recorded in the second quarter. Additional amounts, if any, and timing of potential recoveries 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.

### Provision for Income Taxes

|  | Three Months Ended September 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: |
| Provision (benefit) for income taxes | **$9.8** | $0.7 | $9.1 |
| Effective tax rate | **28.3%** | (5.6)% | 33.9% |

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change |
| --- | ---: | ---: | ---: |
| Provision (benefit) for income taxes | **$24.6** | $3.1 | $21.5 |
| Effective tax rate | **26.5%** | 3.1% | 23.4% |

The provision for income taxes for the quarter ended September 30, 2023 was $9.8 million compared to a provision for income taxes of $0.7 million in 2022. The change from the prior year is primarily related to higher federal and state 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 first quarter 2023 loss on extinguishment of debt on the Convertible Senior Notes due 2025.

### 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 September 30, 2023 Industrial | Mobile | Energy | Other | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Tons | **82.4** | **79.1** | **14.3** | **—** | **175.8** |
| Net Sales | **$173.7** | **$140.1** | **$35.6** | **$4.8** | **$354.2** |
| Less: Surcharges | **43.4** | **34.1** | **9.1** | **—** | **86.6** |
| Base Sales | **$130.3** | **$106.0** | **$26.5** | **$4.8** | **$267.6** |
| Net Sales / Ton | **$2,108** | **$1,771** | **$2,490** | **$—** | **$2,015** |
| Surcharges / Ton | **$527** | **$431** | **$636** | **$—** | **$493** |
| Base Sales / Ton | **$1,581** | **$1,340** | **$1,854** | **$—** | **$1,522** |
|  | **Three Months Ended September 30, 2022** |  |  |  |  |
|  | **Industrial** | **Mobile** | **Energy** | **Other** | **Total** |
| Tons | 71.3 | 71.2 | 16.0 | — | 158.5 |
| Net Sales | $146.0 | $130.0 | $36.0 | $4.8 | $316.8 |
| Less: Surcharges | 45.8 | 42.9 | 11.3 | — | 100.0 |
| Base Sales | $100.2 | $87.1 | $24.7 | $4.8 | $216.8 |
| Net Sales / Ton | $2,048 | $1,826 | $2,250 | $— | $1,999 |
| Surcharges / Ton | $643 | $603 | $706 | $— | $631 |
| Base Sales / Ton | $1,405 | $1,223 | $1,544 | $— | $1,368 |

27

### (dollars in millions, tons in thousands)

|  | Nine Months Ended September 30, 2023 Industrial | Mobile | Energy | Other | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Tons | **233.0** | **239.0** | **54.2** | **—** | **526.2** |
| Net Sales | **$486.2** | **$404.9** | **$127.7** | **$15.6** | **$1,034.4** |
| Less: Surcharges | **132.4** | **103.4** | **37.7** | **—** | **273.5** |
| Base Sales | **$353.8** | **$301.5** | **$90.0** | **$15.6** | **$760.9** |
| Net Sales / Ton | **$2,087** | **$1,694** | **$2,356** | **$—** | **$1,966** |
| Surcharges / Ton | **$568** | **$433** | **$696** | **$—** | **$520** |
| Base Sales / Ton | **$1,519** | **$1,261** | **$1,660** | **$—** | **$1,446** |
|  | **Nine Months Ended September 30, 2022** |  |  |  |  |
|  | **Industrial** | **Mobile** | **Energy** | **Other** | **Total** |
| Tons | 268.3 | 245.5 | 50.0 | — | 563.8 |
| Net Sales | $529.2 | $427.0 | $107.3 | $21.0 | $1,084.5 |
| Less: Surcharges | 180.7 | 143.8 | 36.3 | — | 360.8 |
| Base Sales | $348.5 | $283.2 | $71.0 | $21.0 | $723.7 |
| Net Sales / Ton | $1,972 | $1,739 | $2,146 | $— | $1,924 |
| Surcharges / Ton | $673 | $585 | $726 | $— | $640 |
| Base Sales / Ton | $1,299 | $1,154 | $1,420 | $— | $1,284 |

28

### 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 amends and restates 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 have been updated with references to SOFR rates, the advance rate on investment-grade eligible accounts receivable has been increased from 85% to 90%, and there has been 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 third quarter of 2023 and as such the notes can be converted at the option of the holders beginning October 1 through December 31, 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 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. There were no repurchases related to the Convertible Notes during the second or third quarters of 2023. As of September 30, 2023, the principal balance on the Convertible Senior Notes due 2025 is $13.3 million.

In the first half of 2022, TimkenSteel repurchased a total of $25.2 million aggregate principal amount of its Convertible Senior Notes Due 2025. Total cash paid to noteholders was $67.6 million. A loss on extinguishment of debt was recognized of $43.0 million, including 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. There were no repurchases related to the Convertible Notes during the third quarter of 2022.

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 September 30, 2023 and December 31, 2022:

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Cash and cash equivalents | **$225.4** | $257.2 |
| **Credit Agreement:** |  |  |
| Maximum availability | **$400.0** | $400.0 |
| Suppressed availability(1) | **(100.9)** | (161.2) |
| Availability | **299.1** | 238.8 |
| Amount borrowed | **—** | — |
| Letter of credit obligations | **(5.4)** | (5.3) |
| Availability not borrowed | **$293.7** | $233.5 |
| Total liquidity | **$519.1** | $490.7 |

(1) As of September 30, 2023, and December 31, 2021, TimkenSteel had less than $400 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 September 30, 2023, taking into account our view of mobile, industrial, and energy market demand for our products, and our 2023 operating and long-range plan, we believe that our cash balance as of September 30, 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 are currently anticipating capital expenditures to be approximately $50 million in 2023.

Based on the results of the January 1, 2023 actuarial funding valuation, the company estimates required Bargaining Plan contributions of approximately $40 million in 2024.

In the first quarter of 2023, we repurchased a total of $7.5 million aggregate principal amount of our Convertible Senior Notes Due 2025. In addition to reducing outstanding debt and generating annual interest savings of $0.5 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.

In the first half of 2022, we repurchased a total of $25.2 million aggregate principal amount of our Convertible Senior Notes Due 2025. In addition to reducing outstanding debt and generating annual interest savings of $1.5 million, 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 September 30, 2023, the Company repurchased approximately 0.4 million common shares in the open market at an aggregate cost of $7.7 million, which equates to an average repurchase price of $21.82 per share. For the nine months ended September 30, 2023, the Company repurchased approximately 1.5 million common shares in the open market at an aggregate cost of $28.5 million, which equates to an average repurchase price of $18.81 per share. As of September 30, 2023, the Company had a balance of $44.5 million remaining on its authorized share repurchase program.

In October 2023, the Company repurchased approximately 0.1 million common shares in the open market at an aggregate cost of $1.9 million, which equates to an average repurchase price of $20.53 per share. As of October 31, 2023, the Company had $42.6 million remaining under its authorized share repurchase program.

#### 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.

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 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.

### Cash Flows

The following table reflects the major categories of cash flows for the nine months ended September 30, 2023 and 2022. For additional details, please refer to the unaudited Consolidated Statements of Cash Flows included in this quarterly report.

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash provided (used) by operating activities | **$51.2** | $110.8 |
| Net cash provided (used) by investing activities | **(34.5)** | (12.7) |
| Net cash provided (used) by financing activities | **(48.2)** | (94.5) |
| **Increase (Decrease) in Cash and Cash Equivalents** | **$(31.5)** | $3.6 |

#### Operating activities

Net cash provided by operating activities for the nine months ended September 30, 2023 was $51.2 million compared to net cash provided of $110.8 million for the nine months ended September 30, 2022. The change was primarily driven by lower profitability, and an increased use of cash for working capital, partially offset by insurance recoveries, during the nine months ended September 30, 2023 compared to the same time period in 2022.

#### Investing activities

Net cash used by investing activities for the nine months ended September 30, 2023 was $34.5 million compared to net cash used of $12.7 million for the nine months ended September 30, 2022. The change was due to higher capital expenditures for the nine months ended September 30, 2023 compared to the same period in 2022.

#### Financing activities

Net cash used by financing activities for the nine months ended September 30, 2023 was $48.2 million compared to net cash used of $94.5 million for the nine months ended September 30, 2022. The change was due to lower repurchases of Convertible Senior Notes and a lower level of common share repurchase activity under the share repurchase program, compared to the same time period in 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.

### 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 global 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;
- the impact of global conflicts on the economy, sourcing of raw materials, and commodity prices;
- 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;
- 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 or unplanned work stoppages; 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 pandemics, epidemics, widespread illness or other health issues, such as COVID-19 or its variants on the company's operations and financial results, including cash flows and liquidity;
- 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;
- 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;
- 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;
- 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;
- 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;
- 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;
- 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;
- the overall impact of the pension and postretirement mark-to-market accounting;
- 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;
- the consistency of melt production to meet forecasted demand levels following unplanned downtime in the second half of 2022;
- additional amounts, if any, that the company is able to obtain from its business interruption insurance in connection with the unplanned downtime;
- availability of property insurance coverage at commercially reasonable rates or insufficient insurance coverage to cover claims or damages;
- the impacts from any repurchases of our common shares and convertible notes, including the timing and amount of any repurchases; and
- 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.

## Market risk

As filed, 2,530 characters.

### Interest Rate Risk

Our borrowings include both fixed and variable-rate debt. The variable-rate 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 September 30, 2023, we have $13.1 million of aggregate debt outstanding. None of our outstanding debt as of September 30, 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 global conflicts 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 been materially impacted by current conflicts 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.

## Controls and procedures

As filed, 962 characters.

(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.

## Risk factors

As filed, 250 characters.

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.

Filed Nov 2, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-058233. Last ingested by Listed: Nov 2, 2026, 20:20 ET. No prices; not investment advice.